SAP snags Signavio as it RISE-s to cloud

SAP is to acquire Signavio, a business process management company you've never heard of. Earlier in the week, the deal was rumored to be in play by Bloomberg. Today we see the announcement. What's going on?

The deal, the price of which was not disclosed but is said to value Signavio at €1 billion, comes at a time when SAP needs to get its cloud act together or risk being considered irrelevant. Despite the company's best efforts, its progress towards cloud-native operations has been painfully slow and it still has to convince some 30,000 ECC customers that its S/4HANA solution is worth the investment. Signavio's technology stack is SAP's latest bet that should go some way towards solving both problems. 

At its core, Signavio offers similar process discovery, analysis, and mining capability that is similar to that offered by Celonis, a preferred SAP SolEx partner. This is critical capability for any S/4HANA migration that SAP now owns. Why? 

SAP landscapes are technically complex at the best of times and while SAP prides itself on process excellence, the reality is that customers use SAP functionality in an infinite variety of ways. In that sense, each SAP customer's ECC landscape is unique. On the one hand, this means that SAP customers can design and build core ERP systems in whatever shape they want. You'd think that represents a plus but in the long run, it's a bad idea in most process scenarios because such systems require high levels of customization and support.

Among firms and partners we've spoken to, a common set of themes are apparent. First, even when built to the specification the customer wants, the systems are rarely used the way the customer intended with numerous workarounds and exceptions pulled into the mix. These all require ongoing support, Second, documentation among customers is far from pristine so when it comes to any significant change - as is the case with S/4HANA - it is difficult to know where to start, let alone where the customer will finish. This last fact alone is enough to deter many customers from making any change to what they perceive as stable systems. 

In response, firms like Celonis and Signavio provide a relatively simple and cost-effective means for companies to analyze the real-world usage of their SAP landscapes and so discover where bottlenecks and inefficiencies are present. I don't have a grasp on the total addressable market for this capability but Celonsi and Signavio alone are estimated to turn some €170 million in revenue each year and are growing at an astonishingly fast clip. Both firms have a heavy focus on SAP but they also peer into other systems such as Salesforce. 

Prior to this acquisition, SAP was at least one step removed from the S/4HANA decision table because it could not tell customers what their landscapes look like without engaging a process mining partner. That introduces friction into any deal,  something that contributes to deal apathy. This acquisition goes a long way towards solving that problem but it does a lot more. 

The endgame for process mining is to help companies clean up their operations, becoming leaner and more efficient along the way. This is also the S/4HANA promise but, as we've outlined above, SAP and its customers are hobbled. Removing that spaghetti soup friction is, in our opinion, a central plank in getting SAP customers attuned to the S/4HANA opportunity, which, to be very clear, is NOT business transformation. Instead, S/4HANA is a stepping stone towards digitization and automation which, in turn, CAN pave the way towards business model transformation. Anyone who tells you differently is, quite frankly, blowing smoke up your ass. 

So why did SAP choose Signavio? First, it is available while Celonis is not. Second, the key leadership is ex-SAP and based in Germany which reduces the likelihood of SAP's Walldorf antibodies from seeking to reject the solution. Third, Signavio announced an integration with S/4HANA in April 2020 so has established a track record. Fourth, Signavio is cloud-native which plays directly to SAP's strategic agenda. Finally, Signavio holds joint customers and partnerships with SAP already, providing SAP with a launchpad it can legitimately claim for itself.

As an aside, Signavio has process mining capability for Salesforce. This also helps SAP since both SAP and Salesforce have numerous joint customers. In those scenarios, Signavio allows SAP to position itself as a sort of Switzerland for a future business model and process improvement. 

My take

This is by far the most aggressive move SAP has made since Christian Klein became sole CEO at SAP and started to reshape the company. We see this as a net benefit to all SAP customers as it helps those customers better understand where they have inefficiencies but equally important, how they focus on business process differentiation. That in turn provides a clearly defined way of allowing business leaders to tune their business models for the 21st century amid the accelerated pace of change we've witnessed since the start of the pandemic just a year ago. 

Endnote - this is a developing story and we may add more once we've heard more. 

Brian Sommer adds:

Why this deal? Why now?  The value proposition behind a lot of ERP replacement or upgrade decisions is absolutely atrocious today. My term for these is “package-ectomies”. You pop out an old one and put in something new but similar. It’s risky, costly, and adds virtually no value to the enterprise. Executives call me all the time wanting to know how to justify one of these deals and I tell them it’s a Sisyphean challenge unless they’re open to examining additional changes beyond just a re-platforming of the ERP.

Yes, I know that companies might someday benefit from the capabilities in the newer platform underneath this updated ERP. But real value likely exists outside of processes that have re-automated multiple times already. Gold miners rarely pan the same old field over and over because they would be fighting a diminishing benefits curve.

This deal makes sense as an ERP firm has to provide tools to help its customers justify the replacement of older ERP technology. Tools like Signovia and Celonis focus on the white space outside and between systems to reduce integration handshakes, manual interventions, time-consuming delays, etc. In the end, these execution management solutions take the friction out of the equation as companies need to better interact with all constituents not just immediate ERP users. Processes are automated, exceptions are studied and later automated, too. People get answers/results faster. ERP with execution management moves the value proposition from bulk transaction processing to creating an enterprise-wide value creation environment. 

The real question in this deal is why did it take so long for it to happen?