Most of my 2019 content was focused on SAP. Whether jointly written with others or by myself, my top 10 stories were ALL SAP related. That should not be a surprise given what has unfolded at that company following the 2018 Qualtrics acquisition. A good number of my SAP stories have a very long tail suggesting that topics raised early on in the year remain relevant today.
While I was initially quite the fan of the Qualtrics acquisition, as the year rolled on, it became clear that there are two SAPs. The first is the company promoting X-O above everything else. The second is the customer and partner ecosystem which is much more focused on making the business case for S/4HANA, confused over 2025 end of life for ECC and other products, audits and the inevitable indirect access topic. Alongside, SAP has seen a drain of talent and many leadership changes.
2020 will be a defining year in the company's storied history. The question in many people's minds is in what shape will both SAP and its customers emerge in a year which holds the promise of significant positive change, the road to which is littered with potholes and cultural IEDs.
So, without further ado, I present my picks, based on the extent to which they garnered attention from the quarter million visitors who saw those SAP related stories.
It didn't get off to a good start with a very messy RIF. That work remains incomplete with an estimated 2,500 out of the original 4,500 due to leave in 2020.
I said at the top of this post that the optics on this are terrible but let's be clear, almost everyone who messaged me understands SAP's need to get fitter not fatter.
Some of my reasons are rooted in a very practical view of outcomes and difficulties SAP may face. But then this is also the week that SAP huddles a bunch of analysts, including our own Jon Reed into a conference room in Utah to talk cloud. I don't have any insight into what's being said but if you're one of the dev leadership - do you really want to be dealing with today's fallout?
SAP is insistent that this is not a layoff and points to the opportunities elsewhere and on a global scale. But if your aim is to be cost fit then how attractive will those opportunities turn out to be? And exactly what do you say to those who are very clear that they are being laid off. There is no logical argument here.
My top story appeared in March. Fast forward to this month and things are just as chaotic. Despite the lack of comment on the story, there was a mass of conversation on LinkedIn and Twitter around a variety of topics, some of which I am still fielding.
Even the most advanced customers are largely unimpressed with SAP's broad scale X-O messaging, despite what I saw as a compelling presentation around a car breakdown scenario demonstrated during the UK & Ireland SUG keynote session. It worried me that no customer I met referenced the demo as something worthy of further review.
Part way through the year and SAP tried to buy some influence with a report that was largely debunked.
S/4 messaging has been an ongoing problem, principally around the business case but now extending into cost and the ability to provide a vision into which customers can confidently buy. This is a set of problems that goes back to 2015 and which Jon Reed exposed in detail at the time. Has nothing, or lttle changed in the interim?
On this evidence, and an extensive backchannel of discussions among a variety of interested parties, the answer has to be 'no.' That is deeply concerning because it hampers the efforts of every part of the SAP ecosystem. Long term, that hurts SAP itself. That's a self-inflicted wound.
Early on, Brian and I did a good amount f forensic work on Elliott, assessing the impact on SAP. Many of the questions we raised remain unanswered although as of the time of writing, SAP has recommitted to 14% revenue going back into R&D - that's a good start.
Private equity firms have been circling the application software space for years and the number of application software companies with private equity ownership have been steadily growing. If big changes come to SAP, we shouldn’t be surprised. The fact that Elliott Management’s announcement helped push SAP’s stock price to an all-time high is not cause for celebration but a warning about the company's directional focus in the coming months.
I tried to see if the bet then CEO McDermott had made with the Qualtrics acquisition looked like it would pay off. At the time it seemed fine. We've had to revise that view. There are big questions to be answered about that $8bn price tag. One wag recently argued that if Qualtrics had gone the IPO route, the current valuation would likely be in the $2-3 bn range. Yikes! This is what I said at the time.
At the time that SAP acquired Qualtrics, McDermott said that in the lead up to the IPO, it looked like Qualtrics would be massively over-subscribed and therefore the premium paid was not unreasonable. The market didn't like that (among other things) and hammered SAP's stock price. Today, the pundits reckon that Medallia will hold its price premium - we shall see. But, if that is the case then regardless of how you crunch the numbers, it looks as if McDermott got it right.
Of course, the difference is that SAP has loaded itself up with debt in order to finance the Qualtrics acquisition while the price premium Medallia currently enjoys is purely in the minds of the market. If a raider was to come along, the price could only go higher.
It was a mixed bag by August as this assessment concludes and even now I'd argue many of the same issues remain unresolved:
As I close out this assessment, the best I can say is that this has been a period of mixed fortunes. SAP is highly motivated to achieve the most positive media coverage it can because in the long haul it allows the company to both continue charging high-end champagne pricing while creating the impression that it is worthy of a premium stock price. But the same difficulties remain:
- How do you keep customers onside and willing to buy when the market is so rich in choice?
- How do you best anticipate the kind of aggressive and often negative commentary that comes when you miss the opportunity of making a solid case while seemingly over-egging the proverbial marketing pudding?
- How do you action the often well intentioned advisory coming to SAP from a variety of angles but in the context of a company that has enjoyed such a very long period of relative success?
Against the backdrop of a Gartner report we see familiar problems:
Ever since SAP acquired Qualtrics, the messaging from the company has become fractured. On the one hand, SAP is pushing the XM message hard - and with good reason. It firmly believes that category is the one it can own in much the same way it has largely owned the back office for the last 30 years.
But in order to get there, SAP says customers have to move on to S/4. Unless the needle has moved substantially in the last year, then at least some implementations (and here Gartner does not quantify the percentage) are overly costly, over budget and over time. There is precious little evidence of fast track time to value, something that customers now expect.
Bubbling up every month or so, I took a look at the state of play. Again, as we close out the year nothing much has changed only at this time, I am firmly of the belief that SAP has to lead the way with purposeful roadmaps under each scenario. Last time I counted, there were 214 SAP roadmaps. Take your pick!
There are many ways to skin the SAP S/4 cat and, depending on your business model, the extent to which change is required and your appetite for an extensive reworking of systems that may have been chugging along quite happily will all play into the final decision as to your greenfield, brownfield or do nothing decision. The most important thing though is not to be pressured into making a hasty decision. Therein lies the road to ruin.
To use a horse racing analogy, we saw this one coming up on the rails at the beginning of December. It is my annual trot down the BYD memory lane seeing lessons the larger part of the business could usefully learn - IMO.
After 12 years of work and precious little marketing support, I am constantly amazed at Zinow's boundless enthusiasm for a solution that at times has seemed in danger of being rendered extinct. The way it is now positioned, the enhancements both made and envisioned and the commonality of both process and UI make it a natural on-ramp for customers who may grow into S/4 at a later date. Whereas in the past, customers might have to take R/3-ECC (and now S/4) as their only choices, ByDesign is emerging as a highly credible tier two proposition at a price point that works for the mid-market.
The only question in my mind for 2020 is whether it will receive its earned share of marketing support and attention.
This is one to which we frequently return. Jarret likes to stir the pot but with good reason. Seasoned professionals are getting it in the neck because of continuing issues in the partner ecosystem. But it goes deeper than that. This from David Bann, quoted in Jarret's story.
Since 2016, 13 976 requests have been submitted. 257 of these have been delivered by SAP – that’s 1.8%. These stats were quite an eye-opener for me – I’m not sure if I was being naive, but I expected that a much higher percentage of requests would have been delivered. I was confused at the fact that only 18.3% of delivered requests actually had the required minimum 10 votes...
...I know that SAP cannot possibly deliver on all of the submitted requests, but looking at these statistics, it tells a compelling story. The message I get from the numbers, is that if you log an Influence Request for SuccessFactors, and get the required minimum 10 votes, then you have a 0.34% chance that SAP will deliver your request. A sobering thought.
The question has to be - SuccessFactors - are you really listening?
As is clear, 2019 had its ups and downs and the laundry list of customers concerns is long. Despite that, there are good reasons to be hopeful for 2020. In the last couple of months, I've had conversations with SAP's senior leadership where the message is one of 'customer first.' If you've heard that before then sure, so have I. Many times. On this occasion I get the sense that co-CEOs Klein and Morgan are focused on putting real teeth into that message. I have asked for specifics and am awaiting a considered response. My guess is that we will hear more post Q4-2019 earnings and FKO. But it will be the customer reaction that tells whether the message is believed and, more important, actionable.