I can't count the number of times that colleagues have both individually and collectively written off SAP, the eponymous ERP giant.
Yet when I look at last quarter's results and consider the forward view, I see a new golden age ahead for those on the SAP train.
Various reasons/critiques are offered including both singly and in combination with some more legitimate than others:
- Lack of cloud vision (a perennial)
- Too much emphasis on engineering (building out HANA to the exclusion of new functionality)
- Too slow to change (ever tried steering an oil tanker?)
- Too expensive (the price of great champagne never seems to go down but vintage quality can vary)
- Out of touch with customers (regular pokes by user groups, often before their events)
- No longer relevant (quick - let's switch off accounting!)
- No control over an entitled partner ecosystem (there's an awful of people feeding nicely off the teat of SAP software.)
- Predatory auditing (SAP v Diegeo ain't going away - yet.)
A number of these critiques are often wrapped up into something that reads like this: if you're going to stick with SAP then you're only going to see incremental change.
This is an interesting point and one that I believe is worth exploring because it goes to the heart of what makes SAP and why it remains among the most important software vendors on the enterprise space.
Radical v incremental innovation
Over the weekend I watched my current favorite economist prof Mark Blyth talking about the difference between the U.S. and Germany. He asked and answered something like this:
How many of you think that an American car maker is going to build the next BMW? It's not going to happen. In Germany, innovation comes in incremental steps and guess what? They can do that.
But look what happens in America. Apple takes a bunch of innovations - five of which were developed at public expense - wraps them up in a beautiful piece of metal and glass that makes us all go 'Wooooooow!' Because America thrives on radical innovation.
What he did not say is that one is better than the other. That's really important because by implication, you need both and there are markets for both.
If you take the incremental innovation argument and apply it to SAP on pricing then you can also ask the question - if SAP is expensive why isn't BMW criticized in equal terms? And oh by the way, why doesn't Apple get a shit ton of aggravation now that it is at its 7th iPhone iteration and with no sign of especially sacrificing margins? Good questions? I think so.
As an aside, I'm betting my American friends will yell - what about Carroll Shelby, he of Cobra fame? To which I retort - Enzo Ferrari. End of. :)
If you think about what's been going on at SAP the last 10 years then it is hard to argue that they have innovated in a radical manner such that it captured the imagination of swathes of new customers. Some will argue that because Hasso Plattner, one of the co-founders, still exercises influence on engineering, the spirit of radical innovation (which was there with R/2 and R/3) has not gone away.
In the alternative, all the things we can observe and, which are often supported by important user group pronouncements, its customer don't want radical innovation from SAP.
An interesting problem
To my mind that leaves SAP with an interesting problem.
On the one hand you have analysts who throw brick bats at the company on a regular basis for any or all of the reasons outlined above. You still have the occasional high profile implementation failure for which SAP always gets hit with some collateral damage. But when it comes to the core of what SAP offers - I just don't see a ton of customers running away. From what I hear, those who are engaged in SAP S/4HANA implementations are getting busier year over year. One company I came across recently is seeing triple digit growth on that line item alone in every of its last three years.
On the other hand, SAP has positioned SAP S/4HANA as the digital core - or platform - for digital transformation projects. That's the 'core to the edge' message. Here comes the problem. The other half of SAP's message is 'edge to the core.' In other words, this is talking to solutions like hybris, Ariba, Concur and fieldglass.
These are late 20th, early 21st century solutions that fit well with the kind of customer SAP attracts but which also represent the kind of radical innovation with which SAP is not terribly familiar. There is frighteningly intense completion, largely because these are emerging areas of innovation and, as we know from observing many past innovation cycles, competition is at its most intense when an idea gives rise to a large, at scale market opportunity.
Right now that doesn't matter too much because SAP has its work cut out bringing some 35,000 core ECC customers onto S/4. That won't last forever and even now I'd say the runway through to 2020 is pretty much laid out in a predictable manner.
As we prepare to rock up to SAPPHIRENow17, I have some important questions. Sorry, I won't tip my hand publicly right now, but regular readers should have little difficulty figuring out what my 'cheat sheet' looks like. I will hint by saying that I have some predictions I made based upon certain product direction assumptions I laid out back in 2010-12 that I will revisit.
What I won't do is take too much notice of the extent to which SAP uses SAPPHIRENow17 to effuse over its recent successes and the future pipeline. They're a given. I will instead pay close attention to customer strategies because that gives me clues as to how well SAP is likely to sashay between incremental and radical innovation at the marketing level. What's far less clear is how any changes there work out in solution engineering.