SAP's Mike Ettling on the cloud 'haves' and 'have-nots'

Profile picture for user pwainewright By Phil Wainewright November 29, 2016
Summary:
Enterprises, vendors and their partners must adopt a new mindset to avoid becoming cloud 'have-nots', SAP SuccessFactors president Mike Ettling tells me

Mike Ettling and Stefan Ries at SuccessConnect EMEA 2016
Mike Ettling and Stefan Ries, SAP

Moving to the cloud calls for a new mindset on the part of enterprises, vendors and their ecosystem partners. That was the message from SAP SuccessFactors president Mike Ettling at the vendor's SuccessConnect EMEA conference in Vienna this week.

Enterprises - think exponentially

Ettling's advice to enterprises is to seize the opportunity of moving to the cloud to change the way the organization operates. Speaking exclusively to diginomica, he told me:

If you're just going to redeploy your legacy on-premise processes in the cloud, why do it? You're going to get no value if you're not going to transform your processes as part of the exercise.

I think it's a message everyone intellectually gets. I've never sat or stood in front of someone who says, 'Oh, no, that's rubbish. I can't do that.' I think the rubber hits the road with, emotionally, how do companies actually implement that?

The secret of success is in being disciplined about leaving redundant processes behind, he says:

I call it the fortitude to say no. Does the company have the fortitude to say no to, 'Well, we need that process in the cloud because we've done it for 30 years. But there's no legal reason why we need that process, other than we've done it for 30 years.'

That's where it gets challenging, and that's where, in our conversations with customers about how are you successful on the journey, a lot of the advice is around how you set up the right governance to say no. [It's] how you set up the right governance to drive and enforce the standard and get people to see the value of the standard, versus the negative of the dis-value of what they're giving up from the old board.

Enterprises need to recognize that going digital isn't just a technology choice, so much as a change of pace and mindset, he adds.

Digitalization is an overused word today. There's too much focus on digitalization as being about the software, being about technology, and I don't think it is. I see digitalization as a mentality in an organization of exponentiality.

Normal organizations are happy with incremental change, with incremental growth, 10% type of stuff. Digital organizations want exponential achievement. They want 100%, they want 150%.

To me, digitalization's all about engendering a mindset in your workforce — and to do that you need technology which engages the workforce. You can't expect the workforce to come to work, working on a green screen, and then put in some other technology and say, 'Hey, we're a digital organization'. To me, digitalization, the way that plays out in HR, it's all about creating this concept of exponential thinking in your workforce.

Partners - don't be a cloud 'have-not'

There's a divide opening up in the ecosystem of SuccessFactors consulting partners, Ettling warns. There's a cohort who 'get' the cloud and what is required to achieve a successful implementation, he believes, while others are still mired in old ways of working that are no longer appropriate for cloud engagements.

I think the ecosystem is splitting into what I call the haves and the have-nots — those who have got it and those who have not got it.

When a customer asks me, what should you spend on the implementation, I say, one to one-and-a-half times your average ACV [annual contract value] — excluding change management. A lot of partners have got there — predefined models, gold templates, predefined processes out of the box. They've branded it and they're marketing it and they can deploy it really fast.

A lot of other partners still start with blueprints. A clean sheet of paper, what do you want, start with a whole new blueprint. We say there shouldn't be a blueprint in place at the start. The blueprint is the software and you figure out how do you adopt that and how do you modify processes to suit it ...

The SIs who come to this with essentially the old on-premise methodology of a clean sheet of paper, 'What do you want? Let's design it, and then let's try to fit the product to it' ... then, 'The product's terrible, because it can't do this.' Those guys are really buckling. It's a recipe for disaster.

That's why I said the ecosystem, unfortunately, is splitting into the haves and the have-nots. The haves are accelerating, in terms of growth and market share, and the have-nots are going backwards, in terms of growth and market share, and it's all round this issue, which is causing it.

SuccessFactors is putting in processes to monitor and troubleshoot partner implementations to make sure they stay on track, says Ettling. The ecosystem is especially important to deliver the company's growth targets in the midmarket, he explains.

We're going to put a massive focus on the midmarket, what SAP calls the GB space, in 2017. Any customer, we want the partner to sell them, we want them to implement, we want them to nurture them, manage the lifetime value, do the renewal, do the adoption. We're going to certify partners to do that role in the GB space. Then those partners are going to get paid a lifetime revenue stream from us.

So we absolutely need the partners to help us drive the volume of opportunity in the GB space. But they have to do it in the cloud way. They can't in an on-prem way.

Ettling is encouraged to see that large established SIs have been able to adopt the new approach as well as smaller pureplays. But it does require an upfront investment in shifting the model, he believes.

In that transformation, you've got to realize that your revenue-per-project goes down quite dramatically, and you've got to now build more of a volume model. You've got to get your CoE [center of excellence], back office configuration, front office skill, more automated. You've got to digitize the implementation process, because you've got to put more volume through the machine to do the same revenue, versus the past.

Vendors - nurture the 'cloud DNA'

We also spoke about the competitive landscape and the recent move to establish S/4HANA public cloud, SAP's cloud ERP offering, under a separate division led by Darren Roos. The product had previously been under Ettling's wing, where the SuccessFactors team had helped to 'incubate' it to be market-ready:

How we do cloud lifetime management, how we do adoption, how we run a community, all the things you see that make the cloud what it is. It's been learning that. When it launches, it comes out like a cloud product.

A big part of how established enterprise software vendors have been moving to the cloud has been driven by their ability to learn from acquired businesses and, as I put it to Ettling, absorb their DNA. In that respect, we agreed, it will be interesting to see how Oracle's acquisition of NetSuite evolves. Ettling believes SAP has made good progress:

When SuccessFactors was acquired, there was a conscious decision not to integrate it, to protect the DNA.

Then with all the other acquisitions, through to Concur, I think we're now in a place where the cloud DNA is pretty strong inside SAP. The way the business is influenced and the way the business is moving forward is very much with a cloud-first mentality, cloud-first thinking. I think that's the key thing.

I think SAP has been very successful at acquiring, nurturing, and imparting that cloud DNA into SAP. I think it shows in our results as a company, compared to some of our competitors.

My take

Increasingly, enterprise vendors are taking the lead in evangelizing the cloud model to customers and partners. They have to, because if customers implement the technology without changing the way they operate, they won't reap the benefit.

  • There's more to come from this week's SuccessConnect, including an interview with SAP CHRO Stefan Ries about diversity and inclusion in the workplace.