This is a long read so grab a beverage, sit back and get stuck in.
I'm going to start with a quote from Michael Doane in The Green Book, published in 2012:
In recent years, analysts and SAP competition have tried to give the impression that SAP is 'so yesterday,' as Software as a Service (SaaS), the cloud, and SOA are seen as the pivot points to the future...I cannot imagine a firm with 5,000 or more active users putting their data out to a cloud. I cannot imagine a firm with 5,000 or more users accepting that they have no way to change their applications software functions.
Nor can I imagine a firm that is already using SAP - and beyond implementation costs, has already invested million upon millions of dollars in deployment - to simply shrug and move to something else. In fact I haven't seen it happen in many years around SAP.
Hold that thought. Now juxtapose this from Ben Thompson of Stratechery in a recent weekly email:
Integrated solutions will just about always be superior when it comes to the user experience: if you make the whole thing, you can ensure everything works well together, avoiding the inevitable rough spots and lack of optimization that comes with standards and interconnects. The key, though, is that this integration and experience be valued by the user. That is why — and this was the crux of my criticism of Christensen’s development of the theory — the user experience angle only matters when the buyer of a product is also the user. Users care about the user experience (surprise), but an isolated buyer — as is the case for most business-to-business products, and all of Christensen’s examples — does not.
Hold that thought too. We'll repeatedly get back to those topics.
Almost since the first day that Christian Klein became SAP's co-CEO I've been asked the same question or a variant thereof: "How will SAP thrive in the future?" As in the past, competitors and some analysts would like to think that SAP's golden days are behind it. Others, and especially those whose livelihoods depend on commenting positively around SAP, take the opposite view. I've wavered from one extreme to another but in recent days I've come to the conclusion that the future is SAP's to lose. Here's why.
Doane was largely correct. If you look at the number of S/4HANA cloud implementations, they're a small rounding error on the SAP balance sheet. Not even equivalent to the total of the petty cash count at BP. Does that matter?
Look at Gartner's latest Magic Quadrant for cloud ERP in manufacturing and you might be alarmed to note that SAP isn't there. But then SAP claims to run 77% of the world's transactions. Which could mean that those in the Gartner MQ represent the other 23% - give or take. And if the content I saw at last week's ASUGforward event is anything to gauge by, SAP customers could care less about the cloud, except in edge cases.
Grumbles and mumbles
Even so, partners grumble and wonder whether SAP remains relevant for the future. To which I ask - "If you're that concerned then why are you aligned to them?" Here is my point, which harks back to what Thompson said and which Doane notes elsewhere but which is also a central part of the SAP message: integration matters and especially now when firms need visibility across entire business processes in order to understand how their businesses are behaving, start figuring out what they do for the future and what digital components need to be part of that future.
Therefore, SAP's four big process claims: lead to cash, source to pay, recruit to retire and design to operate are critically important parts of the SAP story. SAP may not have all those pieces in place and here I tend to agree with Paul Saunders Gartner's senior research direct who was recently quoted in The Register:
They say the right things. SAP is very innovative in PowerPoint. The challenge with it is they actually need to be able to execute.
While that is especially true about SAP, the same can be said for just about every other enterprise software vendor. But then having met or spoken with Klein on a number of occasions in the last six months I judge that behind the disarming and humble exterior lies a will of iron, determined to deliver the integrations he has promised. Score One for the Big Guy even though we consistently hear that customers are not falling over themselves at the thought of an S/4HANA upgrade, with many early stage projects on hold. As Geoff Scott, CEO ASUG told The Register:
I don't know that there's a huge appetite for the customer base to talk about something they might want to do two or three years down the road...Most of them are trying to determine how to get everyone productive working remotely. And by and large, SAP was not at the forefront of that dialogue. Their SAP footprints were pretty stable and working well.
Instead from SAP, we hear about resilience, profitability and sustainability. These are messages that only partly hit the mark. Paul Greenberg for example in one of his epic screeds that analyses Klein's 2020 keynote said:
"We can become more resilient and make sustainability profitable, and profitability sustainable."
NO!! ABSOLUTELY NOT!!
I've had this discussion with them in the past. Let me say it again. Equating sustainability's raison d'etre as profitability is LITERALLY the wrong message to send to EVERYONE IN THE ENTIRE WORLD except the most mercenary and crass business buttheads – which at last look wasn't an actual target market. The purpose of sustainability's evolution as a global concern is that it is a GLOBAL CONCERN. We need to do something that not only provides the support of our global economic engine but in the process saves the earth from ecological disaster. The message and focus of sustainability is NOT "support the global economic engine." It is "save the earth from ecological disaster." There is NO other message. The economics are implied, but they are not the purpose. Get it? Not…the…purpose.
Greenberg was also miffed that in his view. Klein missed the CX topic:
I don't know if you noticed but I haven't made a single reference to SAP CX. Odd, wouldn't you say, since my actual wheelhouse resides in the land of CRM, CX and CE. You know why I haven't made any references? Because other than a brief arcane reference to C4HANA, THERE WASN'T ANY DISCUSSION OF SAP CX and that is an astounding and glaring oversight that is not just because I am a CRM/CX/CE guy. This complete and incredibly puzzling omission comes five years after their first pivot to customer experience and customer engagement (2015) and then what they called a pivot but was a 360-degree pirouette in 2018 to customer experience and customer engagement. Read this post I wrote in 2018 that covers both the pivot and the pirouette.
FWIW - Greenberg's and I got into something of a Twitter spat on this topic. Go find it and check it out.
Through the looking glass
But taking all that together you'd be forgiven for thinking that SAP is in deep trouble given its grand ambitions. But again, that would be a mistake. I'll get to the messaging issue later but in and among the reportage, SAP HANA and analytics president Gerrit Kazmaier was quoted as saying that SAP is working towards giving customer bite sized pieces of functionality:
What we're designing towards is highly modular, very small consumable pieces of software that can be freely combined. If you think about running processes and running applications, the whole notion of ERP in the cloud will evolve around being a business platform and adding the next as-service to the platform and infrastructure.
Add in the tantalizing prospect of industry verticals - or at least some industry verticals - and SAP's future starts to come into sharper focus. But in my mind there are a few missing components and some that are definitely a work-in-progress. First the latter.
A work in progress
Earlier I noted Gartner's comment about PowerPoint and reality. I rather see it as a question of execution that has been lacking in the past but in which I have far greater confidence under Thomas Saueressig and Juergen Mueller's leaderships than in the leadership of the past. This is not because either are geniuses in the way some past technical execs have been but rather they and Klein are on the same proverbial page and have the kind of energy that relative youth brings to the endeavor. Score Two to the Big Guy.
Now let's focus on what's missing or at least not obvious.
SAP has recently reaffirmed its commitment to the partner ecosystem. Most I've spoken to take that as meaning the Big Four SIs, the hyperscalers and a clutch of favorite what I call 'Sons of SAP,' this latter category either being 110% SAP shops like iTelligence or favored partners at a Tier 2 level like Celonis where key positions are held by ex-SAP execs. The thousands of other partner are left to slug it out because SAP is shutting them out of deals or because SAP isn't giving them a level field on which to play or because SAP's digital market is...crap.
SAP should make no mistake that if partners feel they're not being given a fair shake then they will find true love elsewhere, just as some of its customers have. SAP may think that it has the world's largest ecosystem of partners and developers in an iron grip but that's an illusion born out of an arrogance that SAP has yet to shake.
Thompson talked about the UX in the context of B2B buyers. He is only partially correct. We are seeing many more folk who use SAP systems come into the decision making process and it has long been argued that SAP needs to take a consumer facing approach. Instead, we have the not-as-crap-as-it-was Fiori. SAP has a lot of work to do here to make Fiori drop dead simple for developers. It also has to get its mobile, and especially it's offline capability sorted out. As we noted in a recent Neptune Software case study, it was the relative ease with which US Sugar keeps its maintenance crews kitted up that both won and expanded the deal. We see that story replayed time and again with Neptune Software customers.
Thompson's broader point about the joint integration and CX is on point and solving for both is something I see as critical. A good example that points to the future is SAP's German COVID-19 tracking solution. According to Klein it was developed in 50 days and quickly reached some 8 million citizens. Yes, it cost €20 million when you include Deutsche Telekom's piece of the puzzle and even managed to get a mention in the British Parliament during a recent Prime Ministers Question Time. So SAP can do the proverbial needful when it sets its mind to that end.
The Big Kahuna
More important - at least to me - is that SAP has something that no other enterprise software company does - reach. SAP claims 400,000 plus customers. In reality that's around 40,000 ERP customers and 360,000 'other' which include SuccessFactors and the other acquired products. Those 40K customer bring home the lion's share of SAP's bacon, (excuse the mixed metaphors,) are not going away anytime soon, touch billions of transactions a day, and account for millions of people who touch SAP ERP and supply chain systems. That's a big ecosystem. SAP needs to touch those people in a meaningful way so that when they say SAP, it is with the same degree of admiration it is for Apple devotees. Is that even possible?
Yes it is but not by using consumer marketing tactics. Business users rarely associate with the softwares they use but CX really matters if you want to avoid those same users hating what you provide and building workarounds. Salesforce has proven that with its developer ecosystem program that goes under the Trailblazer moniker. Trailblazer makes developing for Salesforce fun AND purposeful, attracting an energetic and fast growing cadre of fans. Can SAP say the same? I recently dropped into an SAP Community session and was startled to find that I knew everyone on the session except one person and that there wasn't a single fresh face to be seen. I left that community eight years ago so where are those new faces with fresh ideas? Maybe I'm not looking in the right place but as I said at the top of this story, SAP's market is one it can only lose and this is where it happens.
I'm going to add this because it drives me nuts. SAP uses all the right buzzwords - digital transformation, intelligent enterprise, integration, co-innovation, blah, blah, blah. But when I put it all together and hear it delivered I am reminded of the 1971 Morecombe and Wise sketch with André Previn where Eric Morecombe destroys Grieg's Piano Concerto under Previn's direction. When pulled up Morecombe says:
I'm playing all the right notes, just not necessarily in the right order. I'll give you that.
In 2020 marketing, we'd likely call that 'word salad' to the point where the messages become meaningless or misunderstood. For his part, Klein has been handed a relatively simple three parter: resilience, profitability, sustainability but it's not quite sticking. I'd likely change the running order to put profitability at the back and swap the word 'profitability' for 'good business' since results always follow doing good business which in itself is a product of a sustainable and resilient business model.
In short I'd say that SAP would be better served by simply wrapping it all up in a statement that says: "Our mission is to help build resilient, sustainable businesses because that is good for everyone today and tomorrow." Nit picking? Maybe, but you have to bring people with you on a journey, not give them detours and certainly not wallet frack them along the way.
When you take all of the above and weigh it in the scales of customer buying decisions SAP should be in the box seat for the deals it chooses to go after. Not always of course since enterprise buying decisions are as much political as they are logical.
SAP has a fiercely loyal and economically committed customer portfolio, It has an ecosystem of partners it cannot afford to abuse, it is making the right noises although the tune is hard to decipher, it can move quickly in a purposeful way and it has a developer community that is in urgent need of a refresh. But even with this mixed and muddled picture there is the tantalizing prospect of integrated end to end processes that have industry appeal. It is for thise reasons I am reluctant to bet against the company regardless of what happens when it closes out Q2 FY2020 tonight.