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Some years ago in the late 1990s, I listened to Bill Gates speak. I was sat in the audience at Cambridge University and we were young and foolish. Stephen Hawking was sat next to me, and if I recall correctly, asked the question “What would you do if you knew which company would supersede Microsoft?”. Gates laughed uncomfortably and said “buy them, of course”.

It struck me that Bill knew that nothing lasts forever, even when Microsoft stock was rising exponentially. Interestingly, in a macro sense, the Microsoft stock never got past the DotCom crash. Microsoft has been a very successful company since then, but I’m sure you’ll agree there have been smarter investments, if you were in the market for a 15 year stock in 2009.

Screen Shot 2014-02-12 at 3.59.51 PM.png Screen Shot 2014-02-12 at 4.00.12 PM.png

 

And so all things must come to an end, and there are very few companies who rise out of the ashes. IBM is one such incredible company which has done so, with two major transformations – from punched card to transistor, and from mainframe to PC. On both occasions, it nearly died, and some say that IBM was hours away from bankruptcy at one stage. IBM is in the midst of its third major transformation, but I’m not too sure from what into what.

I’ve been thinking about this lately because I’ve had a sequence of conversations about what how SAP is going to handle its second transformation. You could argue that SAP had one transformation before when it moved from the mainframe-based R/2 to the client/server-based R/3 in the early 1990s. SAP was a young company and was agile enough to make this transition relatively easily.

And now we are at a time in the world when an inflection point is near – or some might say – has already happened. The world is moving from client/sever-based physical systems to a service-based systems in the cloud, and SAP has built an entire business on the client-server market. This isn’t going away any time soon, but the high growth rates of service-based companies like Workday and Salesforce are very compelling.

In addition, SAP has the challenge that it has a huge install base, some of which are on old versions, and most of which have a sales order entry screen that looks like this:

Screen Shot 2014-02-11 at 11.25.04 PM.png

So SAP has two major challenges facing it – first, its core customer-base is moving to the cloud, and second, the core customer base wants something that looks like this:

/wp-content/uploads/2014/02/bg_1_385595.png

Now what’s really interesting is that SAP has a cloud on which it can put its business apps as a service, and the above screenshot is from SAP’s Fiori Launchpad, which is a plug-in replacement for the horrible SAP Gui screens you see above. Plus, it has a next generation database platform called SAP HANA, which can do stuff that Oracle cannot.

One thing is for sure, and that is that the world is moving, no matter what SAP does.

“Time, like an ever rolling stream,

Bears all its sons away;

They fly, forgotten, as a dream

Dies at the opening day” – Isaac Watts

Can SAP survive? Yes, of course SAP will survive. The right question is: can SAP remain relevant?

To SAP’s credit, I would make is that SAP has the finest management team that it has had in 15 years. The outgoing co-CEO Jim Hagemann Snabe is a loss, for sure, but Bill McDermott is a charismatic leader and great salesman. Development and innovation lead Vishal Sikka is equally one of software’s great visionaries. There are many others besides worth noting, but this isn’t a roll call.

What these guys have to do is to reinvent the business, cannibalize themselves, whilst continuing to deliver the quarter-on-quarter growth that Wall Street demands. They have to convince customers to move from older versions of their software so that they can adopt innovations like HANA and Fiori. They have to continue to support the traditional Oracle and IBM database platforms whilst producing compelling innovations on the HANA platform. And they have to beat adolescent companies like Workday at their own game by delivering serious business value.

And remember, whilst SAP grew HANA to a $1bn revenue stream in 2013, it was still only 5-6% of their revenue, depending on whether you account for support and services. SAP has to produce blockbuster products in order to counteract any bagginess in their core products. And if SAP loses any volume of its core customers, it has to fight very hard to replace that revenue stream.

This is why I believe that SAP’s ability to survive long-term will depend on its ability to remain relevant in the short term. SAP has to drive its customers to adopt this technology. SAP needs to entice its customers to update to newer versions of the Business Suite, adopt Fiori for its key functions, especially for stressed out managers, open up the network to allow them to access it on their iPad from home, or even better, get those customers into the HANA cloud. For every customer that SAP can convince to do this, SAP wins a piece of the relevance battle.

I talked to a HR Director of a company that runs SAP and when I asked him about the mobile solution we had put in for their managers meant to him, he replied:

“I get to spend more time with my family. I still have to do the work, but I can do it on the sofa at home”.

And this is where the relevance battle will be won in 2014 – on the sofa, at the home of CEO, CFO and HR Director. My sense is that SAP can win the relevance battle, if it fights well. What do you think?

——

Thank you to Audrey Stevenson and Marilyn Pratt for helping me get my content back!

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34 Comments

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    1. John Appleby Post author

      Well it is a good challenge and at the Investor Symposium a few weeks back, SAP clearly stated they wanted to increase their share in the shrinking SI market. This means that SAP will be taking market share from its partners.

      In fact, SAP looks to take pennies in the dollar from the hardware partners, hosting partners, integrators and of course competitors.

      Technology consulting is a tough place to be, Bluefin have to take market share every year to grow.

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      1. abhijeet mukkawar

        Well crafted John !! I have always wondered, especially since Fiori came, if there will be any pie left for SAP partners…I really doubt that. Going forward, I also feel, all things are moving into mobility space and as Andy Silvey mentioned in his blogs that mobility will be next thing, but will SAP with shrinking partners pie can stay in market?

        Wont partners with lesser pie advocate for IBM, Oracle etc…

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  1. Andy Silvey

    Hi John,

    I talked to a HR Director of a company that runs SAP and when I asked him about the mobile solution we had put in for their managers meant to him, he replied:


    “I get to spend more time with my family. I still have to do the work, but I can do it on the sofa at home”.

    this is precisely why I have been advocating here and here and argued in detail here, SAP needs to be doing more on the mobile

    Mobile has moved very fast in the last few years.

    A few years ago, an iPhone at the office was an exception, and consequently, there was an excuse for not investing in mobilising the business suite.

    Fast forward to today, and in the large enterprises the company mobile phones are iPhones and the Sales Divisions have rolled out iPads.

    This change has happened very fast, and it has taken SAP by surprise. The customer base is armed with smart phones and ipads, but the business suite has yet to play catch up.

    One of my biggest frustrations today is precisely what your HR Director said, I have the corporate iPhone, I have email on the iPhone, I have wifi in most places I visit and 3g/4g almost everywhere else. I receive emails 24/7 and yet if I want to check something in a SAP system related to an email I need to go to a pc. This is a huge gap which needs to be filled.

    I read that Fiori now has 200 apps, 200 apps is a drop in the ocean.

    It’s not too late as described in the Ebay/Amazon blog, SAP just need a strategy and to get on with it.

    And here’s the thing, this is coming from me, a 40 year old Generation Xer, what are the Millenials/Generation Yers going to say when they see this mess ? There is a huge catch up to be made.

    Mobile should be out of the box, it should be as standard as the WD-ABAP PC WebSite based functionality, mobile shouldn’t be the exception, something that requires a consulting company to come in and create customisations, in general, if it runs in a PC web browser then it should as a minimum run on a tablet browser and very nice to have would be running on a smart phone browser.

    Mobile should be delivered as part of Enhancement Packs or Support Packs, it shouldn’t be add-ons and apps.

    Cloud is another battle and it will not be easy moving the customer base on the cloud, for these reasons. It might be that building the cloud business through aquisition rather than organically is the fastest way to gain presence in the short term.

    To wrap up, excellent insight and thought provoking piece – as usual.

    Andy.

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    1. John Appleby Post author

      Wow, you responded to my blog with a blog πŸ™‚

      SAP has gone part-way here with EhP7 of ERP – Gateway and Fiori are included, another individual apps are not. I suppose this is because they are licensable. SAP is producing waves of Fiori apps pretty quickly, and kudos to them for this.


      I think 200 is a good start, mobile is all about the things you need to do on the move, not the whole process. For instance I photograph my receipts with Expensify, but I compile my expense report on my laptop where I have access to email and other resources I may need to cross-reference quickly.

      SAP presumably thinks that it can retain its relevance by monetizing the mobile experience. I’m with you on that, and I believe that SAP needs to monetize its relevance by including the user experience.

      As for mobile, I don’t even think about it any more. I just grab a device and go.

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      1. Adam BΓ€ckman

        While I agree that Mobile will be an important factor moving forward but they can’t provide proper mobile solutions unless they start looking at simplifying and consolidating the backend solutions. Just look at how the reporting/analytics look with all their various solutions to the same problem. BI/BO/etc

        Or that any given business process has at least 10 different approaches to supporting it in SAP, this drives complexity and in the end complexity creates problems for customers using SAP on-premise. It also means that it gets tough to deliver that perfect SAP experience.

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    2. Navin Vazirani

      Wow, you are fighting the good fight Andy!

      I’m sure a lot of customers with heavy investments in existing SAP applications share your opinion that SAP should make those applications work better on different devices/form-factors.

      Check this out..1893651 Device type-specific modification of configurations

      Maybe the right eyes at Walldorf have been reading your blogs πŸ˜‰ ? Keep them coming!

      And thanks to John Appleby for the very thoughtful blog.

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  2. John Moy

    Hi John,

    Excellent blog, once again.  I might not have told you, but it was you that originally inspired me to start blogging a few years ago.  Reading this one reminds me of why.  Your blogs are something to aspire to.

    You mentioned the departure of co-CEO Jim Hagemann Snabe, with Bill McDermott now becoming the sole CEO.  Of course Bill comes from the sales side of the business.  I’m a little concerned about the balance of power shift towards a sales-centric leader.  Right now with the transformation that is required, I feel the company needs a strong engineering focus rather than a sales focus.  Of course, I am biased, coming from a development background.  But the shifts you mention require the engineering teams to dig deep, be it building new products, or integrating the many products SAP seems to be acquiring.  Yet lately I have noticed elements of the sales focus creeping in instead … for instance the fact that Fiori isn’t free, the fact that documents from the engineering domain such as the UI Product Roadmap now have slides recommending customers engage SAP’s UX design services, or even that references to Silverlight have been removed from being mentioned in relation to Personas (yes, there is a basic HTML capability, but why remove any mention of Silverlight unless it impacts sales?).  Perhaps I read too much into things.

    Thanks again for the blog

    John

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    1. John Appleby Post author

      Wow John, I didn’t know this, I’m flattered. Your blogs are awesome. Curiously it was Bill McDermott who inspired me to write in the SAP Business Trends space, and he may, if we are lucky, take the time to answer your challenge.

      My sense is that great software companies are bound together by the healthy tension that comes from the interaction between Engineering and Sales, and their different philosophies. Being a CEO is about leadership and empowerment, and Vishal’s move to the Executive Board, in charge of all innovation and development, is a clear move to empower Vishal to be the engineering lead. To my mind that is all good.

      As you know, my challenge to SAP on Fiori is: is it more important to ensure that SAP stays relevant and drive Fiori, HANA and Cloud adoption, rather than to try to monetize Fiori? Perhaps SAP can drive more Core ERP, HANA and Cloud revenue by including Fiori in the regular user license, whilst protecting their relevance at the core of 70% of the world’s GDP?

      This year, SAP has stated it is focussing on simplicity, from the digital engagement, to the sales process, to the product and service delivery process into support. There is definitely a risk that, as a side-effect of simplification, they get too salesy. I haven’t noticed it yet, though you cite some good examples. If it happens, let’s keep them in check! πŸ™‚

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  3. Gregory Misiorek

    John,

    great writup and i agree with almost everything that you are saying, but just wanted to run these two images (jive forgiving) by you. they both represent images off my mobile phone and come from two shine applications that are being used by Thomas Jung and Rich Heilman in the latest HANA Support Pack (70) and are widely available on AWS.

    /wp-content/uploads/2014/02/wp_ss_20140212_0001_386470.jpg

    /wp-content/uploads/2014/02/wp_ss_20140212_0002_386519.jpg

    apart from adding more functionality, i don’t see any other business reason to make them more appealing. i, for one, enjoy, corbu theme on the core applications, anyway, so this one is a little bit in the eye of beholder.

    great blog roll,

    greg

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  4. Vineet Gupta

    Transition from software sales + yearly support fees + consulting fees to cloud subscription fee per user needs to be completed. SAP has a great opportunity to combine the landscape simplification and performance gain from HANA to offer the complete set of solutions on HEC at a cheaper price point than what it is costing most of its customers to run SAP today. Future revenue and profit growth will come from new applications from a much larger user base of SAP users.

    Technology companies that innovate have a chance for staying relevant and SAP is certainly doing that as pointed out in the blog very well. In my experience we are seeing disconnected strokes of brilliance but somehow all the right parts are not coming together to deliver the comprehensive advantage for current and future customers of SAP. HANA, Mobile, Cloud, all the acquisitions, product road maps all indicate that SAP is on the right track but still there is talk of them being relevant. Is execution the problem?

    1. Even after years of Business objects purchase, the integration of BW and BI is hard and leave the customer with more complexity than less. Lot of great new products : Lumira, Dashboards and others, but users are always waiting for next support pack for features that are not new and used to work with other tools
    2. HANA simplifies the customer hardware landscape greatly, but somehow there is not a waiting line for HANA implementations yet
    3. Fiori brings a great new design, but the pricing strategy is the big topic of discussion. Till Fiori apps can be available for a lot more transactions, it might be a good strategy to not give them for free and limit the use. Free Fiori may result in. Widespread use and after initial excitement of great design, lack of apps for all functionality may generate more disappointment for the product.
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  5. Jose A. HernΓ‘ndez

    Excellent article, and to be brief…. after 4 years betting on SAP Cloud solutions consulting (and failing considering SAP’s strategy), my point is that there is still too much inertia within SAP sales execs pushing the “traditional solutions they know how to sell”. If they don’t take seriously the Cloud (which from my POV they -SAP- have done not yet!), SAP will be less and less relevant each day!

    Jose

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    1. Andy Silvey

      Hi Jose,

      where there’s lack of strategy there’s an opportunity for consulting, be careful not to bite the hand that feeds you.

      Everybody is preaching and selling the cloud, and as I blogged here nobody is offering strategies for migrating to the cloud, because that’s what it is, moving on-premise to the cloud is a migration project.

      And this, the problem, the challenge, of how large enterprises with mature SAP landscapes can migrate to the cloud, this is your cloud opportunity, it is the current gap in the market.

      John has provided another excellent piece of work on the subject here and I will be complimenting that one later this week with a suggestion to SAP for a strategy which they can apply to enable their customer’s path to the cloud to be as pleasant as possible.

      There is a saying, when you can see the band wagon, it’s already gone.

      Now is the time to lead and become a pioneering SAP cloud consultant.

      Best regards,

      Andy.

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      1. Joao Sousa

        Everybody is preaching and selling the cloud, and as I blogged here nobody is offering strategies for migrating to the cloud, because that’s what it is, moving on-premise to the cloud is a migration project.

        I think the first thing that isn’t clear is the advantage of the Cloud. Why should a company spend millions of dollars migrating to the cloud? Will they have less IT costs after migration? It’s clear that the server infrastruture will disapper, but many feel that the cost will just be displaced into licensing or storage/network variable fees.

        I haven’t seen a clear business case for this. Cloud is still a buzzword for many, and many don’t take it seriously.

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  6. Tom Van Doorslaer

    The most compelling message your blog has transferred to me is this: (interpreted)

    “Customers once moved from R/2 mainframe, to R/3.”

    Only 8 years ago, I was on a project where they replaced their entire old mainframe system, (non-sap even) by an R/3 SAP system.

    If such a thing was possible then (and mind you, I’m talking about a really big utility company) why wouldn’t that be possible today?

    And that brings me to that other blog of yours (What’s coming for SAP in 2014? ), where you speak of R/4. I was asking myself the question how customers would react if R/4 is not backward compatible with R/3.

    Well, that shouldn’t matter, should it? If customers were able to replace their legacy systems before, why wouldn’t they be able to do so tomorrow, when R/3 becomes legacy?

    When that day comes, I can only urge partners to learn the ins and outs of the yet-to-come R/4, because that’s where the huge projects are going to take place.

    And I believe the key to that yet-to-come R/4 will be: HANA + XS + Fiori Paradigm in the cloud, with a completely new set of functionality and API’s.

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    1. Uwe Fetzer

      Tom,

      the only difference is, that the customers HAD to move from R/2 to R/3 because of Y2K and EUR (and they had the money back then).

      Why they should move to R/4 (what ever this means) today?

      Most (or better all) of my current customers, biggest ones and very small ones, are thinking like me (let the shitstorm begin): I like Windows + I like SAPGUI, you cannot brake them if configured correctly.

      (in my private life I also love Android and UI5).

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      1. Andy Silvey

        Hi Uwe,

        I’m an Androider (even though from the company I’ve got an iPhone 5), my daughters are Androiders with their Galaxy Tabs, except they call these things iPads πŸ™‚

        The sites I have been engaged at for most of my career have been running large mature SAP landscapes.

        When I say mature, I classify a mature SAP landscape is one which gets yearly landscape Support Pack and EHP upgrades across all systems.

        Why are these customers continuously running rolling annual landscape upgrades ?  Because they want to squeeze every possible opportunity for profit out of their business and they know, taking the latest versions of SAP can bring them more competitive advantage over their competitors and squeeze out more profit.

        A latest version of SCM/SNC for example which enables Business Process Outsourcing with supplier partners booking in their own stock instead of a company employee contacting the supplier to get status updates is saving money.

        Biller Direct, business process outsourcing of supplier’s checking the payment status of their invoices.

        There are more and more examples, but the point of the story is, for companies in competitive industries, running the latest versions of SAP products will bring quantifiable and qualifiable savings and squeeze out more profit.

        The icing on the cake is Max Attention.

        Andy.

        p.s. this is probably a competitive advantage secret which I shouldn’t sharing !

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        1. Uwe Fetzer

          Hi Andy,

          maybe my statement could have been misunderstood. I’m by far not against improvements, totally the opposite. Not for me and not for my customers.

          But: In my opinion such a radical cut like R/2 -> R/3 is not possible in the near future because, like John said, the business benefit must be visible. I’m not able to see it.

          Evolution (Fiori / HANA / Cloud / .. ) not Revolution (R/4).

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      2. Tom Van Doorslaer

        If I follow that logic, existing SAP customers would never migrate to Force.com, right?

        Unless, there is indeed a business benefit.

        But I’ve seen many companies where the business case gets pulled out of a donkey’s rear-end, and covered up with “intangible benefits”

        I think the business benefit of HANA and Fiori is clear. The only question is, if customers will see the benefits as well.

        And is SAP betting on customers daring to take the leap?

        future will tell I guess πŸ™‚

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        1. Joao Sousa

          I think the business benefit of HANA and Fiori is clear. The only question is, if customers will see the benefits as well.

          The other side of the equation is “cost”. I can see the benefit, but is it worth the cost?

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  7. Joao Sousa

    So SAP has two major challenges facing it – first, its core customer-base is moving to the cloud, and second, the core customer base wants something that looks like this:

    I believe the core customer base wants something that look like “this” for certain processes, usually processes that deal with mobility or higher ranking employees. For others, they couldn’t care less about how pretty the screen is (usability is a different matter, but it has nothing to do with looking “pretty” or “modern”).

    SAP’s core customers were never the commercial department which hates “order” and “procedure”, for that you have agile products like Salesforce which target a more ad-hoc way of working/communicating. SAP will never do that, since it’s not it’s purpose, SAP’s purpose is to provide accurate financial information and that requires structure.

    That’s not to say that SAP doesn’t need to innovate. It does need to cater to individuals inside the company that require mobile and more friendly user interfaces, especially for reporting, but I believe they are doing that with Fiori.

    VA01’s problems have nothing to do with looking old, or SAP GUI. VA01’s problems are related to usability and could be overcome while still using SAP GUI or NWBC.

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  8. Kathiravan Subramaniam

    While discussing on moving to cloud, one of my customer said he is agnostic about the cloud. He doesn’t beleive if the cloud could exist.

    I feel SAP should keep their on-premise applications on-track along with cloud solutions. Strategy for moving on-premise applications to on-demand applications may be safer than to acquire applications like Ariba and say I will now innovate cloud based Ariba.

    Customers are skeptical to live with SRM if there is no defined roadmap for further procurement LOB  specific innovations in SRM.

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