This post originally appeared in my company’s weekly newsletter, Retail Paradox Weekly. It was written by my partner Brian Kilcourse, and I think you’ll enjoy it very much. If you have questions or comments for him, you can reach him at bkilcourse@rsrresearch.com.

Just one short preamble: I really am quite blown away by all of CAR’s capabilities.  It has the potential to be very disruptive in the retail industry, in a very positive way.  And with that, here is Brian’s piece.

My RSR partner Paula and I had the opportunity to attend SAP’s annual SAPPHIRE conference in Orlando Florida last week. The event was held in the cavernous Orange County Convention Center for 25,000+ attendees from every industry that SAP serves, along with assorted partners, analysts, geeks, and pundits. SAP perceives the Retail industry as a huge opportunity, (Retail is one of its “strategic” industries, meaning, “a substantial growth opportunity”) and it has anticipated the dramatic changes that consumer adoption of mobile technology has triggered. But as Pat Bakey, SAP’s Global General Manager for Retail underlined, it’s important that everyone involved not under-estimate what these dramatic changes portend to retail businesses themselves, and not just the technologies that support them.

SAP has made some impressive improvements to its retail offerings, taking advantage of its HANA technology (an in-memory database management system developed by SAP). While there was once a time (not too long ago!) when technology providers were constantly racing to keep up with retailers’ requirements, the relationship between “technology user” and “technology provider” has shifted 180°. Now, there’s a real question of whether or not retailers can absorb what SAP can deliver. More about this later….

Lori Mitchell-Keller, SVP and Global Head of SAP’s Retail Business Unit, outlined the company’s strategy as “simplify retail”, by hyper-personalizing the customer experience, engaging and empowering employees, and improved planning and optimization capabilities. SAP’s retail industry strategy is in sync with the theme of the entire event, outlined in CEO Bill McDermott’s opening keynote address: “simplify everything, do anything.” McDermott further explained, “complexity drives me crazy – it’s the most intractable CEO challenge”. He went on to ask his audience, “who is accountable for ‘complexity’? It’s insidious, invisible, and everywhere – have we had enough?”

Plattner Raises the Bar


Before you scoff at the very notion of a “simple” SAP, hear what company founder and visionary Hasso Plattner had to say. Plattner was introduced on the main stage by Clayton Christensen, Professor at Harvard Business School and author of the influential 1997 book, “The Innovator’s Dilemma”. The HBS professor set the framework for Hasso’s comments: “disruptive innovations make complex things more usable and accessible.” But he said, “large organizations systematically miss waves of innovation because they make the ‘right’ decisions for the ‘right’ reasons.” While those decisions may lead to sustaining, or incremental, improvements, they don’t lead to disruptive, or breakthrough, innovations. “That,” said Christensen, “is the Innovator’s Dilemma.”

Prof. Plattner declared that, “SAP is a model case study for the Innovator’s Dilemma.” He pointed out that certain technology trends are inevitable. For example: “the transition from on-premise to the cloud will happen, no matter what”; “mobile is here to stay – people are always connected”; “technology will continue to make huge performance leaps”; “data access is moving towards zero latency.” Although these are important trends – and SAP has responded to them – they in themselves are not disruptive changes for any one company, From Plattner’s point of view, those are sustaining innovations, not disruptive ones.

So, what is disruptive? “Simplification!”, declared Plattner, “simplification beats complexity!” He then went on to explain why he believes that SAP’s HANA technology enables simplification: it enables radically simpler data structures with no aggregations whatsoever. For the non-technical person, that means “no rollups” – that business decisions can be made from insights derived from the most granular information available in something approaching real-time. That in turn means that businesses can sense changes and respond to them as they are occurring, as opposed to responding to events reported well after-the-fact.

A great example of that was offered on the exhibit floor by Ebay. A representative of the company talked about Ebay’s “information value stack”: Data => Signal => Insight => Action. Anyone in Retail who has talked to any business intelligence solution vendor in the last 10 years has seen something resembling this value hierarchy. The difference in Ebay’s view is in that word, “Signal”. It means that the company can do time-series analyses in real-time (with sub-second latency) to answer the question, “has something changed?” So for example, sales of certain iPhone products are trending in a predictable way but suddenly spike. Ebay can correlate that spike to something Apple has announced, and in turn can respond to the new situation accordingly.

But why is that simpler? According to Plattner, without complex aggregations of data, businesses can move toward prediction and simulation. And, since aggregations of data from which decisions are made have to presume the questions that get asked, they limit the number of new insights that can be found. Without aggregations, new questions can be asked, and thus new insights can be learned and new actions can be taken. Simplicity breeds innovation.

There are other benefits too that sound overtly IT-ish, but also potentially have a big impact on the business (less duplication of data, less code to manage, blistering speed, in addition to those “sustaining” innovations such as much faster response times, less money spent on storage technology, and 360° of visibility by virtue of its ‘enterprise cloud’ delivery model). This gets to a current-day reality that Mr. McDermott had also discussed: on average, 72% of IT budgets are spent managing existing complexity, not helping companies innovate (both Paula and I think that that is an optimistic assessment).

Retail Improvements


At SAPPHIRE, there was a lot of talk about simplification of the user experience (“UX”). This is a perennial topic for legacy SAP users, and SAP now offers a non-disruptive path to modernization of the interface, in essence offering both new and old views of its functionality. The key component of SAP‘s usability agenda is FIORI. Fiori makes it possible to offer a “mobile, beautiful, and easy to consume” experience (as CEO McDermott exclaimed) across devices and deployment options, and it was everywhere at this year’s SAPPHIRE. As an incentive for adoption, McDermott announced that Fiori now comes bundled with its solution licenses (customers used to have to pay separately for it). Fiori is being applied to Retail as well, focusing (for example) on store employee enablement with cleanand simple interfaces that work on any mobile device.

SAP has also addressed the problem of vertically integrated companies, for example Brands that have traditionally been a supplier to retailers but are now rolling out stores of their own. SAP’s AFS (“Apparel and Footwear”) solution is widely used by suppliers, but in the past has not integrated well with SAP’s Retail ERP (for example, the product schemas are very different). Thomas Vetter, SAP’s SVP for Retail Product Management described how the newly announced FMS (“Fashion Management”) offering brings those two together. Not only does this address the needs of current AFS customers like Luxottica, Adidas, Armani, and Tommy Hilfiger, who are rapidly expanding their base of branded outlets, but it opens up possibilities for SAP to be the solution of choice for similar Brands that are looking for growth opportunities in retail.

These are just two examples of the kinds of improvements SAP is investing in for the retail sector.

SAP’s Disruptive Innovation


The overarching impression we were left with is that the software giant has seriously advanced retail technology in a number of important ways. But they can all be summed up in one seemingly simple notion, that of moving the business from a purely reactive model to a more predictive one.

At the heart of SAP’s retail strategy is HANA and CAR. We discussed CAR in October 2013 (http://www.rsrresearch.com/2013/10/29/sap-driving-a-new-car/), and it’s worth paying close attention to. The acronym means “customer activity repository”, but it is much more (Paula suggested that SAP rename it “COMMERCE Activity Repository”). Essentially, CAR delivers an “abstracted” layer that contains unstructured and structured data, rules and algorithms, and is used to provide information about product, inventory, and forecasts. It can be used for predictive analytics, loss prevention, and dashboards, and increasingly to integrate components of SAP’s retail portfolio. One almost gets the sense that SAP itself is just discovering how powerful of an accelerator this concept is, and is applying it just as fast as possible. For example, SAP’s eCommerce offering, hybris, is now integrated with HANA and CAR. As Mark Ledbetter, SAP’s Global Vice President for Retail Strategy, explained to a group of industry analysts, retailer adoption of hybris as the eCommerce platform enables its customer-centric capabilities to other selling channels, even if they are supported non-SAP solutions.

The Big Question


I mentioned earlier that at least in Retail, the relationship between the technology consumer and the technology provider has flipped. Now, companies such as SAP are capable of delivering tremendous functionality faster and cheaper than ever before, and (unlike the “old days”) the stuff actually works, meaning that retailers don’t have to spend multiples of the license price to modify the code to get the functionality they need. The other big change is that companies across the globe have come to accept the fact that technology is an enabler, not the solution itself. The solution is the process, and in this time of profound change in retail, the processes of the past are being challenged, perhaps to the breaking point.

We see a lot of examples of this issue in our benchmarks. For example, in RSR’s recent benchmark on supply chain strategy, we saw that while 65% of all retailers agree that they are going to “have to completely rethink <their> supply chain design in the next five years because of emerging cross-channel fulfillment”, only 34% have implemented in “real-time updates to inventory from transactional systems” (a prerequisite to the enterprise-wide inventory visibility that makes cross-channel fulfillment feasible). In other words, the best case is that most retailers know they have to change basic processes and the systems that support them, though many haven’t started yet.

SAP of course has an answer for that – “the Enterprise Cloud” for Retail. The question is, are retailers prepared to absorb what SAP can deliver, and if the answer is “not yet”, then who should help them get prepared? SAP is after all a software engineering company, and it historically has left all that business operating model design work to others such as Accenture, CapGemini, IBM, etc. But it’s an opportunity now for SAP too, and those other companies are also quite willing to implement JDA, Oracle, Manhattan, or any number of point solutions. SAP doesn’t have that ambiguity to deal with. And since this is a rare “reset moment” for the whole Retail industry, it’s a Board of Directors issue for retailers, all about the business operating model and how information and technology enables it. That means top-to-top communication is the name of the game.

The world will have to see if SAP wants to do that or not. But if it chooses to, that will help the company to achieve its objective to be the change accelerator retailers use to achieve disruptive, transformative innovation.

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  1. Mohamed Amer

    Thanks Paula and Brian for sharing your industry views here.

    This is not only a solid recap on SAPPHIRE from a Retail perspective, but your analysis on the magnitude of this ‘reset moment’ clearly points to changes in the industry that are absolutely disruptive to the status quo (full of challenges and opportunities all around). 

    I am thoroughly excited about the transformations ahead and SAP Retail exerting a leadership role.

    (0) 

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