2023, Year One Following the Anniversary: Customer Orientation Remains Make or Break for SAP

[peter_langner]

2023 is “year one” for SAP following its fiftieth anniversary. Not a year of retrospectives, speeches and reminiscing. More like a year’s probation. Just like in year one after the company was founded, the focus in year one following the anniversary should be on the customer. Sounds simple, but it’s not. We can see this by taking a look back at the past, as well as at the present.

A coffee-table book has also been published just in time for the celebration. This aims to depict “the full diversity of SAP” using previously unpublished photographs – as announced by the publisher. But it takes some searching to locate the book on Amazon — and, so far, there’s not been a single customer review. That says something in itself. However, the Group, the Board of Management and the Supervisory Board did not need to worry about well-wishers in 2022. Chancellor Scholz took the opportunity to personally attend the ceremony at the SAP Arena in Mannheim and pay tribute to its success story. According to the Chancellor, SAP’s founding in 1972 was totally in keeping with the spirit of the times. Enthusiasm for technology, a spirit of optimism and a political thaw during the Cold War were shaping the world just as the five SAP founders sparked their own revolution with an idea. A standard software to map all business processes in the company and make data available in real time. And they transformed the former start-up into a global corporation.

SAP is based in Walldorf—close to the customer

Why is SAP actually based in Walldorf? Because the five founders were focused primarily on customer proximity. In the early days, Dietmar Hopp, Hasso Plattner, Claus Wellenreuther, Klaus Tschira and Hans-Werner Hector were mainly to be found in their customers’ data centers ensuring the software not only made their customers happy, but that it made them really, really happy, providing precisely the data needed at the moment it was required.

Customer proximity: part of the SAP DNA!?

The major customer that started it all, the German subsidiary of Imperial Chemical Industries (ICI) in Kraichgau, has long since been broken up. SAP’s vision remains alive though. “Customer proximity, knowledge of the individual industries plus just the right balance between individual requirements and standardized applications. This forms the basis of SAP’s success to this day,” said the Chancellor, praising the Group in his anniversary speech.

Solution orientation and customer focus are also the center of attention for CEO Christian Klein. These values have made SAP what it is today. “We must never lose this part of our DNA,” he also emphasized at the ceremony in Mannheim. He himself learned from the mouths of the founders all about the courage to change, as well as the ability to keep on continually reinventing yourself and to challenge the status quo.

The question of whether SAP is really able to change without having to challenge its own DNA may be on the agenda sooner than Christian Klein would like. He has to step on the gas in the move to the cloud and make SAP’s change in strategy irreversible. Supervisory boards, analysts and shareholders are demanding nothing less. And the pressure is intensifying. Year one after the anniversary will therefore perhaps be more decisive for Klein and for SAP than the anniversary year itself—even if this year has already been marked by plenty of turning points and “speeded up tectonic shifts”, as the Chancellor noted. What is important? Bringing customers along and finding new solutions with them. To do this, those involved need courage, empathy, and a good dash of happenstance. Fifty years ago, this was also the spirit that shaped the five SAP founders as they shuttled from data center to data center, little suspecting that fifty years later their company would have evolved to more than a hundred thousand employees.

The big cleanup in 2023: Litmos, IS-H and Business ByDesign are consigned to memory

The new year – year number fifty – begins with a big clean-up. Christian Klein is tidying up and streamlining the portfolio. SAP wants to bundle investments and only put money into projects with growth prospects. At the same time, hundreds of products are due for expensive security and feature updates. Looks like time to wield the axe. So, for instance, SAP is parting ways with the Litmos learning platform. The service for Business ByDesign, the cloud rental software, is also going to be scaled back. SAP is also withdrawing from the healthcare sector, announcing that it will discontinue support for its IS-H (“Industry Solutions Healthcare”) hospital management software. SAP itself does not plan a successor solution to S/4HANA. So SAP is bidding farewell to the healthcare sector.

The Board of Management wants to see more predictability

SAP says it has recognized that its customers want to move to the cloud quickly. The Group has accelerated the modernization of its cloud operations to achieve a harmonized cloud delivery infrastructure ahead of schedule. Christian Klein and his fellow board members have set themselves the goal of increasing growth in cloud revenues to over 22 billion euros by 2025. Above all, the “share of more predictable sales” is to be expanded to around 85 percent. But there is a price to pay for this increased plannability: many customers will see more effort, chaos and unplannability. Clinics, for example, that have worked with SAP up to now—and there are many of them in Germany, Austria and Switzerland—will now have to redesign their hospital information systems on their own. Similarly, many mid-sized companies that relied on the SAP Business By Design rental solution will now have to cope with security patches and legal updates instead of quarterly function updates...

SAP needs a founding spirit, optimism and impartiality

Christian Klein had not even been born when SAP was founded in 1972. He was only born eight years later. Thirty years ago, when he was still cramming vocabulary, grammar and binomial formulas at the age of thirteen, I entered the SAP world. Then in 2006 I took the leap into self-employment, and in 2016 I founded ADventas GmbH. Since 2012, I have contributed as an SAP mentor and in particular drive the development of SAP ECC and S/4HANA. I am happy and proud to have been alongside SAP for a good part of its fifty-year journey to success. Now, as we move into the next stage in 2023, it may do us good to pause a moment and once again examine what has made us successful in the past. I think for me, as for SAP, the root of success lies in its proximity to customers and the firm promise to look for solutions that are not yet to be found off the shelf. You need this founding spirit, this optimism and this impartiality when you start, found, progress. Customers appreciate this and are happy to repay us: with openness, with patience and not least with loyalty, which is urgently needed when things get serious and go wrong.

How much time is SAP giving its customers?

SAP is a global corporation with an extensive portfolio, and in practice, a lot goes wrong even when everything is going smoothly and seemingly without a hitch. That is why customer proximity, both literally and figuratively, is so important. All the more so in a change and consolidation program such as the one SAP has kicked off. The fact that Christian Klein wants and needs to move all business processes to the cloud quickly, consistently and powerfully can be well understood by analysts and shareholders. But many customers simply can’t do this as fast as they would like. They are desperately looking for solutions that will ease their journey into the cloud, while at the same time keeping the comfort of the old familiar on-premises solutions, at least for a transitional period. SAP is increasingly relying on hybrid landscapes. The move to SAP S/4HANA should enable everyone to standardize their business processes. It has now dawned on customers that the cloud is the future. The question remains: how much time is left for the transition?

Who benefits from focusing on “predictable sales”?

The “predictable sales” rhetoric and frantic portfolio adjustments send dangerous signals to customers. There are still many questions: what are the products, solutions and services that SAP will continue to rely on in the future? Which once loudly trumpeted solutions are being abandoned without a trace? How much time is left? What is more important: speed or customer benefit?

Start-ups and small companies find it easier than large corporations to let predictability and detailed strategy scenarios fall by the wayside. Their future is mainly dictated by the customer and all their plans, needs and priorities. So they respond to these demands by moving close to the data center and throwing their own plans in the trash. This absolute commitment to customer value is the very thing that SAP is in danger of throwing out. What good is it to a racing driver if the checkered flag is in clear sight, but the doors are already shaking, the engine overheating and the air conditioning failing? And, perhaps more importantly: what happens when the driver doesn’t know how long the course is, what’s hiding behind the next bend, and whether there are even any spare parts to be found when the car next breaks down?

“Cloud first” is the right way. “Customer first” even more so.

Christian Klein has often made it clear that his mantra is “cloud first” and not “cloud only”. SAP continues to offer on-premise solutions. Rhetoric, marketing and portfolio policy, however, seem more to push the message of “cloud only”—at least, that’s how it comes across to many customers, especially in the midmarket. If SAP wants to move forward in the new phase of the company’s history—in the age of the cloud—it should commit to two equally important principles as well as the cloud credo: “Customer First” and “Customer Only”. Fifty years of history have clearly shown one thing: SAP’s success is always first and foremost the success of its users. All the best for the next fifty years, SAP!