I had the opportunity to join SAP (NYSE: SAP) executives recently for SAP’s Capital Markets Day at the New York Stock Exchange (NYSE).
Before talking about my perspective on SAP and the SAP Cloud Platform, I would be remiss mentioning the NYSE itself. The NYSE is not like every other business location in lower Manhattan. The NYSE is more like a working museum. The halls are opulent and filled with the rich (pun intended) history of the NYSE. From clocks running since the mid-1800s’ to maps from the same period and paintings galore, the history of the NYSE comes out with every turn. Check out my Tweets and Instagram pictures for more details.
Now on to SAP Capital Markets Day.
NOT YOUR TYPICAL ERP SYSTEM
SAP Cloud Platform is SAP’s overarching name given to their core set of cloud-based offerings. Today, SAP Cloud Platform includes S4 and HANA; SAP’s in-memory database solution.
Like many cloud-based software solutions, SAP Cloud Platform offers many of the core features found in their traditional Enterprise Resource Planning (ERP) solution without the overhead of managing the underlying infrastructure. Traditional ERP solutions are very resource intensive and require a fleet of staff and systems to maintain. At the same time, these same solutions are getting increasingly more complex maintain.
In addition to the initial implementation, upgrades for ERP solutions are equally complicated and expensive. Much of this is due to the significant customizations that customers perform with their specific implementation. Therefore, many enterprises are starting to consider cloud-based ERP solutions.
SAP Cloud Platform offers a cloud-based alternative to their core ERP offering hence alleviating the need for customers to manage the underlying system and corresponding infrastructure. However, that doesn’t tell the whole story.
NEW TECHNOLOGY IN THE CLOUD
By shifting their focus to SAP Cloud Platform, SAP can introduce new technology much quicker than previously possible. Since SAP is managing the platform, software updates are relatively automatic with little to no involvement on behalf of the customer. In turn, customers can immediately take advantage of new technology without having to wait until the next upgrade cycle…which may be years away.
One of the new technologies that SAP is bringing to SAP Cloud Platform is Artificial Intelligence (AI). When using the traditional ERP approach, a rollout of new technology may take years. However, cloud allows customers to immediately leverage AI. That is a huge differentiator considering the pace in which technology is changing. There is simply no way for traditional enterprises to keep up with the ever-changing technology landscape.
A SHIFT IN CUSTOMER BEHAVIOR
While speaking with customers at the event, one difference in thinking started appearing. A very stark difference in thinking. Essentially, customers now realize the frustration, complexity and cost that comes with highly configured environments. Any changes require a significant amount of time and money. Of the customers that I spoke with at SAP Capital Markets Day, this thinking has turned on its head.
In the past, the traditional thinking was to modify the ERP system to map against existing business processes. This approach, from experience, was complicated and troublesome on many levels. At the end of the implementation the company was left with a snowflake of software that was as unique as their business.
In the new model, companies realize the painful downsides of customization. Of the customers I spoke with, they focused on how processes were setup in the system and changed their internal business processes to match those. This is the exact opposite approach from the traditional one.
If I go back 20+ years to my first experience implementing SAP, the very suggestion to adapt business processes to the software would have been considered heresy. Yet, that is exactly what is happening today.
The conversations I had with SAP customers about their philosophy on how technology and business intersect echoes other conversations I have with customers. There is a time to adapt technology to business…but to a point. We need to understand the downsides in doing so. Just because you can customize something does not mean you should.
I wrote about this four years ago in Simple and Standard…or Custom and Complex? It appears this is finally playing out. And SAP is projecting that this shift in thinking will translate to most of their revenue coming from their SAP Cloud Platform in next few years. That is a bold statement, but not out of bounds.
If you think about ERP systems today, they are heavy, complicated and costly. There is a minimum price to play with ERP. By offering their ERP solution via cloud, SAP has lowered the barrier to entry for ERP. And by doing so has effectively opened their market potential to a much wider audience…that previously would have never considered ERP at the SAP level.
From my conversations with SAP executives, SAP is a very different company these days. That starts with their CEO, Bill McDermott, and filters throughout the organization. As enterprises move to cloud, SAP will be one company to watch in the coming years.