SAP's In The Midst Of Massive Transformation


Just four years ago, nervous attendees dealt with a tumultuous global market entering financial crisis.  SAP's management team decided to raise maintenance fees to shore up its margins amidst a drought of innovation.  Customers revolted en masse.  Policies changed due to user group and global influencer pressure.  Less than 18 months later, a defiant CEO resigned and a new management team resolved to improve relationships with key customers and address the lack of product innovation.
Fast forward to 2012, SAP's acquired its way into innovation with BI/analytics (Business Objects), mobile (Sybase), cloud and HR (SuccessFactors), and a tiny bit of Social (SuccessFactors Cube Tree) (See Figure 1.).  SAP HANA serves as the foundation for the future product line.  SAP's experimenting with consumer apps such as Recalls+.  Innovation in R&D shifts from the star building fortresses of Walldorf to agile tech hubs in TelAviv, Palo Alto, Vancouver, Bangalore, and Shanghai.  From the outside view, SAP's placed long term bets in innovation on its road to 1B users.  The growth in market cap from €30.9B in 2008 to €57.8B (as of 5/11/2012) reflects this perception by the financial community.  Has SAP succeeded where other software vendors have failed during massive periods of transition?
Figure 1. SAP Covers Three Out Of Five Innovation Pillars In The Consumerization of IT

Customers Have Reason To Remain Cautious Of SAP's Ability To Execute

From a customers point of view, the verdict remains mixed.  Loyal customers have seen a series of failures from SAP over the past decade as it attempts to make the shift and claim innovation.  Most industry observers would agree that SAP's made significant investments in innovation.  However, the results of organic innovation have mostly failed from products to services.   A review of the past decade shows four proof points:

1. Delays in the next, next, next, no make that the next version of R/3. For those waiting for the latest version of ERP, the core product will probably show up late to mid decade.  Maintenance plans call for end of support in 2020 which means SAP plans a product between now and 2018 at the latest.  Customers seeking deeper industry functionality now turn to system integrators who build the user exits and customizations required to continue business.  Meanwhile, the market for third party SAP products has never been stronger.  A string of SaaS vendors have emerged to address the "edge applications" in incentive comp, talent management, pricing, travel and expense, collaboration, and marketing automation that SAP previously ignored.  Some of these "edge vendors" such as Salesforce.com have emerged as billion dollar companies creating new markets.  Yet, after several product chiefs and a decade of trying, SAP applications still lack common data models (e.g. there are at least 8 in use), common interfaces, and common process models.   The much hailed enhancement packages delivering "timeless" software require slightly less work than previous upgrades but still require a lot of planning, testing, time, and money.
2. Clearly a confusing cloudy cloud strategy awaiting partly sunny skies. Business by design still has not achieved the tens of thousands of customers by 2010 when it was announced.  At best, SAP has a bit over 1000 live customers.  Customers who use the ByD product have mostly expressed positive comments and have seen the benefits of the OnDemand based approach.  The distribution of the product to the masses and incentivization of sales execution remains challenging to a country club, shake-hands, relationship sales culture.  Meanwhile, a series of well designed, and compelling products from the SAP OnDemand for Large Enterprise initiatives remain under marketed, and in some cases late to market.  Timing could not have been worse as the SuccessFactors acquisition has clouded the cloud strategy.  Customers seek cost effective, heterogeneous, integration options from their on-premises core to the cloud options.  SAP still has to deliver on an integration framework customers find cost effective and can trust.
3. Never so easy, NetWeaver remains hard to use, rigid at best. Various attempts at an SAP middleware have finally made headway. The solutions now include an ABAP version and a Java version.  Previous versions remained hard to use, complicated to maintain, and confusing for the developer ecosystem and the system integrators.  Recent UI improvements help IT leaders convince business customers that they can ease back into SAP.  Everything does look better in an iPad, including SAP.  Sybase's mobile platform replaces a failed and feeble attempt at NetWeaver mobile.  Many customers begrudgingly use NetWeaver and something else.   That something else - well, it's typically 1/2 or 1/4 the cost.
4. Great new maintenance offerings, low user acceptance due to sales not service offering. SAP's made considerable effort to improve its maintenance offerings with new programs and offers to lower the cost of ownership.  Each offer considers the lifecycle of ownership and shows great care and craft in creation.  While most customers show initial interest, the sales process attempts to tie maintenance offers into new professional service revenue instead of reducing the overall spend with SAP.  Because customers mostly see ERP now as a legacy infrastructure, CIO's intend to drive cost out not invest more in.  Hence, many customers consider  a move to third party maintenance options and SAP optimization solutions.

The track record remains mixed.  Customers remain cautions.
What Clients Want From ERP Seems Confusing At First

Recent surveys among ERP clients indicate a bipolar prioritization of cost reduction and innovation (See Figure 2).  While this may not make sense at first, clients have driven cost savings with the purpose of funding innovation.  At the same time, survey respondents in IT seek cost savings while survey respondents on the business side demand and expect innovation.  Consequently, the top 5 areas indicated by survey respondents highlight this emerging trend:

1. Improve mobile access (93.2%)
2. Reduce cost of ownership and complexity (88.8%)
3. Deliver self-service BI (83.7%)
4. Renew focus on innovation and disruptive tech (75.7%)
5. Address integration with existing investments (72.1%)

Figure 2. ERP Customers Now Seek Innovation

In Constellation’s latest survey on the 4 personas of the next generation CIO (to be published May 2012), 105 innovative CIOs indicate a shift away from cloud  (56.4%-2012) and virtualization (29.6% – 2012) to mobile (60.2%-2012) and big data and analytics (48.7%-2012) (see Figure 2).  Despite being the top projects in 2011, the drop in priority of virtualization (51.9%-2011) and cloud (69.6%-2011) doesn’t reflect the lack of interest.  In fact, these projects have matured and innovative CIOs have now prioritized the next wave of innovation.
Figure 3. What Innovative CIO's Expect Their Vendor To Deliver On Disruptive Technologies In 2013

Some key findings:

• Mobile enablement shoots to the top (60.2%). Mobile is the primary interface.  Anywhere, anytime computing is here to stay and these CIOs are working on the infrastructure required to support BYOD and CoIT.  App stores and mobile device management play a key role.
  
• Cloud deployment drops but is the predominant preference (56.4%). Cloud is assumed as the deployment option of choice.  CIOs now looking at providing the platforms to support apps stores, and applications development in the cloud to spur innovation.
  
• Big data and analytics rounds out the top 3 (48.7%). Big data is hot.  Today innovative CIOs take the Lytro approach.  As with a light field camera where you take the picture first and then focus, big data strategies start with capture the data and find the correlations later.
  
• Unified communications and collaboration increases in priority (41.1%). Improvements in cost performance ratios now put UC at the reach for any sized company.  These tools have gone from luxury to essential with home work forces and disparate teams.
  
• Social software enablement grows slowly among CIOs (33.4%).  CIOs focus less on external social software while CMO counterparts drive the purchase and adoption.  On the internal side, the data shows collaboration tied back to unified communications.

As the adoption of these disruptive technologies take shape, early adopters will find the leverage and force multipliers in the convergence of these technologies.
Questions SAPPHIRE Attendees Seek Answers To

These latest findings reflect the buying sentiment of key IT decision makers.  More and more, the business side of the house is asking questions and driving decision making.  SAPPHIRE attendees will ask the same questions amidst the macro trends.  Constellation's Board of Advisor, Dennis Howlett recent post on "What should we expect at SAPPHIRE" provides a great start to questions that customers hope to have answers to.  Here's a few more from Constellation's client research communities and questions from blog readers:

Apps

• How do I plan for a future upgrade when the road map on apps remains murky?
• What's the best way to prioritize industry specific functionality and gain a commitment from SAP executives?
• What steps in reducing maintenance costs will SAP deliver in the next 12 to 18 months without requiring my company to buy more services?
• This is the year of HR and HCM for SAP, can you compete with the HCM innovators?
• What's the HCM road map?
• When will you deliver a social CRM product?
• Will you buy a marketing automation product to augment the marketing product?
• Why is SAP legal holding up contracts and the buying process?

Mobile

• Why does it cost more to use SAP's mobility solutions than it does with third party solutions like Skytek?
• How come as an SAP customer I pay twice and in some cases three times for mobile licenses to access the same system information?
• What's the future of the SAP mobile ecosystem? Which areas will SAP not compete in so partners can thrive?

Social

• How will SAP integrate with Jive, Yammer, and Lithium?
• What's the Sharepoint to SAP social strategy?
• What's in CubeTree that I can use today in my SAP environment?
• Should I go to a best of breed software company for internal and external social business or will SAP make an acquisition to beef up CubeTree?

Cloud

• SAP has at least five cloud platforms.  What's the final cloud road map?
• Can I expect a PaaS layer from SAP that supports open standards?
• Who should I turn to for heterogeneous cloud integration?
• When will SAP deliver a truly multi-tenant SaaS platform?
• How do I ensure I keep to SOA principles in this new messy world of best of breed cloud apps?

Analytics

• When will SAP rationalize its BI products to have a common meta data model and architecture such as IBM and Oracle?
• Why do I pay three times for the same type of product functionality in BW, Business Objects, and now HANA?
• When will SAP provide a business user level visualization tool for enterprise use that's cost effective compared to QlikTech and Tableau?

Database

• When can I get rid of my existing database and go straight to SAP HANA for my apps?
• Will HANA be required in future releases?
• When do I lose choice in database?
• When will HANA be put in the Cloud?

What questions will you ask while you are at SAPPHIRE?
The Bottom Line: Ask Your Questions And Stay Tuned For Updates At SAPPHIRENOW

To date, SAP's innovation efforts earn a B- for good acquisition strategy.  However, execution challenges on organic innovation and overall business value of acquired solutions keep it from moving above a B-.  Expect SAP customers, influencers, and prospects to seek answers to not only how SAP has innovated, but also how well have they executed on their plan and road map.  Customers don't care that SAP has 1B users, share holders do. Customers need to see how these acquisitions deliver overall business value and quick wins for the business.  If SAP drops the ball on what customers want, share holder value will evaporate like alcohol in the desert.  SAP's done a better job than in the past, but customers need solutions faster than ever from traditionally legacy applications vendors.

Your POV.
Ready for SAPPHIRE?  What questions will you be asking SAP executives? What do you hope to leave with?  Add your comments to the blog or reach me via email: R (at) ConstellationRG (dot) com or R (at) SoftwareInsider (dot) com.
Please let us know if you need help with your next gen apps strategy efforts.  Here’s how we can help:

• Mapping out the roadmap in the Future of Work
• Providing contract negotiations and software licensing support for SaaS, Cloud, and On-Premises software.
• Evaluating SaaS/Cloud options
• Assessing apps strategies (e.g. single instance, two-tier ERP, upgrade, custom dev, packaged deployments”
• Designing end to end processes and systems
• Comparing SaaS/Cloud integration strategies
• Assisting with legacy ERP migration
• Engaging in an SCRM, HR tech and strategy
• Planning upgrades and migration
• Performing vendor selection

Resources
SAP Conference Call Replay With Bill McDermott and Lars Dalgaard

Monday’s Musings: Balancing The Six S’s In Consumerization Of IT
Monday’s Musings: A Working Vendor Landscape For Social Business
Research Report: The Upcoming Battle For The Largest Share Of The Technology Budget Part 1
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