SAP’s ‘Run Simple’ message is on target but not a current reality
Stuart Williams, Vice President of Research, TBR
JUL 14, 2014 00:41 AM
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TBR Perspective: SAP moves to drive business by becoming ‘simple'

SAP held its annual user conference, SAPPHIRE NOW, from June 2 to June 5 in Orlando. The two main themes of the event were simplifying the way IT supports business outcomes and how SAP's HANA-powered portfolio "simply" enables those outcomes. TBR believes SAP is hitting on the right notes as businesses seek to easily use IT to meet goals. At the same time, IT buyers are demanding increased simplicity from their IT environments. SAP is reacting to and driving change. The pace of change has increased dramatically, reflected in public cloud business growing at over five times the overall rate of IT growth. SAP is also driving disruptive change, looking to use innovation to upset competitors and expand its addressable markets.

SAP's response to the market challenge is to commercialize technical innovation to its core portfolio. SAP is accelerating its packaging and go to market of the new kinds of applications and platforms enabled by its in-memory platform breakthrough. The company reported that over 1,000 customers have purchased its SAP Business Suite powered by SAP HANA — a solid figure, but less than 1% of the firm's 250,000 customers. SAP also announced a new set of solutions called SAP Simple Finance — a breakthrough that fully capitalizes on the in-memory technology and eases adoption by using the HANA Enterprise Cloud for delivery and a flexible subscription model.

SAP is also simplifying how customers engage, crafting one engagement model, one services experience and one support portal across its core on-premises, cloud-delivered and emerging HANA Platform businesses. Reducing complexity in engagements will pay off by lessening the perception of SAP as cumbersome, complex, time-consuming and costly. The focus is balancing long-term customer experience moving from one transaction to the next.

For SAP customers, the SAPPHIRE messages are signposts for how the firm will seek to engage and deliver value over the coming years. For partners, SAP's moves blur the boundaries between software and services, with a new Global Partner Organization tasked with being a central point for negotiating increasingly complex co-opetition with key partners. For competitors, SAP continues to invest in transforming its technological advances into revenue streams, and firms that do not have a compelling case against the potential for business transformation will face increasing resistance as SAP builds out a history of customer success.

Simplification is about customer issues

The overarching message from the event was "Run Simple." The main focus of new sole CEO Bill McDermott's keynote address was that business has become too complex. There are too many processes that have been built to solve problems, but have over time become the problems themselves. This is particularly true in the IT industry. In many cases, vendors such as SAP have contributed to the problem. Many IT systems have been developed to optimize process, but they have become so rigid that in many cases they inhibit the ability of the enterprise to react quickly to changing business conditions. SAP is trying to create a more simple IT environment that can more easily react to changing business conditions.

Successfully executing against its simplification strategy will be critical for SAP to change its perception with customers and partners. Viewed traditionally as complicated in consumption models and user experience, SAP will simplify pricing structures, contracts and user interface to improve engagement with its ecosystem. Announcements made during SAPPHIRE NOW such as including Fiori in software licenses and the launch of its "One" support, services and delivery offerings showcased SAP's initial steps in an endless journey toward simplification across its business.

Throughout SAPPHIRE NOW, SAP executives and customers admitted that, in the past, SAP's user interface was not up to par. To answer customer demands for a better user experience, SAP launched Fiori a year ago; however, the company was charging customers for Fiori applications, which are simplified applications that offer select functionality of SAP applications based on role-specific requirements. In his keynote, McDermott announced Fiori applications will now be included in software licenses for all customers. TBR views this as a smart move for SAP, as customers do not expect to pay extra for an easy-to-use software experience. We expect SAP will see increased adoption of its Fiori applications after removing this large barrier to adoption.

The SAP HANA platform is the next big wave

The other main theme of the conference was the expanding capabilities of the HANA platform. When HANA was first introduced it was described as an in-memory database. Since then, the firm has added functionally and now delivers the HANA platform. Moving the data from traditional database technology and spinning disk to in-memory enables enterprises to conduct faster transactions, processes and analytics. The true value of speed it not realized until enterprises use the platform to access all of their data and change the way they approach business. The traditional approach to applications was to create large databases with defined schema, identify the reports that need to be run, and then produce the reports. The problem with this approach is that in many cases it requires organizations define the aggregates in advance and generally keep them static since changing the definitions and recalculating the aggregate takes a considerable amount of effort — and may not be possible if the underlying records are gone. This results in an approach to business that cannot be optimized for new data sources or a changing business environment. However, the additional speed of in-memory technology enables enterprises to more quickly run analyses that can be easily configured to changing business conditions. Furthermore, since the decisions can be made faster, they can provide a closer-to-real-time view into the organization's performance, rather than a historical view of the past.

Four implications of SAP's ‘Run Simple' SAPPHIRE NOW themes

The shift from technology development to commercialization will drive an evolution in SAP's investments and market behavior. With over 1,000 customers in the process of deploying Business Suite on HANA, SAP is looking past these early adopters to mainstream consumption.

1.      The market is ready, and SAP faces pent-up demand: TBR research in hybrid cloud adoption indicates large enterprises are on the cusp of moving their traditional mission-critical back-office applications to more flexible private and hybrid cloud systems. SAP's HANA Enterprise Cloud, its Managed Cloud as a Service and its partner programs are steps toward enabling this adoption and migration. While SAP has nearly 250,000 customers, just over 40,000 are large enterprises that comprise the bulk of SAP's revenue opportunity. SAP will likely serve 10% to 15% of this segment via its HANA Enterprise Cloud, leaving significant partner opportunity.

2.      Challenges to mitigate application and platform migration risk: SAP is asking its install base of R/3 and Business Suite customers to transition to the new HANA platform. At the same time, these clients want to shift to cloud. Every convenience and risk-reduction tactic SAP and its partners can deliver will reduce barriers and focus the investment decision on the business value customers desire. SAP has a multiyear market advantage over competitors; however, allowing technical issues to derail monetization hurts the ability of the company and its ecosystem to capitalize on a TBR estimated 2014 $114 billion aggregate public, private, hybrid and component cloud market.

3.      "ONE" strategy can pay off — if execution remains focused on customer outcomes: Making SAP easy to do business with is an admirable objective and one that supports a powerful margin contributor. The "ONE" activities outlined above begin a process that can significantly improve customer and partner value and satisfaction. SAP is a leader in using its value engineering to establish a business-driven value proposition, and SAP will use that data to confirm the success of its offerings. Sustained executive sponsorship, internal KPIs and careful attention to customer feedback are key elements to the success of this critical initiative.

4.      TBR believes migration will require significant investment by SAP's partners: The shift to the Business Suite powered by the HANA platform represents a significant change in the way companies will use IT to run their business. While SAP has developed a robust suite of applications that can address the majority of business challenges, it will not be able to address all aspects of customer demand. TBR believes SAP will need to co-innovate with partners, including ISV, technology and service partners, and customers to provide a complete solution. SAP recognizes this challenge and is in the early stages of addressing it. During a tour of the partner booths, we met with participants in SAP's PartnerEdge program who are helping SAP expand its ecosystem and drive adoption of HANA. For example, SAP is leveraging its relationship with SUSE to engage with new partners. SUSE offers HANA on its Linux Enterprise Server, enabling customers to deploy SAP HANA on SUSE infrastructure. This provides SAP with a larger number of potential partners that it can co-innovate with to develop applications atop HANA and extend the reach and breadth of the platform. Other partners such as Accenture are developing applications atop the HANA Cloud Platform that complement and extend the reach of other SAP applications including SuccessFactors.

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients' needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis. 

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