ISG Software Research Analyst Perspectives

It is no easy task to change the culture of a global technology company, especially one that has a very demanding customer base with high expectations for advancing its widespread product lines. This is the challenge that SAP faces as it transitions from a company of three-letter-acronym collections of applications including CRM, SCM and ERP to one that focuses on specific business processes and needs. (My colleague recently discussed the problems in forklift migrations of ERP.)  This transition is necessitated by the shift of purchasing power and influence for applications back to business after over a decade of IT control. This alone might not seem like a drastic change, but reframing its entire dialogue and sales approach is not simple for a company the size of SAP. It must continue to grow through new applications and substantive upgrades of existing ones and cannot rely just on maintenance fees from the installed base. Over the last several months we’ve kept an eye on SAP as it builds up of its annual SAPPHIRE NOW conference, investigating changes in products and management. I’d like to share some of our firm’s analysis with those of you who have invested with or are looking to invest in SAP.

SAP decided in 2010 it had to make fast changes to the business in this current global economic environment. It began with the appointment of Bill McDermott and Jim Hagermann Snabe (Bill and Jim for short) as co-CEOs, which I covered at the time. Since then there have been other significant management changes under the covers of SAP designed to further drive change in the culture and operating behavior. This January saw an array of new assignments and promotions including Sanjay Poonen as president of the global go to market with focus on lines of business, industries, the portfolio of business analytic solutions and technology, Eric Duffaut as president of global ecosystem and channels, Jose Duarte as president of global services, Franck Cohen as president of SAP EMEA and Robert Courteau as president of SAP North America. In addition, as global CIO of SAP Oliver Bussmann is charged with making SAP itself one of those “best-run businesses that run SAP,” a long-overdue agenda item.

As everyone knows, previous leader Leo Apotheker is now CEO of HP, and he is bringing SAP employees to HP, apparently with little objection from SAP. In particular Apotheker hired SAP’s chief marketing officer Marty Homlish as the new CMO of HP. This opening leaves room for SAP to change and innovate in under marketing EVP Jonathan Becher, who might be in line for the CMO role. Marty rarely communicated directly to the market, Jonathan brings a completely opposite, more open approach to marketing that is getting many to notice.

More interesting is the jockeying of HP to position itself as directly competing with SAP in enterprise software from analytics, mobility and appliances; its competency is yet to be proven, as even my sources inside HP are skeptical. But my sources inside of SAP seem not to be worried about this threat and are focused on the transition away from past leadership and lower-level managers who have left the organization to adapt to the new marching orders.

SAP is also moving to change its style of communications with the assignment of Hubertus Kuelps as head executive. He already is shaking things up. This comes after the departure of Bill Wohl as head of public relations and more recently with Don Bulmer as head of industry analyst and influencer programs. This is not a surprise as many of us from the outside have seen politics and ineffective processes hinder SAP over the last decade. The large number of individuals in this organization who do not embrace social media and communicate efficiently across LinkedIn, Twitter and other channels is a glaring example of its old-school approach. There is no doubt that this is the new reality of communications and marketing; by 2013 over half of the U.S. workforce will have been born after 1977, and they expect to consume information much more differently than we did in the past. For my views on this, read “Social Media Ignorance in the IT Analyst Industry.”

As I have noted recently SAP is also invigorating its technology strategy and taking steps to continue its innovation and engineering leadership under global CTO Vishal Sikka. Changing the technology stack and innovating is hard work, as my colleague points out and having a great team can make the difference. SAP has promoted a range of new technology leaders in the past year, including the new EVP T.K. (“Ranga”) Rengarajan and SVP Sethu Meenakshisundaram to lead the new scope of business analytic products and technologies. In addition SVP Guido Schroeder within SAP Labs is leading a new generation of solutions that are cloud-based and engage analytics and collaboration. Group VP and chief architect Adam Thier is leading the architecture of its large-scale HANA technologies; he has led financial and business application product development at Hyperion and Lawson. Dr. Raj Nathan from Sybase is leading the drive for a new portfolio of mobile applications that clearly will be important to the future of SAP.

The focus on business analytics by SAP has been changing also,  and the new leadership is taking it very seriously. As well as Sanjay Poonen, he has a new leader reporting to him with Steve Lucas as global GM, and also John Schweitzer as SVP in SAP North America, and global group VP of marketing Stephanie Buscemi and Jeff Stiles as SVP Solution Marketing. SAP has felt pressure from the global competition of IBM and has armed itself with people and products to respond and advance its competitive agenda. This has become a two-team global race, leaving Microsoft and Oracle on the sidelines with smaller investment in leadership and products for this growing segment. Our recent benchmark research on business analytics  studying almost 3,000 organizations found a significant demand and necessity of investment into them.

SAP is also retrofitting and advancing its underlying BI and information management to ensure that its applications can be implemented in a timely and business-focused manner. This was seen recently with my colleague David Menninger’s analysis of version 4 of SAP EIM and SAP Business Intelligence. These are also foundations for new products that my colleague Robert Kugel has assessed in SAP BusinessObjects GRC 10  and SAP EPM which we recently reviewed in our Value Index for Financial Performance Management.

These are all part of Bill and Jim’s agenda to drive change. To do that they are setting the tone and engaging new leaders from within and from the outside who can help rally the spirit of their large organization. This is requires passion as well as experience, and SAP has to see that its future lies in the new world of cloud computing, analytics, mobility, collaboration and social media, which is what I outlined as the future of business technology revolution in computing.

The Sapphire conference is next week, and I expect to see a more focused presentation than last year on the introduction of new technology and applications. The foundation of many new applications will be HANA, an in-memory technology that is enabling a new range of applications that were previously could not operate in a single instance globally. In addition SAP will deepen its presentation of mobile applications for helping business operate and also engage customers and the broader world of consumers. I also expect to see more in what SAP is doing in the area of contact center and communications technology that my colleague Richard Snow did some preliminary analysis on. I’ll look for a refined focus on sales, where SAP has to improve to compete in the business category of sales performance management that I recently assessed and the direct needs of sales.  These areas have much greater potential than investing in the past with CRM, which I discovered is still a SAP priority I also was shown some of the new advances being made in human capital and talent management, a market that SAP has been slow to address but seems to taking more seriously; my colleague Kevin Grossman believes will this be the next boom in focus on the people and not just the processes of an organization.

The next round business analytics for the lines of business  and vertical industries will be another major part of the event. There’s a rumor that the day-one keynote will provide a forecast of how businesses will operate in 2015; day two will have a dialogue with Bill and Jim on the customer’s view of SAP and its future; technology gets the spotlight on day three with global CTO Vishal Sikka and founder Hasso Plattner. The keynotes will provide an opportunity for these leaders to lay out their view of the new world of technology, picking up from last year and perhaps showing a sharpened competitive edge and spirit. 

I am packing up for the week to head to SAP’s annual conference, and if you want to find me, look me up on Twitter (@marksmithvr), drop me a message and we can meet up. It will be an interesting venue to see how this global technology and applications supplier is changing to meet the future.

Regards,

Mark Smith – CEO & Chief Research Officer