For quite a while now, we’ve been hearing three major themes from SAP: in-memory, mobility and on demand. In-memory (HANA) seemed to dominate the discussion at Sapphire in Orlando and then again at TechEd in Las Vegas. Mobility took on a little more prominence in the discussions at the co-located (Sapphire and TechEd) events in Madrid. But it was the on demand theme’s turn to be front and center at the SAP Influencer Summit in Boston this week. Usually this is a one day event, with some follow-on special interest group meetings the following day. But this year, SAP felt its cloud strategy merited an entire day two for all.
Early on day two we heard Peter Lorenz, Corporate Officer and Executive Vice President of OnDemand Solutions say something that I think set the stage quite well: “We don’t have pieces of a strategy. We really have a cloud strategy.” This implies a re-think and a holistic approach. Cloud of course is not new at SAP. The company entered the cloud world several years ago with the introduction of Business ByDesign. But that product had some false starts and the installed base hovered at 40 “charter” clients for a long time before SAP was ready to really go to market. At the end of Q3 SAP claims 650 customers and is still confident in predicting it will reach 1000 by the end of the year (yes, only two weeks away). There is a lot of back story here, but the real turning point was when ByDesign became multi-tenant last year, allowing SAP to profitably scale the OnDemand business. Also a factor… the release of the ByDesign Software Developer’s Kit (SDK) to allow partners and customers to extend the solution.
So what is SAP’s strategy and how does this reflect a convergence of trends?
SAP’s Cloud Strategy
An important aspect of SAP’s cloud strategy is that it is at least partially a result of listening to its customers. SAP execs heard customers asking them to “protect cloud dynamics” while leveraging existing processes and investments. “Protect cloud dynamics” sounds bit like marketing spin to me, but I think it means that customers want all the benefits of cloud deployments and yet many are not in a position to abandon some, any or all of their existing solutions. SAP has heard that speed of deployment is what people like best about the cloud. My research indicates speed of deployment is certainly one very important factor but the top three perceived benefits are all about costs:
- Lower total cost of ownership (52% of respondents)
- Reduced cost and effort of upgrades (48%)
- Lower startup costs (46%)
Yet faster often equates to lower costs – because time is money.
Technology-wise SAP’s cloud strategy is based upon the platform it created in developing Business ByDesign. This too is not new news. Business ByDesign is part of SAP’s SME product portfolio and is an integrated business management suite intended to address the end-to-end business processes of a diversity of small to midsize enterprises. As such it fits my definition of Enterprise Resource Planning (ERP): an integrated suite of modules that forms the transactional system of record for a business. ByDesign is delivered exclusively as Software as a Service (SaaS). It’s a good platform choice since the product was developed from scratch for the cloud. I think you will soon see SAP repositioning it in the context of company size. Even now, ByDesign targets both SMEs as well as subsidiaries of large enterprises.
Since SAP announced the ByDesign platform as the strategic platform of choice for OnDemand solutions last year, it has also been using this platform to develop additional “Line of Business (LoB)” solutions. I have always found the reference to LoB a bit confusing, because any enterprise application should be designed for the business. But in this context I have really found it to mean extensions to ERP that are designed for a single functional area of the business – I suppose you could say, a single “line” of business role. But (less intuitively) LoB here also refers to a cloud deployment model. Examples of these are:
- Sales OnDemand
- Service OnDemand
- Travel OnDemand
- Career OnDemand
- Sourcing OnDemand
- Carbon Impact
- Sales and Operations Planning (S&OP) OnDemand
Streamwork and Crossgate round out the OnDemand portfolio, providing collaboration services. But SAP is not relying exclusively on its own development efforts to bring end-to-end OnDemand solutions to market. Today there are more than 40 ByDesign partners and 70 ByDesign applications that have been developed using the SDK. SAP expects to continue to round out the framework and the base product but fully expects its ecosystem to supplement that functionality, particularly to address vertical industry requirements and to provide localizations for subsidiaries in countries that are not yet on SAP’s three year roadmap.
SAP’s strategy is to have OnDemand solutions sold by a dedicated cloud “go-to-market” organization which will be direct for large enterprises and indirect (through a channel) for SMEs. SAP sees a huge opportunity for this dedicated sales force in selling to all its 176,000 customers, which also includes the Sybase installed base of customers.
Now of course the finer points of the strategy are subject to change because of SAP’s recent announcement of its intent to acquire SuccessFactors (SFSF). SFSF calls itself a “Business Execution Software” company, but I put it in the category of Human Capital Management (HCM) software. While employees are certainly critical to the success of a business, for a lot of types of companies (e.g. manufacturers), there is a lot more to manage than people.
But the category of software is far less important here than the fact that SFSF’s business is entirely SaaS and Lars Dalgaard, founder and CEO, is also part of the package. Technology is only one part of providing cloud-based solutions, which are designed, built, sold, delivered and serviced differently than traditional on-premise solutions. And those traditional solutions are what made SAP the giant company it is today, making it a relative newbie in the on demand world. Co-CEO Jim Hagemann Snabe was quick to point to SFSF’s cloud DNA as a driving factor behind the acquisition.
Spotting the trends
So how is this strategy reflective of both historical and emerging trends in the software world? Three different trends come immediately to mind: trends in cloud computing, multi-tier ERP and mobility.
The topic of cloud deployment of enterprise applications has been heating up for the past several years. While ERP has lagged behind in terms of interest and adoption, cloud-based applications surrounding ERP have trended upwards. Now the barriers to acceptance of SaaS ERP appear to be crumbling. The 2011 ERP Mint Jutras Solution Study found almost half (45%) of over 950 qualified respondents would consider SaaS/On Demand as a deployment option if they were making an ERP selection today. The companies with the top performing implementations were even more likely to consider SaaS (62% of what we defined as “World Class”). Even more interesting, the percentage that would consider a traditional on-premise deployment was down to 56%. In years past, this would have been between 85% and 90%. And only 38% of World Class would consider traditional on-premise.
Expanding the target for ByDesign beyond SMEs to include subsidiaries of large companies is also in line with trends. While many think of the market for SaaS ERP as primarily small companies, the Mint Jutras ERP Solution Study found the interest in SaaS deployment did not decline with increased company size. In fact it escalated from 42% in small companies (those with annual revenues under $25 million) to 59% in large enterprises (those whose annual revenues exceeded $1 billion).
And looking beyond ERP to those LoB solutions, it is very likely that even those with existing on-premise solutions are keen to extend those processes with cloud extensions to leverage cost savings and speed of deployment. While we found lower cost to be the primary appeal of SaaS, more frequent updates and ease of supporting remote employees and remote operating locations were also significant factors.
However, while SAP sees all 176,000 of its customer base a prime target for these LoB solutions, I am not sure I would agree. More than 78% of SAP customers are SMEs. Sure very small companies could benefit from the functionality, but they can also live without it and there are very cheap (sometimes free) alternatives that will be “good enough” for the low end of the market. Take for example Expensify as an alternative to Travel OnDemand – a solution to make the capture, submission and reimbursement of travel expenses simple for all your road warriors. Of course SAP’s solution is more robust, but will a small company pay for Travel OnDemand when Expensify is free?
The ease that “cloud” delivers in connecting remote employees and managing remote sites brings us to the second trend: that of a growing need for a multi-tier ERP strategy. Once upon a time a company generally had to be of a certain size (think fairly big) before it had to deal with multiple operating locations. That is no longer the case. In fact in our same ERP study, 67% of all our survey respondents had more than one operating location (served by ERP) even though our survey sample included companies of all sizes from very small to very large. Even small companies (revenues under $25 million) averaged 2.5 operating locations. Of course this average escalated steadily to 10.7 in companies with revenues over $1 billion.
Another shift: “back in the day” even if there were multiple operating locations, different sites might have little to do with one another. But in today’s globalized environment that is rare. We have shared services, feeder plants, decentralized distribution for centralized manufacturing and centralized distribution for decentralized production; all creating a growing need for collaboration. With little interoperability, historically individual business units or divisions might have been left to their own devices to select and implement enterprise applications, including ERP. But as the need for interoperability grows, leaving everyone to do their own thing can create a nightmare.
Today 98% of top performers (and even 84% of all others) define standards for ERP implementations, but that doesn’t necessarily mean a single ERP used at corporate headquarters and also at all operating locations. It might mean a single corporate ERP and one or more “standard” ERP solutions, depending on the level of autonomy or interdependence between sites. In fact we found that World Class implementations were more than 2 ½ times as likely to use a two tier standard (one ERP at corporate and a single different ERP at the divisional level) and 1 ½ times as likely to use a multi-tier standard (two or more “standards” are defined for business units).
What does this have to do with a cloud strategy? What better way to implement, enforce and control the “standards” at multiple, remote operating locations than through a SaaS deployment model? This is especially true if remote sites are in emerging markets where IT talent and ERP experience are rare commodities?
Which brings us to the final trend: an increasingly mobilized world. This is one area where emerging markets do not necessarily lag behind mature markets. Everyone carries some sort of mobile device today, sometimes multiple devices. By untethering ourselves from the wired world, we have actually tethered ourselves more to the business and expect to be connected “on demand” sometimes 24X7.
This is why mobility is at the forefront for the ByDesign platform, which currently supports BlackBerry, Windows Mobile 7, iPhone and Android. Mobile scenarios include sales, approvals, expense reports, and analytics. Feature Pack (FP) 3.5, due out in January will focus on the iPad, which seems to be emerging as the tablet of choice for executive management and sales. FP3.5 will deliver sales catalogs, account management, lead and opportunity management on the iPad.
Cloud strategies are a hot topic of discussion today. However, sometimes the more vendors and industry “experts” discuss the topic, introducing their own definitions and requirements, the more confused the general audience becomes. So far SAP has resisted being dragged into the fray of accusations about “cloud washing” and “false clouds.” In evaluating SAP’s strategy, the reader would also be advised to evaluate the offerings based on their own individual needs rather than on any one person’s definition of “true SaaS.” After all, not all companies have the same needs or desires.
And in fact I believe eventually “cloud” as a topic will cool down significantly. One day in the not too distant future, deployment option will become just another check box. It won’t matter so much how it is deployed, only that it solves your business problems.