Christian Klein On The Cloud

SAP CEO Christian Klein gave an interview with Bob Evans recently on the Cloud Wars blog in which he discussed the three years of his time leading the corporation through some of the most complex macroeconomic events in recent history.

He also spoke of SAP’s new position as the 2nd fastest growing cloud company, and how working with industry partners has helped them achieve this status.

This week IgniteSAP discusses how these comments reflect on SAP’s growth through 2023 and beyond.

Almost Three Years As CEO

The three years of Klein’s leadership have seen him steer the company through some extremely challenging times as SAP has coped with pandemic disruptions and war.

Added to this context of change in the world, SAP has been going through a restructuring of its business model, moving from a focus on on-premise implementations to SaaS. As a result the corporation has become a much more appealing proposition for small-to-medium enterprises as well as larger customers.

“No one actually has foreseen that this will last so long and will be so terrible, and so hard-hitting for many people and of course, also for the economy. But despite all of that, I’m so proud about the team and the employees of SAP because such a transformation is never easy.”

Since the revision of its mid-term goals and announcing this strategic change SAP shares have dropped and then slowly increased as the corporation has shifted from being product-focussed to orienting around customer success: providing services to help businesses to run more efficiently rather than looking for a one-off sale from each customer.

From a high of €139 in October 2020 SAP stock dropped then steadily recovered despite the pandemic and corporate structural change. They then took another hit along with the rest of the economy due to the Ukraine war and consequent inflation, and recovered once again: demonstrating the kind of resilience it hopes to help its own customers to achieve.

Cloud Growth

Cloud growth resulting from SAP’s cloud pivot is a major factor in SAP’s success, to the extent that this more predictable revenue stream now accounts for 40% of total revenue. The introduction of SAP’s business transformation as a service, Rise with SAP has helped make the cloud more accessible for many existing and new SAP customers and now occupies a central position in SAP’s growth strategy.

Combined with Rise with SAP, S/4HANA Cloud adoption is also gaining momentum.

“We started almost from scratch and now actually, it’s a business of over 2 billion growing by 90%. And… it’s not only about the technical migration… there’s so many large customers, which we now just signed and which are already live on Rise, and they’re doing this for transformation purposes. And this is so important that you see how the strategy is coming together. Rise is the umbrella to connect the business processes to system layer and the data layer.”

The interconnection of each layer of the business also means that customers are more inclined to consider other SAP products when they have adopted one because the beneficial effect of SAP on business processes is cumulative. The resulting end-to-end transparency brings with it further benefits as each layer of the business is coherent with the whole.

Transformation and Process Automation

Another aspect of SAP’s recent success is due to its ability to help other companies change their own business models: to transform and to automate business processes.

Digital transformation is no longer just an option, but fundamental to the survival of many well-established corporations. It is the means by which corporate giants can maintain the agility to react to macroeconomic events and paradigm shifts in the economy, like the adoption of clean energy provision by utilities companies, and electric vehicle manufacture by automotive companies.

Equally, smaller companies are more able to take advantage of the benefits of cloud-based business operations services which have a far lower total cost of ownership. This opens up SAP’s customer base to a wider market.

Both categories of SAP customer are also drawn to SAP for their process automation solutions which allow them to be more efficient with their allocation of resources in day-to-day operations.

Together with their partners SAP is helping businesses analyse their processes and minimising manual processes. Standardising for seamless integration, and automating processes with AI embedded into SAP products and services.

“When we started this journey and launched a new strategy and began the transformation of SAP, it was not only about moving to the cloud but also really about helping companies to transform. We have come a long way. You saw our accelerated cloud momentum, and this is even more important: the relevance of our portfolio in tackling the most pressing needs of our customers.”

Partner’s Needs Define SAP Growth

Discussing SAP’s close partnership with BMW, Klein said that customers are now providing inspiration for further innovations among extended and transparent networks of suppliers, and manufacturers.

Bringing these together with automations in logistics and warehousing, procurement and HR, means that larger corporations are more connected from the shop floor to the executive level.

Through these interactions with customers SAP is gaining insight into how and where to adjust their software and service offerings to fulfil the requirements of industry.

Implementations in Months Not Years

Customers often pointed out in the past that the disruption of big corporate implementation projects which could last over a year were a massive problem, and one of the reasons why SAP’s new SaaS model is more attractive is that cloud-based SAP system implementation projects take far less time.

Because now 80% of customers are now small-to-medium enterprises they need to go live on a system upgrade in weeks not months, and SAP’s portfolio of cloud products are helping them to achieve this goal.

Co-Innovation

Another issue that SAP has addressed in Klein’s time as CEO is the friction around customisations and extensibility of SAP systems.

While SAP has been pushing for standardisation for the purposes of reducing compatibility issues, they have recognised and enthusiastically facilitated the ability of partners and customers to tailor their SAP systems to their needs via the modules of the Business Technology Platform.

SAP also introduced SAP Build, a platform which allows employees of companies to create their own apps and extensions without the need for coding. This means that slight alterations to part of an SAP system do not require the intervention of internal IT departments and external IT services providers.

The Future of SAP

In their full year financial report at the end of January SAP stated that they expect cloud revenue to increase to €22 billion: just under a third of the total expected revenue of €36 billion.

In the same announcement SAP said it would be carrying out targeted restructuring with an expected cut of 2.5% of their workforce.

Significantly, it also reported a predicted expansion of more predictable revenue to 85% over the next two years. This is at the heart of the strategy which has been playing out over the last three years.

By moving towards a more predictable revenue stream through the pivot to the cloud-based SaaS business model, SAP is ensuring that it can achieve an enviable financial stability: leading to more innovation and investment in the future.

For IT consultants working in the SAP ecosystem this is reassuring news.

Having passed the hurdle of changing the business model, SAP is now set to become indispensable to a huge variety of businesses and organisations because it is making it easier for these groups to future-proof their own activities.

As a result the landscape of the SAP services market is expected to change, with more demand for more regular input by SAP consultants rather than periodic monolithic implementation projects.

The IT services industry as a whole has been able to provide many of the solutions to the disruption to business of the last three years, and SAP has made the changes required to be at the forefront of this movement.

More importantly, it has laid the foundations for a mutually profitable future, working in close alliance with many partners and providing a market for thousands of SAP practitioners.

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