We’re just getting started

50 years ago five former IBM executives started a new conversation by forming a company called Systemanalyse und Programmentwicklung. Since then, new protagonists have emerged, markets have shifted, share prices have fluctuated and products have evolved, but one thing has remained constant. SAP is the market leader….by a mile.

CHRISTIAN KLEIN

he Fortune Global 500 tells a compelling story - the world’s biggest companies trust SAP to run their operations. On top of these enterprise credentials more than 400,000 other businesses rely on SAP technologies for finance, procurement, sales, HR, planning and supply chain management. A blue thread runs through the heart of global commerce emanating from a small town in Germany called Waldorf and stretching out to all four corners of the world.

I used to doubt SAP’s claim that it touched more than 85 percent of world GDP: having spent so much time researching SAP, the only surprise is that figure isn’t higher. Ninety-nine of the world’s 100 largest companies are SAP customers - and for those who think they are all legacy clients, 85 are already running S/4HANA.

SAP generated €30.8bn in revenue last year€12.5bn from the cloud. Most notably, S/4HANA cloud revenue was up by 90 percent to more than $2bn with a staggering $34.2bn of total cloud backlog committed. By any measure, SAP is the dominant force in enterprise technology and there are no signs it has any intention of letting that title slip.

When discussing SAP’s results and recent performance, Klein told me: “2022 was a very successful year for SAP. We met our guidance across the board with our cloud revenue rising 24 percent, up five percentage points from 2021. We achieved all of this despite our exit from Russia, our divestiture of Litmos, and the macroeconomic volatility around the world. To be frank, I think we’ll look back at 2022 as one of the most important years in our history. Our cloud transformation is now in full swing and we have created a highly resilient business with recurring revenue of 79 percent. This is a reflection of the strength of the strategy we introduced just over two years ago.”

Legacy

We often talk negatively about legacy. SAP itself has been described as a legacy technology company and the term usually characterizes a set of circumstances, a product or service that is from yesteryear, and as such, should be consigned to history.

SAP’s legacy is somewhat different. Put simply, there is no ERP without SAP. There is no Oracle or Workday. In fact, without SAP there is no enterprise tech industry - its legacy has paved the way for virtually every brand in the industry (save for IBM which can lay its own claim as a pioneer) and SAP’s rich heritage defines the sector as much today as it did decades ago.

“Our legacy is our gift. When you have 400,000 customers to learn from it’s a huge advantage,” said Klein. “SAP has customers in more than 25 different industries so we can always test our assumptions, benchmark our roadmap and challenge our strategy against the depth of install base and industry knowledge from our customers. Of course, it’s challenging to move such a large install base from one environment to another - but that’s the challenge that we have at SAP and one that we are ready to take on. It’s our biggest challenge but also our greatest gift.”

That legacy is about to turn the final page of its long history when Hasso Plattner, the founder and chairman, steps down from his role in May. Plattner has been an ever-present force at SAP for more than 50 years and his departure from operational responsibilities represents a significant endorsement of Klein’s leadership - despite Punit Renjen’s proposed ascension to the position of chairman, it is undoubtedly Klein’s credentials that have paved the way for Plattner’s retirement.

Klein told me: Hasso’s legacy at SAP, like that of his co-founders, is unique. SAP’s five founders set out to redefine business software and in doing so, forever changed the way the world runs. It’s their innovative thinking, pioneering spirit and unwavering drive that laid the foundation for the rise of SAP - and with Hasso Plattner chairing our Supervisory Board since 2003 and his role of chief software advisor, he obviously has played a key part in our success.”

Klein’s leadership

Write a list of your dream dinner party guests and a German tech exec with a penchant for detail and numbers is unlikely to make the cut. It’s easy to stereotype and make assumptions but Klein dashed all of mine during our meeting. I’ve interviewed enough CEOs to know the ones who are feigning a persona because they have been media trained and those who are genuinely at ease with the situation. Klein presented a calm and measured personality, unfazed by my photographer’s instructions and eager to tell his story in pragmatic language uninhibited by corporate PR.

His authentic and relaxed approach set the tone for a two-hour conversation that covered lessons learned on the football pitch, the demands of parenting young children and the monumental task of reshaping SAP into a cloud-first business that would meet the challenges of the next 50 years.

When he inherited the CEO role, the scale of the challenge ahead was seismic. SAP was not a cloud company in 2020. It had cloud assets, but it was a million miles away from being a cloud-first business. Its flagship ERP product had not followed the same adoption curve that previous SAP products had enjoyed, its customer base was largely on-premise and, most fundamentally of all, there was a disconnect between its narrative and its customers’ experiences.

Klein told me: “There’s certainly not a lack of workload! The challenges are complex, the stakes are high but if you walk into the office with the right mindset you can deal with whatever is in front of you.”

Klein was just 39 when he assumed control; one of the youngest CEOs of any major tech business. SAP had been the dominant player in the ERP market for decades and had grown through a series of acquisitions under McDermott’s tenure. Those acquisitions had bloated its market cap by $100bn and created an organization that included best of breed solutions for every aspect of an enterprise’s operations. But, along with its successes, SAP had been subject to criticism for the lack of integration between its products, for the hulking nature of its solutions and the sheer complexity of running a large-scale SAP estate.

“Every strategy has its time and Bill’s tenure was dominated by a lot of important acquisitions which created a lot of value,” he said. “My tenure is definitely more around how do we bring this together? Not like we did in the last 50 years - that would be a mistake. It’s about turning SAP into a cloud company and helping our customers become intelligent, sustainable enterprises.”

When Klein assumed full control of SAP, global commerce was being played out on a transient landscape where business models and entire industries were being reshaped almost as quickly as new technologies could be conceived and deployed. His first three years as CEO have been some of the most turbulent in living memory and yet he has managed to reverse SAP’s fortunes, quell analyst’s angst and convert SAP into one of the fastest growing cloud companies in the world.

When you consider how hard transformation is within a typical ERP customer and compare that to the scale of transformation that SAP has achieved, it’s a staggering achievement accomplished under the most challenging of circumstances.

SAP’s transformation

There’s a phrase in enterprise software that I don’t much like but perfectly describes SAP’s journey over the last five years - dogfooding. The process of consuming your own product and eating what you serve to others. When Klein took over as CEO he realized that root and branch change was needed - not just in the product portfolio but also in the way the company was set up to meet the needs of a new generation of customer.

Klein started by rebuilding his executive board: Thomas Saueressig was promoted to head of product engineering, Juergen Mueller became the new CTO, Scott Russell ascended to global head of customer success and, more recently, Sabine Bendiek and Julia White were hired from Microsoft to lead people, operations and marketing. SAP’s executive team look like the poster children for modern enterprise and Klein now sits at the center of a powerhouse team that has the youth, experience and determination to understand and execute a strategy that is fit for modern commerce.

“There was leadership change because we need people thinking beyond the point of sale,” Klein told me. “The way we are structured internally is very different now and we are with you every step of the journey. We reorganized our teams so that technical, sales, delivery and customer success all work together and are incentivized around a common goal.”

As SAP began its own journey of cloud moderni- zation it learned some valuable lessons - some of which may have been difficult to swallow. Implementing a large-scale SAP ERP solution is no small task and as SAP went through the process itself the pain of bringing all the elements for a successful transformation together became apparent.

During our interview, Klein told me: “I gained a lot of experience during SAP’s own transformation. It was impossible to serve our cloud business model with just a technical upgrade so we then started thinking about how we could better serve our customers who also wanted to make a similar journey. That was the point of time when I put a few people into a room almost day and night and said we need to make it easier for our customers.”

Despite a reinvigorated executive board, it has not been all plain sailing for SAP. Its head of cloud, Brian Duffy - an 18-year veteran of the firm - has recently announced his intention to depart while Luka Mucic who has served for 27 years, most recently as CFO, will also leave the business. While Plattner and Mucic’s departures have been well orchestrated, Duffy’s decision to find new pastures was unexpected. I asked Klein if these key displacements were destabilizing and he was emphatic in his response.

“Definitely not,” he said. “Luka has enjoyed an impressive 27-year career at SAP. I want to say a heartfelt thank you for his unique contribution to SAP and for the great partnership. The impact Brian has made on the business is clear. We thank Brian for his contribution to SAP’s success in his distinguished 18-year career and will miss his leadership, his insightful perspectives and his partnership. Our search for a new leader of the RISE with SAP organization is underway and we look forward to making an announcement in the future.”

Sustainability

No other tech company has banged the sustainability drum as loudly as SAP, or for as long. Ninetyseven of the world’s top 100 green companies use SAP technologies to power their sustainability efforts. Today, sustainability is a core component for virtually every business - big or small - new or old - tech or industrial - everyone has a narrative, but few are as compelling or complete as SAP’s pursuit of green commerce.

Klein told me that sustainability could no longer be separated from other business objectives and that SAP was the only technology company with the scale and scope to address the world’s greatest challenge. Its sheer reach into global enterprises and supply chains means SAP collects and analyzes more commercial data than any other organization. That blue thread which runs through the heart of global commerce has the potential to morph into a green ribbon combining the data of half a million businesses and supply chains to provide actionable insights for enterprises around the world.

SAP’s sustainability portfolio includes SAP Cloud for Sustainable Enterprises - a comprehensive platform that allows businesses to design sustainable products and services underpinned by a holistic view of data, process and regulations by industry. It also partners with the world’s biggest consulting firms like Accenture, EY and IBM to co-innovate and combine industry expertize to create frameworks like SAP Responsible Design and Production which helps organizations gain greater visibility into the environ- mental impact of their design choices. While many assert that sustainability is a key tenet of their DNA, few can support those claims with the kind of credentials that SAP brings to the table.

“We have taken action on our biggest carbon impacts with data centers and car fleets, and we already made very important decisions on how to move to carbon free operations in the years to come,” said Klein. “But the bigger challenge is how can we help our customers become more sustainable? How can we use SAP technologies to give our customers the visibility they need? When it comes to ESG, our customers tell me, ‘I have a lot of good intentions, I have potential actions, but I have zero transparency.’ We realized we needed to expand our data model and embed sustainability metrics in every process because when you can give customers the transparency, it’s the foundation for taking the right action.”

RISE with SAP

When Klein announced RISE with SAP back in January 2021, the market was split: was it just a clever commercial proposition or was it an industry-first that would revolutionize the way tech was sold and consumed? Three years on and any questions regarding its substance have been answered in spades by the volume of customer transformations it has facilitated.

Mega deals with Microsoft and IBM have captured the headlines but there is also a plethora of other companies, global enterprises and net new trailblazers, that have signed up to RISE to facilitate the S/4 journey.

RISE promises a single handshake deal that provides a pathway to the cloud for any customer, irrespective of starting point or complexity. Delivered on a subscription basis (hence, sometimes called Transformation-as-a-Service) it positions SAP as the responsible party for the end-to-end transformation of a business independent of any third parties that are also involved in the process. In addition, SAP completely reorganized its internal structures so that every team in the end-to-end process was aligned with incentive plans pointing everyone in the same direction.

Klein told me: “As much as I like the sales forecast calls, we now have delivery calls where we go we with the business process redesign? Where are we with the back to standard? How many modifications can we get out? Where are we with the platform adoption, and finally the cutover to S/4.”

A single point of contact for SLAs and clear line of sight to the responsible party for business transformation, application services and infrastructure is a breakthrough proposition for customers. SAP had been searching for a compelling carrot to lead its install base to S/4HANA for nearly seven years and RISE delivers that and more.

SAP’s guiding principles for RISE, in fact its north star for all customer engagements, has four simple components: use Signavio to understand and redesign processes; partner with hyperscalers and move workloads to the cloud; migrate to S/4HANA while maintaining a clean core; augment the solution and build innovations on BTP.

In addition to this simple four step plan, RISE also delivers a raft of other business benefits which includes one of SAP’s most important but often overlooked offerings - SAP Business Network. This new combination of product, services and platform has been in the making for years but it wasn’t until last year’s Sapphire that the moving parts coalesced into what could be one of the most significant contributions by SAP to the global economy since its inception.

“The Business Network is a big differentiator because now when you are connecting companies, we can not only help with the commerce side of things and with supply chains, but also it has a big role to play in ESG,” said Klein. “If you are a car manufacturer and you want to reduce carbon, then you have to look outside of your own enterprise. You need to analyze the whole value chain and measure the endto-end impact. With the Business Network customers will be able to build these reliable supply chains and measure their sustainability across the entire value chain.”

RISE may well have been originally conceived as an accelerator for cloud and S/4HANA but as the proposition has evolved it has developed into a template for twenty-first century commerce encapsulating the full spectrum of cloud, applications, supply chains and sustainability.

Commenting on recent successes driven by the RISE proposition, Klein said: “RISE with SAP is at the heart of our strategy and one of the most successful offerings in our history. It is much more than a technical lift and shift to the cloud for the installed base - it is a true business transformation offering.”

Conclusion

For five decades SAP has been many things to many people. Its forefathers created an industry that supports millions of jobs and provided the foundations for global commerce to flourish. Many of the business process blueprints that we take for granted were conceived by SAP in the 1970s and today it is creating new standards that will become the code for commerce in the digital age.

S/4HANA will power the finances and supply chains of the world’s biggest companies. BTP will provide the platform and architecture that companies use to construct new business models and innovate. The Business Network will be the foundation for a global consortium of intelligent enterprises that design, manufacture and sell the produce that citizens, companies and countries depend on.

Above all else, SAP will be the company that provides the technology to convert aspirations into action - both in terms of business performance and sustainability - creating the next generation of industry leaders with the tools and insight to drive global commerce and a green agenda. In short, SAP was and still is the brand that defines an industry. In Klein’s own words, “ We are just getting started .” Here’s to the next 50 years.