What is Happening?
The company is laying a foundation to become a Cloud-enabling, rapid-development platform, software, and services provider able to compete and dominate in the still-emerging, hybridized IT+business management software and services marketplace. In short, SAP is trying to fulfill its own plans and promises to re-invent itself without losing its core focus on business process management.
This week, SAP held is biennial Influencer Summit in Boston to brief analysts on significant changes in its strategy, updates to its business plan, and details regarding its several simultaneous efforts at reshaping itself toward business management application dominance in a Cloud-enabled IT market.
Recapping the details would be beyond the scope of this Research Alert, and possibly a research report – the Twitter stream for just one hour of the event exceeded 25 single-spaced pages. What SAP customers and partners need to understand are three things:
- While SAP is very carefully following the Cloud-oriented vision it laid out two years ago, it is finding that sketching a vision and then painting the picture are very different endeavors. It is making substantial changes to its business and technological approaches that will improve its ability to compete and lead. But it will be years before the company is positioned as well as it needs to be.
- SAP is going to be a Cloud-based business services platform provider and enabler, with its HANA in-memory database and data analytics appliance at the core of almost every platform capability, application, and service. HANA, in effect, is much of the foundation for SAP’s future, whether for traditional enterprise business operations management, the emergent mobility aspect of enterprise and SME business, or collaborative IT. SAP outlined a very broad and integrated vision for its evolving development / deployment architecture and platform services (ABAP and Java environments) – that will be used to both renew their existing application footprint as well as to build new solution capabilities and composite offerings. It also announced a number of new ISVs partnerships in the development space, including a potentially fascinating one with TIBCO, as well as an emerging relationship with Google, among others.
- SAP’s baseline strategy to add value and improve its attractiveness to customers and partners (e.g., ISVs, VARs, SIs) is to continue to layer Cloud on top of and on the periphery of its traditional, existing offerings and org structures, rather than re-architect its core realities. SAP’s tactics for Business ByDesign offer a great example of this. This is SAP’s most expedient and safe strategy, but could easily lead to a top-heavy, and cumbersome, reality that hampers future agility and ability to anticipate and respond to market change.
Why is it Happening?
Let’s look briefly at items #1 – 3 above to see how and why SAP has come to its current position.
1) Visionary Challenges. When it comes to fulfilling on its vision statements from 2009, SAP is not making any significant mistakes, nor is it shirking any commitments. But it is experiencing significant challenges, mostly as regards its own business model. This of course was to be expected, and we laid out what we saw as key needs and challenges at that time ("SAP Influencer Summit Reveals Cloudy Strategy, Path, and Challenges," Dec. 11, 2009).
As its strategy and concomitant actions have rolled out since then - to satisfy and grow traditional customer and partner relationships while enabling Cloud-based offerings and partnerships - the company is simultaneously trying to develop and roll out new organizational structures, development strategies, channel relationships, and sales models. This comes in the midst of announcing a more rapid release cycle for all software, including the core business suite, and what SAP hopes will be a non-disruptive approach to software upgrades and updates for customers and partners. Meanwhile, SAP works to converge multiple software architectures, multiple database structures, several dozen UIs, and differing development schemes to enable a unified Cloud-based platform strategy and position for next-generation business management applications and services.
Few companies of any size could juggle so much successfully over years, especially while moving forward over uneven terrain. SAP is no different. It has dropped a few things here and there, and slowed some of its forward progress at points. But it is making the above key changes, which needed to be made in order for SAP to continue not just its business software dominance, but its viability in an extremely uncertain and increasingly nebulous IT marketplace.
2) A Cloud Platform Future. A future as a Cloud platform provider for enterprise business management and for business solution/services partners is a logical extension of SAP’s traditional business model, and indeed of its DNA. SAP is all about centralized coordination, management, integration, delivery and control of business functionality.
That said, the business enterprise of 2011 is decidedly different from that of 2009, when SAP announced its broad re-invention as a business and as a technology leader. Mobility and collaboration were important topics in 2009, but few at that time could see the widespread and deep effects they would have on business operations and management. The pace of growth and interest in, and impact, of in-memory Big Data processing and analysis was likewise mostly unknown or unexpected in 2009, outside of BI and CPM specialists and the occasional visionary ("CPM: Let it Happen ... Strategically," 12June 12, 2006).
To become a Cloud-based business software and services leader, especially as a Cloud-based platform provider, a company must – repeat, must – enable and deliver a wide range of data processing, development and analytics capabilities. It’s not about being trendy. Even if the term “Big Data” had never been coined, anyone working in any company of any size has long known that there’s simply too much data of too many types coming from too many sources to be effectively used for business planning and management. Cloud-scale processing helps to enable the power needed for Big Data analytics.
But more capability has been and will be required, especially as both structured and non-structured data (including critically important, contextual metadata) flood the business. In-memory techniques are one very useful and promising means of addressing the processing and analytics, and SAP has been head and shoulders above most IT providers in developing, refining, and then packaging in-memory data processing and analytics into applications and services. As was reinforced during this year’s Influencer Summit, the company has positioned its HANA appliance as a core, critical component of almost everything it is now developing. Not only does HANA and its various application accelerators help dramatically speed up the processing of SAPs existing solutions, but multiple analysts that we spoke with at the event agreed that HANA provides a means by which SAP can potentially displace its nemesis Oracle (and the Oracle DB) in some of it key accounts.
3) Layered Approach. SAP’s layered approach is the most successful part of its strategic shift toward Cloud integration, and also the most likely to cause significant issues for the company and its customer-partner ecosystem.
At the present time, it makes perfect sense for SAP not to throw out what has been established, but to build on that and extend it. That is a core tenet of effective hybridized IT management as well. And the approach has enabled SAP to make some very significant changes and improvements in its offerings and capabilities, including its OnDemand/LOB applications. SAP’s strategy and practice of layering Cloud-based, new and extended, functionally-focused and operationally-integrated applications on top of existing business management software is an almost ideal approach. It is a textbook example of enabling and building a hybridized environment that takes advantage of existing IT and operations, resulting in minimal disruption to the enterprise and to SAP, while extending and cementing further ties between the two. This approach has been an important step in moving SAP’s culture, development, and technology toward the Cloud.
SAP has also tried to build and extend within its org structure in order to enable more and better Cloud-capable operations. New sales, development, and marketing teams have been created within SAP to complement and link existing teams and practices with Cloud-oriented efforts. Rather than rip-and-replace, SAP is adding new ways of doing things as it learns and transitions. This also mimics the company’s stated approach of minimizing disruption for customers and partners when it introduces new offerings or upgrades. SAP is, as they say in Marketing, “eating its own dogfood.”
But as every analysis of IT and business structure and organization has shown for decades, layers are effective only to a certain point. They can help transition toward change, and minimize direct effects (both positive and negative). But at some point, SAP will learn it needs to rebuild rather than reorganize. Layers of technology and organization beget redundancies, which beget cost increases, and which reduce effectiveness and efficiencies, even as they solidify into institutional presences. In a Cloud-driven business and technological environment, more layers will almost inevitably lead to slower progress, customer and partner dissatisfaction, and higher costs of doing business.
An extended version of this Research Alert originally appeared at Saugatuck Lens360.