Just last week, we noted that this year’s SAPPHIRE event really crystallized SAP’s positioning and strategy as regards not just cloud, but the entire company (read, “SAPPHIRE 2013: SAP is HANA, HANA is SAP, and the Enterprise Software Future is Not the Past”).

The bottom line: SAP knows that in order to remain not just relevant, but dominant, it must reinvent itself from the inside out. The news this past year has been mostly about how the company is reinventing its offerings – i.e., their “outside” reinvention.

On Friday, SAP started showing the world how their “inside reinvention” is going to happen, and it includes replacing the pilot of its massive cloud culture reinvention.

SAP released some very interesting news that very clearly reinforce the company’s focus on reinventing itself for new, cloud-driven markets, including stimulating and rewarding new software, technologies, and overall innovation. We won’t quote the entire release, but here are the highlights:

SAP will consolidate all innovation under Vishal Sikka; effective June 1, all SAP development and custom development leaders will report directly to Sikka. “By creating one single development organization under Vishal’s leadership, we will dramatically accelerate the speed of these innovations,” said Bill McDermott and Jim Hagemann Snabe, co-CEOs of SAP AG.

Saugatuck insight: This makes quite a bit of corporate management sense, as it reinforces the unification of SAP’s direction, and should seriously reduce costs and increase software development efficiencies.

However, we do worry that it could also, very easily, reinforce groupthink that will stymie some interesting innovations over time. We’ll keep an eye on this. SAP has to balance concentration and unification of effort with a light touch that keeps developers’ creative juices flowing

A new Scale, Quality & Support operating unit will raise SAP’s Global infrastructure Services group up into a principal role, that of building out HANA Cloud, including the underlying infrastructure and the HANA Cloud Enterprise offering(s).  

Saugatuck insight: This enforces and reinforces SAP’s corporate strategy, direction and (hopefully) execution regarding HANA in the Cloud being the foundation of SAP’s business, technology, and channel strategies.

SAP is HANA, HANA is SAP; and so the cloud infrastructure under HANA must be big, powerful, reliable, and flexible, while being completely compatible with SAP technologically and culturally. But does this also suggest an increase in investment in SAP’s services efforts, portfolio, and revenues? Implementation and optimization services go hand-in-glove with complex, core business management software, cloud or otherwise. Let’s keep the other eye on this and see where it goes. 

Finally, former SuccessFactors chief and most-visible SAP cloud champion, Lars Dalgaard is leaving SAP to become an investor, and will remain in an advisory role to SAP. All of SAP’s cloud-oriented go-to-market is now consolidated under Ariba CEO and SAP president of Global Cloud Operations Bob Calderoni.

Saugatuck insight: Lars Dalgaard really helped to catalyze the momentum and energy within SAP for significant culture change, cloud and otherwise. We can reasonably assert that the decisions behind today’s announcements, and much of the past year’s directional efforts, were unlikely to have succeeded to the extent they did without the influence of Lars. He will be missed from this role.

That said, there are few senior cloud business software executives better suited to this role than Bob Calderoni. As cloud becomes mainstream in enterprise business, SAP will be well served by having Calderoni at the helm, an experienced, enterprise-style executive. Lars radiated an evangelist’s energy, passion and impatience for change; Bob more quietly exudes the enterprise business software experience.

And by retaining and centralizing Bob’s role as they have, SAP does not “lose its cloud DNA,” as several IT analyst and media sources have positioned Lars’ departure. As successful as Lars and SuccessFactors have been in evangelizing cloud for enterprise-class business, it would be challenging to find an executive (and team) more successful in re-inventing, architecting, building and mainstreaming traditional business management software into the cloud than Bob Calderoni and the Ariba team.

At the same time, we would encourage SAP to double down their retention of key leaders that Lars groomed over the years. While a powerful leader himself, SuccessFactors was built by a broad team of very innovative execs, with deep cloud experience, who SAP will no doubt need to help it move forward to the next phase of its growth.

Net/Net: As we noted last week, SAP has bet the farm on cloud, most visibly on HANA cloud. This realignment – development, infrastructure / services, and GTM leadership – is one of several moves necessary to enable SAP to accomplish that. As with any other ISV, SAP had to reinvent itself for cloud, and that reinvention must continue and evolve as the company’s business shifts. SAP could not (and cannot!) retain significant aspects of its traditional organization and culture and still succeed as a cloud-first ISV. As such, we anticipate that there will be a few more shoes to drop over time, as SAP continue its reinvention. 

This blog originally appeared at Saugatuck Lens360.

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