On paper, Christian Klein is a member of SAP’s executive board and Chief Operating Officer (now: co-CEO with Jennifer Morgan). In reality, he’s rebuilding and restructuring SAP. While CFO Luka Mucic takes care of money-related issues and CEO Bill McDermott devotes his time to sales and marketing, Christian Klein is breathing new life into SAP.
When he’s not busy walking through the Hannover Messe with German chancellor Angela Merkel or establishing an IoT center in Japan, Klein is taking care of the most pressing issue at SAP right now: the integration of SAP’s cloud acquisitions. For years, there was no real progress on the issue; even German-speaking SAP user group DSAG voiced its concerns ahead of Sapphire Now this year. This will change now, SAP’s COO promises.
Christian Klein knows that for customers, end-to-end processes are as important as the technological integration itself. The goal of every cloud implementation should be economic and organizational value. E-3 Editor-in-Chief Peter M. Faerbinger talked to Klein about this cloud revolution.
Mr. Klein, what is SAP’s biggest challenge at the moment?
Christian Klein: Our portfolio has been growing significantly over the last couple of years. Making customers understand how all our products interconnect and integrate with each other in the digital world has become quite a challenge – and one of SAP’s most important tasks. We are also consistently working on our cloud transformation portfolio. We have already achieved a lot, but we still have a long way to go.
This transformation hasn’t been as easy and quick as the SAP community had hoped for, right?
Klein: Since SAP acquired SuccessFactors in 2011, we have been consistently working on a more comprehensive cloud transformation, and we’ve already seen a lot of successes in that regard. For something like this to work properly, we had to remodel and redesign a lot of core ERP processes. We understand that customers have a lot of questions surrounding integration at the moment. However, if SAP hadn’t been as consistent as it has been on cloud, we wouldn’t be nearly as successful as we are today. We can be proud of what we have achieved so far, but I am the last to claim that everything’s already done and over with. There are some things that have to be optimized – also inside SAP.
What do you think has to be optimized?
Klein: Change has always been an important constant. First, our products all moved to the cloud. Then, we had to think about how we would work inside the company, how we would deliver customer service if maintenance didn’t happen on prem anymore, but in the cloud. We had to design and optimize new processes, which has been kind of a digital transformation for SAP itself. It was a challenge.
What are the primary challenges of this digital transformation for SAP?
Klein: The market is changing. We primarily see that with employees who have been developing, maintaining and customizing on prem products for years – and suddenly, they have to deal with new requirements. Digital transformation is not just a technological change, after all; the culture has to change as well. Being open-minded and accepting that some business processes have to change is getting more and more important. It’s not always easy, and sometimes, people fear change. As COO, I communicate with our employees, try to make them understand why this change is essential for us, why some processes have to change so the company can stay compatible. I think this is something many customers struggle with as well when implementing S/4 Hana.
Changing established business processes – a great technological challenge, right?
Christian Klein: Of course it is. However, it is important to not only talk about the technological side of the new, digital world, but also about other crucial questions. Like, what new business models are there in our industry? How can we optimize processes? How can we revert back to the standard to become more agile in the future? Integration of business processes and artificial intelligence are gaining importance as well. We aim to give our customers competitive advantages, after all. I think dealing with all of these questions and changes is a way bigger challenge than implementing S/4 Hana or cloud solutions per se.
How are SAP customers approaching this challenge?
Klein: Our customers are meticulously planning and pondering how their business will change in the digital world, supported by Design Thinking, for example. The Business Suite changes require technological changes as well. What I have observed is that customers generally take their time when it comes to S/4 Hana to be able to better understand and control how their business changes.
I believe that the SAP community thinks that SAP’s direction is right. However, many seem to think that it’s going too slow. Additionally, the operating model cloud is not always the preferred choice. What would you say: cloud or on prem?
Klein: Both! We’ve noticed that many of our customers require S/4 Hana on prem. Which means that we will continue to invest in on premises systems. Furthermore, hybrid cloud models seem to be the future, as customers might want to keep some applications in their own datacenters.
Why do you think that is?
Klein: In industries with highly complex processes that require ERP customizing, like manufacturing and in the automobile industry, it’s not that easy to just implement public cloud solutions. The same goes for companies in countries that are politically unstable, have poor infrastructure, or stricter regulations regarding data protection. That’s why we think there will be a big market for on prem systems. However, we do see customers switching to the cloud for other areas, such as human resources, procurement or CRM. We want to support customers going into the cloud, but a strong integration with the ERP core is still necessary.
Do you have an example for that?
Christian Klein: For SuccessFactors’ technological integration, we provided customers with APIs. However, our customers want more – and rightly so. Operating SAP solutions means business integration as well. It’s not just about transferring data from SuccessFactors to SAP Hana. We need a platform that integrates all parts of every business process, so that the two applications can communicate with each other and intelligent business processes are part of the software standard.
And SuccessFactors is able to do that? The data models are different, are they not?
Klein: We will provide customers with a reconciled data model in November 2019. Through the SAP Cloud Platform, SuccessFactors and S/4 Hana can both understand and use this data model. Simultaneously, we are standardizing workflow service and the user interface. End users then have one consistent business process with S/4 Hana and SuccessFactors. With our November release, many customers will experience this kind of integration.
Only with SuccessFactors?
Klein: No, we are also planning such a native integration for SAP Analytics Cloud, and we will also provide an integration for Qualtrics in November. Experience Management with S/4 Hana is supposed to be available in November as well. E2E processes make integration crucial.
Your Sapphire 2019 presentation during Bill McDermott’s keynote positively resonated with attendees. However, many SAP customers also noted that SAP is promising the kind of integration that it already had with R/3 and ECC 6.0. What does this mean for SAP?
Klein: Undoubtedly, R/3 was widely popular and successful because of continuous integration of all business processes. Now, we have that and so much more. SAP’s acquisitions of recent years all have great solutions to offer, but they are not yet perfectly integrated with SAP’s core. I truly do believe that we have to ensure continuous integration of all business processes, but I also think that we have to make them more intelligent. It’s not just about integration, it is about innovation as well.
How do you mean?
Christian Klein: Let’s take procurement as an example. In the digital world, procurement is different from what it used to be ten years ago. Artificial intelligence helps to always select the right supplier. If this supplier can’t make it, the system should be able to notify users and provide suggestions for how to deal with this problem.
Does SAP already have a roadmap?
Klein: As I have mentioned before, SuccessFactors integration will be available in November. Next year, we see the same path for Ariba. We will be more conscious of the topic procurement going forward, including front-office integration with C/4 Hana. We’ve already harmonized the domain models of Ariba and S/4 Hana. We are also currently synchronizing Ariba and S/4 development regarding suppliers. We have to get one unified data set for each supplier with all their attributes – just like we already did with customers and employees. This is especially important since SAP customers do not only want seamless integration, but also a comprehensive overview of their customers. During the upcoming SAP TechEd 2019, we will present detailed timelines for these integration topics and make sure to answer some questions that SAP customers might have, like why do SAP systems need custom build integration? Why do I need to put in even more manual effort to compare data models?
If I wanted to transfer data to Ariba two years ago, this would have only been possible via CSV file, right?
Klein: Right. Customers expect ordering and delivering anywhere to work as smoothly as it does with Amazon – this requires seamless integration. This is why customers choose SAP. Processes have to generate value, and this is what SAP does best. I will pursue this topic as long as it takes for SAP customers to say that the integration issue is solved once and for all!
The digital world is not only a challenge for SAP itself, but the partner community is changing as well. Smaller SAP partners fear that they might be left behind. For example, Bill McDermott mentioned that SAP signed a contract with Infosys regarding industry-specific solutions in his Q2 conference call. This is great, but how will smaller SAP partners fare against such strong competition?
Klein: I think that the concept of intelligent enterprises will be especially advantageous for SAP partners. If customers want to migrate to S/4 Hana cloud, they have to revert back to standard. Public cloud doesn’t work any other way. This means that Abap modifications have to be removed. SAP is not able to keep all 25 industry-specific functionalities and modifications in the public cloud. Consequently, we have established a program to enable our partners to build specific modifications on our platform. The demand for these functionalities is growing, and our partners continue to be one of our most important assets in this regard. Service is another area where we do not have as many consultants as we will need in the future. We need the support of consulting agencies and IT service providers to manage future demand. Furthermore, the data model has always been part of R/3 in the past, Now, we are putting it on SAP Cloud Platform. Partners can therefore directly access SAP’s master data model, which gives them an enormous advantage for developing integrated solutions.
Some SAP partners fear for their intellectual property if they move their solutions to cloud platforms.
Christian Klein: I’m happy to talk with these partners themselves, if that’s the case. We want our partners to build their solutions on our platform but stay completely independent. If there are concerns regarding intellectual property, then we will talk about it. We want to openly engage and communicate with partners.
What does this mean for SAP and partners?
Klein: Enabling our partners will be the most crucial task going forward. Consequently, my team and I will create a proper sub-department for training and educating service partners. We will also support partners with developing their own applications on our platform. I want to improve communication with our partners because I strongly believe that we can only be successful together. For example, many customer projects require going back to the standard; here, the know how of our partners is crucial.
There are many challenges to tackle, but SAP has laid off employees recently. Why?
Klein: SAP’s restructuring has been a much-discussed topic this past few weeks. I can only repeat what’s already been said: SAP is growing, and at the end of 2019, we will have over 100,000 employees. We invested in new applications. Hana is gaining importance, being one of our most distinct competitive advantages. What we did was merely to consolidate some subsidiaries and new locations brought forth by our dynamic growth. One other reason for SAP’s restructuring efforts was, in some instances, inefficiency. The know how of leaving employees was preserved by internal know how transfers.
Hana 1 or Hana 2? The database is successful, but it can sometimes seem like an eternal construction site, right?
Klein: We are optimistic that soon, all customers will operate on Hana 2.0. Almost all of our applications now run on Hana. SuccessFactors migrated, Ariba did as well. The Ariba network will follow at the end of 2019. Our Analytics solutions is able to natively access Hana now – no data duplicates anymore.
So, is Hana an eternal construction site, or does the database actually generate value?
Christian Klein: 11,500 customers have decided on S/4 Hana, and more than 30,000 have already switched to Hana. Every discussion with customers one way or another leads us to the value of S/4 Hana and digital processes. I do not know of any problems of Hana in productive use – quite on the contrary, actually. We have one of the most comprehensive portfolios on the market, primarily because of Hana. Real-time computing truly is a competitive advantage. Hana was one of Hasso Plattner’s greatest innovations. The database is crucial for digital business processes. Now, in-memory technology is also available on the cloud. Real-time computing and the integration of business processes is what makes SAP stand out among its competition.