Over the past few years, SAP has positioned itself rather badly. Its unique selling point ERP turned into a general store failing but still trying to keep up with every IT trend it can find.
Together with former SAP CEO Professor Henning Kagermann, SAP had the chance to take over IoT and Industry 4.0 before anyone else. But it waited too long. Now, it has to share the market with numerous strong competitors. Another unique selling point simply wasted.
SAP’s restructuring efforts
SAP is restructuring: it wants to lay off some 4,000 employees. But that only scratches the surface. The root of the problem is something else.
At SAP’s annual press conference earlier this year, CFO Luka Mucic very discreetly and cautiously hinted at other possible reasons that the company is struggling, besides wrongly positioned employees. Bill McDermott and Luka Mucic plan to liquidate or merge subsidiaries.
What does that tell us? The leading ERP company is fragmented almost beyond recognition. Random acquisitions and SAP’s belief that the almighty cloud will save us all created an infrastructure that even the best CEO would find hard to manage.
SAP’s realm contains numerous companies and subsidiaries, like SAP National Security Services (SAP NS2), Sybase, and Qualtrics. Considering how vast SAP’s realm has become, SAP’s executive board seems rather small. Too small to deal with every problem in every corner of its realm. No wonder, then, that so many things are currently out of order.
Instead of fixing existing problems, Bill McDermott introduces new ones. At SAP’s annual press conference earlier this year, he added quantum computing to SAP’s IT toolkit Leonardo!
Reconsidering “Cloud First”
SAP is trying to reverse this organizational and financial chaos. Bill McDermott, together with CFO Luka Mucic, is restructuring the entire SAP universe, from employees to subsidiaries, and is reconsidering his strategy “Cloud First”, as so many hyper scalers do it better.
Bill McDermott basically admitted defeat when he introduced the motto “Embrace” to SAP FKOM 2019. This is at least a hint at a clear direction: SAP wants to embrace hyper scalers and squeeze their money out of them.
While Bill McDermott tries to make his fever dream a reality, 4,400 employees have to leave SAP with a golden parachute. However, McDermott still wants his staff to grow to 100,000 employees by 2020 (current number of staff members: 95,000). At the same time, subsidiaries will be consolidated and merged.
SAP’s product portfolio might be subject to restructuring as well. However, SAP does not like to talk about that, because it would further irritate SAP customers – and rightly so. Customers often invested a lot of time and money into customizing and developing SAP products. But if the revenue SAP generates with this product is too low, it will simply discontinue it – leaving customers with no alternative.
Embrace was not only the motto of SAP’s Field Kick-off Meeting (FKOM 2019) in Las Vegas and Barcelona, but also of SAP’s partner program, so that Bill McDermott can still somehow execute his cloud fantasy.
This just goes to show that SAP’s cloud strategy failed, and it failed hard. SAP lacks resources, know-how, and scaling effects. However, SAP customers expect a functional connection to their data centers, support, advice, and cloud know-how.
That SAP customers have such high expectations is SAP’s own fault. Its cloud prices are significantly higher than those of hyper scalers, and therefore, customers expect something more than just half-done solutions and a fever dream.
Because SAP’s own cloud strategy failed, Microsoft Azure is currently the rising star in the SAP community. If you can’t beat ’em, join ’em – or, as Bill McDermott likes to phrase it, “Embrace”.
Great insight into SAP. Spot on!