Cloud Wars’ Bob Evans recently did an excellent and very interesting interview with SAP CEO Christian Klein about SAP’s priorities, which include integrating generative AI with SAP Business AI “to address complex business challenges an drive holistic transformation by optimizing processes like quote to cash”.
Klein repeatedly referred to end-to-end (E2E) and SAP’s great library of E2E processes that gives the essence of or at least a standardized framework for the value streams within a business.
Not surprisingly, and correctly so, Klein also repeatedly emphasized the value of AI and, in particular, generative AI, to create customer value. This happens via Joule’s ability to orchestrate different agents across the value chain, i.e., different E2E processes. Joule is SAP’s Ai assistant. He also emphasized on the value of the suite and on the importance to “in the core business” not run with “agents of 100s of different tech companies”. This is where “the suite is winning”.
Evans writes that SAP had “significant growth in applications, outpacing competitors. Klein attributes this to SAP’s suite approach, which provides a comprehensive solution for core business processes. He talks about the importance of integration and extensibility, allowing customers to choose the best solutions for their needs.” This is technically a correct statement. I am fairly sure that SAP will report another outstanding year on January 28, 2025. In the first three quarters of FY 2024 SAP certainly outpaced the cloud business applications competition, including Salesforce.
However, there is a caveat to it. This growth is largely attributable to S/4HANA cloud.
Don’t get me wrong, doing this is no mean feat. SAP profitably grows while transforming from an on-premises vendor to a cloud and AI vendor of business applications. This is big as it essentially means that the company cannibalizes its own cash cow on the way.
Klein also positions SAP as an enabler of holistic business processes and an E2E solution provider. Again, this is correct. Heck, I have been inside SAP for more than a decade and am observing the company even longer since then. And for the record, I have nothing than admiration for this awesome company - well, apart from a bit of sadness perhaps.
Why sadness you ask?
MyPoV
SAP has the smarts and the muscle to pull off and execute on an enterprise applications strategy that Christian Klein describes it in the interview with Bob Evans. Even more so in what I would call the dawn of AI. SAP is actually one of the very few companies on this planet that has the ability to pull off a stunt like this, especially while also finalizing its own transformation to a cloud (and AI) vendor.
However, SAP suffers from a major blind spot and that is its less than credible effort on the demand side of the E2E processes. SAP says that the suite is winning because of the AI side, yet it belittles the CRM/CX part of this suite.
Cases in point: With hybris, SAP acquired in 2013 the then leading B2B and B2C ecommerce platform. At this time and for some more years, both the B2B- and the B2C variants marked the top right end of the corresponding Gartner Magic Quadrants. Now, they are barely within the leader quadrant. I will not discuss the value of these reports here. The other one is the biannual IDC report on CRM market share. In the summer 2024 report, SAP held the 5th spot. Now, I hear you saying fifth ain’t bad, and certainly it sounds good. Until you remember that they have been second and you look at the current third place: Adobe. Why is this staggering? Well, Adobe is great in marketing and and good at e-commerce. Now, one can dispute two things here: One can say that e-commerce is not part of CRM and the value of the report. Again, no point for discussion here.
The Emarsys acquisition with the subsequent announcement of sunsetting the SAP Marketing Cloud directly after massive investments into making its Marketing Cloud B2B ready. Well, Emarsys, as the vast majority of other marketing solutions is a B2C solution, albeit a good one. However, there is no migration path, but a reimplementation. In addition, SAP’s core clientele is B2B. Or, how about Salescloud V2 without a migration path from v1? Again, I do not say that these decisions have been wrong, but they shine a light.
Some more personal examples: In 2017 and 2018 SAP had the good idea to hire some salespeople from Adobe, to push its marketing solution. One of them told me that he had a hard time getting to talk to his former client and prospect contacts “because SAP doesn’t have a marketing solution”. Well, it had … To close off with this topic, around 10 years ago, SAP managed to oust itself out of the CRM market in Australia and New Zealand. Why? Strategy: SAP CRM was unsellable at that time. The cloud products weren’t quite ready by then. When they were ready, salespeople weren’t quite incentivized for selling them. The result, when this was finally corrected? See above.
Why do I bring all this up?
A solid strategy in the CRM and CX markets looks different. And with that, there is a gap in the E2E story that Klein tells. A big one. And this gap extends into the strategy.
Why? Glad you asked. Let me explain.
The brief version is that it needs a lot of demand side aka CRM/CX data to train and then inform the AI. It is good to have an abstraction layer on top of other vendor’s data structures but that’s not enough as it complicates the software stack, which makes it more expensive, which reduces its value. SAP has all it needs and just needs to take more advantage of it.
Again, I hear the resounding ‘Why? SAP has a very strong position in the very attractive ERP market, which it needs to defend and extend’. This is true, while arguable the CRM and CX market meanwhile is bigger and faster growing than the ERP market.
However, if I compare ERP with the castle that SAP defends, its defensive system has a couple of holes while this castle is under ‘attack’ from different angles.
The simple truth is that SAP needs a strong and credible customer facing systems strategy and systems to stay credible and successful in the enterprise software market. Or else, there is the risk of becoming a niche vendor. Yes, you heard it right, I just called the ERP market a niche of the enterprise software market.
Now, what are these angles that I talked about?
- There are tier 1 vendors that offer a similarly broad and wide functionality while having more credibility in the CRM and CX market. These vendors are Oracle, and to a lesser extent, Microsoft.
- There are tier 1 vendors that, on top of delivering credible enterprise software, also have a strong infrastructure play. These are Oracle and Microsoft.
- There are tier 1 vendors that come from SAP’s open CRM and CX flank and offer a land-and-expand strategy via their AI. These are Salesforce, and to a lesser extent, Adobe.
- There are tier 2 vendors that offer a similar functional breadth - not necessarily depth. Some of these are NetSuite, ServiceNow or Zoho.
All of the above mentioned vendors, and some more that I did not mention here, have strong platforms, ecosystems, and LC/NC capabilities. More importantly, they offer quite strong AI capabilities.
And AI platforms are the next battleground in this iteration of the Clash of the Titans. That’s why belittling CRM and CX software is a problem. Today, more than ever, enterprise software has become a platform game. And SAP is inviting strong and aggressive competitors in its house, its customer base, by leaving this corner open. From then on platform ownership at the customers means a fight for the data, i.e., an AI competition. It is not likely that customers want to run multiple different AI platforms, especially if they are integral parts of the business functionality - or worse, the business functionality is made integral to the AI platform, which is similar to what Satya Nadella suggested by reducing ERP to a CRUD layer on the database.
In this situation, the decision to harmonize on one of the available platforms lies only one little step away. After all, the introduction of AI is all about efficiency at this time. Why pay twice for very similar capabilities while using only one?
And it is unlikely that all these decisions are in favor of SAP.
The good news is that this challenge can be addressed quite easily by SAP.
Stop belittling your own CRM and CX chops
Again, SAPs E2E and AI stories are generally strong! Still, they can be made more credible and convincing.
I suggest three fairly simple actions that can be initiated by SAP to strengthen the own position
- The C-suite needs to talk more about CRM and CX to create a signal. Quote to Cash is great. Everyone believes that SAP’s ERP solutions can do this well. How about using more examples from Market to Order? It is not enough when the head of the CX division rings the CX bell. This is just noise.
- Work more and more consistently with the analyst and influencer community. This process, admittedly, seems to have started. Still, the perception of SAP amongst this community is between not good and abysmal. Turning this community helps turning market perception.
- Evaluate and then offer more CRM core functionality as integral parts of S/4HANA. The more relevant CRM is in S/4HANA, the less need there is for SAP customers to shop elsewhere. The difficulty lies in finding the right mix to not cannibalize the CX division.
There we are. I said it. Am I wrong? Happy to discuss! Tell me what you think!
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