Chakib Bouhdary has the new title of Chief Customer Value Officer of SAP, having served as a key advisor to co-CEO Bill McDermott for a number of years. According to company insiders, Boudhary, who has been with SAP since 2001, belongs to a small team of SAP executives shaping big-picture strategies from acquisitions to product value engineering.
The latter is something SAP has invested heavily trying to change common perceptions that customers do not have a clue what value they are getting even though some have invested hundreds of millions of euros on a boatload of software technologies and now the big iron that runs on the new SAP HANA in-memory database platform.
One way to fix that is by having a smarter sales force. Boudhary said thousands of SAP salespeople will be gathering in a single spot in July to get familiarized with its latest innovations, trade ideas and leverage its own social-networking tool SAP JAM to find out who has certain skills needed not just to close a deal, but also help customers better understand the value of working with SAP.
In a 50-minute interview with Apps Run ERP, Bouhdary spoke candidly about his challenges, minced no words about competitors big and small, and ventured to harness the vast resources of SAP to fulfill the mission of his new title.
On a sunny June day at the SAP Americas headquarters in Newtown Square, our interview was first conducted on the balcony outside the president’s offices that overlook the LEED-certified campus. A few minutes into our conversation, his assistant interrupted and said Boudhary’s presence was urgently requested by the board, which apparently was meeting right behind closed doors next to us. They apologized profusely and I was ushered away.
An hour later, his assistant called and asked if I could meet Boudhary at the Starbucks(yes, they do have that onsite) in the lobby. Before he appeared, I moved two chairs and a table to a quiet corner in the back so that no one could see us. Our ensuing interview was able to carry on without any interruption.
Here are the excerpts from an interview with the power broker of SAP who has become the new customer advocate:
Apps Run The World: Tell me more about your new position as Chief Customer Value Officer.
Chakib Bouhdary: If you look at SAP—when we came up with the value engineering program, the value engineering program was one of the most dramatic changes we made in the way we go to markets. What it does, basically, is really based on a reverse selling model. You’re not going out with an idea that you’re going to sell this product or that product.
You’re asking the customer: “Tell me about your priorities. Let me bring my knowledge about business and my solutions and let me tell you what I would recommend to you.” And that’s the cost of the value engineering. We go to executives and we say, “Let’s map our technology strategy knowledge to your business and see if we can offer help to you.” But you do it in a way that is not very intrusive.
It’s basically at our costs, we’ll do the analysis. And then we bring in the best people in the company. We have 65,000 employees, but for that situation, you may only need 10. Somebody who knows this problem, like a supply chain problem, like a marketing or targeting issue—we will bring these people.
We put them into your situation and we analyze what you do versus the best practice. Our best practice is from working with a lot of clients. We have a benchmarking database and we benchmark your performance. In HR, finance, IT, supply chain, in a lot of things, we have about 50 surveys that we developed with 10,000 customers.
We have a deep understanding of supply chain of entry level, supply chain delivery and quality around accuracy and invoicing accuracy, around cost saving and procurement. So, we bring all of that together and we look at your performance. And because we’re comparing you to a database of 10,000 customers, we’re neutral. So, we don’t want to be biased to say, “We’ll save you two percent.” That’s like a random number. We let the system tell us exactly where you are against best practice.
Once we identify where the problem is, we call it leakage of value. We then look at the best practice. Are you using an integrated solution end to end? How often do you do MRP and planning? And then we find that, well, maybe then half of this can be solved with solutions you already own and you’re just not using the right way or you should be doing more. And, by doing that, customers are so happy to have an advisor. And then we give them the [ROI], we give them the KPI.
We’ve been doing this since 2003, but it has become so sophisticated. Previously we didn’t do in the context of HANA, the cloud and mobility. Now when it comes to (Manufacturing Resource Planning), you were running it once a day. Why don’t you run it every hour? What does it do to your business if you completely change it? If you can do long term supply chain planning, how about if you can do short term supply planning? How about if you reroute your transportation and optimize it every time there was a change?
If there was a change in order, there was a change in quantity, there was a change in address, you can reroute everything. If business happens the way you planned it, you are okay. But, the world today doesn’t (always) work the way you planned it. So, you end up losing a lot of money because of exceptions.
Apps Run The World: Exactly.
Bouhdary: Well, with HANA, exceptions become part of the routine. So, what we’re doing now is we are now reinventing our value engineering methodology. What worked for us so far was based on standard process, standard methodology and standard know-how. But, we are not going to transition where we are not in a standard world. We don’t know the capabilities of HANA in business and so we have to go into business with customers that are going to innovate.
They loved the Cloud; they loved to use the visualization. But when they started to ask a very simple question, “What is the best practice in rewarding your people? And how frequently do you do it? And how many metrics do you use?”
Now you’re talking about best practice. That’s the kind of thing we bring to the table. Customers understand the questions they should be thinking about, not just the solutions. The reason we do that is because 80 percent of our revenue comes from existing customers.
Measuring Customer Successes
Apps Run The World: Now, can you tell me some of the milestones you want to hit? SAP wants to reach a billion people and over 20 billion Euros in revenue by 2015. How are you going to measure yourself or how would the board measure you in your new role?
Bouhdary: To me there are tactical and strategic measures. From a tactical measure, I have to turn this innovation into real pipeline, which is 4X pipeline and manage to do across all products and all solutions. So, you can’t just focus on BI, and not focus on Business Suite. We believe that there is enormous amount of potential in ERP. Most companies have only invested in pieces of ERP.
It’s up to me to create—like, for example, for utility companies we had two events. We used to have maybe 200 people. We had one in Copenhagen where we had 800 people. Now, we have another one coming up in July and we already have 400 people coming. How can I do five or six of those events worldwide and bring the best companies to share the knowledge, educate them on what HANA can do for utilities. And out of these meetings I’ve got about 10 companies asking me to come and work with them specifically on the roadmap for them.
(Now) they understand the power of integrating the grid data with the ERP data. So, when there was a disaster like what we had in the Northeast with the hurricane, it’s an incredibly complex problem to manage bringing back the lines, assigning the right equipment, the right engineer to the right problem, publishing the data about network availability to every consumer that is phoning them. The consumer, of course, calls up 100 times in an hour, and they can’t cope with the volume. The consumer is frustrated, they’re frustrated. So we are working with them on those problems.
This 4X pipeline is built on the concept of making the world run better. Everyone wins.
Another one is, when you go to a consumer company, they’re moving into real-time supply chain, real-time understanding of the consumer—much more marketing and innovation-driven companies. Aside from the back office, we have to start identifying trends for them. And my job is to recommend to (SAP co-CEO) Bill McDermott build vs. buy.
In the past, we were very focused on builds. Everything was build, build, build. The beauty of HANA and mobility is that you don’t have to build. Like, I’m working on a project with Accenture on an incredible tool for doing some very sophisticated analytics for marketing for consumer and retail. So, they’re using HANA, they’re using mobility and we’re going to market together, but they built it. Now, I’m doing the same with Cap Gemini and IBM.
In some cases, we’ve bought Hybris for B2C eCommerce. So, my job is to make the right recommendation to the company so we don’t miss a trend.
Apps Run The World: Both Oracle and SAP have made a number of strategic acquisitions. So which company has done a better job? How do you evaluate these opportunities?
Bouhdary: I really think there are two elements of measuring M&A. One is the execution of M&A. Can you integrate the companies well? I think IBM, Oracle, SAP, Salesforce.com all do a good job now. The industry has matured long enough to bring companies in and integrate them, and we do that very well.
The difference between us is that M&A is a reflection of a strategy, not a reflection of a business model. So, our business model is to accelerate the innovation through acquisitions, not acquire customer base and market share. If you look at most of the companies that we buy, we bought them because of their differentiation.
We bought Sybase because of their mobility, because of the infrastructure they have, because of the knowledge and columnar database. We bought Ariba because of the Ariba Network. We bought SuccessFactors because they have a real understanding of the SaaS business model. We could never figure out the model for running a real cloud company.
If you look at Oracle, they’re just buying a lot of customer base and sometimes it’s additive and sometimes it’s duplicative. I mean, they have four ERP systems and they call it Fusion. I don’t believe you can bring four ERP systems into one.
Apps Run The World: In certain regions or countries, SAP does not have the strong presence especially in certain industries like banking in the UK. Oracle has done a good job of selling into the banking and the UK government sectors. Do you think that you need a much bigger footprint there?
Bouhdary: What I’m doing now is I’m rebalancing resources to take advantage of the global opportunity. If you think about it, nearly 60 to 80 percent of our resources are in the US and Germany. But those are the resources that really know the core, the ERP application. Our market is moving beyond US and Germany, but the skill set is not there.
But where I need the core is in Russia. So we’re trying to rebalance our resources. For example, we just decided to invest in 16 to 20 industry experts in Latin America alone. The customer wants a steady resource he can depend on all of the time. He doesn’t want you to come in to sell them and walk away; they want people committed to their industry.
Most teleco companies in mature countries already use a billing package and they’re not willing to change. But in emerging markets, they love our new teleco billing because it’s more in line with a futuristic view of billing by usage or by content. It’s hard to sell a modern billing architecture to somebody who already has millions and millions of investments in an old version.
Walldorf vs. Palo Alto
Apps Run The World:There are always speculations about which part of the SAP operation is really the center of gravity? Is it Walldorf, Palo Alto, or somewhere in between? Is there tension between Walldorf and Palo Alto?
Bouhdary: The center of gravity is the customer, and the opportunity, not Walldorf versus Palo Alto. You see that in the way we act. The center of gravity moved to innovation. It’s HANA—it is not Walldorf or Palo Alto. If you look at HANA, who owns it? Palo Alto? Walldorf? Nobody knows. A lot of the development is done in China. But with Sybase now, we add an enormous new capability, talent and skill. We also developed it, initially, with a lot of technology and know-how from Korea and a lot of the coding was done in India. So who owns it? It’s a multitude of developments going on in to build the platform.
Just look at Vishal Sikka(SAP development chief). He’s like one of these global executives who is showing the future of development. He is really the future of what I think innovation will become because he is with customers the whole time. He’s in China with customers, he’s with Nestlé, with Colgate, he’s listening, he’s innovating with them. He’s saying, “Go ahead, I will support you. It’s Version 1, but if you have a problem my people will be on the ground, no travel cost will matter.” He’s just created an environment where speed matters.
If you want to see what’s going on at SAP, it’s really becoming more driven by a product category or by the customer need. That is a much healthier culture. That is creating conflict. The conflict is – Well, we are too slow developing this way, the model testing and releasing the product once a year, it’s a monster, it’s old. We have to stop that. Now you have the new generation of developers like Sam Yen(SAP head of user experience) who combines information and usability. You can argue that developers in Walldorf had the opportunity to change usability for years and they didn’t. Then Sam came up with the Design Thinking approach, that’s creating very healthy conflict.
Apps Run ERP: Okay. Good.
Bouhdary: It’s all about the customer problems that need to be solved and someone needs to do it.
When Hasso Meets Lars
Apps Run The World: Moving your existing customers to the cloud, you’re basically asking them to play within multiple sandboxes. Because some of these cloud services are not designed to interoperate. Let’s say, expense reporting, certainly the data is tied into the financials, but the best cloud service is single purpose web service. Do you think that, over time, that’s going to change?
Bouhdary: When we bought SuccessFactors, we were in a boardroom and (SAP co-founder) Hasso Plattner asked (former SuccessFactors CEO) Lars Dalgaard , “How do you guys do the integration? It works really well with SAP?” And he was expecting some magic technology, like, “We have some advanced XML technology and we match it to every scenario.” And you know what he told him? Flat file. And Hasso fell off of his chair. He said, “Are you joking?” And Lars said, “Flat File and we take care of the rest.”
Because a lot of what SuccessFactors does is not mission critical, it’s just employee data. So Hasso said, “Now I get it. We will live in a world of loosely connected technology where people will be using the cloud, mobile and the data will move in between.” But, in certain situations, you need application lifecycle management, like Solution Manager. Because if something goes wrong in a mission critical system, you don’t want to be figuring out what went wrong where. Sometimes you need very sophisticated integration tools, but a lot of the time you’re going to need flat files.
So this idea of point-to-point integration, yes, but sometimes the point-to-point integration can be done with sophisticated tools and sometimes with simple tools. What we’ve done is we took our integration platform (SAP PI for Process Integration) and we moved it to the cloud. If you look at the integration of SuccessFactors to SAP, Sales On Demand and SAP and between Ariba and SAP, is done through PI. It’s very sophisticated because you don’t want to be messing around with having the wrong ledger, having the wrong information about the customer. So we do that.
And then what we do is every scenario is one on one at a time. So you map that scenario exactly, the data and frequency and everything and you map it at the time. Then what we do, which is really cool from SAP, we provide Rapid Deployment Solutions. So somebody today was using SAP SRM and wanted to use an Ariba network we will guarantee you can go live in three weeks.
At fixed price, so you can even predict the cost. No hard work because we are going to be putting the PI in the cloud and everything will be provided in the service. Part of the service is to go to the cloud and then we don’t charge you for every little step. It’s like one fee for the Ariba network and then you get everything.
So, we are moving into this concept of loosely connected worlds of technology.
What gets complicated is when customers want to use Salesforce and integrate to SAP. As far as the logic stays with Salesforce and the connection is loose with your scenario, then it’s okay. But once somebody wants to re-do every process by using beautiful screens on Salesforce and then using SAP to do all of the work, it falls apart. You can’t do quote to cash and pricing on SAP and then use Salesforce as just a screen scraper. And then companies come back and say it doesn’t work, well, of course it doesn’t work. Because you’re moving the data all of the time to the point where you are really using 99 percent SAP to do the hard work, and one percent here. That’s not loosely connected. That’s basically a screen scraper sitting on top of the real engine.
So we’re trying to educate customers that there are scenarios where cloud and on premise will do the work. So integration between Sales Force Automation for order to cash that originate from Salesforce to SAP, we have no problem with that. We do that every day. But doing all of the management pricing, quote to cash, you’re taking Salesforce much too far. So, yes, we believe they will be loosely connected to the world of applications and web services. And this will be done through sets of two that are from Flat File all the way to more sophisticated algorithms and tools to manage complex situations.
Apps Run The World: What is your projection for platform-based revenues like HANA that SAP gets versus application-based revenues? What’s the ratio right now and what’s going to happen in five years?
Bouhdary: I think from my perspective— HANA revenue, so far, has made complete sense because it’s a database and everything. But, we move in a world where everything runs on HANA. So what is HANA? It’s really a platform—it’s everything. Mobility runs on HANA. Business Suite runs on HANA. BW runs on HANA. So HANA is being sold with most of the applications and we made it easy for customers to buy. We said you pay for 15 percent of the application value and you get the solution.
This really makes complete sense because customers want to buy a use case of value scenario. But, then there will be situations where people are buying (Sybase) ASE, IQ, to build a data platform to do business scenarios, some of which has nothing to do with SAP data. Predicting that is so hard.
And then the other problem that we are facing is that we truly believe that the United States has gone to the cloud. So when customers said cloud, they don’t mean cloud physically. They don’t mean multitenancy, they don’t mean virtualization— they just mean speed. They need something up and running in six months, and you take most of the risk. You take the risk with the hardware and with the data and you build enough capacity to share that cost between all of the other companies from application management, from data management, from the contract with the suppliers, hardware, and network.
So, from that perspective, I will say cloud is everything today. And, if that’s true, then what does this mean to SAP revenue and mix? We don’t know yet.
Chakib’s Three Platforms
Apps Run The World: What are the threats that you see coming from mainstream vendors versus best of breed, and the up-and-comers?
Bouhdary: Today customers have to master three platforms. All of these platforms are dynamically changing significantly.
Platform No. 1 is the most basic: Allow people to communicate, which is e-mail, voicemail, video, social media, etc. This is moving to the cloud. Once there, it offers new opportunities to invite your suppliers, your customers through this collaboration platform and SAP doesn’t spend much in that space. For this platform, it is going to be a big battle between Oracle and Google and Microsoft.
The second platform is what I call the business process platform: SAP, Oracle, everything. You pay employees, you pay suppliers, you take orders, and you ship the goods. You’re going to see a lot of innovation around the edge, because the core has to be together. Most companies have already made the choice, SAP or Oracle or some other technology, and the switch is very hard. So, you’re going to start to see less and less variation.
But there are some industries that haven’t done it, like insurance companies have not standardized on a core. Emerging markets have not standardized on a core. So, the battle is moving to certain industries. Most banking companies have their own core banking that runs on Cobol. Many consumer companies have already made the choice. There are very few consumer companies that are still looking for ERP.
But what you’re going to see innovation here is around marketing, A lot of these startups can come in and disrupt that system. Most of them just come in with the idea to get out. These vendors don’t come in with the idea to stay. Investors give them money and they do it. But their value, at 10 times revenue, quickly fades away. That madness will stop. Madness has never lasted very long. So large companies like SAP and Oracle will have choices and will pick up these pieces and others will go away.
The third platform is the platform of the business innovation and disruption. It is the brain of the company. Where you are collecting data from consumers, from POS for retailers, you are building an incredible understanding of your business real-time. You are predicting the demand, and consumer responses to a campaign. That is a challenge because everyone has different data. And the way to understand the data is not standardized.
It is a deep understanding of mathematical modeling, forecasting tools, planning tools, and that skill doesn’t exist. The problem with the Western world is that we’ve already abandoned education for mathematical skills and statistical skills. Most people want to get an MBA for business or to be a doctor.
So if you want those skills, you’ll find them in India, you’ll find them in Russia. The industry that uses most of those skills is military. They already use optimization, modeling and artificial intelligence. Or in the financial markets where they use the mathematical models at hedge funds. Certain industries have that skill set, but most don’t. They have to build that skill set.
The third platform would be the area for innovation. Because of that lack of skill set, somebody needs to build a solution with the intelligence already pre-built. I see SAP playing a major role there with HANA because it brings video, structured and unstructured data, transaction, and then it’s put on top of Hadoop, and other predictive, analytical tools to give you a box by which you can enable people to do things they couldn’t do before without an incredible amount of infrastructure.
So that, to me, is where you’ll see more innovation. Not on the transactional side, but on the innovation of data. You will see massive amount of innovation in the way you optimize transportation for airlines, the railway systems. That’s going to be the next wave of innovation.