As SAP shifts its focus to the Cloud, it is turning its attention to Line of Business executives, a group of users who have emerged playing perhaps a bigger role in the vendor’s future than that of its traditional base of IT professionals.
For much of its history since 1972, SAP has been selling primarily into IT executives responsible for implementing and maintaining a slew of ERP and mission-critical applications for big and small companies alike.
That’s changing as Cloud delivery of enterprise applications makes it easier for LOB executives – primarily those in finance, HR and customer-facing functions – to purchase and run these systems themselves with minimal amount of involvement from the IT group. These LOB users would tap into their operational budgets rather than capital expenditures, often bypassing the process needed to gain approval from a whole host of committees across an organization.
Its shopping spree of SuccessFactors for HCM, Ariba for eProcurement, Hybris for commerce, SeeWhy for digital marketing and Concur for travel and expense management has made it clear that SAP is pivoting its sales and marketing engine to HR, procurement, commerce, marketing and sales executives.
The June 2014 unveiling of SAP Simple Finance was another example of how the vendor has moved beyond its roots in IT by targeting accountants, treasurers, credit managers as well as division chiefs who have P&L responsibility.
SAP Simple Finance takes advantage of the latest innovations – specifically the SAP HANA in-memory database by eliminating indices and aggregates for smaller data footprint, rendering the use of external systems obsolete for faster operational reporting, and unifying Business Planning and Consolidation(BPC) as well as Business Warehouse(BW) in a single model for integrated corporate planning. What that means is that Integrated Business Planning will start replacing standalone demand planning and cost planning, allowing for tighter coupling of real-time data with scenario building and planning and execution.
One scenario calls for running SAP Simple Finance as Central Journal, leveraging shared data across different transaction, planning and financials systems that are being used at the local level to create an optimized view of corporate finance.
For example, big insurer New York Life expects to achieve a single instance of GL made available through its new implementation of SAP Simple Finance, which replaces the legacy SAP ECC, with the planned go-live date of July 2015. Some of the insurance systems like policy administration at New York Life will be removed from the new Simple Finance system in order to streamline overhead. As a result, New York Life expects chart of accounts to be reduced from 14,000 to a few thousand after the migration, easing the burden of managing multiple and sometimes duplicative profit and cost centers. That should lead to improved performance for the finance function at New York Life.
Australia’s La Trobe University in Melbourne is another organization that plans to run SAP Simple Finance to improve its finance function while driving greater efficiency across multiple locations for its 3,400 employees globally.
La Trobe University ran a pilot project earlier using SAP HANA to process massive amounts of data related to vehicle collision detection, slashing report processing time from four weeks to just 3.5 seconds. Such examples demonstrate the value of SAP HANA as customers exploit the database engine in order to turbocharge applications such as Simple Finance for added functionality and enhanced results.
SAP itself is a user of SAP Simple Finance. By running the software to handle its corporate finance function, SAP is now able to close its books in four days. By comparison, major listed German companies take anywhere between three and 18 days to complete the task.
SAP expects Simple Finance to gain support among treasury departments as it adds cash management capabilities. Another key selling point of Simple Finance for LOB executives – or anyone that consumes its software – has to do with the considerable investment that SAP has made in the look and feel of its applications and new tools designed to make data visualization accessible to a large user population.
Enhancements like Fiori, an attractive user interface that now comes free with software licenses like those for Simple Finance, and Lumira for data visualization are enablers that foster greater consumption of its applications by LOB users – similar to the stylish design that has become the formula for any technology product to gain wide adoption these days.
In October 2014, the vendor also introduced SAP Cloud for Planning, a Cloud-based Enterprise Performance Management(EPM) offering that will be built on the SAP HANA Cloud Platform. The move underscores the increased emphasis on readily accessible Cloud tool designed specifically for finance professionals and business users to handle simplified planning and analysis.
Furthermore SAP is making Simple Finance available via Cloud and on-premise deployment, a decision that will broaden its appeal among the current installed base of SAP ERP, EPM and Business Analytics users, covering more than 127,000 customers.
With more than 50 customers under its belt, SAP Simple Finance has a long way to go before it becomes a big money maker for the vendor. Still the product represents a major milestone as SAP begins to transform itself from the early days when it ruled the ERP market with its R/3 system garnering widespread support from IT professionals, many of whom have come to make a good living with their ABAP programming skills and SAP domain expertise.
SAP Revenue Outlook
Now much of its future success will depend on SAP’s ability to win over LOB users, who stand to contribute much of the vendor’s new product revenues including both license and Cloud subscriptions in the coming year.
This week SAP announced preliminary fourth-quarter 2014 results showing that its Cloud subscriptions and support revenues had reached €1.1 billion last year, up 45% from 2013. Buoyed by €95 million in contributions from Fieldglass and Concur, SAP’s Cloud subscriptions and support revenues accounted for 20% of its new software product sales in 2014, up from 14% in 2013.
Our estimate shows that the combined license sales and Cloud subscriptions of Simple Finance(aiming to hit several hundred customers in 2015), SAP Business Suite on HANA(now reaching nearly 1,500 customers), Concur(23,000 customers), Ariba(1.4 million connected companies), SuccessFactors(5,000 customers) as well an assortment of recently-acquired Cloud products such as Fieldglass could generate more than half of its new product revenues, which are likely to top €6.5 billion in 2015.
It’s worth noting that many of the above products weren’t even available from SAP prior to 2012 when it put its Cloud strategy into overdrive with the purchase of SuccessFactors. Now the transformation of SAP has reached a point where its salespeople are likely to be selling completely new products to customers – in some cases LOB executives serving different roles and perhaps with very little exposure to the vendor before.
For example, at a recent Ariba event Kaiser Permanente, a $53-billion healthcare provider with 174,000 employees, outlined its use of the Ariba Network to process millions of invoices every year, despite its heavy reliance on Oracle for HR and ERP systems. Without the purchase of Ariba, SAP might not have been able to crack the business users of Kaiser Permanente, especially those involved in functions like procurement, AP and AR.
Similarly, Kaiser Permanente managed to connect with only 550 of its suppliers when it was running the on-premise version of Ariba Buyer for years. In 2013 it decided to subscribe to the Cloud-based Ariba Network by moving off Ariba Buyer. Today, the healthcare provider is among the 1.4 million entities that do regular transactions among one another on the Ariba Network.
By capitalizing on the ubiquity of Cloud computing, SAP – along with its Cloud customers – will experience different trials and errors as to what business function will be suited for what type of Cloud applications. In some cases, these proof of concepts Cloud applications projects may never take off and gain the critical mass needed in order to generate and realize tangible value for all the parties involved.
That’s quite different from some of the on-premise software projects usually done under the purview of the IT departments when their successes were based on whether the applications were implemented properly and under budget, and system downtime was kept to a minimum.
Certainly SAP’s transformation from a primarily on-premise vendor to one that embraces the Cloud will carry significant impact on its recurring revenue stream. But more importantly, new products like SAP Simple Finance will test the vendor’s ability to win support of LOB executives with a role-based value proposition that may be completely different from what their IT counterparts have come to expect.
As SAP shifts its messaging by targeting LOB users who have more diverse expectations than their IT counterparts, the burden increases with not just keeping the Cloud applications up and running at all times, but also delivering incremental business value along the way to keep these LOB users satisfied and fully engaged.