SAP Solidifies Industry Cloud Strategy

Spotlighting S/4HANA over Industry Cloud apps


SAP solidified its industry cloud strategy with growing adoptions of its next-generation ERP suite of applications, while capitalizing on near-term opportunities with an array of Cloud products.

On the eve of its biggest customer conference SAPPHIRE NOW, the vendor held an industry analyst day focusing on its traction in different verticals from banking to utilities.

The key focus was on the 370 early adopters of S/4 HANA, which is billed as the latest ERP suite of applications that could breathe new life into SAP’s vast installed base of 291,000 enterprise customers.

Another key takeaway was the stepped-up marketing of HANA Cloud Platform, which enables a slew of ISV partners and customers to immediately take advantage of the in-memory database to boost the performance of their industry-specific solutions.

Then there were the incremental benefits of Cloud applications that SAP has purchased over the past three years including the $8.3-billion acquisition of Concur for Cloud-based travel and expense management in 2014. In the first quarter of 2015, along with Fieldglass(a much smaller acquisition for contingent labor management), Concur accounted for more than two-thirds of revenues of SAP Business Network, one of the three key pillars of the vendor with the other two being Platform(mostly SAP HANA) and Applications. Concur and Fieldglass now overshadow the contributions from Ariba, which used to be the backbone of the SAP Business Network.

For verticals like professional services that leverage Concur and Fieldglass extensively because of the industry fit, the acquisitions simply gave them reasons to invest more in SAP.

Over the past few years, most of these Cloud applications have been instrumental in fast-tracking SAP to become one of the largest Cloud providers in the world with an annual run rate of $2-billion-plus in Cloud subscription revenues.

Obsession Over S/4HANA

Despite the Cloud push, S/4HANA, which is available in both Cloud and on-premise delivery options, remains SAP’s current obsession.

Make no mistake about it, S/4HANA is the real deal personifying the new era of Run Simple with SAP, boasting less than half of the code lines of the old ERP system that it replaces. In fact, SAP said the data footprint of S/4HANA is 10x smaller than that of its predecessor. The result: faster performance and throughput, quicker updates(as many as four new releases a year), as well as greater emphasis on usability with the help of the new UI called Fiori. S/4HANA, which was officially launched in February 2015, has gained acceptance by the likes of Florida Crystals.

Florida Crystals, the multi-billion-dollar sugar company, recently went live in less than four weeks with Simple Finance, the main module of S/4HANA. By any measure, the quick go-live was a new milestone for any SAP implementation, which previously could have taken its customers months or years to do the same.

The question is whether spotlighting S/4HANA alone was enough to drive new sales into the two dozen verticals like energy and chemicals where SAP has served well and continued to profit handsomely by selling and maintaining a host of industry-specific applications from joint-venture accounting for oil and gas to core banking and liquidity management for financial institutions.

Migrating to S/4HANA could require an IT overhaul in order to accommodate a totally different system landscape. For starters, it would mean jettisoning one’s familiar database like Oracle or SQL Server and replacing it with SAP HANA.

Simon Paris, president of SAP Industry Cloud, acknowledges that the journey for most verticals to embrace S/4HANA would be long and unpredictable, but the growing popularity of SAP HANA, which has already won the hearts of 6,400 customers, underscores customers’ thirst for innovation.

And this year’s emphasis on customer proof points primarily those running S/4HANA, HANA Cloud Platform and familiar Cloud apps from SuccessFactors to Concur, paled the excitement surrounding last year’s launch of the Industry Cloud initiative. You can read our take on last year’s announcement here.

Moreover it could take years, if not decades, before customers in key verticals like chemicals to take full advantage of SAP Industry Cloud applications. A case in point is that S/4HANA for verticals like Utilities appears to be more of a packaging technique, rather than the means to migrate existing customers in key industries to Cloud applications designed specifically for their industries.

Industry Cloud In Different Shapes

This is not to suggest that the SAP Industry Cloud is a disappointment. In fact, what became loud and clear was the amount of legwork that preceded the launch of Industry Cloud has finally shown tangible results.

In the financial services vertical, for example, the omnichannel offerings from SAP for banks to touch and support customers through mobile phones, websites and brick-and-mortar branches is a direct result of leveraging assets that it bought from Sybase in 2010 and more recently Hybris and Seewhy for eMarketing, melding them in a way that delivers end-to-end integration benefits for optimized customer relationship. That in turn could allow banks to predict who actually are their most profitable customers and execute preemptive moves to stem client attrition.

In fact, Hybris, which was purchased by SAP in 2013 primarily as an on-premise eCommerce play, now is Cloud-enabled through the use of HANA Cloud Platform. And SAP is recruiting partners to offer such omnichannel solutions for small and medium-sized banks in a Cloud-hosted model, allowing for broad market distribution more quickly.

In other words, the synergy that SAP has developed across its acquired assets has become more pronounced than ever, despite its liberal approach in letting some of these business units like Successfactors operate fairly autonomously with their own campus as well as distinct brand equity.

What that amounts to is that SAP Industry Cloud initiative, similar to S/4HANA, will come in all shapes, sizes and flavors including Cloud-only applications like SuccessFactors for any industry that wants to move their Core HR systems to the Cloud, and industry-specific apps derived from years of acquisitions that SAP has made as it continues to transform itself into a full-blown Cloud vendor.