SAP Strategy – Decyphered

SAP Strategy – Decyphered

Much has happened in the SAP world in the past few months that were covered by the requisite number of announcements – and a good deal of analysis, including mine. SAP has

  • Released its first release of S/4HANA for Customer Management
  • Acquired CallidusCloud, a software company that focuses on sales enablement
  • Announced a new ERP licensing model ‚for the Digital Age‘

While these three topics seem to be very different, combined they give a good insight into SAP’s strategy, and how the ERP world – sorry, the S/4 world, and the customer facing world are going to shape up.

So, let’s have a brief look at these three announcements separately, and then connect a few dots.

S/4HANA for Customer Management

I have covered the migration of SAP CRM into S/4HANA a couple of times. S/4HANA for Customer Management  is the ‘customer orientated’ part of S/4HANA and shall offer the core service- and sales functionalities of SAP CRM, using a unified data model. It  is supposed to focus on what SAP calls the ‘heavy lifting customer processes’ and to support comprehensive core processes, thereby providing one central customer database.

In other words this means that S/4HANA for Customer Management as part of S/4HANA will have a strong focus on (business) transaction processing and enabling the logistics that comes with fulfilment.

One could say that it becomes a transaction engine.

Keep that thought in mind.

CallidusCloud Acquisition

CallidusCloud provides leading solutions for sales performance management, CPQ, Contract Lifecycle Management, and more. This portfolio nicely plugs a few holes in the SAP Hybris portfolio and offers SAP options or at least another view on how to address issues tackled by existing products in another way.

I am especially looking at the CPQ side here. SAP is traditionally strong on the variant configuration side but lacked a strong cloud based CPQ engine. The current SAP Hybris CPQ is, after all, an on premise solution and highly geared towards complex solution configuration. As such, and in particular with its deep ERP integration it surely covers some bases that CallidusCloud’s CPQ does not reach – yet.

But then SAP moves into the cloud – and successfully so, as the Q1/2018 financial results announcement proves.

On top of this, CallidusCloud CPQ comes with an integrated Contract Lifecycle Management system that helps facilitating the sales process of products with complex contract negotiations.

New ERP Licensing Model

With this new licensing model SAP reacted to the years long controversy about the indirect access topic. I haven’t covered this significant announcement before; hence I will write a bit more about it here, as it is also a crucial part for the connecting of dots that I talked about above.

The underlying problem was – strongly simplified – that an increasing number of SAP ERP customers did not opt for SAP software when it came to choosing CRM solutions, e-commerce packages, or other pieces of enterprise software that surround their ERP backbone and exchange data with it. Of course, these packages needed to be, and were, integrated into the ERP back end in order to enable seamless processes across the value chain.

So far, so good. Unluckily the users of the third party applications do regularly not have users in the ERP system. SAP argued that they are still using the ERP system, even if the data flows via a technical user.

Customers do not want to license additional ERP users for the users of the third party applications, as they apparently do not use the ERP system, but just send data back and forth.

Problem. Big problem. And one that was ruled in SAP’s favour in the Diageo lawsuit in early 2017.

Still not a ruling that SAP could really use to play hardball. So, something needed to change.

SAP elegantly solved, or rather mitigated, this issue by putting it into a bigger context: Outcome based pricing.

Instead of users, the new pricing model is built around pricing the creation of business documents and there, in particular the line items.

The interesting aspect here is that not the mere possibility to create value is priced (users) but the actual value creation (business documents are orders, service requests, opportunities, etc.).

Add the thought that not all business documents are created equal and that there needs to be some scale pricing, one reaches a matrix that can be adapted easily enough to be future proof.

Lastly, an outcome based pricing model fits neatly into SAP’s narrative of delivering outcomes and, in a broader sense, the SaaS story which after all has a usage and results based promise at its core.

My PoV and Advice

Putting these three topics together, SAP’s story about the digital core becomes more clear.

The digital core is S/4HANA that takes care of business transactions and delivers intelligent insights to power (more) transactions. Everything else, workforce engagement, spend management, supply chain, IoT, and customer engagement/experience surrounds it.

The new licensing model is actually the glue that connects the dots.

So, what does this mean?

Several things:

  1. One can look at S/4HANA as mutating into a transaction engine. The SAP Hybris Revenue Cloud is well geared towards creating correct invoices, based on created ‘documents’.
  2. SAP Hybris CPQ is on its way to retirement. It is an engine and not really cloud enabled. For variant configuration it bolts on the digital core. And configuration is not a business document in my books. The order, that holds the BOM that is generated by configuration, is.
  3. Callidus is not yet strong in variant configuration but can be bolted on the digital core, too, in order to support variant configuration. SAP needs only one engine. Callidus is intended to be this engine. In case there is a continued need to have a separate variant configuration capability there is still In Mind.
  4. There will be continued efforts to put all engagement functionalities – customer, supplier, employee – into cloud based applications that surround the digital core.
  5. As a side effect, life might become easier for ISV partners, as there is no indirect access risk anymore.

I think that this pricing model is a very smart move by SAP. It will now be crucial to deliver a calculation tool that helps customers identify whether it is better to adopt this model or to stay on their existing pricing for a little longer. Customers most certainly will want to know what this new model means for them, specifically.

Regarding indirect access, which is a topic that affects other vendors as much as it did affect SAP, well, the ball is now squarely in their court. It will be interesting to see how they react.

Last, but not least, it is on SAP to refine the narrative in a way that less grey areas remain and that strategy and its execution is clear to customers.

Of course I might be wrong with my view on SAP’s strategy – but I doubt it. Happy to get corrected, though.

Any opinion?