Last month, SAP’s two newest CEOs—Jennifer Morgan and Christian Klein—shared news of double-digit growth across revenue, profit, and cash flow during the company’s third-quarter earnings report.
In their first SAP Capital Markets Day as co-CEOs, they welcomed investors and analysts from around the world to talk about the company’s future vision and ambitions. The theme was “Growth and Operational Excellence,” and the duo laid out their plans to achieve both.
“It’s been quite an eventful month,” Morgan said. “We’ve spent a lot of time listening to our employees and to our biggest customers. We’re excited to share with you our plans, but also, to listen.” Klein added: “We are super focused on closing out the year strong, but of course, we’re working hard to plan and design the next chapter of SAP.”
Reducing Redundancy in the Portfolio
Morgan kicked things off by focusing on strategy, stressing that everyone in the room should know that it all starts and ends with the customer in mind. “With successful customers, we have customers that we keep and who buy more. We have lower escalation, we drive our top line, and we drive efficiencies on the margin,” she said.
With the many acquisitions that are under the SAP umbrella, the company possesses a robust and vast portfolio of solutions to offer. That’s great when the goal is to solve a multitude of problems customers are facing. But it’s a problem when the multitude of solutions addresses the same customer needs.
“We're going to be very clear with the company and with our teams around what we're going to stop, what we're going to fix, what we're going to accelerate and scale, and where we're going to innovate,” Morgan said. SAP plans to have one set of priorities for the entire organization, and remove silos and redundancy where it exists. Its goal is to practice what it preaches and align its priorities with its business results. “As we evaluate those areas of focus and what our priorities will be, we will analyze everything across three lenses,” Morgan added. The two CEOs will take a deep dive into the business and review everything as it relates to market reality, product reality, and financial reality.
“It’s great to hear that one of Jennifer and Christian’s priorities is to look under the hood of SAP and see where they can simplify the ‘portfolio experience’ for their customers,” said Geoff Scott, ASUG CEO. “The easier they can make that experience, the better it will be for customers who want to take advantage of the innovative technologies that SAP has to offer.”
Driving Experience Through Everything
One of the biggest growth areas noted during the presentation revolved around experience—experience management and customer engagement. “These are big growth areas out in the market, and we’ve got plenty of runway here,” Morgan stated.
SAP is focused on aligning its products across the different parts of its portfolio, starting with Qualtrics. “Much like SAP created the ERP category with operational data…this is exactly what Qualtrics is doing, where more data is outside the company, and we need to have a platform around experience data,” Morgan said.
With more than 11,000 customers now on Qualtrics, SAP is looking to expand as it sees additional ways to connect its SAP SuccessFactors and SAP Fieldglass platforms, as well as its customer experience platform, SAP C/4HANA.
Top Customer Priority: Integration
Understanding that a successful business relies on satisfied customers, Morgan challenged everyone at SAP to step back and ask, “Do we have happy and successful customers across each of our different product lines?”
Klein touted that “SAP is hitting the right markets at the right time,” by ranking first in ERP, human capital management, supply chain management, and procurement, and ranking second in customer relationship management. “To lead SAP into a successful next chapter,” he continued, “we have to continue to challenge the status quo, be close to our customers to understand their needs, drive innovation, and continue with the transformation of SAP.”
That transformation includes focusing on two things as SAP looks toward growth potential in the next three years. “First, we need to keep our promise and engineer the intelligent enterprise,” Klein said. “Second, we have to double down on customer success to drive upsell and high renewal rates.” Klein went on to say that SAP is uniquely positioned to engineer the intelligent enterprise because no other competitor has the completeness or the depth of SAP’s solution portfolio.
But even with those products under SAP’s umbrella, there cannot be an intelligent enterprise without business-process and systems integration. “In 2020, we will finally deliver the business integration for all acquired cloud products,” Klein said. Industry analyst Josh Greenbaum noted that the weakest link for SAP up until now has been its SAP C/4HANA platform, especially because of the lack of native integration options. Customers looking to move forward with the customer experience cloud solution will definitely welcome this news.
Making the Connections all Around
SAP recognizes that the world’s most complete software portfolio and satisfied customers alone aren’t enough. The company needs to meet financial commitments and responsibilities as well, particularly fulfilling its promise of expanding profit margins by 5 percentage points through 2023.
According to SAP CFO Luka Mucic, the company will hold flat the funds dedicated to R&D at 14%, as well as reduce redundancies gained through acquisitions. “This is not a cost-cutting program,” he said. “We are holistically looking at all of our operations and what really counts in driving customer success.”
Put simply, this means SAP will mostly focus on cloud profitability, which is set to deliver more than half of the overall revenue goal. More specifically, SAP is placing a lot of weight on partnerships with the hyperscalers Microsoft Azure, Google Cloud Platform, Amazon Web Services, and Alibaba Cloud. “We have the opportunity to run our entire application portfolio on either one or more of those hyperscale partners,” Luka said. “This helps us to scale much more efficiently and offers simplicity and flexibility.”
Industry analyst Greenbaum amplified a customer concern relating to the news. “It’s a little disconcerting that SAP isn’t going to spend more in terms of R&D, especially because there is a tremendous need for more integration,” he said. “But perhaps the recent preferred partnership with Microsoft Azure will garner more innovation from Microsoft and take the burden off SAP.”
Bottom Line: What’s Next?
With two new leaders taking the reins and establishing their own path forward, SAP and its customers are in for some changes ahead. According to both Morgan and Klein, the outcome will be more innovation on a simplified platform driven by experience—and the customer’s experience, at that.
As for the recent news about Microsoft Azure, Morgan and Klein were adamant that SAP customers can still choose whichever hyperscaler they want to meet their business needs. According to Greenbaum, “For ASUG members, I believe being able to maintain their choice in cloud provider is absolutely essential, and SAP has made an effort to assure them that that is the case. I think customers will need to pay attention to the differences in capabilities, if any, on any one of these cloud providers moving forward.”
For now, keep an eye out for news around SAP’s cloud portfolio and increased emphasis on customer success, as well as operating profit increases.
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