Part of SAP’s 2019 Capital Markets Day presentation centered on “The SAP Top Ten” which includes SAP’s ambition to be #1 in Cloud ERP by 2023. There was also a significant amount of time devoted to C/4HANA’s evolution, its position against competitors like Salesforce, and how the recent acquisition of Qualtrix comes into play.
But the portion that most concerns customers is SAP’s strategy for meeting its ambitions which was presented by Jennifer Morgan who leads SAP’s Global Customer Operations. There were three key takeaways within her presentation that will have a material impact on both current and future SAP customers.
1. Consolidation of S/4HANA and Cloud Sales Organizations
The previously siloed SAP S/4HANA and cloud sales teams will now be combined into a single team focused on driving both the adoption of S/4HANA and the cloud. As Morgan noted in her presentation, “sometimes with too much choice can come confusion” alluding to the fact that current SAP customers can choose between moving to:
- The cloud
- Both S/4HANA and the cloud
Though presented in terms of reducing customer confusion, this change in sales structure is crucial since SAP used to offer (and to an extent still offers) customers flexibility on both product and platform decisions. Customers had the option to maintain their ECC footprint and/or choose when/if they will upgrade to S/4HANA. They could also choose to begin or remain on-premise for core ERP or leverage the cloud. This consolidation of sales organizations paired with the end of ECC support means they will have less options.
What to Expect from This Change
This single sales team will be focused on moving customers to both S/4HANA and the cloud in equal measures to meet SAP’s ambitious goals (such as becoming the #1 Cloud ERP provider within the next 4 years). Customers who believed they had time to test out the value of S/4HANA will notice SAP more aggressively pushing them to make that leap even sooner.
In addition, customers who may be sold on the value of moving from ECC to S/4HANA but wanted to dabble with a few other cloud products before going all in will see that time horizon diminish. It’s important that customers are not only comfortable with the technology but that they are informed on the value of their existing SAP ECC assets (e.g., transition credits) and how those can be leveraged to offset the cost of S/4HANA.
With the new sales organization pushing both S/4HANA and the cloud, we expect SAP to begin creating incentives (financially or otherwise) that tie S/4HANA capabilities with moving to the cloud. If you are a customer, you should understand what commercial constructs are available from SAP in order to maintain a pace that is aligned with your business requirements, rather than SAP’s revenue and sales ambitions.
2. Sales Executive Compensation Changes
One of the other key points Morgan covered was the requirement that the sales team delivers predictable, profitable growth. Core to delivering that objective is aligning sales executives’ compensation to transactions with commercial terms that drive maximum, future revenue. As such, sales executives will be incented and compensated to drive multi-year deals, which maximize margin and ensure these transactions are renewed.
It’s clear that SAP is looking to provide less flexibility now in order to position the ability for large increases at contract renewals that drive higher margins and protect future revenue streams. SAP is following a precedent set by Microsoft and Salesforce who are known for their aggressive, double-digit renewal increases for customers without protections.
Why is This Important?
All of this will come at the expense of SAP customers who are unaware of or unable to secure flexibility and price protections. Current or prospective customers should be informed as to the various commercial constructs and business terms that they should expect for a given transaction. Seeking market intelligence and gaining an understanding of how to secure protections will empower you to make educated decisions based on your organization’s needs rather than SAP’s margin and revenue objectives.
3. SAP Will Compensate Hyperscalers
Whether SAP is taking a pragmatic view on the market’s perception of their ability to match the capabilities of Amazon Web Services (AWS) and Google Cloud Platform (GCP) or are inspired by the true spirit of coopetition, SAP will now compensate hyperscalers who take SAP S/4HANA customers into their cloud. SAP believes there is a “massive mutual incentive” to partner in this way and is taking a very direct approach to create momentum for both S/4HANA and the cloud through incentivizing these relationships. This is an approach Oracle has yet to take.
What Does This Mean for Customers?
One advantage of maintaining an ERP system onsite is the transparency and predictability of cost. For example, an organization can quantify the cost of additional servers or storage, disaster recovery, or of people needed to run a datacenter. However, once a customer’s platform is in the cloud, that transparency and predictability vanishes in exchange for resource efficiency, reduced capital investment, and (hopefully) lower infrastructure costs.
Customers who have moved to or are considering moving to SAP HANA Enterprise Cloud face the challenge of distilling the cost of a software subscription from the infrastructure/database/disaster recovery costs. They also must somehow predict the incremental costs of infrastructure when adding software. Leveraging AWS or GCP adds further complexity as their pricing methodology obviously differs from SAP. While SAP may have provided greater flexibility for customers of their Hana Enterprise Cloud, that may not be the case for AWS or GCP.
Therefore, it’s crucial that customers considering AWS or GCP obtain the market intelligence, transparency, and protections for moving with SAP to a hyperscaler. Customers must also understand both SAP’s and the cloud owner’s accountability for performance. Understanding the intricacies of the contract terms and who is responsible when something goes bump in the night will be key to managing the uncertainties of moving to the cloud.
If there is one thing to be said about SAP’s sales force, it is that they are nimble, effective, and motivated. Given the changes to both the sales organization and compensation as well as the aggressive revenue and growth targets, customers who are educated and supported by market intelligence will be best positioned to capitalize on SAP’s sales executives’ incentives. Leveraging an SAP industry expert can prepare you for proactively engaging with SAP and driving the best outcome for your organization.