When listening to SAP’s preliminary FY 2019 results, it became obvious to me what keeps SAP’s new co-CEOs, Jennifer Morgan and Christian Klein, up at night. If you attended SAPPHIRE and listened to the recent Capital Markets Day and earnings calls, you start to see that SAP is not only focused on short-term quarterly and FY revenue wins, but the long-term stickiness of its solutions.
What is SAP Asking Itself?
Is the Market Buying into SAP’s Experience Management Vision?
Over time, SAP has strategically acquired solutions to complete its cloud suite and during SAP’s Capital Market’s Day in November of 2019, it announced its vision. SAP’s experience management vision, which it highlighted again during its FY 2019 preliminary results, leverages the power of S/4HANA coupled with the experience and operational data of its most recent acquisition, Qualtrics, to enable the full capabilities of these cloud groups:
- CX (Customer Experience Group) — SAP C/4HANA
- HXM (Human Experience Group) — SAP SuccessFactors and SAP Fieldglass
- ISG (Intelligent Spend Group) — SAP Ariba, SAP Concur and SAP Fieldglass
In order to be successful, SAP needs the market to buy into its vision of not just one of its cloud solutions, but its entire vision, to truly scale its predictable revenue stream in the cloud. This is an area where SAP is playing catch-up to the likes of Microsoft and Salesforce.
Will Integration Enable Land and Expand?
SAP also talked at length about one priority area of opportunity, and that was integration. When they talked integration, they stated they would prioritize “integration of acquired cloud assets” and would be “tightening integration.” Not only does SAP know it needs the market to buy into its vision, but it needs to integrate across cloud groups and solutions.
In order to cross-sell other cloud groups and solutions or “land and expand,” as Jennifer Morgan refers to it, SAP needs the ability to remove traditional integration walls usually left up to the customer. They need to enable enterprises to have smooth and fast implementations of other integrated solutions, whether they be in the initial area of a customer’s business (e.g., HR) or ideally in new areas of a business (e.g., Procurement).
Are Customers Truly Consuming SAP Solutions?
As the market can likely tell from the constant questions around S/4HANA migrations and go-lives, analysts have become privy to the fact that revenue is not the only measure of a product’s true long-term success. Product long-term success is measured by consumption. This shows that not only has the customer made the initial investment to enable its business, but has actually migrated to the product, gone live, and is using the product. This also shows products weren’t thrown in by SAP sales reps in order to make deals more “strategic” so they could increase commercial competitiveness, hit personal accelerators, and SAP can tout another adopter of their products.
Like many other software leaders before SAP, they realized they need to not only get customers to buy their solutions but also to use them. This is certainly why you see SAP announcing the update to compensation plans during the FY 2019 preliminary results to include a consumption accelerator for sales reps and beyond (developers, etc.).
SAP’s Co-CEOs Aren’t Just Focused on Revenue
Quarterly and FY Revenue Wins Only Mean Short-term Wins
Quarterly and FY SAP revenue objectives being met, only mean short-term wins for SAP. It doesn’t mean SAP is on track to meet its long-term objective of a highly predictable revenue stream. It may seem counter-intuitive but getting a customer to sign up for an SAP solution is not the most difficult part. You also need the customer to migrate to the product, go live, and consume.
In my experience advising SAP customers, I have run into those who have purchased SAP solutions and have failed to migrate. I have also run into customers who purchased an SAP solution and leveraged a small subset of what they have purchased. In these instances, customers are not seeing the value of what they bought and when it comes time for the first renewal, they think long and hard about whether to renew instead of it being an obvious choice. Sometimes, we even see customers choose to RFP SAP’s business on the street and move away, even with the high cost of change.
These are the experiences of SAP as well, and to SAP’s leadership, these are areas of concern. Once an SAP customer doesn’t necessarily mean always an SAP customer. SAP needs to do more than just get a customer to sign an agreement.
Stickiness Will Enable Long-term Wins
If quarterly and FY SAP revenue objectives being met don’t tell us enough of the story because SAP customers may still choose to move away, what will enable long-term success? Stickiness is the true indicator of how hard it will be for an SAP customer to change SAP solutions once it’s in.
SAP’s strategy makes complete sense. It is all about getting customers to buy in to their experience management vision, integrate and consume. If customers buy SAP’s full complement of experience management solutions, integrate the solutions across their business, and consume it, you will be hard-pressed to find a company that is able to internally align its business case to move away from SAP in whole or in part. This strategy, if successful, will enable SAP’s long-term success.
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