The starting point for this post was a conversation with an industry veteran about innovation, in which he opined: “SAP doesn’t innovate anymore. How come they don’t have something like HoloLens?”
I’ve been pondering that declaration for a while. I agree that HoloLens is immensely cool, and that most of the feature/function bloat in the nth rev of an established enterprise software product is more meh than magical, at least to me. But SAP doesn’t innovate? They really don’t have anything like HoloLens – true enough. But maybe that’s because innovation in a mature market like enterprise software is vastly different than innovating in new markets like augmented reality. Comparing a cool piece of hardware that does something we’ve never done before to an innovation in enterprise software that ekes a little more productivity out of an established process isn’t really a fair comparison.
Moving the needle in a mature market isn’t always about new features and functions anyway. In a mature market, a vendor trying to make a real difference has to innovate structurally – new entities, initiatives, joint-ventures, structures, as opposed to discrete pieces of software or hardware – as much if not more then it has to innovate at the feature/function level. This is very much the state of enterprise software today. We’re largely done with the relatively easy goal of making individual operational centers more efficient by focusing on unifying data objects and easy-to-target buyers: CRM, HRMS, ERP, SCM, and the rest of enterprise software have largely reached a plateau, if not the apex, of intra-silo innovation. Most of the easy, cool stuff has been done, and innovation now comes in small increments, not big bangs.
So when I look at mature companies like SAP operating in mature markets what I expect to see are initiatives that attempt to innovate at more of a structural level than at a pure product level, and indeed that it what SAP has been doing of late. The RISE initiative announced earlier this year is one of them, though its main structural value is to create a more streamlined sales funnel for moving SAP customers to the cloud – something that so far appeals mainly to SME customers, while large enterprises with existing contracts with SAP and the hyperscalers seem to be less interested.
More interesting than RISE is Catena-X, an automotive business network that SAP has helped launch with a largely European group of automotive manufacturers and suppliers. Or the unfortunately named Fioneer – a joint venture with private equity investor Dediq to create a standalone financial services software provider. Then there is the mother of all structural innovations at SAP, the Business Network. The BN strategy is trying to evolve the concept behind enterprise resource planning to become a many-to-many network resource planning hub, building on the Ariba procurement customer base and the existing Logistics Business Network and Asset Intelligence Network to create a platform that can manage supply and value chains across the global economy. And provide net new services around partner and trade management, planning, and other major supply chain-related issues, all even more relevant in the maelstrom economy we now find ourselves in.
The Business Network strategy fits what John Wookey, the serial industry veteran charged with running what SAP is calling its Intelligent Spend group, the “need to continually expand the problem space” that enterprise software is trying to solve. In a world increasingly focused on enabling complex end-to-end business processes, “the most important business processes run across the network.” Catena-X expands the problem space by focusing on sustainability, quality management, traceability, and other key processes in the automotive space as a collaborative, networked set of processes that aren’t controlled by SAP as much as they are enabled by SAP technology.
SAP is also using existing partnerships to define new levels of innovation: its work with Microsoft around optimizing Azure workloads, redefining on-premise computing as an edge extension of the Azure cloud, driving digital supply chain and Industry 4.0 initiatives, among others, is another example of structural innovations that can have huge impacts for customers. Another is SAP’s Industry Cloud initiative, which is pushing industry-specific functionality to the market in cooperation with existing customers as well as the partner ecosystem. Industry clouds seem to be a dime a dozen lately, and pretty much every vendor is “expanding the problem space” they address by pivoting to industry-specific solutions that can hopefully entice industry-specific buyers to write large checks. SAP’s Industry Cloud initiative is trying to differentiate in two ways. The first is the company’s decades of experience, starting with its Industry Solutions initiatives that date back to the 1990s. Secondly, SAP has a team under Augusta Spinelli – who is also the interim overall head of services – that specializes in implementing industry-specific solutions and functions and providing a feedback mechanism for the industry teams building industry-specific functionality.
Spinelli’s work – discussed at length during a recent Services Analyst summit – is part of an internal customer innovation effort at SAP that is also structural in nature. SAP now has a board member, Scott Russell, who is in charge of the almost Sisyphean task of Customer Success across the company. Russell, speaking at the same Services Analyst Summit, described his focus on customer lifetime value as a key change in mindset – a genuine innovation, and unfortunately one that’s been a long time in coming – that he has told me more than once is meant to signal his desire to truly disrupt SAP’s interactions with its customers. I’m definitely looking forward to that cultural war will be fought inside an enterprise sales culture marked by fealty to quarterly quotas, not customer success.
Marketing of course also got an upgrade with the appointment of Julia White to run a new board area dedicated to marketing and solutions management – another potentially Sisyphean task to transform a function at SAP that hasn’t always been as highly considered as it should be. Personally, I think there needs to be a disruption in marketing similar to what Scott Russell is trying to do in his board area. My concern is that instead of creating something entirely new, the temptation will be to fall back on older, “established” models of marketing and communications that, while “tried and true,” are a little long in the tooth and probably won’t fit SAP as well as they fit other companies. Should SAP emulate the mediocrity of other large enterprise software companies or strike out on its own? I vote for the latter, but maybe that’s just me.
(Such as: can we please just blow up SAPPHIRE and start over? Seriously. Every other vendor thinks these big events are the sine qua non of enterprise software marketing. I think we can do better.)
The problem is that questions like what is influence, what is messaging and storytelling, what is openness and honesty versus control for the sake of control, need to be looked at very differently than they have in the past. Because if we’ve learned anything in the last year it’s that how we used to do business – engaging with customers, partners, and employees – may not be the way forward in a post-pandemic economy. Saying “this worked great at company X” is sort of the modern equivalent of the “when I was a tad we used to….” stories told by old people in rocking chairs to bored young children. Replacing SAP’s approach with some existing method seems..facile, not very creative, and missing an opportunity to be truly disruptive.
Regardless, there’s little doubt more can be done to innovate marketing. Indeed, one could argue that the whole reason this blog post exists – as a reply to the “SAP doesn’t innovate anymore” charge – is one of the reasons White has her work cut out for her. The stories are there, they’re just not easy to digest into simply sound bites and elevator pitches. Another story I like to tell about the problem of how SAP tells its stories starts with a presentation by a major, old-guard SAP customer at another vendor’s supply chain conference a few short years ago. That customer talked at length about its pipeline for co-innovating new, important technologies from a long list of prospective vendor/partners. This company’s ERP company, SAP, wasn’t on the list. HoloLens was, among others. Like my colleague, that customer doesn’t think SAP innovates either.
The marketing problem is exacerbated by the fact there’s a lot of important innovations going on behind the scenes, and, at least for now, behind the marketing veil. Cloud ALM, or CALM, is continuing its evolution as a tool for managing the lifecycle of SAP’s cloud portfolio, from conference room pilot to post-go live. While relatively unsung, CALM is impacting more enterprises at a more fundamentally strategic level than HoloLens by an order of magnitude or two, and it’s taking on new importance as part of SAP Services’ push to further automate services and support. Indeed, the team that focuses on building tools like CALM and others – run by SAP veteran Andreas Heckmann – is one of the largest development groups in the company, building a lot of the tools that SAP hopes will further automate services and support engagements and underpin the more visible initiatives like RISE.
So you say SAP doesn’t innovate anymore? The above list is just the highlights, there’s more where that came from. Look at the company’s Climate 21 initiative. Its work around Industry 4.0. Are any of these innovations shrink-wrapped products that can be bought with a credit card on a retail website? Nope. Can you pitch them in a sound bite and get a user up and running on some eternal beta version of the product? Not really.
That’s because structural innovation is hard, and complex. Not that augmented reality headsets are simple, but creating a truly functional Business Network is more like building the Panama Canal or the US Interstate Highway System, HoloLens is more like building an electric truck. And boy is infrastructure important, now more than ever. All the recent head-turning innovations, be they around new end-to-end business processes or EVs and autonomous trucks, literally have nowhere to go if there’s no infrastructure. Same with HoloLens for that matter: by itself, it’s just an expensive array of tech coolness. As part of, say an Asset Intelligence Network’s maintenance services, HoloLens’s value is multiplied by orders of magnitude. It’s true for civic society, and it’s true for enterprise software: infrastructure matters.
The innovation machine that Wall Street and the VC community are fueling is more focused on flash and buzz, “sexy” products that “disrupt” the status quo. In the glare of a business culture that reserves its accolades for tech bros who ride their edifice complexes to inner space – just because they can – it’s hard sometimes to see the difference between innovation as a derivative of hyped-up consumer marketing and innovation that builds the structures needed to create the business world of tomorrow. The former is intended to make headlines and may have a product lifespan measured in years or even months, the latter is intended to move the global economy forward over many decades.
They’re both innovative, but they’re hardly equal. And, for my money, it’s the latter that makes the real difference.
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