These past few weeks have featured a series of noteworthy news items related to enterprise and supply chain technology provider SAP. In a prior posting, Supply Chain Matters called attention to the announcement of a new chief marketing officer and the formation of a new Digital Business operating unit. In this posting we touch upon some other announcements and their significance to a broader strategy that is underway, one that is perhaps strategically critical to SAP.
Earlier this month, SAP announced three business applications to help customers leverage Internet of Things (IoT) technology. These announcements represent initial efforts towards an overall multi-year effort for SAP to provide increased leveraging of digital based technologies.
SAP Predictive Maintenance and Service, which is developed on SAP’s HANA Cloud Platform, is directed for manufacturers’ support in predicting a malfunction of installed equipment before it occurs by monitoring equipment sensors and historic operational data. SAP Connected Logistics is also provided on the SAP HANA Cloud Platform to provide logistics hub operators the ability to monitor traffic toward and within a hub and facilitate communication between involved parties including those that do not have a direct business relationship. The software is planned to offer integration to backend transportation management systems, and lean dispatching capabilities for logistics service providers that do not have a sophisticated backend solution in place. Finally, SAP Manufacturing Execution, Version 15.0 is envisioned to offer IoT support for manufacturing operations, by integrating manufacturing results with real-time feeds into the SAP HANA platform.
The above announcements, in themselves, are significant because they are another reinforcement of the building interest among manufacturers and service providers for increased leveraging of IoT in business support and supply chain planning and execution processes. SAP does not typically initiate development efforts without some form of customer pull influence. The announcements are an indicator that SAP does not want to be the also-ran player in leveraging cloud-based IoT networks. From our lens, that is an indicator that the enterprise vendor needs to foster forms of deeper relationships with broader IoT ecosystem players, similar to what PTC has been initiating with its recent acquisitions in this area, and broadened channel relationships.
Readers may recall SAP’s prior announcement in September of the technology providers intent to acquire travel and expense spend control provider Concur Technologies for $8.3 billion. Last week, both companies announced that Concur’s shareholders have now voted their approval of the acquisition and that the transaction is expected to close on or about December 4, 2014, subject to the satisfaction or waiver of closing conditions, including those related to regulatory approval. At the time of the announcement, this author’s initial reaction was that of puzzlement. Why pay such a significant premium for a cloud-based travel expense support provider and what is the strategic fit to other cloud-based strategies? Apparently, after noting numerous comments from other industry observers as well as SAP’s own influenced blogging community, we were not alone in that perception. Indeed, the SAP user community should wonder whether Walldorf is again taking precious financial resources away from its core strength of supporting broad manufacturing industry business process support needs.
That leads to the third significant announcement. At a recent Morgan Stanley investment conference, SAP CEO Bill McDermott indicated that the enterprise technology provider is about to unveil a five year operating plan. According to a posting by re/code that highlighted a recent interview with McDermott, the first elements of the strategic plan will be laid out in January, when SAP next reports quarterly results. In February, at the SAP shareholders meeting in New York, the CEO will unveil the detailed five year plan. After spending upwards of $16 billion in prior acquisitions of cloud-based providers it would appear that SAP may be chasing installed-based seats vs. an overall cohesion of strategy. According to the re/code commentary, “now it falls to McDermott to make the disparate parts work together in a coherent strategy with SAP’s core group of applications.” In the interview, SAP’s CEO further indicates that the company may be done with large acquisitions, preferring instead to pursue strategic “tuck-in” acquisitions to supplement cloud applications. That is the sure sign that SAP’s financial resources do have limits, particularly as the company transitions to its goal of having a more cloud-based, subscription revenue stream.
Supply Chain Matters highlights all of these announcements as data points because for us, they indicate that SAP has reached an important stage. The technology provider needs to differentiate itself to its customers and to its investors. Which markets and which technology areas does it portend to strategically pursue over the next five years? Which core industries, including manufacturing related, will SAP continue to provide technology innovation and what areas will SAP open to broader strategic partnerships? Will SAP’s market strategies be governed by the influence of its direct-sales model? Will innovation in future supply chain, manufacturing and B2B business network areas be once again diluted by other strategic needs?
These are all crucial questions, not only to SAP and its installed base customers, but to the tenure of its current senior management team. We can all look forward to 2015 as providing some added answers for the SAP ecosystem.