Seismic Shifts in SAP’s Cloud?

On the heels of SAPPHIRENOW 2013, SAP issued the announcement that it would simplify its organizational structure and create a single research and development (R&D) organization to oversee innovation across the company. The new structure is expected to enable SAP to accelerate innovations powered by the SAP HANA platform for existing and new products, drive a cloud-first approach for the development of line-of-business (LoB) applications, increase SAP’s leadership in mobility, and further accelerate the company’s go-to-market for the cloud and the recently launched SAP HANA Enterprise Cloud service.

This move included a series of changes among the SAP Executive Board and SAP Global Managing Board, detailed in the accompanying press release. The most prominent nugget of news was the departure of Lars Dalgaard, former SuccessFactors CEO and founder, from the board to pursue investment opportunities. SAP also hosted a conference call for media and analysts (the call transcript can be read here).

What All This Means
In their respective blog posts, Naomi Bloom of In Full Bloom and Dennis Howlett of Diginomica provide lots of great insights (based in great part on their close contacts with SAP’s top echelon) and voice both some optimism and concerns (especially in terms of SAP's track record in the Talent Management realm). It is not uncommon for a CEO of an acquired company to leave either immediately or after some transitional period. There are also indications of Dalgaard having family health issues, which is certainly a valid reason for leaving a hands-on job.

Still, the cynic in me can point out that Bob Calderoni, former Ariba CEO, has not left yet; quite the contrary in fact, as he seems to be taking over Dalgaard’s former lookout, i.e., cloud R&D. In fact, conservative and bottom line-focused Calderoni seems a much better cultural fit at SAP than flamboyant Dalgaard (whom I could visualize at or NetSuite instead). Independent SuccessFactors was not particularly profitable and was still stitching together a number of cloud software acquisitions on disparate technologies (Cubetree, InfoHRM, Jambok, Plateau, Jupiter, and Jobs2Web). In addition, 86 percent of SuccessFactors customers are non-SAP shops.

On the other hand, even if perhaps not as sexy and high-sounding as SuccessFactors, Ariba’s last acquisition was a few years back, and prior to being acquired by SAP, the vendor had apparently cracked the true multitenant cloud code with profitability to boot. Ariba Network has quite an industry clout and keeps selling well outside of SAP’s realm. It wasn’t that long ago when “Ariba” was a taboo word at SAP, and a feared adversary in the supply chain management (SCM) realm. The SAP SRM (supplier relationship management) offering, which in part comes from the Frictionless Commerce acquisition in 2006, apparently now reports to Ariba, and belongs to that R&D budget. The idea is to merge SAP SRM’s direct materials sourcing expertise with Ariba’s traditional expertise in sourcing, contract management, spend analysis, and procurement of indirect materials.

Dalgaard’s start with SAP might not have been on the right foot either after spilling the beans of sorts, i.e., by publicly saying that SAP Business ByDesign’s architecture was unsound, and how he would have even abandoned the cloud enterprise resource planning (ERP) product totally if it was up to him. Perhaps he wasn’t too wrong in that assessment, but it is also understandable how damaging that was for SAP, and why he then had to quickly backtrack and try to explain what he really meant instead (you get the “control management” drift).

Now What?
SAP spent about $8 billion for SuccessFactors and Ariba. As a result, SAP now boasts a comprehensive portfolio of LoB cloud applications with more than 29 million users for four focus areas: people, customer, money, and supplier. The portfolio includes solutions from SAP companies Ariba (Supplier) and SuccessFactors (People) as well as the SAP Cloud for Customer (formerly SAP Customer OnDemand), SAP Cloud for Financials (formerly SAP Financials OnDemand), and SAP Business ByDesign solutions. Still, this cloud portfolio is quite fragmented/scattered and contributes less than 10 percent of SAP’s total revenues.

SAP has also spent several more dollar billion for the Sybase and Business Objects acquisitions. While analytics are important and pervasive throughout enterprise software, to my mind, Sybase was the most important acquisition for SAP. Not only did it bring the current mobility and database products/platforms and capabilities, but also some critical capabilities and technologies for SAP HANA. It is no secret that HANA is the revolutionary and “go to” product for SAP as well as the future unifying platform for everything at SAP including cloud.

During his SAPPHIRENOW 2013 keynote presentation, SAP’s co-founder and visionary Hasso Plattner explained that HANA supports multi-tenant architecture. While the aforementioned SAP HANA Enterprise Cloud is about private cloud offerings for large enterprises, once SuccessFactors and Ariba get ported on to HANA as well, they will continue to be public cloud offerings. While no one is naïve enough to think that SAP will not have to exert a painstaking effort to get all these undertakings right, it is difficult to determine the rationale for its recent reorganization and go-forward strategy.
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