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SAP 2014: Reaching for the Cloud - Analysis
Contributors: Eric Watson BSM 14, Trevor Platt BSM 14, Adam Nilsson BSM 15 & Alexandre Peck BSM 15
Abstract & Background
This case detailed SAPs growth and organizational change from being the
world leader in Enterprise Resource Planning (ERP) systems to become one of
the new powers in cloud computing. The purpose of this poster is to outline
SAPs growth as well as to provide recommendations for future growth.
SAP AG was founded in 1972 by a group of former IBM programmers. The
initial vision of SAP was to break new ground in the automation of business
processes. The founders wanted to make a commitment to consumers that their
offerings would be of-the-shelf applications. Which differed from big
companies by having a low cost and easy to install.
SAP provided companies the opportunity to control resources and allocations
no matter the complexity of the enterprise. This value proposition also gave the
software its name, enterprise resource planning (ERP). SAPs ERP software
quickly became a must have for companies across the globe.
Fast-forward to present day, SAP must now use their strengths and global scale
to compete in one of the most fast-paced and competitive markets: The Cloud.
The Cloud
Why the Cloud?
Cloud Competition
SAP HANA
What is SAP HANA and why is it important?
HANA = High-Performance Analytic Appliance
It is an in-memory database management system
The platform offers real-time analytics and applications (PaaS)
HANA eliminates aggregates and relational table indices that traditional databases do not, reducing the total
cost of ownership compared to other platforms.
Can perform real-time analytics on both structured and unstructured data, and is customizable.
Powers many of SAPs 3,000 products
SAP HANA Cloud Platform (another PaaS offering) empowers customers to leverage SAP HANA as needed
on a scalable basis to build application extensions even brand new applications.
How HANA Helped the City of Boston (MA):
SAP partnered with the City of Boston in 2012 to improve public services and provide citizens with insight into
the citys performance focusing on running the city efficiently and transparently, while at the same time
improving their longstanding performance management program called Boston About Results (BAR) which is a
website for the public to keep track of what the city is currently working on.
Results:
With the implementation of the SAP HANA platform, SAP Data Services software, and business intelligence
solutions SAP enabled the city of Boston to track over 2,000 Key Performance Indicators (KPIs) and gave the
public access to 16 departmental performance scorecards on the BAR website.
Corporate Strategy Business Strategy
12.9
6.3
11.1
14
2.3
1.1
2.01
2.5
SAP Microsoft Oracle Salesforce.com
CRM Market Breakdown
CRM Market Share (%) CRM Revenue ($ Billions)
Applications &
Analytics
Applications &
Analytics
Database
Mobile
Cloud
2010 2015
Applications & Analytics Database Mobile Cloud
Conclusion & Recommendations
SAPs co-CEOs planned out a dramatic new strategy for one of the worlds largest companies. Their
goals for 2015 included creating a 2 billion cloud business, 1 billion SAP software users and to stay
on track as the fastest growing database company. For this strategy to be a success significant
business level changes were set in motion. Some of these changes included implementing a more
fast-paced innovation cycle, an aggressive acquisition strategy and redefining their sales teams.
So far SAP is on track and will most likely surpass 2 billion in cloud revenue but need to sustain
current growth in order to reach that goal. They are also on track to connect 1 billion users to SAPs
Cloud services. In 2014 33 million business users were connected to SAP Cloud, which is more than
any other Cloud company. In 2013 HANA services grew 69% (SAPs fastest growing product EVER),
keeping SAP as a leader in database computing and management.
1. SAP should not build and own a datacenter, instead partner with a third party.
I. Amazon is already a leader in the IaaS market (In 2015 Amazon will spend over $5 billion for computing
hardware and datacenters).
II. IaaS market is estimated at only $4.78 billion in 2020, whereas the SaaS market is estimated at $132.57
billion.
III. SAP has a strong history of software development and should stick to that winning formula.
2. SAP should buy hardware for HANA optimization, even if that means its location is at a third-party
datacenter.
I. HANA is integral to SAPs future growth, so it is in SAPs best interest to make sure HANA is running at
optimal levels.
ERP MARKET SAP
Microsoft
Dynamics
Oracle
Market Share 26% 11% 17%
Avg. Project Cost
(millions)
$2.55 $1.8 $2.25
Avg.
Implementation
Time (months)
18.5 12.5 22.5
Payback Period
(months)
23 24 16
Consumer Cloud
Consumption
19% 29% 28%
Consumer On-
premise
Consumption
81% 71% 72%
Cloud computing is a model for enabling ubiquitous, convenient, on-demand network
access to a shared pool of configurable computing services (e.g., network, servers,
storage, applications, and services) that can be rapidly provisioned and released with
minimal management effort or service provider interaction. National Institute of
Standards & Technology (NIST)
In short; the clouds purpose is to maximize the effectiveness of sharing resources
over a network to attain consistency & economies of scale. Similar to well-known
utilities (e.g. US electricity grid).
Software as a Service (SaaS): enables consumers to use applications stored and
operated on a providers cloud infrastructure. The consumer can access the software
from a variety of client devices i.e. Gmail, Facebook, and Netflix.
Platform as a Service (PaaS): enables consumers to deploy onto the cloud
infrastructure consumer-created or acquired applications created using programming
languages, libraries, services and tools supported by the provider i.e. Mircosofts
Windows Azure, OpenStack, Appistry.
Infrastructure as a Service (IaaS): allows consumers to provision processing,
storage, and networks where the consumer is able to deploy and run arbitrary
software, which can include operating systems and applications i.e. Amazon Web
Services, CA Technologies, AT&T, and Rackspace.
In 2010 co-CEOs Bill McDermott and Jim Hagemann Snabe initiated a new company-
wide strategy aimed at doubling SAPs addressable market and driving top line
growth. The reason for the strategy was to continue growing SAPs core market
categories of enterprise applications and analytics, while adding three new technology
categories: mobility for business, in-memory computing and cloud computing (SAPs
new strategy is outlined in the graph below).
2015 Goals:
20 billion in revenue (35% non-IFRS operating margin)
1 billion SAP software users
2 billion cloud business
Stay on track as the fastest growing database company
SBU strategies used to reach these goals:
New agile and lean principles innovation pilot, getting rid of the traditional waterfall
technique.
The average development process under waterfall was 14.6 months, therefore it did not take
long for the pilot to prove successful. SAPs products realized a significant improvement in
relevance to consumer wants, sweeping increase in product quality and faster time to
completion.
Aggressive acquisition strategy, to enhance their new fast-paced innovation cycle.
Sybase, Successfactors, Ariba
Forming a single sales team that combined the former cloud and on-premise sales
teams.
Leveraging its University Alliances
Educated 1,470 undergraduate and graduate students across the globe about SAP moving
into the cloud and SAP HANA. This not only provided students with information about SAPs
direction but attracted new employees with the skills they need.
Pooling and standardizing IT resources through a cloud infrastructure enabled
centralized data centers to capitalize on economies of scale. This included:
supply-side savings (larger data centers decreased the cost per server),
demand-side aggregation (reduced variability and increased server utilization
rates), and multi-tenancy efficiency (reduced application management and
server cost per consumer).
Cloud computing essential
characteristics as defined
by the NIST:
1) On-demand self-service
2) Broad network access
3) Resource pooling
4) Rapid elasticity
5) Measured service
1,383 1,565
1,864 2,107
1,304
1,540
1,920
2,130
555
722
901
849
2010 2011 2012 2013
Software and Cloud Subscription Revenue
by Region ( millions)
EMEA region Americas region Asia Pacific region