SAP 2014: Reaching for the Cloud - Analysis

Contributors: Eric Watson BSM 14, Trevor Platt BSM 14, Adam Nilsson BSM 15 & Alexander Peck BSM 15

Abstract & Background

Cloud Competition

Corporate Strategy

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
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 2010 co-CEOs Bill McDermott and Jim Hagemann Snabe initiated a new companywide 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:

ERP MARKET
Market Share
Avg. Project Cost
(millions)
Avg.
Implementation
Time (months)

SAP
26%

Microsoft
Dynamics

Oracle

11%

17%

$2.55

$1.8

$2.25
SBU strategies used to reach these goals:

18.5

12.5

22.5

24

16

Consumer Cloud
Consumption

19%

29%

28%

Aggressive acquisition strategy, to enhance their new fast-paced innovation cycle.

81%

71%

72%

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.
Sybase, Successfactors, Ariba

Forming a single sales team that combined the former cloud and on-premise sales
teams.

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.
Applications & Analytics
Mobile

Database
Cloud

Software and Cloud Subscription Revenue by Region ( millions)

2.5
2.3
2.01

849
901
722

11.1

1,304

6.3

SAP

Microsoft

Why the Cloud?

SAP HANA

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).

What is SAP HANA and why is it important?

Oracle

2010

Salesforce.com

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.

2,130

555

14

1.1

12.9

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.

CRM Market Breakdown

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.

On-demand self-service
Broad network access
Resource pooling
Rapid elasticity
Measured service

New agile and lean principles innovation pilot, getting rid of the traditional waterfall
technique.

Leveraging its University Alliances

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.

1)
2)
3)
4)
5)

2 billion cloud business

Stay on track as the fastest growing database company

23

Consumer Onpremise
Consumption

20 billion in revenue (35% non-IFRS operating margin)

1 billion SAP software users

Payback Period
(months)

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).

Cloud computing essential

characteristics as defined
by the NIST:

Business Strategy

2015

1,920
1,540

1,864

2,107

1,383

1,565

2010

2011

2012

2013

Asia Pacific region

Americas region

EMEA region

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.