Pressure to Innovate for SAP and Partners

SAP cooperation versus innovation

At SAP, innovation has shifted from IT to business cooperation. An increasing number of partnerships are intended to mask the company's lack of resources. SAP was born out of business innovation. While IBM was trying to save its mainframe business—when hardware functioned as a revenue driver and software was a free add-on—five former IBM employees relied entirely on the power of software.

SAP's founding was a new start for IT. Currently, the IT industry consists of software, such as SAP's ERP; hardware, such as Nvidia's AI chips; and service providers for social media, AI, and the cloud. The origin of AI innovation is complex and resembles the chicken-and-egg problem. While Nvidia's AI and graphics processors have undoubtedly contributed to the success of AI applications like ChatGPT, the underlying algorithms had already been developed. However, they were largely ineffective due to the lack of powerful hardware, as demonstrated by Nvidia's early years.

The last ones will be the first

It was once reported that SAP missed the internet train. This refers to SAP's late recognition of the importance of global networking and open collaboration based on the internet. SAP R/3, an ERP program, was regarded as a "black box" without suitable interfaces to the outside world. However, SAP was much more attentive downstream. The potential of cloud computing was recognized in good time, and former SAP CEO Bill McDermott tried to compensate for an impending loss of importance with numerous—sometimes chaotic—acquisitions.

Under the leadership of former SAP CEOs Jim Hagemann Snabe and Bill McDermott, SAP R/3 evolved into one of the most extensive cloud acquisition programs. Successor Christian Klein struggled to harmonize and orchestrate this cloud chaos. Through tremendous effort, he brilliantly accomplished this Herculean task, and the SAP share price began to rise.

Through numerous partnerships with AI providers, most recently Nvidia, SAP is trying to keep up with global IT developments. It is not yet clear whether this cooperation will be sufficient without independent action and innovation. However, the collaboration with Nvidia should be more than just a cooperation. It could mark the beginning of a research community.

It is unclear how SAP intends to counter the loss of innovation in AI, even to insiders in the SAP community. The Hana database was SAP's last independent invention under the leadership of Professor Hasso Plattner and his then-Chief Technology Officer, Vishal Sikka. SAP claimed full credit for the invention of in-memory computing databases based on a well-known advertising slogan from Switzerland.

SAP, a hidden champion

SAP has grown enormously in recent years, as have the challenges it faces. The combination of defending market share, protecting investments for customers, innovating, competing with IT companies, and collaborating with partners has resulted in a substantial ERP offering in terms of both breadth and depth.

In the beginning, SAP was a programmer for ERP tasks. The focus was on standard business software. SAP left tasks such as data storage and management to database providers such as Oracle, IBM and Microsoft. The necessary middleware was available as WebSphere from IBM, among others - before SAP NetWeaver was activated. The software modules of SAP R/3 were well organized and manageable.

Over the years, SAP has proven that it is capable of more than just an ERP black box system. NetWeaver middleware and the Hana database were visible to everyone. SAP can do almost anything, but it often lacks orchestration and value. Driven by competitors and financial analysts, SAP is often unpredictable for customers, causing the positive sentiment of "SAP can do more" to turn negative.

Although the share price is cause for joy and hope, a closer look reveals that SAP can do more and is as innovative as it was at the beginning of its history. What now? The ERP offering has multiplied in recent years. However, the communication and transmission of good news is minimal, which ultimately costs market share and business success. The English-language business magazine The Economist has found this to be true. AI agents are turning Salesforce and SAP into rivals. Artificial intelligence is blurring the distinction between the front and back offices.

SAP has agreed to a promising AI partnership with Nvidia. With BTP (Business Technology Platform) and BDC (Business Data Cloud), the ERP provider acts as a platform supplier. In the IT sector, users will find graph and vector computing engines at SAP alongside Han.

However, they are not currently offering many innovations to customers because they are busy with S/4 conversions and license agreements. It's difficult to see the forest for the trees, and there is no clear SAP roadmap. The challenge lies in translating the resulting productivity gains of the SAP offering into broad prosperity without causing major disruptions to SAP customers' business structures and processes.