SAP Has Lost its Core Strength

The innovator's dilemma

SAP CEO Christian Klein is steering the global ERP leader through turbulent times with a firm and steady hand. Shareholders are thanking and rewarding him with steadily rising share prices. It used to be said that share price does not reflect the current situation, but rather anticipates future developments. This stock market rule should be put in question.

The innovator's dilemma is a simple question: how innovative can an established company be without alienating customers or losing touch with the future? SAP CEO Christian Klein has a complex task ahead of him. The future demands a cloud transformation, and customers cling to IT experts’ old adage: never change a running system.

SAP wants to implement “cloud only”, but longtime R/2 and R/3 customers need answers to their on-prem success. Financial analysts want to hear the buzzword "cloud only" from Christian Klein, while partners and customers are worried about protecting their investments in the on-prem Abap modifications. This is Klein’s and his innovator's dilemma!

Core strength instead of innovation

Reflecting on its own strengths might have been a better answer than chasing after a cloud trend that Microsoft, Google, and AWS have long since overtaken. SAP has creative and motivated developers; it could have instead chosen to reinvent ERP, regardless of the operating model.

For a short time, it looked like SAP’s innovative core strength would leave its competition in the dust. Former SAP CEO Bill McDermott presented the C/4 Hana project at an internal SAP trade show. This CRM system was supposed to be a successful answer to Salesforce and become the CRM market leader. Things transpired differently.

SAP wanted to demonstrate its core HCM expertise through SuccessFactors. However, more and more SAP customers are currently using Workday's HCM competitor product; even SAP customer Mercedes has defected to Workday. And now Red Bull has joined them.

Red Bull is active in 175 countries and sells more than 11.5 billion cans of energy drinks every year. "For us as a beverage manufacturer, transparency and security along the entire process chain are crucial. Aras Innovator creates a standardized environment that enables all product information users to work together based on a single process and data set," says Red Bull, explaining its decision in favor of Aras.

"We are active worldwide and our portfolio is growing every year. In this complex system, PLM ensures the exchange of information between the partners involved and guarantees adherence to all compliance rules," Red Bull continues. Aras Innovator will be implemented at Red Bull as Software as a Service (SaaS) and integrated into the existing SAP S/4 Hana and application infrastructure.

In the food and beverage industry, regulators demand very accurate information about ingredients and supply chains. Meeting compliance requirements in one country is complex enough. But when products are manufactured and sold globally, the digital solution behind it must combine scalability and flexibility to accurately manage and monitor the entire end-to-end process. This ESG (environment, social, governance) approach is exactly what SAP Executive Board member Thomas Saueressig wanted to bring to the market and to SAP customers such as Red Bull with its own sustainability and compliance solution in the form of a Green Ledger.

Is SAP ready for the future?

From today's perspective, the answer to this question is no. AI is another example of the innovator's dilemma and the loss of core strengths in CRM, HCM, and PLM. While IT companies such as Microsoft invested early on in new areas such as cloud computing or artificial intelligence with OpenAI, SAP remained cautious for a long time and remains hesitant about these future topics.

In order not to miss out on the cloud trend, the decision was made to lift and migrate to S/4 Hana. The global ERP market leader now has a system in the cloud, but no competitive products in response to the cloud-native vendors.

In AI, a cautious investment in the European shooting star Aleph Alpha is enough. Bosch and Trumpf, as SAP customers, are doing much better. At the German magazine Handelsblatt’s AI Summit in Munich, even Aleph Alpha CEO Jonas Andrulis predicted a theoretically successful future for SAP with a unique selling point in the area of large language models for business processes. SAP clearly does not believe in its own core strength, but rather solely in “cloud only.”