SAP’s Key Strength Is ERP Software

SAP is currently experiencing a period of decline and facing challenges. Professor Hasso Plattner's foray into the database sector is something my regulars and I are willing to overlook. Plattner and his students at the Hasso Plattner Institute at the University of Potsdam correctly analyzed the initial situation. At the time, ERP systems were sometimes too slow for efficient work and high productivity. The hardware was no longer able to provide a reasonable price/performance ratio, so new software concepts needed to be developed to address this issue.

The fundamental concept of the SAP Hana database is a technology that stores the entire database in the main memory of the server, compresses the data through the mathematical capabilities of new server processors, and makes some generally valid functions available to the applications as database functions, thereby relieving the app layer. In summary, this is a genuine IT revolution, particularly for analytical applications, with results that are often impressive.

There is still considerable room for improvement in the ERP environment. There is still a need for ERP developers at SAP for the foreseeable future. However, up to 10,000 jobs will be rationalized away, and the young SAP CEO Christian Klein is not focusing on ERP, but rather on AI and the cloud. However, my colleagues and I are aware that cloud is a core competence of hyperscalers and that AI requires significant resources that SAP currently lacks. Consequently, SAP is and will remain a free-rider in the AI space, which is a concern for the SAP community.

Why, we ask ourselves at the SAP regulars' table, is SAP neglecting its core ERP expertise and focusing on technologies such as AI and the cloud? A few days ago, I was pleasantly surprised by an illuminating piece of news on the German online portal Handelsblatt: the German industrial group Siemens was able to compensate for deficits in various business areas with a strong software business.

It is evident that there is still a market for computer science expertise, as evidenced by SAP's Hana database. In the meantime, Hana license payments are a significant source of revenue for SAP, and the database's value is widely recognized. While there may be occasional bout of critique from the E3 Editor-in-Chief, Peter Färbinger, this is not a major concern.

It is apparent that algorithms and data structures remain the foundation of digitalization. It goes without saying that this calls for technical tools such as AI and the cloud. However, it is unclear as to why SAP CEO Christian Klein has identified AI and cloud computing as strategic components, rather than expanding the analytical and business innovation capabilities of SAP ERP software, as was the case in the past. It is understandably appealing to pursue IT megatrends rather than developing one's own strategies.

SAP has traditionally been strongest in the area of business algorithms and software for managing organizational structures and processes. The use of IT tools such as AI for these algorithms and data structures is not inherently problematic. In some cases, a cloud can serve as a valuable extension of the ERP architecture. Nevertheless, there is a debate among my colleagues and me as to whether SAP CEO Christian Klein should now align the ERP company directly with AI and the cloud.

SAP has a strong track record of profitability in the standard business software sector. We anticipate that this successful trajectory will persist. There is minimal expectation among SAP customers for the global ERP market leader to offer specialized services in AI and cloud, given that numerous challenges related to digitalization at the organizational and business levels remain unresolved. The SAP community has been perplexed by reports that SAP plans to eliminate or restructure up to 10,000 positions, primarily in development. The question remains: who will develop the business software in the future?