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Protocol | Enterprise

How Christian Klein’s reboot of SAP’s strategy is working out

The pandemic wasn't kind to the company. But the way it's working with the major COVID-19 vaccine makers is a model for what comes next.

How Christian Klein’s reboot of SAP’s strategy is working out

Christian Klein became SAP's sole CEO in April.

Photo: Picture Alliance/Getty Images

Christian Klein took over as SAP's sole CEO in April. It wasn't an ideal time to take the helm of an organization that sells expensive enterprise software.

As the spread of COVID-19 forced corporations everywhere to cut costs, one of the first places they looked was IT budgets. Specifically, companies around the world trimmed spending on back-end products, such as those offered by SAP, many of which still run via on-premise data centers.

But now, with an end to the pandemic in sight, Klein is charting a path toward recovery. Central to his strategy is for SAP to become even more of a key tech vendor for the world's most complex companies, analysts say. That means doubling down on industries that are already robust SAP customers, such as manufacturing and automotive, as well as convincing them to pivot to use SAP products in the cloud.

"We have always been the leading on-premise application platform," Klein told Wall Street analysts earlier this year. "Our intention is to repeat that for the cloud."

Those sorts of sectors would be ideal clients for SAP because they run very data-heavy operations. SAP's enterprise resource planning software helps track those processes and, perhaps more importantly, allows the stored information to be more easily accessible across the enterprise.

And by transitioning to the cloud-based products, SAP has the opportunity to deepen its relationships with existing customers. For one, clients switch from paying large upfront costs to monthly installments. That's an increasingly attractive model for organizations because it becomes easier to scale up or down based on demand. As that adoption grows, it could also increase the likelihood that corporations will pile on additional cloud-based SAP applications, ultimately helping the provider achieve its vision of underpinning all operations across the enterprise.

"[With] asset-intensive organizations, it's important to be able to manage the end-to-end processes. And that is something that SAP has focused on," said Paul Saunders, a senior research director at Gartner.

That strategy is apparent in the company's work with the life sciences industry. Moderna, which hopes to start distributing its COVID-19 vaccine this year, uses SAP's ERP software known as S/4HANA. That's enabled Moderna to "improve the quality of drugs being produced," according to a synopsis of the partnership from SAP. And Moderna is deploying other solutions on top of the core ERP, like a program that will help the company prevent counterfeit vaccines. Similar tools are in use at AstraZeneca, Johnson & Johnson, Sanofi, GlaxoSmithKline and Pfizer — pharmaceutical companies working on COVID-19 vaccines — according to publicly available information.

"When you look at what is just happening out there on the vaccine side, there we are almost supporting every manufacturing, every logistic provider," Klein said at a recent Wells Fargo conference.

That all serves to demonstrate how, despite its most recent struggles, SAP remains a powerhouse in the enterprise software industry.

But it's not to say Klein's onto a sure thing: For many of these companies and others, SAP is just one of a slew of vendors currently in use. Enterprises are also reimagining how they use their ERP systems, according to Deloitte, and shifting more non-critical business functions to other third-party applications to reduce legacy IT debt — a phenomenon that could ding SAP in the long run. Some companies, for example, may seek to take software that helps manage the human resource function off of the ERP and run it separately.

And despite being a market leader in ERP software, SAP isn't without competition. Oracle remains a key rival, and its founder Larry Ellison has alluded to a more fierce competition ahead in the cloud. He even told analysts during a recent earnings call that Oracle would soon announce a slate of large-scale customers it stole from SAP.

"Oracle is the clear market leader in cloud ERP," Ellison declared on a call with Wall Street analysts earlier this month. That "will become even more obvious when we announce that several major large-scale SAP ERP customers are leaving," he added. Still, that's a promise Ellison also made last year, and one which has yet to materialize — at least publicly. An Oracle spokesperson declined to comment.

Despite the challenges, SAP's overall sales grew slightly to nearly $20 billion In the first nine months of 2020. But while for Klein the recovery is a long-term vision, his plan hasn't exactly been embraced by investors. Following a statement in late October that outlined a two-year delay in reaching prior revenue targets, SAP's stock dropped 22% — a fall it has yet to recover from.

Underpinning vaccine development

Even so, a deeper look at how SAP is deployed across top vaccine-makers shows why it's hard to count the software giant and its CEO's vision out entirely.

Companies typically want to remain quiet when it pertains to an ongoing initiative as critical as eradicating a virus that led to a global pandemic. True to form, spokespersons for Moderna, AstraZeneca, J&J, Pfizer, GSK and Sanofi did not respond to a request for comment about how they use SAP products for this article. But many of the objectives previously outlined by executives at those firms in adopting the company's technology align with the goal of now quickly developing and producing a vaccine.

GSK, for example, has over 90% of its pharmaceutical and vaccine businesses running on SAP's ERP system. The global deployment enables the UK-based manufacturer to better "leverage the significant amounts of data" it collects and develop insights from that information to improve operations, former technology product manager Jonny Dent said during a February webinar.

On top of that software, GSK also uses Ariba, SAP's procurement manager, to improve how the company works with its many suppliers and contract manufacturers — the same ones that could be tasked with helping to mass-produce a vaccine.

"We're a SAP house through-and-through," Dent told participants at the time.

At Sanofi, the French drugmaker opted to implement S/4HANA in 2017. The software initially went live in several pilot countries in 2018 in Europe before the company deployed it more broadly earlier this year. One of the goals of the pivot was to consolidate the 10 disparate ERP platforms that Sanofi had as a result of over 300 acquisitions since its founding in 1999, according to a promotional video posted by SAP. Now, the company says information can be more easily accessed by individuals across different business units.

AstraZeneca uses SAP's Work Manager software to better oversee its manufacturing equipment. The tool effectively allows factory workers to more closely track their performance on the floor to help managers determine when machines may be close to breaking down. One exec previously said it led to a "6[%] to 8% increase in efficiency." Such an application could play a role in ensuring the production of a vaccine doesn't run into any major hiccups.

And J&J employs Ariba to help it partner with more diverse suppliers. Overall, roughly 80% of J&J's spend runs through Ariba, totaling more than 250,000 purchase orders as of February 2018.

So as SAP aims to become an end-to-end partner for key industries, its work with Moderna, GSK and other pharmaceutical companies will serve as a model for how it should try to insert itself in other sectors. Now Klein just needs to make sure that happens.

Politics

What tech policy could look like in Biden’s first 100 days

More antitrust laws and bridging the digital divide should be top of mind for the incoming administration.

Antitrust enforcement is one of the big lessons going into the Biden administration.
Photo: Alex Edelman/Getty Images

Although it is too soon to tell with certainty how President-elect Joe Biden will address the questions surrounding tech policy, it is clear that his inaugural transition on Wednesday will affect the world of tech.

Protocol reporters Issie Lapowsky and Emily Birnbaum, virtually met up with panelists Tuesday to discuss what tech policy and regulation could look like in Biden's first 100 days in office — as well as the next four years.

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Penelope Blackwell
Penelope Blackwell is a reporting fellow at Protocol covering ed-tech, where she reports on the decisions leading up toward the advances of remote learning. Previously, she interned at The Baltimore Sun covering emerging news and produced content for Carnegie-Knight’s News21 documenting hate and bias incidents in the U.S. She is also a recent graduate of Columbia University’s Graduate School of Journalism and Morgan State University.
Protocol | Enterprise

Why Oracle and SAP are fighting over startups

Did someone mention a chance to burnish reputations and juice balance sheets?

New cloud-based offerings and favorable contract terms are convincing startups to switch to software from Oracle and SAP earlier in their lives than your might expect.
Jane Seidel

In the hunt for their next big-ticket customers, SAP and Oracle are trying to cast off reputations as stodgy tech providers by making a huge push to provide their software to startups.

Both companies have found themselves in choppy waters recently as potential customers have turned to the cloud, shunning the on-premises solutions SAP and Oracle are known for. That's coupled with a global pandemic that dried up demand for the expensive enterprise-grade software that drives profits at the vendors.

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Joe Williams

Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.

Protocol | Enterprise

The GE Mafia: How an old-school firm birthed a generation of tech leaders

The conglomerate hot-housed graduates in the '90s and '00s to create an adaptable army of tech talent. Now those execs are everywhere.

Look at the resumes of the top tech executives at the nation's largest companies and you're likely to find at least one theme: a stint at General Electric.

The once-quintessential American conglomerate has served as a launch pad for individuals now spearheading IT operations at companies such as Airbnb, United Airlines, Unilever, Morgan Stanley, AIG and dozens of others, according to analysis by Protocol.

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Joe Williams

Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.

Protocol | Enterprise

Why observability is the new monitoring

Understanding software performance is an extremely important — and complex — undertaking for the modern enterprise. Simply watching the meter no longer works.

There's a lot to keep track of in modern software.

Image: Alexander Sinn/Kwamina2

No unhappy complex system is alike: Each is unhappy in its own way. A growing line of business in software development, observability seeks to understand how and why modern software applications and teams become unhappy in order to set them on a path toward happiness, uptime and profit.

An evolution of monitoring software — which became popular during the rise of Web 2.0 applications and spawned companies such as Splunk, Datadog, New Relic and SolarWinds — observability takes the idea of simply watching IT systems a step further. While it's helpful to have dashboards that let administrators determine the health and performance of their applications at a glance, observability advocates believe what modern businesses really need are tools that help them understand the root cause of software issues.

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Tom Krazit

Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.

Protocol | Enterprise

Databricks plans to take on Snowflake and Google and score a huge IPO

Even against intensifying competition, Databricks hopes to be a hit when it heads to the public markets this year.

Ali Ghodsi is the CEO of Databricks.

Photo: Databricks

Enterprise software had a huge 2020 on Wall Street as companies such as Snowflake and C3.ai went public with blockbuster initial offerings. Databricks CEO Ali Ghodsi is hoping to ride the same wave in 2021.

The public debut of the data analytics startup, valued at $6.2 billion, is among the most-watched IPOs for the year. And for good reason: It competes in a similar space as the much-hyped Snowflake, helping customers find the data to power the algorithms that help with everything from picking which products to order to which candidates to bring in for job interviews. While Databricks has been tight-lipped on its specific plans, including which bankers it is tapping to help navigate the often arduous process, it is taking steps internally to prepare.

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Joe Williams

Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.

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