Founder of Deal Architect and bestselling author of the SAP Nation series, Vinne Mirchandani has a knack for discussing the SAP market in a way that is both articulate and conversational.
In his most recent book, SAP Nation 3.0: Manifest Destiny, Vinne shares 35 case studies across 20 industries and 10 countries, showcasing the range of SAP customer strategies in today’s market.
M.R. Rangaswami: What was the motivation to write continue the series of SAP Nation – and write this 3.0 version? What makes this book different?
Vinnie Mirchandani: I wrote the first volume 5 years ago and the subtitle was “a runaway software economy”. I had built models of SAP Nation and it was as big on an annual basis as the GDP of Ireland. And yet in spite of all that investment, or perhaps because of it, there were massive failures and write-offs.
I have been getting requests to do an update – 5 years is a long time in our industry. I wasn’t sure if things had changed much. When I wrote the first volume, SAP had looked vulnerable. Besides the runaway costs and massive project failures SAP appeared preoccupied with its HANA database and almost bored with enterprise applications. Much more concerning, a wide range of competitors were circling around. Indeed, right after its next-gen ERP product, S/4HANA was launched in early 2015, the co-founder Hasso Plattner was quoted as saying, “If this doesn’t work, we’re dead. Flat-out dead. It’s that simple.”
Dr. Plattner’s worst worries have not materialized. S/4 has not been a runaway success but SAP’s competition has not exactly gone for the jugular either. SAP’s product portfolio and customer base have grown significantly and the stage is set for the next few chapters. So, I was pleasantly surprised to see the massive, on-going turnaround at SAP.
By the same token, I wondered why its competitors like Oracle, Infor, Salesforce, Workday etc had taken their foot off the gas. I went back and looked at how the enterprise tech industry has evolved over the last two decades.
In the late 90s, ERP/ CRM vendors led by SAP, their systems integrators and other partners were set to dominate the corporate technology landscape. They had emerged very strongly from the Y2K crisis, and the launch of the EU’s common currency promised another bonanza. Instead, their share of the enterprise has steadily declined over the ensuing two decades. They missed out on the contract manufacturing of smart products, digital marketing, cloud infrastructure, industrial internet, process automation and several other trillion-dollar markets. Two decades ago, not many of us had heard of Accenture Interactive or Foxconn. Few of us considered Amazon or GE or Alibaba as tech vendors. Few of us would have speculated that Apple, near dead, or Google, not born yet, would have many times the annual revenue of SAP or its peers. That is an even bigger story – all the missed opportunities. The market is fragmented — waiting for fast followers who missed out on that first wave of opportunities.
So, that is the backdrop. But the bulk of the book is told in the voice of the SAP customer. I classify the customers into Risk-Takers, Modernizers, Diversifiers and Bystanders. Thirty-five of them, across more than 20 industries and 10 countries, showcase a spectrum of strategies: Some are moving to S/4HANA and C/4HANA, while others are trying out Leonardo machine learning and IoT projects. Some are developing new capabilities with SAP’s cloud platform and others are implementing acquired cloud products like SuccessFactors. However, many customers continue to diversify away from SAP products, given a series of “unforced errors” the vendor continues to make.
M.R.: Tell us a little more about the “Manifest Destiny” subtitle of your book.
Vinne: I am a bit of a history buff and used the metaphor in this book of how the U.S. achieved its westward expansion. In 1800, the U.S, then the original 13 colonies, was a young, skinny country. Two-thirds of the population lived within 50 miles of the Atlantic Ocean. You could have placed bets on who would win the race for North America — would it be the Americans, the Spanish, the British, the French, or maybe even the Russians or the Dutch? Over the next few decades, the “startup” – Americans – had the biggest market share.
SAP is not a startup anymore, but the setting for it today is similar to that of when the young U.S. nation acquired Louisiana from France in 1803. The real estate doubled but the population was mostly concentrated around the Atlantic Coast. SAP’s product real estate has similarly grown, but the majority of its over 400,000 customers are clinging to their previous “homes.” Migrating this customer base is SAP’s first big opportunity. In addition, an even bigger opportunity awaits. The U.S., energized by a Manifest Destiny call, expanded all the way to the Pacific Ocean. That covers all the opportunities I discussed previously that enterprise tech missed out on in the last 20 years.
I do point out in the book “Today, the term “Manifest Destiny” has a checkered image. It evokes confident expansionism but also brings to mind the mistreatment of Native Americans, Black slaves, Mexicans, Mormons and even Chinese workers who helped build the Transcontinental railroad. It reminds us of the many hardships faced by women, the horror of the Civil War and the near-extermination of the American bison. Many paid a heavy price to make the Manifest Destiny a reality. However, the 19th century also saw the U.S. transformed into a major granary for the world, and an industrial power. It led to a massive creation of wealth — culminating in what Mark Twain called the Gilded Age. Naturalists like John Muir and avid outdoorsmen like Theodore Roosevelt (later president) created a national parks system which is even today the envy of the world. The century also featured the construction of the Erie Canal and the transcontinental railroad — and a vibrant, driven stream of immigrants.”
M.R.: What are the most immediate changes you foresee coming into the enterprise tech world?
Vinne: Over a million on-premise application customers – those at SAP, Oracle, Infor, Unit4, Microsoft etc are stubbornly not moving to modern cloud, in-memory solutions. So, there is all kinds of opportunity to target and migrate them. In the book, I call it “titling the bell curve” to turn these Bystanders into Risk-Takers and Modernizers.
But the supply side has delivered inconsistently. After two decades of cloud applications (NetSuite and Salesforce were born in late 90s) if you look at a grid of applications by industry, by geography there is only 20% or so in the cloud. Most is concentrated in HCM, CRM, accounting areas, not operational areas or industry functionality. Even there, if you look for support for Brazil or China or Czech Republic your choices drop off very quickly. These industry and regional white spaces won’t last forever. We are seeing startups target them, in industries like financial services, big banks are developing solutions to sell to others. The opportunities are limitless, but vendor investments have been grudging.
Most enterprise vendors are now talking about AI and ML, but not automation on the shop floor, in logistics or in the oil patch. Also, if you peel their ML onion, you realize many are merely leveraging voice or image recognition technology from Amazon, Google or Microsoft. When you look at the massive amount of image and vocal-accent data their machines had to be trained on, you wonder where enterprise vendors will get their own training data, given that most of it is squirrelled away in on-premise customer data centers.
While enterprise vendors have superb technology visionaries like Larry Ellison and Satya Nadella, they have not groomed a similar breed of business process visionaries. If you want inspiration for the factory, warehouse, store or hospital of the future customers don’t turn to Oracle or Infor. That has to change. Application software has, in the end, to continually evolve business processes and enterprise data. Instead of inspiring customers to look to them, too many vendors are offering platforms and expecting someone else – their partners, their customers – to build applications. It’s the equivalent of your favorite restaurant saying our renowned chef is gone, however, we will open up our kitchen. Come use our appliances. No, customers continue to want tasty, healthy, affordable cooked meals.
Talking about affordable, the book touches on aggressive licensing practices in the industry, the need to automate a lot of the manual effort in implementing and maintaining software. That is another major opportunity in the industry – to radically reshape software economics.
The book also touches on emerging developer communities around the world – ML in China, Industrie 4.0 in Germany, Open Source world wide. That is a threat to application vendors. Customers are starting to build more than buy.
So, short term, the big opportunity is to get customers to more contemporary platforms then we can layer on machine learning, IoT and other exciting next-gen technologies.
Even though the book title is SAP centric, it is actually a story of the crosscurrents across the entire enterprise tech sector. It’s exciting and it’s frustrating, but it is never boring.
M.R. Rangaswami is the co-founder of Sand Hill Group and publisher of SandHill.com.