Robert Kugel's Analyst Perspectives

SAP Must Translate Technology Advances into Business Use

Posted by Robert Kugel on Dec 20, 2011 10:14:52 AM

At its annual Influencer’s Summit in Boston, SAP offered multiple perspectives on where the company’s strategy and products are heading. Overall, I was struck by the essential similarities to its message on its strategic direction a decade ago. The overarching objective in its roadmap now, as then, is to have information technology increasingly adapt to the needs of individual users and how they choose to execute established/repetitive or ad-hoc processes,  rather than forcing them to adapt to the limitations of the technologies they are using. Back then the idea was to create a comprehensive process framework – a closely coupled approach. Today, it’s essentially the opposite, as SAP products run on an architecture that enables flexibility – a loosely coupled approach – both in how the computing infrastructure is organized and how people execute their tasks. It seems to me that this reflects the impact of having choices between cloud-based software as a service (SaaS) and on-premises systems and the need to enable access through a variety of devices (from desktops to mobile handhelds and tablets). Mobility is important both for people whose roles take them beyond the firewall (in sales, service and logistics, for example) and executives and managers who often find themselves managing by walking around. Tablets, smartphones and similar devices are attractive also because people consider them personal items and associate them with fun, whereas desktops and notebooks are corporate and work-related.

Architecture drives product design, and SAP continues to stress HANA and the ability of its in-memory system to expand the scope and capabilities of applications that run on it. That makes sense since any in-memory computing platform can transform how software is used. The challenge then becomes transforming the habits of users. For example, I’ve noted the need for more contingency planning. One reason it’s not used more is that the latency between thought and answer in complex scenario analyses on disk-based systems is often too long to be useful in promoting a collaborative dialogue around possible situations and their potential outcomes. “Too long” is a relative thing, of course, but based on my experience, the outer edge in this case may be 10 seconds to 1 minute. Once the technology foundation is in place, the hard work begins. Companies have to understand what is technologically feasible and that they need to adopt better planning techniques, notably driver-based planning. From my perspective, few technology advances have immediately led to forehead-slapping, “aha!” moments. Thus the spread of adoption of in-memory technology into business processes is never automatic, so one of SAP’s challenges is to create demand for HANA by promoting improved management techniques that are supported by in-memory computing. So the technology is different, but the business issue is much the same.

Since it offers differentiation in an increasingly commodity-like business computing product market, advanced analytics was a key theme at the summit. Analytics are an increasingly important capability for organizations, enabling companies to manage more effectively, not just efficiently. Predictive analytics, for example, should play a role in more than the 13 percent of organizations that our research shows are using them. They have become much more accessible but aren’t well understood. Predictive analytics certainly help in forecasting, but they’re also handy for spotting exceptions from expected results, especially when companies have to work with large data sets. Departures from expected results can provide the basis for management alerts and notifications, as when an order from a regular customer or an invoice payment is not received within the normal period. Both situations can indicate customer issues. A follow-up to the former might uncover that a competitor is offering promotional deals to gain market share, and the company could counter the move sooner. The latter might be the result of some issue that occurred in fulfilling the order, in which case it would be better to have the first communication with the customer be an immediate note of concern rather than a dunning notice weeks later. Analytics is an important theme in business computing, and SAP will need to focus on it in its product efforts.

Risk management is yet another area where real-time data can be an important enabler of capabilities that are not practical without the ability to crunch substantial amounts of data rapidly. Outside of financial services, few industries manage risk comprehensively, and even financial services can put more of their operations into a risk management framework. In part this situation reflects the fact that few industries have developed a framework for measuring risk objectively. Part of this is historical: Financial services have always been about numbers, and it’s straightforward to use these numbers to measure risk. Financial ratio analysis therefore can be applied to assessing many operational risks in that industry. And since it was one of the first to utilize computers to handle operations, these corporations have long experience in using software to manage risk. By contrast, only within the past few decades have other types of companies begun using IT systems to manage operations. Using data to identify and track operational risks is still nascent, so any discussion of how far it has developed strikes me as premature. Yet I believe risk management in consumer, industrial and business services should be on the radar screens of executives, especially because it addresses the agency dilemma. SAP’s risk management software portfolio could expand substantially over the next several years to address the need. (I expect the same from Oracle and IBM, along with many smaller vendors.) But here again businesses must become aware of the need before a market will grow.

SAP Business ByDesign is a topic worthy of its own blog, so I’ll post one on this topic shortly.

It struck me that this Influencer Summit demonstrated SAP’s understanding of what it needs to accomplish over the next few years to be competitive with its substantially larger rivals – IBM, Oracle and, in applications for small and midsize businesses, Microsoft. Strategy is one thing but execution – as ever – is probably more important. Here, SAP must demonstrate that it can operate at faster clock speed than it has in the past to maintain its top-tier position in business computing.


Robert D. Kugel – SVP Research

Topics: Performance Management, Planning, Predictive Analytics, SAP, ERP, GRC, Operational Performance Management (OPM), Business Analytics, Business Collaboration, Business Mobility, Cloud Computing, Enterprise Software, In-memory, Mobility, Business Performance Management (BPM), finance, Financial Performance Management (FPM), Risk, risk management, Sales Performance Management (SPM), Supply Chain Performance Management (SCPM), Workforce Performance Management (WPM), Financial Performance Management

Robert Kugel

Written by Robert Kugel

Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Prior to joining Ventana Research he was an equity research analyst at several firms including First Albany Corporation, Morgan Stanley, and Drexel Burnham, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob has experience in aerospace and defense, banking, manufacturing and retail and consumer services. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder.