Few at SAP are bet­ter-qual­i­fied to speak to the evo­lu­tion of the company’s cloud ERP port­fo­lio than Jan Gilg, Pres­i­dent and Chief Prod­uct Offi­cer, Cloud ERP.

In his 17-year tenure at SAP, Gilg has served as Glob­al Head of Enter­prise Archi­tec­ture, Glob­al Head of IT Busi­ness Ser­vices, and SVP & Head of SAP S/4HANA. That last posi­tion, which Gilg start­ed at the begin­ning of 2019, expand­ed a year lat­er to encom­pass SAP’s dig­i­tal sup­ply chain port­fo­lio, lead­ing to his cur­rent role, in which he’s respon­si­ble for dig­i­tal sup­ply chain and SAP’s cloud ERP.

As adop­tion of cloud ERP solu­tions con­tin­ues to accel­er­ate, with the glob­al mar­ket expect­ed to near­ly dou­ble (from $64.7 bil­lion in 2022 to $130 bil­lion by 2027) amid the rise of dig­i­tal trans­for­ma­tion, remote work, and stan­dard­iza­tions for busi­ness, SAP is sim­i­lar­ly dou­bling down on cloud innovation. 

Through­out 2023, the com­pa­ny embraced gen­er­a­tive arti­fi­cial intel­li­gence (AI) and con­tin­ued to ush­er on-premis­es cus­tomers toward the cloud, intro­duc­ing the 2023 release of SAP S/4HANA and ​“pre­mi­um plus” pack­ages for RISE with SAP that embed gen­er­a­tive AI capa­bil­i­ties. Mean­while, cus­tomers con­tin­ue to weigh the future of their inno­va­tion paths, includ­ing through ERP sys­tems such as SAP S/4HANA Cloud, pri­vate edi­tion, and SAP S/4HANA Cloud, pub­lic edi­tion.

Col­lab­o­ra­tion, intel­li­gence, net­work, and sus­tain­abil­i­ty are all cen­tral pil­lars in SAP’s strat­e­gy to deliv­er cloud ERP to cus­tomers, accord­ing to Gilg. Below, in the first half of our wide-rang­ing con­ver­sa­tion, Gilg reflect­ed on the SAP cus­tomer base’s shift­ing atti­tudes toward SAP S/4HANA Cloud migra­tion, the impact of AI on enter­prise data, and what he’s most excit­ed about in 2024. 

This inter­view has been edit­ed and condensed.

ASUG: As SAP cus­tomers con­sid­er dig­i­tal trans­for­ma­tion, many are weigh­ing a shift from on-premis­es solu­tions to the cloud. How orga­ni­za­tions can pur­sue inno­va­tion agen­das while retir­ing tech­ni­cal debt is top-of-mind for our mem­bers. What have you observed this past year of cus­tomers’ shift­ing atti­tudes toward SAP S/4HANA Cloud migration? 

Jan Gilg: It has mul­ti­ple dimen­sions. There’s the fun­da­men­tal deci­sion of what approach to take—blue­field, green­field, brown­field—and we see selec­tive data trans­for­ma­tion as one oth­er option cus­tomers are increas­ing­ly look­ing into, as they ask what data they should take with them. 

As cus­tomers eval­u­ate their busi­ness process­es and seek to adopt many of the new capa­bil­i­ties avail­able in the cloud, I see more cus­tomers look­ing at mov­ing to SAP S/4HANA as a trans­for­ma­tion­al step. I see cus­tomers tak­ing the oppor­tu­ni­ty not to fall into the traps of the on-premis­es world, by which I mean they’re on old­er releas­es that are hard­er to upgrade. 

That’s why we’ve been push­ing our case for cloud these past few months, say­ing that we want our cus­tomers in the cloud with us, because that’s the only envi­ron­ment that gives them the option to stay cur­rent and not fall behind. That is a con­tin­u­ous effort, though ven­dors assume more respon­si­bil­i­ty in help­ing cus­tomers to stay current. 

In the pri­vate cloud, it real­ly depends on how much the cus­tomer allows. We see that the pri­vate cloud is the pre­ferred option for many cus­tomers, for those who need to adjust their sys­tems based on chang­ing envi­ron­ments. These cus­tomers real­ize a cloud ERP plat­form can give them much more flex­i­bil­i­ty than they might have been used to in the past. I see a lot of open­ness on the green­field side — as well as pres­sure on us, as we talk about the end of main­stream main­te­nance for SAP ERP Cen­tral Com­po­nent (ECC). Espe­cial­ly the larg­er cus­tomers need to know, how long will a green­field roll­out take? Are they going to hit this 2027 dead­line, or will they go beyond it? What do they do then? 

I feel, nev­er­the­less, that cus­tomers want to move to the cloud because they see oppor­tu­ni­ty. They also see the busi­ness case for adapt­ing process­es and look­ing at cloud migra­tion as a busi­ness trans­for­ma­tion. Of course, you have cus­tomers that look at trans­for­ma­tion from a more tech­ni­cal per­spec­tive and want to re-plat­form as quick­ly as pos­si­ble. Here, also, we are lever­ag­ing AI to aug­ment exist­ing tool­ing that helps to com­plete this tech­ni­cal tran­si­tion quick­er, though we ask cus­tomers to keep in mind that they will bring with them their cur­rent state. Many cus­tomers have the dis­ci­pline to con­tin­ue this jour­ney and start to opti­mize. Often, though, busi­ness pri­or­i­ties shift, which is always a risk. Larg­er com­pa­nies are increas­ing­ly going with a green­field approach. 

ASUG: SAP has dis­cussed exten­sive­ly this year the val­ue of keep­ing the core of one’s ERP clean, in order to access sys­tem upgrades more read­i­ly. What would you say to on-premis­es cus­tomers still deal­ing with heav­i­ly cus­tomized land­scapes as they look toward a future in the cloud? 

Gilg: Change man­age­ment is crit­i­cal. There’s a rea­son why those cus­tomiza­tions exist, right? Cus­tomers have opti­mized sys­tems to their way of work­ing and, for the indi­vid­ual on the ground, it’s per­fect. It sup­ports exact­ly how they work. Now we’re telling them, ​“You need to change the way you work.” That’s a huge chal­lenge. It’s real­ly dif­fi­cult to have this dis­cus­sion, because nobody sees val­ue, per se, in a clean core. If you go to a busi­ness ana­lyst and say, ​“Hey, we’re doing clean core,” they’ll ask you what you mean by that. 

You have to dri­ve this from the top down, with change man­age­ment, and talk about how to change and stan­dard­ize busi­ness process­es. The foun­da­tion [of clean core] becomes a pre­req­ui­site, as exten­sions are tak­en away. SAP can help, but only once orga­ni­za­tions buy into that approach. We offer ​“fit-to-stan­dard” work­shops in which we show how the sys­tem works and how indi­vid­u­als can work with­in it to get their work done. SAP can also help to reme­di­ate cus­tom code, with tool­ing that com­pares that cus­tom code to what’s already deliv­ered in a stan­dard mod­el as well as tool­ing that eval­u­ates how much of that cus­tom code is even being used. 

You’ll like­ly want to keep cer­tain cus­tom code that’s dif­fer­en­ti­at­ing. SAP is work­ing to enhance its tool­ing to help refac­tor that cus­tom code, so it’s mod­u­lar and inter­acts with the sys­tem only through whitelist­ed APIs, so it doesn’t break when we upgrade the sys­tem. That’s how we can tech­ni­cal­ly sup­port it. But this all has to start with change man­age­ment and a customer’s will­ing­ness to stan­dard­ize a process. SAP can help to explain why that means chang­ing one’s way of work­ing at the end of the day; when that buy-in is there, SAP can help with tech­nol­o­gy and pro­grams, such as RISE with SAP. 

Cloud ERP is real­ly a broad­er term that goes above and beyond prod­uct bound­aries. SAP goes to mar­ket more with pro­grams like RISE and GROW, which at their core have our ERP solu­tion. But there’s more to cloud ERP. SAP Busi­ness Tech­nol­o­gy Plat­form (BTP), for instance, is insep­a­ra­ble from SAP S/4HANA Cloud. They belong togeth­er, not only for us to build capa­bil­i­ties that become an inte­gral part of the SAP S/4HANA solu­tion, but also for our cus­tomers to build their exten­sions and have them com­mu­ni­cate with the core. 

In the future, I see increas­ing­ly that bound­aries will blur between our prod­ucts, and we will start to talk about ERP as a ser­vice. It won’t mat­ter if there’s an SAP S/4HANA prod­uct behind that, or anoth­er prod­uct. It will become all of one piece, with capa­bil­i­ties that a cus­tomer sub­scribes to. That’s the goal of mod­u­lar­iza­tion and com­pos­abil­i­ty that we’re dri­ving; our cus­tomers can be more flex­i­ble in select­ing which capa­bil­i­ties they need, and we can then add that to the cloud ERP ser­vice. SAP is start­ing to think less in terms of indi­vid­ual prod­ucts, know­ing that our cus­tomers in the cloud will ask us to think more in terms of indi­vid­ual capa­bil­i­ties and end-to-end services. 

ASUG: What will be the effect of AI on enter­prise data? How will gen­er­a­tive AI, specif­i­cal­ly, give cloud cus­tomers a tan­gi­ble busi­ness advantage? 

Gilg: Access to data sources is much wider in the cloud. In the past, cus­tomers might have data in their data­base, and SAP has shipped a use case with a machine-learn­ing algo­rithm that looks at their data. And we’ve seen lit­tle adop­tion of that, because that algo­rithm won’t work for a whole lot of data, and that makes its pre­dic­tions less useful. 

Today, we have over 25,000 cus­tomers who’ve giv­en SAP con­sent to use their data in an anonymized man­ner, feed­ing it into our own pri­vate Large Lan­guage Mod­el (LLM). If you sent a prompt through Joule, our dig­i­tal assis­tant, it would first go through a fil­ter in which we enrich it and remove any bias, then query the data of the cus­tomer them­selves, their own data, which is avail­able in the ten­ant. Then, we hit the LLM, which con­tains all the knowl­edge of all the oth­er cus­tomers, which is a huge source of infor­ma­tion — and dif­fer­en­ti­a­tion, in my mind, because nobody else has that. Then, we can tap into pub­lic LLMs as well. From those areas, we con­struct a response and bring it back; we can also then show how this response was con­struct­ed, link­ing to cer­tain sources and documents. 

It all has to do with trust: is this infor­ma­tion reli­able? In the enter­prise con­text, trans­paren­cy is extreme­ly impor­tant; oth­er­wise, we’re ask­ing cus­tomers to act on what a machine pro­pos­es. In an ide­al world, we will even be able to trig­ger the action sug­gest­ed by the prompt with­out the cus­tomer doing any­thing, and that can only be pos­si­ble if there’s trace­abil­i­ty and trust as to how the machine is com­ing up with that action to sug­gest. That’s why we are build­ing this into our archi­tec­ture and design from the very beginning. 

ASUG: As you look back at this past year in cloud ERP and ahead to next year, what are you most excit­ed about in 2024?

Gilg: I per­son­al­ly believe that AI will take off in 2024. Of course, in 2023, we saw a lot of hype pre­cip­i­tat­ed by Chat­G­PT, and every­body jumped on the train. That hype gen­er­at­ed a whole bunch of ideas, which is great, but the real ques­tion is, ​“How do we put this into action?” In mak­ing sure that AI is rel­e­vant and reli­able, what tech­nol­o­gy do we need to build? What is our strat­e­gy? SAP has an open, part­ner-ecosys­tem strat­e­gy, not tying our­selves to one large lan­guage mod­el in the pub­lic domain. We took time to build the tech­nol­o­gy foun­da­tion for that, and we came up with Joule as a dig­i­tal assis­tant. We did ground­work and start­ed to ship ini­tial use cases. 

And as you can imag­ine, our ini­tial use cas­es only scratch the sur­face. They’re sim­ple effi­cien­cy gains, such as a dig­i­tal assis­tant that can give answers on how to oper­ate cer­tain sys­tems. The more sophis­ti­cat­ed use cas­es that real­ly dri­ve val­ue will take longer. In 2024, we will see much more matu­ri­ty around this top­ic, so cus­tomers real­ize what we mean when we talk about an intel­li­gent ERP, and how it will feel dif­fer­ent than in the past. 2024 will bring new use cas­es in the AI space, and this will dom­i­nate the entire year.

For cloud ERP, 2024 will bring fur­ther accel­er­a­tion. Many cus­tomers chose SAP S/4HANA on-premis­es ver­sions, deploy­ing it on a hyper­scaler, and some did so before we even came out with RISE and GROW. Now, they’re won­der­ing how to get to RISE, and SAP will help to ease this tran­si­tion for them, to make it as pain-free as pos­si­ble. What’s ahead in 2024 will allow those cus­tomers to shift from an SAP S/4HANA on-premis­es envi­ron­ment into RISE and GROW.

And for the SAP ECC cus­tomers out there, we tried this year to bring them direct­ly into RISE, and we’re work­ing on future offer­ings to make this tran­si­tion eas­i­er. We don’t want them to keep mov­ing on-premis­es, com­plet­ing a tech­ni­cal con­ver­sion on a hyper­scaler some­where, but rather fol­low us with RISE into the SAP-man­aged cloud. In 2024, we’ll see the mis­un­der­stand­ing of this past sum­mer, around inno­va­tions for on-premis­es and cloud, start to die down. At the end of the day, we need to do what’s ben­e­fi­cial for cus­tomers. They see the ben­e­fits; they just need us to answer the ​“how,” and to help them to get there. We will have more answers for our installed base next that will unlock a major shift into the cloud world. 

ASUG: Ear­li­er this year, on an SAP earn­ings call, it was stat­ed that SAP would only offer its lat­est AI and ​“green ledger” inno­va­tions to cus­tomers run­ning SAP S/4HANA Cloud via RISE with SAP. Can you expand on the mis­un­der­stand­ing you men­tion relat­ed to that?

Gilg: The mis­un­der­stand­ing was the impres­sion that we would force cus­tomers to do some­thing unnat­ur­al or take some­thing away from cus­tomers, which is cer­tain­ly not the intent. We nev­er said that we will not deliv­er any inno­va­tion in SAP S/4HANA on-premis­es; the roadmap stands, and we’ve com­mit­ted to pro­vid­ing inno­va­tions through 2040 for our on-premis­es customers.

When we say inno­va­tion in the cloud, of course, we’re build­ing new inno­va­tion on SAP Busi­ness Tech­nol­o­gy Plat­form (BTP), as we’ve done for years. And we’ve learned our les­son about try­ing to build AI use cas­es for on-premis­es; it does­n’t see any adop­tion, so that’s why we’d said we’d only pur­sue AI inno­va­tion in the cloud. Most on-premis­es cus­tomers have fall­en behind already; they’re on an ear­li­er release and aren’t able to con­sume those inno­va­tions. A lot of this has been very emo­tion­al, in terms of the abil­i­ty of on-premis­es cus­tomers to con­sume AI; what we’ve said is that we’ll invest in get­ting those cus­tomers into a posi­tion where they can con­sume these inno­va­tions in an SAP-man­aged cloud, rather than leav­ing them sit­ting on a hyper­scaler somewhere.

The oth­er area to address is the evo­lu­tion of RISE with SAP toward a soft­ware-as-a-ser­vice (SaaS), com­ing clos­er to that mod­el to bring in those cloud qual­i­ties. The 30% price increase was ini­tial­ly per­ceived as SAP ask­ing cus­tomers to pay 30% to get AI and oth­er inno­va­tions, and that’s not true; RISE Pre­mi­um Plus offers many addi­tion­al com­po­nents, and it’s an option­al offering. 

Still, the fact that we have to charge for AI is clear, because it will con­sume more resources in the cloud; but, in the pack­age, there’s much more capa­bil­i­ty that, if pur­chased indi­vid­u­al­ly, would be much more than 30% uplift. We’ve worked a lot with the user groups to clar­i­fy this. In 2024, with that clar­i­fi­ca­tion, we’ll be able to focus on help­ing our cus­tomers to get to where they want to be. 

Read more recent updates from Jan Gilg here.