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.

Stay tuned for the rest of our conversation with Jan Gilg in the next edition of First Five.

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