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.

A 17-year vet­er­an of the com­pa­ny, Gilg has held mul­ti­ple roles at SAP, includ­ing 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, and led to his cur­rent role, through which he’s respon­si­ble for dig­i­tal sup­ply chain and SAP’s cloud ERP. 

Below, in the sec­ond half of a wide-rang­ing con­ver­sa­tion that began last month, Gilg dis­cuss­es views on the recent­ly announced direc­tion of the SAP cloud ERP port­fo­lio, dis­tinct inno­va­tion paths for SAP S/4HANA pub­lic and pri­vate cloud cus­tomers, the needs of the mid­mar­ket cus­tomer base, and how SAP Busi­ness Net­work can enhance vis­i­bil­i­ty across dig­i­tal sup­ply chains. 

This inter­view has been edit­ed and condensed. 

Ques­tion: Out­side of poten­tial inno­va­tions with AI, what are the oth­er pri­ma­ry dri­vers for cloud growth at SAP right now? 

Answer: If you look into our installed base, there’s still a rel­a­tive­ly small share of cus­tomers that only use two, three, four, or five SAP appli­ca­tions. That’s a huge mar­ket in itself, which we can address by har­vest­ing the ben­e­fits of our invest­ments in inte­gra­tion over the last cou­ple of years. 

In the last three years, we’ve worked to bring all our solu­tions togeth­er. This is where the sto­ry comes to life. When it’s pos­si­ble to con­nect SAP Con­cur and SAP Ari­ba eas­i­ly with­in the S/4HANA Cloud sys­tem, with pre­de­fined con­tent and inte­gra­tion points in place, cus­tomers can seri­ous­ly con­sid­er that approach rather than buy­ing a best-of-breed tool or hav­ing to find anoth­er way to inte­grate. That’s one big angle of growth; we can lever­age our installed base — our biggest asset with­out ques­tion — and bring out more solu­tions to cross-sell to them. 

We’re also push­ing — with SAP S/4HANA Cloud, pub­lic edi­tion — into the fast-grow­ing net-new names mar­ket, specif­i­cal­ly the mid­mar­ket. We attempt­ed this in the past and didn’t achieve what we were hop­ing for, but this does­n’t change the fact that the mar­ket is huge, and we should play a sig­nif­i­cant role there. While SAP always tends to grow up-mar­ket, we want to start with the pub­lic cloud edi­tion for our mid­mar­ket audi­ence, and that’s gain­ing mar­ket share. It’s not enough for us to con­vert our installed base, to take them from an on-premis­es license mod­el to a sub­scrip­tion mod­el and into the cloud. We also have to gain new cus­tomers, which will gen­er­ate sig­nif­i­cant upside for us into 2025 and beyond.

SAP Busi­ness Tech­nol­o­gy Plat­form (BTP) plays an inte­gral part in what we do. S/4HANA Cloud is tight­ly inter­wo­ven with BTP, which is anoth­er oppor­tu­ni­ty for our ecosys­tem to inte­grate. One nut we haven’t cracked yet as a com­pa­ny, which has a huge upside, is to build up an ecosys­tem of part­ners whose solu­tions fill the white spaces, that can eas­i­ly be plugged into an SAP land­scape. That helps gen­er­ate anoth­er rev­enue stream through part­ner appli­ca­tions. This is anoth­er big com­po­nent, espe­cial­ly in the pub­lic cloud and SaaS world, which we’ll unlock in the next cou­ple of years.

Q: What do you see as the most press­ing needs of mid­mar­ket cus­tomers? How does GROW with SAP meet those needs?

A: The mid­mar­ket does­n’t nec­es­sar­i­ly have sim­pler process­es. I feel that their process­es are sim­i­lar to those at large cor­po­ra­tions, but they enforce more dis­ci­pline on stan­dards and see less vari­abil­i­ty. That’s often because they don’t want to have, or can­not afford, large IT depart­ments. Dif­fer­ent qual­i­ties play a role for those cus­tomers. You have to cov­er your bases in terms of estab­lish­ing a func­tion­al scope that can help cus­tomers run com­plex, some­times indus­try-spe­cif­ic busi­ness processes. 

I also believe process­es there are dri­ven by user expe­ri­ence, because mid­mar­ket com­pa­nies spend mon­ey train­ing their peo­ple for months. They want soft­ware deployed and ready to use, so user expe­ri­ence is key, and these cus­tomers invest heav­i­ly there. Inte­gra­tion and open­ness are also super impor­tant — not that mid­mar­ket cus­tomers want every­thing in one suite, nor do they all want a fed­er­at­ed suite. We see both sce­nar­ios, but mid­mar­ket cus­tomers gen­er­al­ly want open­ness and to work with SAP and its part­ners. That’s why we have, for instance, invest­ed heav­i­ly in our col­lab­o­ra­tion with Microsoft and inte­gra­tion with Office 365 and Teams.

Also crit­i­cal for the mid­mar­ket is the imple­men­ta­tion speed. It has to be pos­si­ble to go live quick­ly, rather than to start with a small­er scope and expand over time. Mid­mar­ket cus­tomers will accept cer­tain workarounds to gain speed. They’re very prag­mat­ic, and they expect us to be fast as well. 

That brings me to the last, most impor­tant point: this is not only about the prod­uct. It’s about the entire SaaS expe­ri­ence. How can I pur­chase the soft­ware? How quick­ly can I imple­ment it? How quick­ly can I get up and run­ning? How nondis­rup­tive is it to my oper­a­tions, and how eas­i­ly can I add new capa­bil­i­ties? Mid­mar­ket com­pa­nies seek a seam­less expe­ri­ence, which we address with SAP S/4HANA Cloud, pub­lic edi­tion. This is a big change for us. We’re a large, enter­prise-dri­ven busi­ness, no ques­tion about it. That’s our DNA. But you have to under­stand the mid­mar­ket and how it works to be suc­cess­ful sell­ing soft­ware there. Hon­est­ly, the fea­ture func­tion dis­cus­sion is usu­al­ly the least impor­tant one when talk­ing to mid­mar­ket cus­tomers, because they already assume base capa­bil­i­ties are included.

Q: In dis­cussing pub­lic and pri­vate cloud edi­tions of SAP S/4HANA Cloud, can you clar­i­fy the dif­fer­ences between these two dis­tinct prod­ucts for customers? 

A: It’s impor­tant to under­stand that these are two dif­fer­ent prod­ucts and that the scope is also dif­fer­ent. There are com­mon­al­i­ties because we need to enable what we call ​“two-tier sce­nar­ios.” For a large com­pa­ny that runs its core busi­ness on SAP S/4HANA Cloud, pri­vate edi­tion, and has sub­sidiaries that run on SAP S/4HANA Cloud, pub­lic edi­tion, there needs to be seam­less inte­gra­tion, cer­tain seman­tic com­pat­i­bil­i­ty on data mod­els, and so on. But, oth­er than that, it’s an entire­ly dif­fer­ent scope. 

Also, specif­i­cal­ly with regard to indus­tries, we didn’t car­ry over all the indus­try solu­tions that are part of S/4HANA Cloud, pri­vate edi­tion. These are only par­tial­ly avail­able in the pub­lic edi­tion, because we’ve tak­en a more mod­u­lar approach and start­ed to build out new indus­try capa­bil­i­ties on SAP BTP, under the ban­ner of Indus­try Cloud, and we’re active­ly invit­ing the part­ner ecosys­tem to cov­er a lot of those capa­bil­i­ties in their solu­tions.

In real­i­ty, a lot of the indus­try solu­tions SAP built in the past had been rather niche; we would address one issue for a small­er mar­ket seg­ment and only gen­er­ate 100 or 200 cus­tomers. We’re always look­ing for a mass mar­ket at SAP, but build­ing indus­try solu­tions is attrac­tive for our part­ners, which is why we’ve said we’d rather leave that space to them. Part­ners can grow their busi­ness­es in that space, and we can ensure that part­ner solu­tions are well-inte­grat­ed into our core. We don’t have to expend our R&D capac­i­ty on solu­tions that will not give us the return we’re look­ing for. That’s a big change for the on-premis­es world, in how our on-premis­es cus­tomers think about indus­try solu­tions, as well as a big change for my orga­ni­za­tion and how we devel­op software. 

That’s the biggest dif­fer­ence. I might be biased: SAP S/4HANA Cloud, pri­vate edi­tion, is the best ERP solu­tion in the mar­ket, in my view. It can run any com­pa­ny, any size, any com­plex­i­ty. Still, all of us at SAP acknowl­edge that we need to help our cus­tomers on their jour­neys to the cloud: with reach­ing the clean core, through migra­tion ser­vices, and so on. We can­not enforce extreme­ly strong stan­dard­iza­tion and take away all cus­tomiza­tion options, and so on. We’d lose cus­tomers. There­fore, we’ll always be a hybrid busi­ness. As an ERP com­pa­ny, we can afford to have two ERP prod­ucts on the market.

Q: With recent announce­ments of cloud-only inno­va­tions con­cen­trat­ed on the pub­lic edi­tion, our mem­bers want to under­stand whether there is still a con­tin­u­ous path to inno­va­tion from SAP S/HANA Cloud, pri­vate edition. 

A: First, we absolute­ly want our cus­tomers to move to SAP S/4HANA Cloud, pri­vate or pub­lic edi­tion. I’ve heard from ASUG and DSAG mem­bers as well that there is a per­cep­tion that we’ll invest in pub­lic edi­tion cus­tomers and neglect those run­ning SAP S/4HANA Cloud, pri­vate edi­tion. That will not be the case. 

We’ve his­tor­i­cal­ly built a lot of inno­va­tion in the pub­lic edi­tion first, but we’ve also made it avail­able in on-premis­es ERP and SAP S/4HANA Cloud, pri­vate edi­tion. We’ve become more inten­tion­al about what this inno­va­tion is, and we’ve also pur­sued devel­op­ments that are exclu­sive to SAP S/4HANA Cloud, pri­vate edi­tion. In real­i­ty, some cus­tomer require­ments we see with the pri­vate edi­tion, we won’t see in SAP S/4HANA Cloud, pub­lic edi­tion, for the next 10 years. 

Why should we build those inno­va­tions there, if they’re just going to sit there as cod­ing? Instead, we’re focus­ing on cer­tain inno­va­tions for SAP S/4HANA Cloud, pri­vate edi­tion, and then focus­ing on oth­er inno­va­tions for SAP S/4HANA Cloud, pub­lic edi­tion. And the oppo­site is also true. There are often devel­op­ments for the pub­lic edi­tion that aren’t mean­ing­ful to cus­tomers on SAP S/4HANA Cloud, pri­vate edi­tion, espe­cial­ly those who’ve already implemented.

Q: From what you’re say­ing, the inno­va­tion cycles will move in dif­fer­ent direc­tions for these cus­tomer bases, informed by what in SAP’s view their busi­ness­es require.

A: In the pub­lic edi­tion, we always keep our cus­tomers cur­rent; we pull them along with us. In the pri­vate edi­tion, you have a range, in terms of which releas­es cus­tomers are sit­ting on and what they’ve imple­ment­ed already. We can’t just take releas­es and capa­bil­i­ties away from those cus­tomers and replace them, because they own that soft­ware life­cy­cle. There are cer­tain restric­tions we have to adhere to.

As more cus­tomers go live with pri­vate edi­tion, they don’t want to do migra­tion projects for capa­bil­i­ties they already have, just because cer­tain capa­bil­i­ties have incre­men­tal­ly improved. That’s not the case in the pub­lic edi­tion, where we can swap out releas­es for cus­tomers, and those cus­tomers will have the new capa­bil­i­ties the next day. Still, we’ve com­mit­ted to inno­va­tion roadmaps for SAP S/4HANA Cloud, pri­vate edi­tion, and there is no end-of-main­te­nance date in sight, at least until 2040. It should be absolute­ly clear to our cus­tomers that we’ll con­tin­ue to devel­op inno­va­tion there as well, for SAP S/4HANA Cloud, pri­vate edi­tion, in a very inten­tion­al way.

I some­times hear that SAP releas­ing these two ERP solu­tions is a tem­po­rary solu­tion ahead of push­ing all cus­tomers to SAP S/4HANA Cloud, pub­lic edi­tion, but that’s not the case. Regard­ing SAP S/4HANA Cloud, pub­lic edi­tion: if a large cus­tomer, such as BMW, decides to go on RISE with SAP, it will take years until they have all their sys­tems migrat­ed to the cloud. They’re not going to do anoth­er such trans­for­ma­tion any­time soon; this can­not be a tem­po­rary solu­tion. The ERP life­cy­cle time can be 10 – 15 years, depend­ing on the com­pa­ny size. It would be a very bad val­ue propo­si­tion to tell them, ​“Let’s do pri­vate edi­tion for a few years, then do pub­lic edi­tion.” That’s not a manda­to­ry path.

We need to go with what large cus­tomers want and how they choose to adopt cloud. And we see they are typ­i­cal­ly adopt­ing it more grad­u­al­ly. The major­i­ty don’t want to under­go this big-bang imple­men­ta­tion into the pub­lic edi­tion. They even ques­tion, ​“Do we have to adopt a SaaS mod­ule for core man­u­fac­tur­ing or sup­ply chain capa­bil­i­ties?” This goes back to why we’re mod­u­lar­iz­ing our software. 

Hope­ful­ly, cus­tomers will one day choose to select SaaS capa­bil­i­ties as mod­ules from SAP that con­nect back into the pri­vate edi­tion they’re run­ning, that inte­grate seam­less­ly in areas such as asset man­age­ment because these mod­ules are also from SAP. That’s how I see this evolv­ing over a long peri­od of time, for our largest cus­tomers. It is a much less dis­rup­tive strat­e­gy than telling cus­tomers, ​“This is our strate­gic prod­uct, and you have to go to that. If you don’t, you’re on your own.” We’ve nev­er been like that.

That said, we do need to be stricter over time with help­ing cus­tomers stay cur­rent. What we want to avoid is cus­tomers falling back on old releas­es and get­ting stuck. That’s bad for us, because I have tons of main­te­nance loads that I have to cov­er, and then I can’t use those resources to build inno­va­tion. And it’s bad for cus­tomers because they can’t con­sume the lat­est inno­va­tions, and we have capac­i­ty con­straints that I would oth­er­wise use to build what cus­tomers need. 

Even if it’s with the pri­vate edi­tion, the cloud mod­el means cus­tomers have to active­ly stay on the lat­est release, or close to it, and work on stan­dard­iza­tion and cus­tom code man­age­ment. We need to push this for the ben­e­fit of our customers. 

In the past, we had the ten­den­cy to ​“always say yes” to our cus­tomers, even though it was­n’t the best strat­e­gy for them in the long run. In the cloud, I believe it’s impor­tant to say no occa­sion­al­ly, because it will help cus­tomers in the long run to keep cur­rent. It’s a dif­fer­ent phi­los­o­phy, and a good one, even though it’s some­times painful. 

Q: In which indus­tries have you seen the strongest adop­tion of cloud ERP in recent months?

A: SAP S/4HANA Cloud, pri­vate edi­tion, has been strong in man­u­fac­tur­ing — both dis­crete man­u­fac­tur­ing and also process indus­tries — as well as retail con­sumer prod­ucts and the fed­er­al gov­ern­ment. We’ve seen a lot of very suc­cess­ful deals and stun­ning trans­for­ma­tions there. With SAP S/4HANA Cloud, pub­lic edi­tion, it’s stronger in the ser­vices indus­tries, where we’ve tra­di­tion­al­ly not enjoyed such a big mar­ket share, such as pro­fes­sion­al ser­vices, finan­cial ser­vices, and the pub­lic sec­tor in the state and local areas

Q: Regard­ing sup­ply chain resilien­cy, how can cloud ERP equip orga­ni­za­tions — and how are you per­son­al­ly using what you’ve learned from run­ning dig­i­tal sup­ply chains — to cre­ate resilient process­es for com­pa­nies with com­plex, some­times his­tor­i­cal­ly frag­ment­ed sup­ply chains?

A: We’ve seen extreme frag­men­ta­tion and glob­al­iza­tion of sup­ply chains that all of a sud­den start­ed to crum­ble, caus­ing mas­sive dis­rup­tions and months-long delays of prod­uct avail­abil­i­ty. We’re explor­ing the role of SAP Busi­ness Net­work to cre­ate vis­i­bil­i­ty into mul­ti­ple tiers of the glob­al sup­ply chain. 

SAP Busi­ness Net­work is a gener­ic fab­ric or plat­form that we’re native­ly con­nect­ing into S/4HANA cloud ERP and our sup­ply chain solu­tions, such as SAP Inte­grat­ed Busi­ness Plan­ning, SAP Trans­porta­tion Man­age­ment, or SAP Ware­house Man­age­ment. At the end of the day, we will enable more than one sup­ply chain process through this net­work. As busi­ness part­ners and third-par­ty logis­tics providers con­nect their sys­tems to SAP Busi­ness Net­work, we can extend those process­es end-to-end, as a ​“plug-and-play” model. 

Vis­i­bil­i­ty is the oth­er advan­tage. With the indus­try-spe­cif­ic net­works that we have put on top of SAP Busi­ness Net­work, such as Catena‑X Auto­mo­tive Net­work for auto­mo­tive com­pa­nies, the val­ue is data shar­ing and bring­ing togeth­er orig­i­nal equip­ment man­u­fac­tur­ers (OEMs) that com­pete in the mar­ket, plus their first-tier sup­pli­ers. OEMs are often very hes­i­tant to share data, but they choose to do so through Catena‑X because the ben­e­fits are mutu­al­ly so beneficial. 

In cas­es like qual­i­ty man­age­ment, you can avoid recall­ing hun­dreds of thou­sands of cars, because you can trace issues back to a faulty com­po­nent on a sin­gle pal­let. That’s huge for those cus­tomers, and that’s what a net­work fab­ric can enable. It will help you make sup­ply chains more resilient and also remove risk. 

Work­ing with all the large cus­tomers we have glob­al­ly, we can take a lot of their learn­ings, put them into prod­ucts, and offer those ser­vices on the net­work. In my mind, SAP Busi­ness Net­work will be one of the biggest dri­vers for trans­for­ma­tion next to sus­tain­abil­i­ty, though sus­tain­abil­i­ty is tight­ly inter­wo­ven into the sup­ply chain story.

Q: Of course, sup­ply chain dig­i­ti­za­tion and opti­miza­tion will reduce trav­el mileage, low­er oper­a­tional costs, and reduce CO2 emissions. 

A: It’s the same mech­a­nism of vis­i­bil­i­ty. Any move­ment of mate­r­i­al is reflect­ed in a finan­cial doc­u­ment; that’s been the core phi­los­o­phy of ERP. Now, it’s expand­ed also to include CO2 emis­sions data or any infor­ma­tion relat­ed to sus­tain­abil­i­ty. We also need ERP to reflect all this in what we call the Green Ledger, as we do with mate­r­i­al move­ments. It’s a nat­ur­al evo­lu­tion of ERP. 

In my mind, this will be a huge com­pli­ance top­ic for cus­tomers, and they’ll look at sus­tain­abil­i­ty per­for­mance the same way they look at finan­cial per­for­mance. I believe we have a lot of cred­i­bil­i­ty here; we cov­er such broad busi­ness process­es through the sup­ply chain and sup­ply chain net­works that we can pro­vide a cen­tral source of truth for sus­tain­abil­i­ty, just as we do for financials. 

For more of our con­ver­sa­tion with Jan Gilg, click here.