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.

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