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. Now, as the SAP community enters 2024, 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.

In a recent interview, Gilg discussed the SAP customer base's shifting attitudes toward SAP S/4HANA Cloud migration, innovation paths for on-premises and cloud customers, and the impact of AI on enterprise data. Below, in the second half of our wide-ranging conversation, Gilg detailed the ability of cloud ERP to enhance business collaboration, the centrality of data quality to successfully leveraging generative AI, and much more.

This interview has been edited and condensed.

ASUG: Cloud-based ERP systems are generally understood to be more collaborative, networked systems for businesses, but I’m curious what your experience of this has been with SAP customers this past year. What benefits are businesses unlocking from cloud ERP?

Jan Gilg: In general, the term “cloud ERP,” and the realization that it is quite different in nature from the older on-premises world that we are leaving behind, is really sinking in. We see that from adoption numbers for our offerings in the public and private cloud, where collaboration is a key topic.

On-premises solutions have traditionally focused on the four walls of an enterprise—as the term “enterprise resource planning” suggests—and that’s why all of us at SAP have been saying that we have to widen the lens and talk more about the ecosystem in which every customer operates. I think of collaboration from two angles. It’s about people working amongst each other, in a company and with partners, a people-to-people collaboration. And then it’s about company-to-company collaboration, through a business network.

I’ll admit—the term “network” sounds like such technical terminology. That’s why I like to talk more about collaboration. Networks suggest cables and wires. We start from a human-to-human perspective. What we’ve seen is that people increasingly work in these productivity environments: Microsoft Teams, Zoom, Google Workspace. Coming out of COVID, that’s accelerated significantly. We still see those hybrid environments today, and I don’t think they will ever go away. SAP will invest more in bringing those environments together and making them more seamless.

Wherever people work, even those who only work in Microsoft Teams or Outlook, they can access data out of an SAP S/4HANA system or cloud ERP system. They can even trigger certain actions in such a system, often without even knowing that they are using cloud ERP or an SAP S/4HANA Cloud solution. That’s critical to driving the number of users because, in the past, ERP has always been looked at as an expert solution, where you have to have extensive training to complete critical tasks, and not many people have that training. I see that changing; we’ve invested a lot with Microsoft and Google on the engineering level to that end.

With the rise of generative AI, there’s also been a huge push to rethink the role of the digital assistant. On one hand, the digital assistant can help you work within SAP systems and provide a different user experience; on the other hand, it can better enable you to collaborate with others. Its chat and sharing capabilities are front and center in cloud ERP. Extending that beyond the boundaries of a company, through a network, we want to empower people to interact, to share documents, to send purchase orders and sales orders, invoices, and delivery documents, and so on. We will continue to enable more of those scenarios in the business network. The foundation for that is customers’ willingness to share data, which I have seen increase in this last year.

Of course, there are questions that must be answered: Is my data secure? What about data privacy? That’s why we’ve said, right from the beginning, in the context of AI, that security and privacy are very important to us. But I believe companies are much more open to sharing data with each other because they see the benefits; one example is the automotive industry network Catena-X. Consider how expensive recalls are for automotive companies. They often have to recall so many cars, because they don't know exactly which part in which car is defective, because they don't have this information, because suppliers don't share it with them. If they do share that information, everybody benefits. The underlying foundation, as always, is data and customers’ willingness to share it.

ASUG: Every intelligent enterprise depends on data to sustain its operations, and the importance of clean, well-governed data to customers rationalizing data complexities and exploring AI can’t be overstated. How can cloud ERP improve data quality, governance, and usability for SAP customers?

Gilg: Over the past few years, the nature of an ERP solution in the cloud has evolved from a data-in system of record toward a data-out system of record. Assuming that the input data is already available digitally, this system has a much greater ability to crunch data in the moment and play it back to end users, to pull them in if there’s an exception. In the past, that idea has fallen flat, because certain technologies were not in place, but that’s changed since we based our ERP system on an in-memory database. It’s also based on data quality, which a lot of companies stumble over.

Customers are evaluating brownfield versus greenfield approaches for their ERP implementation. Greenfield is a fresh start; it’s expensive and sometimes painful, but it provides the biggest lever for progress. Data is always one of the biggest components and workstreams to consider in that discussion. You are absolutely right: if you don’t have clean data, the algorithms on top are not going to help you. SAP has invested in massive data-cleansing use cases, leveraging AI to reduce tedious manual work for our customers. In SAP Integrated Business Planning, we have a master data application that looks at data and then proposes rules as to how this data should be cleansed. The user basically just looks at those rules, evaluates the probability that the data is correct, and then accepts it, and the rule is applied to the data set, then cleansing the data. This gives you a foundation on which you can run your AI.

As you can imagine, here at SAP, we are heavily researching and investing into how to run generative AI on top of tabular data, which is still a nut to be cracked. Today, we see the importance of using generative AI to address unstructured data, text, language, video, and pictures. Tabular data is at the core of every ERP solution, and we have some very promising AI use cases to that end. Data quality is a prerequisite. We need to help customers achieve clean data in two ways; it’s part of our RISE methodology for on-premises customers who move into the private cloud, and customers in the public cloud take a greenfield approach and start fresh. Clean data is a critical success factor for any AI to produce relevant and reliable results.

ASUG: What are the most critical factors for customers in the midst of building business cases for cloud migration? What motivates business leaders to move forward with these types of transformations?

Gilg: For executives, innovation consumption is the most important topic. The last few years have proven, in the line of business, how a SaaS model brings benefit to less critical processes, like indirect procurement, HR, and CRM, but business leaders see the potential to leverage this model for more critical core processes, and they like a model where they can consume innovation without having to do much for it, so to speak: no big upgrades, no big testing efforts, and so on.

Related to that, there’s a pendulum that swings back and forth over the decades, and it’s currently swinging toward scrutinizing every process, to determine if it's a differentiating process or not. In the case that it's not, why not fit it to standard and—relying on a vendor such as SAP, which has been in the business for 50 years—ask for whatever everybody else is using for certain processes? You can use that as a forcing function, inside your business, to remove unnecessary approval steps or extra built-in functionalities. With that radical standardization, you can drive operational efficiency in your organization and also focus on investing in areas where differentiation does exist.

One of our customers, for example, will run more than 50% of its revenue with SAP S/4HANA Cloud, public edition. That company used the application as a forcing function for their business transformation. Responding to what the application does, the customer adjusted its processes. This required change, and for people to get used to doing things differently around processes that were not generating value for the company; this allowed them to focus on processes that do generate value, investing in extensions and extended capabilities. Total cost of ownership (TCO), of course, plays a role when you look into cloud migration, but it’s not always the main driver.

ASUG: What challenges or risks do you see customers encounter in moving away from SAP ECC or on-premises investments toward the cloud? How do you see SAP helping customers manage any risks associated with that transition?

Gilg: It’s a fundamentally different operating model, and at the heart of what you’re talking about is trust. This is where I get the most pushback from very large, traditional companies that say, “Hey, those are our most critical processes. I’m the CIO. I want to be in control of managing that. And now I'm asked to give control of that to SAP.”

SAP must demonstrate how we'll do that and demonstrate the resilience that we built into the platform to operate and believe we can run this much better at scale than an individual customer can run their systems, especially as we continue to invest in non-functional topics like security and resilience. Some of our large customers have thousands of people in their SAP practices, because they have independently developed an operating system that works well for them, at a very high cost. Technology is evolving so fast, and cybersecurity is changing as well, so they will have to keep up with that. For most companies, that’s a significant burden we can take away, while giving them transparency and insight through our monitoring tools.

Everything we can do to give customers trust and confidence that we can run their most critical workloads—as well as our SLAs and the security standards we adhere to—should give them trust in our cloud environment. I see this as a trust journey, primarily, even more than a technology journey, especially for very large companies. Smaller companies want to offload that work and avoid the need for large IT departments. Large multinational companies, however, see it as a major step.

That said, those companies experience breakage in the experiences they provide for their customers, and those issues are often because of system breaks or certain end-data flows, where data doesn’t match and fit together. That’s always evident to the end customer, and all companies are interested in fixing that. I believe that you can do that only in the cloud, with a fully cloud-enabled system. It’s a journey, and it takes time, but you have to get started. The disruption that’s happened these last couple of years has created even more urgency for companies to get started, lest they fall behind.

ASUG: How will SAP address the security concerns of customers moving from on-premises systems to the cloud? How can organizations balance the increased risk of exposure to cyber-attacks?

Gilg: One level of this concerns physical access to systems and data, which is highly regulated by SAP. It’s not possible for somebody to walk into a data center, gain access to a machine, and connect a hard drive to it. Any physical access is heavily restricted. On the development side, we build security into the process. We have high internal security ratings at SAP, which are scanned every time before anything reaches production. You have to be internally certified on that, and you can't ship software unless you receive the highest rating.

We also have all the capabilities in our cloud operations, while the system is running, to shield it from cyber-attacks and penetration. We have regular audits in our operations and in our development processes. SAP is spending an extraordinary amount of money on the topic of security, data protection, and privacy. 

In Germany and Europe, this is especially a big deal with various rules, such as General Data Protection Regulation (GDPR). Some customers don't want anybody in support to access the system outside of the European Union, which we can also grant if required. Around data sovereignty, we have sovereign clouds in North America and in Germany.

There are various measures we offer, in the context of security, data protection, and privacy, to make sure that each of the customers’ requirements are met. It’s hard for an individual corporation to mirror that. Nobody would ever want to admit their own vulnerabilities, but I have to assume many on-premises deployments have vulnerabilities that SAP can address.

For more from Jan Gilg, read the first half of our ASUG interview, discussing the SAP customer base's shifting attitudes toward SAP S/4HANA Cloud migration, innovation paths for on-premises and cloud customers, and the impact of AI on enterprise data.

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