SAP: Americas’ Midmarket Sector Is Key to Growth
ASUG continues its recently launched interview series with industry-sector SAP leaders in this discussion with Greg Petraetis, Senior VP and Managing Director, Midmarket and Partner Ecosystem, North America. The interview includes Petraetis’ comments on the strategic emphasis SAP places on midmarket business growth, a recap of key 2021 activities, and a 2022 outlook.
This is an edited version of the full conversation.
Q. As 2021 comes to a close, what were major SAP accomplishments this year that better served customers in the U.S. and Canada, cross-industry, in the midmarket sector?
A. The big one was the introduction of RISE with SAP for S/4HANA. We had more than 150 go-lives in 2021 that were executed through our partner ecosystem. Of SAP’s net new RISE deals, 82% were done in the midmarket, including customers like ElectraMeccanica, Pharmapacks, and Vingroup JSC.
The reason this was huge for our midmarket customers is because it allowed them to quickly leverage SAP’s industry and line of business expertise as a cloud offering. It also dramatically reduced the IT overhead of running an ERP system for midmarket customers that are not necessarily in the business of IT by allowing them to focus on outcomes for their business without worrying about keeping the lights on with IT.
For example, I was talking to a CIO, and learned that their IT staff is five people, three of which were part-time. RISE allowed them to quickly get up and running, prepare for the future, and allowed that small group of people to sustain the system.
We’ve seen that RISE has been a right-fit solution for greenfield customers because they are just taking their first steps on an ERP journey, and for existing brownfield customers alike. These organizations have IP that’s baked right into their SAP landscape, and now with RISE, they can bring their existing investments with them on the cloud journey. From a cost and from a change management standpoint, this is game-changing.
Then, regarding the extended line of business suite, Business Technology Platform (BTP) is a big focus for us in the midmarket. It allows us to integrate with other applications, whether these are existing applications in a customer’s ecosystem, or whether they are considering SAP-packaged applications like Ariba or Logistics Business Network. BTP allows them to quickly get up, running, and integrated.
Also, I’d be remiss if I didn’t talk about Business Process Intelligence (BPI) allowing customers to benchmark against their peers on an industry basis, with their end-to-end processes.
Q. Did you find any surprises or unexpected developments in this sector?
A. For context, the midmarket is the main net new engine for SAP customers in North America. At SAP, we define the midmarket as customers with less than $2B in annual revenue, a lot of which earn less than $1B in revenue. What’s interesting, and could be seen as surprising or unexpected, is that one out of every three customers we worked with this year [was] either with private equity or venture-backed organizations. These are companies with plans to scale their business profitably through organic growth and through mergers and acquisitions. Therefore, there’s been a big focus on these customers because these customers do not want to be small-and-medium businesses; they’re aspiring to be high-growth companies. As they go from being innovators to disruptors, to category leaders to global leaders, we’re catching them along that continuum. We are going after that market and catering to these investment-backed organizations.
To achieve this in 2021[,] we partnered with Association for Corporate Growth [(ACG)] to create what we called the SAP Mergers and Acquisitions Ambassadors Programs. SAP and our partners have come together to engage across industries, lines of business, and solutions to support the needs of CEOs and private equity operating partners. We align around a strategy for growth that leverages the SAP ecosystem across concurrent deals. We understand that the executives, the employees, and the investors at these investment-backed companies have high expectations for growth, and [we understand] all the complexities that can come along with that growth. This makes it a particularly terrific fit for us, the investment firms, and for the midmarket businesses.
We’re also working with ACG to create a series of Think Tank events where operating partners can come together and share best practices, engage with key service providers, share industry and line of business content, and [then] leverage that across their entire investment life cycle. And the Council is going to span four pillars: people, operations, technology, and go to market.
All these engagements help elevate and evolve [each] operator’s engagement strategy with [its] portfolio companies, and we’re putting the full weight of SAP behind that initiative.
Q. Was this a planned development? Did it occur faster than expected?
A. We know the number of private equity and venture capital firms in the U.S. has gone up dramatically over the course of the past 10 years; there are more than 4,000 in the U.S. today. The average fund size is about $436M catering to the midmarket, and there is $703B in dry powder waiting to be invested. The number of deals, from 2018 [to] 2021, has gone up every year, despite COVID-19. So, in certain industries, the investment firms are plowing money in to capitalize on opportunity. The expectation … as part of the overall investment strategy is that there will be infrastructure and business applications to support growth. Therein lies the opportunity for our customers and SAP.
The CEOs that I talk to, in industries that grew during COVID-19, all say the same thing … now that they’ve demonstrated they can grow during these extraordinarily challenging times, they’ve got to continue to grow. To support that growth, they are going to need technology as part of that overall strategy.
Q. What are you hearing and seeing as the major challenges organizations are facing in the midmarket sector in the next three years?
A. The most exciting challenge and opportunity is hypergrowth. Most of our midmarket customers want to be the next multi-billion-dollar enterprises and are projected to grow at 56% over the next five years. You look at brands like Moderna, Vari, and LIVEKINDLY and you can see that growth.
The other challenge is ESG [Environmental, Social, and Governance] and sustainability. There are shifting global demands around the environmental impact of organizations. These midmarket companies … need to be focused on these major challenges and what should be major opportunities if they approach it correctly.
Q. How is SAP stepping up to the ESG and sustainability challenge for midmarket customers?
A. We recognize that we cannot do everything in-house and that we can accomplish more if we’re partner-driven. We need to be in an open ecosystem, because in a cloud environment, it’s not just deployment, it’s an innovation strategy. And innovations are coming from everywhere—from customers, from partners, from places we haven’t even seen yet. Our partners will play a much bigger role across the customer life cycle in the midmarket. Not only in the sale, adoption, and consumption of the product, but also in continued engagement and evolution with the portfolio.
We’re also going to be very cloud-first. These industries are becoming more connected, and SAP will continue to invest in the cloud to enable future-driven business models. And around sustainability, we’ll continue to invest where our customers are seeing an opportunity to transform in response to shifting global demands and consumer demands.
Q. What in terms of the industry cloud strategy can midmarket customers expect?
A. About a year ago, we announced Industry Cloud as an open innovation space for SAP and for our partners to continue to build differentiating solutions for the core businesses of our customers. Today, a lot of the industry cloud solutions from SAP and from partners are already available and there are a lot more innovations on the road map. Industry Cloud will help midmarket customers in the coming year and beyond because it accelerates innovation. We’re simply giving our customers more ways to access innovation[s] specific to their industry and in their horizontal business processes.
Q. Are there particular industries that are more in focus for SAP and its industry cloud strategy?
A. Industry Cloud is applicable for companies of all sizes and industries. While we are addressing consumer products, retail, automotive, IM&C, and utilities companies with SAP-built Industry Cloud solutions, the majority of Industry Cloud solutions are partner-built, covering industries like professional services, EC&O, oil and gas, and life sciences.
Q. Are there any product road map or service enhancements that you’d like to preview that would be of interest to the midmarket?
A. In the next year and [on] the foreseeable horizon, Industry Cloud is poised to be the next big thing. Driving our customers’ core business into the Industry Cloud—and in doing so, outpacing the competition by introducing industry networks--is a big push. With the support of our partners and customers, we will make SAP’s Industry Cloud a huge success story.
And when we combine that with other great programs like RISE, we bring our customers into the cloud, bundling industry solutions. RISE with SAP for industry makes the cloud journey even more attractive for customers.
There are a few key areas of focus as we look to accelerate our Industry Cloud strategy. We’re supporting innovation and creativity by reimagining the way businesses run and create. We think in the terms of quality over quantity by prioritizing and investing in key industries. We lean on our vibrant ecosystem. Finally, we engage our digital channel, and are prepared to introduce a new consumption-based model for industry cloud.