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.