SAP Innovates Innovation

If you’ve been following SAP over the last two years the products and services unveiled in Orlando last week wouldn’t have been too much of a surprise: HANA, cloud, mobile, social, and services all showed up at SAPPHIRE in their latest and greatest evolutionary glory. If you weren’t expecting most of the principle announcements at the show then you haven’t been paying attention.

But what wasn’t necessarily apparent until SAPPHIRE 2013 was the re-engineering of innovation that underlies this multi-pronged strategy. Indeed, rather than any individual product, it’s the innovation of innovation that struck me as the most important message of SAPPHIRE. While HANA and mobile are SAP’s two fastest growing product lines, the real growth worth measuring will come from the ability of SAP’s customers to innovate. Which means SAP’s success will need to be measured as much by its impact on its customers’ bottom lines as it is by looking at SAP’s own product and services revenues.

This innovation-squared approach also outlines the challenges that SAP and its customers face in a brave new world where core ERP functionality is more and more a commodity and the next new thing may be less of a packaged software play and more of a services play than many are used to. And while SAP’s motto, “innovation without disruption”, describes a sound, conservative philosophy that is in line with many customers’ aspirations, in reality a whole lot of disruption is going to have to happen, one way or another, if SAP’s ultimate dreams are to be realized by its customers.

But what I find most interesting is that SAP is really proposing a two-tier innovation strategy for its customers that allows them a degree of non-disruptive innovation first, and then a whole lot of game-changing, disruptive innovation second. That non-disruptive innovation involves, among other things, the deployment of HANA, as well as SAP Mobility, SAP’s Rapid Deployment Solutions, and new user experiences a la Fiori as baseline innovations that can significantly raise the bar for customers in terms of processing and throughput while still maintaining business as usual in their companies. The game-changing disruptive part comes from imagining what new analyses, opportunities, and business models can be created once this baseline has been established.

Suite on HANA and HANA Enterprise Cloud are emblematic of this opportunity: running the SAP Business Suite on HANA – on premise or in a private cloud – can provide tier one innovation for any customer that is up on its service packs and willing to invest in new hardware in either a classic on-prem model or in a managed services model. For many customers, the rapid throughput promised by HANA, as well as the overall simplicity SAP is promising over the classic Oracle DBMS environment, should provide enough innovation to justify the expense.

But innovation really gets interesting once HANA becomes a baseline on which to build net new functionality, and that’s where disruption is going to have to come in. A company that can suddenly analyze massive new quantities of data from every possible internal and external data source is now in the position to reimagine its business: Capabilities like advanced predictive modeling can allow a services company to predict outages and provide better SLAs to its customers, while a product company can better predict demand and manage supplies and bring to market new products it had never been able to build before. New research methodologies, new ways to deploy people, new ways of doing everything are now possible……

None of which can take place without a lot of disruption. While swapping an Oracle DBMS for HANA, or an on-premise Oracle DBMS for a private cloud HANA, can arguably be non-disruptive, the imagineering that is required for Tier Two innovation doesn’t happen just by writing checks and pulling switches.

Welcome to the Tier Two innovator’s dilemma.

Here’s the issue, and the opportunity, in a nutshell: Imagineering is hard because predictive modeling is hard, and modeling is hard for most business people because the underlying math and statistics are hard. Business schools may turn out spreadsheet jockeys and management-by-numbers execs by the thousands, but the creative skills required to look at a few petabytes of complex, variegated data and imagine the next new thing hidden in the bits and bytes are few and far between.

I met with Hasso Plattner and Vishal Sikka (respectively SAP’s supervisory board chairman and the technology and innovation executive board member) the week before SAPPHIRE and spent some time talking about the challenge of scaling imagineering and syncing it to the opportunity presented by Suite on HANA and the overall HANA platform strategy. Both Hasso and Vishal acknowledged the challenge in our conversation, and the impressive demos by Hasso’s grad students from the Hasso Plattner Institute on the stage at SAPPHIRE were one response to that challenge.

But sending in the grad students or the data scientists still amounts to the same thing. The best available methodology for Tier Two innovation today is to send in the experts, convene a workshop, sort through the business and the data and come up with the new model that drives the new analysis that drives the new business opportunity. Tier Two innovation is a consulting project, plain and simple.

And while this means that SAP Services, SAP’s consulting partners, as well as startups like Grok, Ayata, and others have a lot of work to do combining HANA and other new technologies with their services offerings, the fact is that scaling Tier Two innovation will take time. There aren’t enough brainy consultants who can translate big data into big business opportunity, much less do that in the context of HANA, mobile, new user experiences, or other innovative offerings from SAP or anyone else.

The good news for SAP and its customers is that Tier One innovation is relatively easy and accessible, and that for many companies Tier One is not just a good place to start, it’s clearly the place to start. And the message from SAPPHIRE is that there’s plenty to do at Tier One to keep SAP customers busy and SAP’s investors happy.

The view on Tier Two innovation is a little more complicated: most companies couldn’t move whole hog into Tier Two if they wanted to – my own experience is that most companies are not set up to operationalize big data: they don’t have the decision-making processes in place to leverage the new insights that big data can provide. And, as I already said, relatively few are actually able to create the big analysis and big insights in the first place, much less do something about them.

Which brings me to my final point. Two-tier innovation is a great strategy precisely because it defines both possibilities today and aspirations for tomorrow. But SAP has to get moving on making those aspirations as real – and scalable – as possible. SAP is a long way from being about to package Tier Two innovation, but packaging the imagineering should be possible.

At least I imagine it is…..

2 thoughts on “SAP Innovates Innovation

  1. Josh;
    Great article. I have spent some time trying to get the HANA message out there. What I have found is that people are looking for total solutions, not just appliances with promise. A baker’s analogy would be the same as showing customers a bag of flour when they really want a loaf of bread, or cookies, or buns. Like you said, innovation is hard. It creates huge opportunity in the market place, but only the innovative will survive.

  2. The word of the day was “innovation”, a term that both executives used repeatedly and in several different situations. Snabe defined innovation as the level of creativity multiplied by your companies scale in the market and McDermott stated that “innovation isn’t just how you build a product, it’s every bit as much about people”.

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