Thursday, July 17, 2014

SAP's Revamped Strategy for Small and Midsize Businesses

Dean Mansfield
SAP announced today the launch of a new division focused solely on sales of its systems to small and midsize businesses. The SMB Solutions Group will be headed up by Dean Mansfield and will focus on companies with up to 500 employees. Moving against the tide, Mansfield comes to SAP from NetSuite, where he headed up global sales and operations.

Product Strategy: Simplified Suite on HANA and Business One

What I find most interesting in the SAP press release is its ambiguity on what products Mansfield will be selling into the SMB market. The first part of the announcement appears to be saying that SAP will target the SMB market with a cloud version of its Business Suite, though it does not say so explicitly: 
Mansfield will execute on a board strategy to redefine the SMB business solutions market by creating the next generation of simplified, integrated business applications powered by SAP HANA®, delivered via the cloud that will solve tomorrow's complex SMB business challenges. 
The announcement then explicitly mentions Business One (a separate system from SAP's Business Suite), which will continue to be sold and supported through partners. It also refers to a push to move those partner offerings to hosting on HANA, as a separate deployment option for SMBs:
In addition, Mansfield will lead the current SAP Business One application portfolio, which will continue to operate through the Global Partner Operations organization, and plans to accelerate the adoption of SAP Business One, version for SAP HANA, as well as the SAP Business One Cloud solution, version for SAP HANA. 
What's missing from the announcement? Any mention of SAP Business ByDesign (ByD).

This lack of clarity about the products that SAP will offer to SMBs was also picked up by one analyst in SAP's quarterly earnings call. Adam Wood from Morgan Stanley, noting that SAP appears to have deemphasized ByDesign, asked SAP CEO Bill McDermott what would be the main product focus in SAP going to market with SMBs.

McDermott responded, in part:
ByDesign is still part of our product portfolio and we now have ByDesign on SAP HANA, which is absolutely a game changer because everything is faster and better on HANA as you know. [Emphasis mine.]
McDermott is a careful speaker, and his use of the word "still" is revealing. He wouldn't dream of saying, "The Business Suite is still part of our product portfolio," or "SAP HANA is still part of our product portfolio." The word "still," therefore, indicates that ByDesign is not part of SAP's core strategy.

McDermott continued:  
We also believe strongly that Business One has been going through an indirect channel now and has proven itself to be a very successful, high growth, double-digit business with good margin. So we will continue that. But we also put B1 up on HANA in the Cloud and we go global and we think that can be a very serious category killer.

Once it get into the market place and people see what it can do on HANA and we will continue innovate in that space now with a defined agenda underneath Dean Mansfield. So it's a combination of things we are going to go after the market with.
So, this confirms the implication in SAP's announcement that, in contrast to Business ByDesign,  Business One is strategic to SAP's SMB strategy.

Without directly using the words "Business Suite," McDermott then implied that the Business Suite itself, running on the HANA Enterprise Cloud, would also be a product offering for SMBs:
Related to the HANA Enterprise Cloud and the multi-tenant debate, the bottom line is the HANA Enterprise Cloud and each customer wants their solutions. They want it beautiful. They want them to work and yes, we can make money on it because HANA is the great simplifier.

When you radically simplify the IT stack--I mean SAP
[in context, the SAP Business Suite--ed] used to run on eight terabytes of data. Now it's like closer to 1.5. You dramatically lower your cost of operation and improve the speed of everything in the operation. So it's perfect for "Run Simple." It doesn’t matter whether it's single- or multi-tenant. What matters is the customer gets what they want at the price point in the performance and the user experience they're looking for, and that's precisely what we intend to give them.

Will SAP's SMB Strategy Work? 

I would interpret SAP's strategy as two-fold. For really small businesses, starting at even five or 10 employees, SAP wants to continue its reseller channel strategy with Business One. For small divisions of larger companies, especially those already running its Business Suite globally, SAP will also position Business One, whether on-premises or hosted by partners.

For midsize companies, especially those that are growing and need more comprehensive functionality, SAP wants to position its flagship Business Suite. But this product has not performed well for midsized businesses in the past, even when packaged with preconfigured industry templates as SAP All-in-One, due to its size and complexity. SAP is betting that it will be successful with its "Run Simple" strategy to turn this product into a "Simple Suite." This is what McDermott was talking about when he mentioned going from 8 terabytes to 1.5. And, by running it as a managed service on the HANA Enterprise Cloud, SAP hopes to simplify the implementation and ongoing support experience for SMBs.

In my view, there are two risks in SAP's strategy and they both involve the Business Suite. First, even if "simplified," will midsize businesses find the Suite simple enough? The early signs with SAP's Simple Financials are promising. But is that possible with the rest of the Business Suite? Second, will the experience of the HANA Enterprise Cloud be as friendly as the cloud-only ERP providers, such as NetSuite, Plex, Rootstock, FinancialForce, and others?

In recent years, SAP had a cloud-only solution in Business ByDesign that was more directly comparable to the competition. That's no longer part of the plan. Rather, SAP believes that a combination of Business One and a simplified Business Suite will be a winning strategy. Time will tell.

Update, 5:22 p.m.: Removed references to Business One on Hana Enterprise Cloud (HEC), which does not appear to be part of the solution. Thanks to Dick Hirsch for the clarification.

Update, July 18: Dennis Howlett picks up on my post and provides more analysis, including a history of ByD.

Related Posts

Fighting Complexity: Can SAP Run Simple?


clive boulton said...

Not just SMB design, SAP's culture is mismatched for entrepreneurial business.

SAP can dramatically increase odds of its success by acquiring Exact.

* Close to German European culture.
* HANA online ready architecture.
* Product & culture 100 pct SMB.

Reuters reports Exact is reportedly in Private Equity crosshairs

Matthew King said...

It's interesting that SAP appears to be betting on single tenancy.

This will allow customers to choose when to upgrade versions rather than upgrade with a gun to their head. Some might argue that it's better to be forced, but in practice this is not always a desirable situation.

Also consider that while upgrading 100 (for example) single tenant installations takes more time and effort than upgrading one multi-tenant installation with 100 customers, it spreads the work more evenly. In contrast when upgrading the multi-tenant system, the vendor needs to coordinate with a large number of customers concurrently, not to mention the consequences of a failed upgrade.

I think the main issue for SAP regarding multi-tenancy is complexity. SAP software is highly configurable, and building and maintaining tenant-aware applications is much harder than for equivalent functionality in a single-tenant architecture.

I believe SAP would be pushing Business ByDesign as its core product line in the SMB market - if they had never purchased Business One - and if Business One was not making good money for them. Business ByDesign is architecturally state-of-the-art but it's just not making any money, and the money invested in it's development thus far is frightening. Understandably SAP is cautious about investing further given they have two other proven alternatives to cover the full spectrum of customers.

It's probable that ByD was originally conceived as a successor to both Business One and the Business Suite. As it turns out, the task of building a multi-tenant replacement for the Business Suite was a bridge too far, despite all the money thrown at it.

So Business ByDesign might be largely a white elephant now, disappointingly.

When SAP announced that ByD and the rest of the OnDemand product line was being migrated to HANA, in addition to the availability of Financials OnDemand as a stand alone product, I thought the OnDemand technology was gearing up to tackle enterprise cloud ERP. But hopes were dashed when SAP this year announced the deprecation of Financials OnDemand as a standalone product(SAP Cloud Financials as it's now known), leaving ByD as a SMB ERP suite.

SAP's remaining multi-tenant products will likely live on in the enterprise world, but the absence of a multi-tenant cloud financials system is notable, if not concerning.

Richard Duffy said...

Disclaimer** I also posted my comment on Den's post on Diginomica but I figured it might also add some value to the discussion here **

As a person who was in the SAP Business One family for 11 years, I can maybe add some insight on this.

SAP Business One is a great product for on premise focused small business customers where the functionalty is a good fit and they have a great partner channel that are committed to the solution and some smart people driving the go to market.

However, the core architecture needs a full re-factoring and just moving some components to HANA wont do the job as SAP are doing.

Also releasing new functionality only on HANA to try to force customers to buy and partners to sell HANA is also not a great strategy in my view .... HANA is a sweet piece of technology but customers buy tech on their own timeframe and for their own reasons...limiting choice through a false mechanism is a strategy that won't win friends and influence people.

I also spent a lot of time showing partners and customers how to leverage other technologies such as Ericom's AccessNow to try to get more browser based adoption but unfortunately there was not much traction internally to support this approach at SAP as folks were more interested in building a lower end solution on a new architecture.

Of course, the secret here is to listen to partners and customers more and do less design and strategy in a closed room with a core group of internal folks who will all follow along without argument with a potentially flawed strategy for fear of rocking the boat - recognised by many as the cause of ByD's still-birth.

Cloud is the future...and it took me a while to really get on board with that...and the technology cannot be a retro REM once cant get there from here...thats part of the reason why I decided to make the shift from SAP to another vendor, who shall remain nameless in case people accuse me of just flogging an alternative because it suits my current circumstance.

Having been living it now for 4 months and diving deeper in to the whole platform enablement process and technology behind this I am even more convinced that re-factoring is the only way forwards...not just for SAP but for all the legacy ERP vendors as most, if not all are struggling with the same challenges

clive boulton said...

@Richard Duffy Seconded!

"for all the legacy ERP vendors as most, if not all are struggling with the same challenges."

Coda. I can't think of anything worse for ex-Exact colleagues than having PE bankers monitoring them.