With cloud turnaround, SAP primed for SEA change

By Gabey Goh October 27, 2014

SEA companies facing the challenge of growth, and big data impact
Asean Economic Community a double-edged sword with opportunity and challenges

With cloud turnaround, SAP primed for SEA change

THERE are two significant themes to conversations with customers in Asia that Adaire Fox-Martin (pic above), SAP’s president of Asia Pacific and Japan, has experienced in the last 12 months or so.

The first is that companies are growing not just domestically but within the region and internationally as well, she told Digital News Asia (DNA) in a recent interview in Singapore.

“With the Asean Economic Community (AEC) due to take effect soon, many homegrown companies are moving into environments that are changing.

“Opportunities exist beyond domestic borders and they want help with enabling a set of technologies to consolidate at a particular level, but operationally cuts across multiple business units, geographies and growth segments,” she said.

Fox-Martin said that SAP is seeing a lot of consolidation-type activities in South-East Asia, dominated by family-held conglomerates that contribute significantly to a nation’s gross domestic product.

One example would be a company that began life in agriculture and over the years grew considerably domestically, either by expanding the business downstream or by going into new industries as a new generation takes the reins.

“The AEC is a double-edged sword, offering both opportunity and challenges. The business still needs to operate independently in individual markets, but at a group level, there is a need to understand it in its totality.

“This has been a big part of conversations with customers I’ve been having and there are very few companies in the region that can help, and SAP is one of them,” Fox-Martin declared.

She said that SAP offers localised versions of its suite of ERP (enterprise resource planning) software, taking into account the different regulations at play in each market, and from one single implementation of SAP, businesses can run as many countries and businesses as required.

“We’re a prime example of that. From Singapore with our shared services centre, I run 16 different countries from with different geographic challenges and legislative frameworks,” she added.

The second conversational theme centres on big data and leveraging visibility and business intelligence from it.

According to Fox-Martin, many businesses have spent years collecting data but have yet to capitalise on its value, beyond ‘rear-view mirror insight.’

“It’s about future thinking – what do the next three months hold for the wider industry and market? How will that impact the business? It’s about the ‘what ifs.’

“This isn’t just about analytics or insights. It’s about predicting from a vast array of data sources … that a company has – not just internal data but external as well, from social media channels and competitor information, and to have all that in real-time,” she said.

In Fox-Martin’s view, there is no doubt that these customer concerns link very well to SAP’s ‘fight’ against complexity and its mantra of ‘Run Simple,’ positioning the world’s largest provider of back-office business management software for even bigger growth in the region.

“The vast majority of our customer base in Asia are in fact small and medium businesses (SMBs), but they are tomorrow’s multinationals,” she said.

Turnaround strategies and competition

On Oct 21, SAP raised its projection for sales of software delivered over the Internet, and cut its full-year profit forecast.

The company is expecting a 2014 operating profit, excluding some special items, of €5.6 billion to €5.8 billion (US$7.1-7.4 billion), down from €5.8-6 billion previously.

According to a Reuters report, company executives said the accelerating switch from packaged software to cloud software would shave about €200 million (US$253 million) off a previous profit forecast, but that cloud contracts would bolster sales and profit in the future.

With the news marking the lowest share price drop for SAP in almost three years, chief executive officer Bill McDermott said investors should better understand a shift to cloud computing that’s taking a toll on the company’s profit.

In an interview with Bloomberg, he pointed to the company’s €2.37 billion (US$3 billion) worth of software support contracts for the quarter, as well as a 41% growth in cloud computing tools, a smaller but faster-growing business.

“People just need to digest what I’m saying. And we’re still expanding operating income. You’re a very safe bet in a sea of danger,” McDermott added.

In Asia, the report card appears a little brighter, with the company recording 10% growth in non-IFRS (International Financial Reporting Standards) software and software-related service revenue (10% at constant currencies) in Asia Pacific Japan (APJ) during the third quarter for 2014.

Demand for the company’s cloud portfolio and HANA platform continued to rise, most notably in Australia and New Zealand, where customer demand for the simplicity and functionality of this technology was again evident, according to SAP.

Third quarter performance was reportedly driven by cloud subscription and support revenue. Non-IFRS cloud subscriptions and support revenue grew by 57% (56% at constant currencies) on a year-on-year basis across APJ.

SAP’s SuccessFactors Human Capital Management (HCM) Suite registered solid growth, especially in the public sector, resources and telecommunications industries, the company said in a statement.

The rise of e-commerce in the region is also boosting demand for omni-channel commerce solutions from hybris and cloud-based procurement and trading network from Ariba, both SAP companies.

In Singapore alone, the company has made some significant business wins during the third quarter, such as Singapore Telecommunications Limited (SingTel) and NTUC Fairprice.

SingTel has signed up for SAP’s SuccessFactors HCM Suite including SuccessFactors Employee Central and SuccessFactors Employee Central Payroll along with the SAP Jam social software platform and SAP Cloud for Travel solution to help enable its matrix structure, simplify its IT infrastructure and drive its people transformation agenda.

While Fairprice, the largest supermarket chain in Singapore, will be simplifying its overall architecture and accelerate the performance of its SAP system with the in-memory SAP HANA database.

The company announced this month that a partnership has been signed with Singapore-headquartered DBS Bank to make it easier for businesses to connect their treasury and payment systems with the bank, saving these customers time and money.

DBS is the first South-East Asian bank to leverage the SAP Financial Services Network (FSN) to deliver enhanced connectivity to businesses, making banking simpler for its clients.

In addition, non-life insurer MSIG has chosen SAP’s Core Insurance Platform for its Singapore and Indonesia companies to drive operational efficiencies, faster time-to-market and improved customer service, via a single system that is intended to better enable growth and support.

HANA validation
With cloud turnaround, SAP primed for SEA change
Increased demand for the HANA platform was reflected in triple-digit growth for SAP Business Suite. The analytics business registered double-digit growth this quarter, as businesses looked to capitalise on big data to make smarter decisions, SAP said.

Fox-Martin told DNA that the results served as validation of the HANA platform, whose high adoption rate holds true right across market units in Asia.

“This is a positive sign that the strategy of the company, in moving to the cloud powered by HANA, is being validated by the markets here,” she argued.

Asked about what its strengths are in the face of new competition by companies which were ‘born in the cloud’ such as Salesforce.com, Anaplan and others, Fox-Martin pointed to SAP’s 40-plus years of experience in delivering solutions to a wide array of industries.

“First of all, when it comes to cloud competitors, there’s absolutely huge growth but it’s all on a small basis, particularly in Asia. But interestingly, out of all the growth is the lack of profit.

“It’s all happening on customer acquisition but not yet has any pure cloud-play company found a way to deliver these solutions at profit at this point in time, even with the scale of growth that they are enjoying,” she claimed.

When SAP goes head-to-head against these competitors, according to Fox-Martin, the company has been winning most of these face-offs due to what SAP brings to the table.

“We can do cloud at scale and we’re doing it at profit and we’re doing it for 24 industries. The flavour of, say, a CRM (customer relationship management) situation in a bank is going to be different than a case manager in the public sector, even though the core of the software may be similar.

“It’s the experience of SAP’s many years in industry, managing complex business processes in a simple way. It’s not that we’re simplifying business processes – the business process in an enterprise is complex, it has to be – but what we’re doing is offering a way to manage them [these processes] in a simple way,” she claimed.

In addition, customers are focused on where the value lies in business outcomes and return on investment.

“We have a lot of discussion with customers around architecture. For some, the business process starts in the cloud, moves to a back-office and on-premise environment, then finishes back in the cloud – and to the user that entire experience should be seamless.

“And if you procure a whole series of business applications, whether on-premise of off-, someone has to piece it all together.

“That architectural story resonates with enterprise customers who want us to do it for them via their consumption method of choice – cloud or not – so that they can focus on the business,” Fox-Martin said.