SAP shares surged to a record high last week and were up over 7% after the company reported revenue that beat estimates and announced an AI-driven restructuring plan. SAP is projected to spend 2 billion euros in 2024 for a companywide restructuring program for 8,000 jobs, the majority of which will be voluntary leave programs and internal reskilling. This is roughly over 7% of SAP’s 108,000 full-time workforce. Despite that, SAP expects to end 2024 with similar headcount as of today. Most of the 2 billion-euro spend will be in the first half of 2024.
SAP stated that this restructuring is mostly to ensure that SAP’s skill set and resources continue to meet future business needs that focus on Business AI and Cloud ERP. The restructuring itself is said to provide minor cost benefits in 2024, but the 2025 outlook is now updated to reflect about half a billion euros of incremental efficiency gains. Per SAP’s CFO, the next big opportunity is artificial intelligence, and to prepare for this big wave, SAP must reskill its workforce, also acknowledging that this may result in some non-voluntary departures.
Strong Q4 Results
A quick look at the earnings results shows cloud revenue up 20% for FY 2023, underpinned by 25% cloud revenue growth in the fourth quarter. While, historically speaking, SAP has had a massive on-premises customer base, it appears that this base is making its way to cloud, as indicated by the huge current cloud backlog of 13.7 billion euros, expanding by 27%. SAP’s cloud success lies in convincing the large volume of on-premises customers to move to the cloud, and the sheer size of the committed order backlog, mostly of large enterprises in design phases, is a huge indication that SAP is on its way. Future cloud-backlog earnings results should indicate how the cloud migration trend has progressed.
Countering Complaints With The New RISE Migration Path
Strong results and restructuring are not the only notable SAP news. On January 30, 2024, SAP announced several services and financial incentives to help customers move to Cloud ERP. Enter the new RISE with SAP Migration and Modernization program. This is for existing SAP ERP Central Component (SAP ECC) or SAP S/4HANA customers who did not go the RISE route at initial adoption. As you can see from my previous SAP price increase report, several early adopters of SAP S/4HANA who had multimillion-dollar investments but did not go the RISE route were very agitated upon SAP’s announcement that all AI innovation and green ledger capabilities would only be offered for Cloud ERP (RISE and GROW) customers of S/4HANA. Several DSAG user group members put out a strongly worded statement calling for SAP to offer all its new features in its flagship ERP system on-prem as well as in the cloud.
Today’s ERP landscape shows that the world has rapidly changed for large- and medium-enterprise organizations. Cloud ERP is rapidly eating the on-premises ERP base, and among SAP’s competing vendors, this has already been happening over the last two years. SAP has been on a three-year transformation led by CEO Christian Klein to reorient to a true cloud-based business. The path to it, however, has not been straightforward to its existing customers with the RISE offering coming after SAP S/4HANA came into the picture. The RISE with SAP Migration and Modernization program appears as a good happy medium in response to the strong sentiments of DSAG and other customers globally. And in return, SAP is offering deep incentives.
Grab Your Limited-Time Deep Discounts
To recognize the investment made by SAP customers and to help offset the cost of migration and transformation, SAP is announcing a limited-time offer that may reduce the cost of migration up to 50% and shorten the time to value. Through the end of 2024, when moving to the RISE with SAP or GROW with SAP solution, SAP S/4HANA and SAP ECC customers will have access to credits that can be applied to offset the cost of maintenance, cloud services, or cloud subscription. This incentive will include SAP S/4HANA Cloud and line-of-business solutions such as supply chain, human resources, spend management, CRM, business transformation tools, and the business technology platform for extensibility. Essentially, the program’s self-guided digital experience and assisted services offer a path from preparation through go-live.
Quick peek at new SAP customers:
- Recent customers who chose “RISE with SAP”: Amer Sports, AusNet, Boots, Christchurch City Council, Coles Group, Covestro, Daikin Industries, Daimler Truck, Deutsche Telekom, EMS, Harrods, Hilti, IBM, KONE, Kyndryl, Landis+Gyr, Marathon Petroleum, Marks and Spencer, Messe Frankfurt, Munich Airport, NEC Corporation, NVIDIA, Nestlé, OXG Glasfaser, SLB, Smyths Toys Superstores, Vodafone Group, and Wärtsilä Corporation
- Recent customers who went live on SAP S/4HANA Cloud: AES Indiana, Allianz, ARAG, DAK-Gesundheit, Tropicana Brands Group, and Zurich Insurance Company
- Recent customers who chose “GROW with SAP”: Lowe Enterprises, Mangopay, Merida & Centurion Germany, Okuma Europe, Serrala Group, and Solidia. (GROW is an offering helping midsize customers adopt cloud ERP technologies.)
Read my previous SAP analysis:
SAP’s On-Premises Price Increase Forces Clients To Modernize With Its Cloud ERP
The Release Of RISE With SAP Premium Plus Reinforces The Shift To Cloud ERP
In 2024, watch out for my additional evaluative research on the SAP services partner landscape. If you have any questions, please feel free to book time with me here.
