SAP Pre-Announces Q4 Results and Executive Board Changes

by Robert Holland, VP Research, SAPinsider

After a relatively poor performance in Q3, particularly in the area of software license revenue, SAP pre-announced much better performance in Q4 on January 14. While the complete results will not be released until January 29, importantly for SAP these numbers indicated a 26% increase in IFRS operating profit for the quarter, and operating profit reaching the high end of their revised outlook range for the year. These positive financial numbers were followed a day later by the announcements that Adaire Fox-Martin, head of the Customer Success board area, and CMO Alicia Tillman, would be leaving SAP.

A New Board for the New Cloud Era

Over the last two years, SAP has made significant board-level changes with the goal of creating a team that will drive and accelerate the cloud transition of the organization. While these changes have been extensive, including Fox-Martin there will have been seven board members leave in the last two years, SAP has created a younger and more focused team. Combined with the realigned board portfolios, Fox-Martin leads all customer facing organizations within the company, SAP streamlined the focus and responsibilities of their entire Executive Board. Fox-Martin is leaving SAP for personal reasons and will depart the company at the end of January.

Continuing the choice of selecting board members geared to support the transition to a primarily cloud-based revenue focus, Fox-Martin will be replaced by Scott Russell who currently serves as President of SAP Asia-Pacific and Japan. Something that CEO Christian Klein emphasized about Russell when announcing the change was the growth that he has led in cloud-based revenue in the APJ region. This is something that he will be expected to continue to push to new levels as the new head of the Customer Success board area. He will have significant shoes to fill though as Fox-Martin deftly handled many challenges during her time on the Executive Board and will be a significant loss to SAP.

In addition to Fox-Martin leaving SAP in January, CMO Alicia Tillman will be departing the company at the end of February. Tillman, who has been CMO since August of 2017, indicated that she is leaving SAP to “pursue her next ambition”. While not part of the Executive Board, Tillman has done much to grow SAP’s brand awareness and accelerate digital marketing during her time in the role. She will be replaced by Julia White who will join the Executive Board as Chief Marketing and Solutions Officer. Continuing the choice of cloud focused board members, White brings enormous experience to the role as she currently leads product marketing for Microsoft Azure. Before moving to that role, White led product marketing for Office 365 during the transition to the cloud.

In speaking about her move to SAP, White said “SAP is going through a critical transformation. It has a unique opportunity to help redefine how successful businesses run, and the leadership team has made bold and courageous commitments to accelerate their cloud innovation to this end. I am excited to contribute to that journey and thank the Supervisory Board for their confidence in me.” Bringing in someone with a focus on cloud-based marketing is critical for SAP’s continued success in the cloud space, and as they seek to make the majority of their revenue cloud-based.

A Strong Microsoft Connection

Although White is the latest board member to join SAP from Microsoft, she is not the first. Last September, SAP announced that Sabine Bendiek would join SAP as Chief People Officer and labor director. In addition to her HR-focused role, it was also announced that Bendiek would assume the responsibilities of Chief Operating Officer in mid-2021 from CEO Christian Klein. Before moving to SAP, Bendiek was the Managing Director of Microsoft Germany and oversaw a 50 percent increase in cloud revenue for the organization, as well as leading the transition of the business to the cloud within the region. While there is a constant exchange of executives among technology firms, two Microsoft executives joining the SAP board in senior roles is somewhat unusual.

While SAP has been refocusing and rejuvenating their Executive Board, they have also continued to grow their relationship with Microsoft. In October 2019 SAP announced a new strategic partnership with Microsoft that would position Microsoft Azure as the key cloud platform to support SAP S/4HANA. By mid-2020 this led to 47% of SAPinsiders considering a public cloud implementation of SAP S/4HANA indicating that Microsoft Azure was their platform of choice. The SAP S/4HANA relationship has been followed by a constant stream of announcements expanding the relationship, with the most recent being that SAP and Microsoft would partner to run Supply Chain and Industry 4.0 in the cloud.

What Does This Mean for SAPinsiders?

While the improved performance in Q4 will be positive news to many customers who rely on SAP for their day-to-day business operations, SAPinsiders must also look at the bigger picture around what is happening at SAP. The shift to the cloud will not only continue but will be accelerated with the addition of board members like Russel, White, and Bendiek, who have experience in driving the cloud business. But there are also questions that SAPinsiders should be asking and SAP will hopefully be clarifying in the coming days:

• What will happen if I don’t move to the cloud? Although SAPinsider research shows that 99% of SAPinsiders are now running at least some solutions in the cloud, many of these are not yet enterprise solutions. And while the cloud is becoming a more common choice for most, many are looking at private cloud and not public cloud options. With SAP’s accelerated push to the cloud, organizations that do not make the transition may well be left behind. While SAP won’t abandon that revenue, they will almost certainly charge higher maintenance fees for those that remain on-premise in the future.
• Will Microsoft Azure become the new de facto standard for the public cloud at SAP? SAP currently supports each of the major public cloud providers – Alibaba, AWS, Google Cloud, and Microsoft Azure. This seems unlikely to change in the short term, but SAPinsiders should pay close attention to moves and announcements on the SAP side and ask their account managers about what SAP has planned.
• Will there be deeper integration between SAP and Microsoft solutions moving forward when it comes to Microsoft Azure and SAP’s full suite of cloud and on-premise offerings? While SAPinsider expects continued collaboration announcements between SAP and Microsoft over the course of 2021, there is no information currently available about what form these might take. However, SAPinsiders should pay close attention to any announcements to determine how it might impact their existing systems and future projects.
• What is the impact on SAPinsider’s current investments in Google Cloud Platform, AWS, or other hyperscalar environments? Given that many SAP customers have investments in other providers, SAP will likely continue to support those existing investments. As for the previous question on whether other cloud options will be cut short, this is something that SAPinsider will continue to provide updates on and members of the SAPinsider Community should pay close attention to.
• What’s next for SAP? SAP has announced RISE with SAP, an event which will occur on January 27^th at 10 am US Eastern Time. RISE with SAP will share “technologies, insights, and process experiences” along the path to becoming an intelligent enterprise. SAP has not yet provided details on what this will entail, but it will no doubt continue SAP’s to emphasize path as a cloud-focused organization.