SAP AI Ambitions (Part I)

SAP has released, reinformed, and revitalized its AI strategy in the last... 7 days.

Let's wrap up what we know until today, the last day of July 2023, in a series of blogs of opinionated information.

How can I make it to keep your attention on this so-widely-spoken topic? I will review and comment on Christian Klein's statements during the recent Q2 Earnings Call on July 20th. I will discuss 3 statements today.

Klein statement #1; “No one is better positioned than SAP to empower businesses to take advantage of this Generative AI transformational moment.”

Customers are looking to our game-changing solutions to foster sustainable end-to-end business processes across diverse industries on a global scale. It is also worth pausing on the watershed moment we’re experiencing with generative AI. Generative AI will fundamentally change the way businesses run. In the business world, no one is better positioned than SAP to empower companies to take advantage of this transformational moment, giving them the solutions to harness AI to improve business outcomes.

Let’s start with what Generative AI is. In the SAP portal, its described as it follows;

“Generative AI, a form of artificial intelligence, can produce text, images, and varied content based on its training data”

Even though I am a Computer Science engineer, AI was never my area of expertise, nor could it be explained easily, but I encourage any reader to take a look at this blog from McKinsey.

McKinsey's blog has a fantastic glossary and describes how Generative AI is created, how it’s shaping the world, and some Industrial use cases. I am sure engineers or generative AI did not write it.?

Back to SAP, think about a two head creature. One head is a software company providing business processes; the other hand, it has always been a technology platform to develop around these business processes.

On the Technology platform, Generative AI has many actual use cases too. BTP content generation might be simplified with generative AI coding assistance. ABAP coding has the potential to be facilitated as well, yet we have yet to see any coding assistant for ABAP, but I am sure it will come. Do we envision a SE80 assisted by Gen AI? It should happen. Imagine the safety, time to market, and coding standardization this brings.?

At SAP, we integrate this technology with extensive industry-specific data and deep process knowledge to create innovative AI capabilities for the SAP applications you use every day.

Generative AI uses a type of deep learning called?generative adversarial networks?(GANs) to create new content. A GAN consists of two neural networks: a generator that creates new DATA and a discriminator that evaluates that DATA. The generator and discriminator work together, improving its outputs based on the feedback it receives from the discriminator.

Because DATA is critical, and SAP is one of the business's biggest DATA generators, this is the point Klein is addressing.

So, going back to Klein's quote, Generative AI has much potential. However, because it’s still in the early phases, SAP is evaluating its business usage, and many other industry analysts, like McKinsey, are figuring out how this will impact Industries.

Klein Statement #2; “We believe we are uniquely placed to become the leader in business AI”

We believe we are uniquely placed to become the leader in business AI. At our most recent Sapphire conference in May, we shared specifics of our AI approach with SAP Business AI.

?What happened in May? Two external collaborations and a self-generated internal strategy

On the collaborations, after announcing a partnership with IBM to infuse Watson into SAP Start, SAP unveiled another with Microsoft to integrate recently acquired OpenAI generative AI capabilities: SAP will combine Microsoft 365 Copilot and Viva Learning with the HCM SuccessFactors tool. It will mainly use the capabilities of Azure OpenAI to power its experience, like helping recruiters write standard job offers or enrich documents they have already registered.?

During the event, another collaboration was announced with Google, Thomas Kurian was on stage. The partnership aimed to offer more open data offering. The integration of SAP Datasphere and Google Cloud data visibility in real-time. Datasphere will use Google AI and ML services.

Datasphere, which I will describe later, became one of SAP's AI Platform, although I will be more detailed on this topic in another.

The internal release unveiled as “SAP Business AI”

Overall SAP is finding ways to leverage AI and generative AI in each SAP module and with use cases specific to major industries.

All software vendors are quite busy finding use Generative AI use cases for their technology; SAP does not want to be behind, so this week, Julia White, SAP Marketing Chief, released a blog featured in several media, read it on Forbes.com, describing the use cases for "cloud ERP," and that is important to mention. Cloud only; we will go through that later. Blog is fantastic, and you cant miss SAP's infographic about AI.

Klein Statement #3; We will be introducing new premium RISE offerings with an uplift of up to 30% in the fall

?

Our approach with SAP Business AI is unmatched in the industry, delivering our customers the most relevant, reliable and responsible AI built for business. Firstly, our AI is relevant because it’s embedded into every part of our portfolio. More than 24,000 SAP cloud customers today can already use SAP business AI across hundreds of built-in AI capabilities and partner use cases. To provide a couple of new tangible examples. In SAP Transportation Management, generative AI will save up to 55% of the processing cost of delivery notes. The new intelligent collections in SAP S/4HANA Finance can reduce the time between invoice and payment by up to 10%. Secondly, based on unique business data and business process context, we can deliver the most reliable business AI.

This is a game-changer. We have seen this recently from other vendors, but SAP has introduced a new concept; AI usage with a premium of up to 30%.

It makes sense in the context of SAP cost since Generative AI and any AI for ERP consume a large amount of computing for its analysis. It's not cheap, and these offerings are customer personalized and promise significant time savings and outcome improvements. Hence the investments should pay off.

As a reminder, AI with SAP will only be available for S/4HANA Public Cloud customers, RISE, or GROW.

Why does this happen? Because feeding LLMs requires large amounts of data, and the privacy and governance must be controlled by SAP, AI consumption in SAP is now offered as a plug-and-play solution. SAP still does not offer to build your own LLM on BTP. Because SAP must control, it only happens in the cloud, not on-prem. But this could change in the future, I will be more specific in a future post about it.

Organizations may choose not to leverage these capabilities and remain with on-premise, private cloud, or hyper scaler-hosted environments, as this may be the first of many other announcements.?

We are going to launch further generative AI use cases. They will come with a 30% premium because we believe in the immense value and we see how customers respond to that. And we are going to embed that in every RISE, in every GROW, in every LoB deal going forward. This will not be like, okay, here’s our generative AI portfolio. No, this will be embedded because there, we also believe that our sales team and our partners can sell it best when it comes integrated with our application portfolio.

Embedded means SAP will not generate a 2-speed software out of it, meaning cloud S/4HANA will be AI-enabled. Period. The customer will decide whether to use the AI capability or not with the additional price and consumption costs. But SAP will not divide the company in two for this, they are infusing AI in all the business processes, so this will bring a significant revenue stream for SAP customers running in its cloud version, as well as a true competitive advantage of automation and recommendations.

This is a bit of a change of our strategy. We are not offering AI — generative AI sustainability, capabilities and also quite differentiating capabilities in our LoB products in on-prem. And also when a customer decides to go to a hyperscaler and get hosted with still customizations and not aligned data models and doing this outside of RISE, then this offering is not available. And because we cannot apply AI with high quality — with high data quality in a hugely customized ERP on-premise system as AI is anyway only available in the cloud. That’s very important.

It can not be said more clearly. If you are an on-prem customer, you will not get the chance to benefit from this.

There was a large debate about the core component of S/4HANA, S4CORE, was going to have a two-speed development going forward, I think this is not the case going forward, and this might bring SAP the opportunity to deviate the conversation away from the cloud or not a cloud to something more appealing for the business. Because the business doesn't care about the cloud or the on-prem, if it's managed by an MSP or by SAP acting as an MSP, but the business cares if their business processes are simplified, automated, and human or robot-assisted.

We give them our standard offering with RISE and the methodology on standardizing and simplifying business policies with using the customer code, building this one data layer, which is important. Otherwise, AI, the quality and the accuracy will fail. And then we then say, hey, you can get the premium offering as part of RISE where we’re then going to embed generative AI capabilities. And so, to really, for example, improve decision-making or to also improve automation or to improve transportation management. So — and that comes on top to the existing customers, they, of course, also can now decide to buy the premium and consume it out of the box. And this is also something where we also expect, of course, also an uptick on the existing RISE installed base.

SAP can't miss AI revenue; it's absolutely needed when the markets are not satisfied with SAP's projected revenue and profitability.

Global events like the pandemic and the Ukraine war have impacted SAP revenue negatively; their position as an enabler of transformation and the associated resilience and adaptability that cloud transformation provides SAP customers has led to an increase in both cloud revenue and cloud backlog, but on a progression which is not matching its competitors.

According to Gartner, SAP lost market relevance in the IT ecosystem with its initial cloud strategy, but luckily this changed a few years ago. Then, changes to SAP’s business model have resulted in a more predictable revenue stream, meaning that, along with funds from the divestiture of Qualtrics, now SAP can further invest in AI, ensuring their relevance to business and organizations.?

As we will see in the coming blogs, the use cases for generative AI in business operations are rapidly multiplying, and SAP is making acquisitions and partnerships to ensure an expansion of its AI capabilities across the portfolio. We will dig into the 3 startups SAP introduced this July 2023.?

While the hype around generative AI is palpable, enterprise IT spending so far has not been impacted by it, and we can still consider this a trend, looking for digitally native companies to come on board the first Generative AI projects.