One of the best ways to see how the world is changing is to watch our children. For example, few teenagers today know what a landline is. Three-year-olds, meanwhile, seem to understand intuitively how to navigate a smartphone, and they expect every screen to be touch-sensitive. Of course, this change is not limited to our personal lives or experiences – it also applies to the workplace.
Today, disruption is all around us. Rapid technological changes create new opportunities for people and businesses alike. But innovation is not just about technology and products: it is also about delivering unique personal experiences, wherever and whenever we want to consume them. It implies the advent of new business models, moving away from selling mass products and towards providing individualised products and services.
Enterprise resource planning (ERP) has always helped companies manage and optimise their top and bottom lines. As ERP has evolved, its scope has broadened to address demands from various stakeholder groups – including collaboration across the supply chain, employee engagement and the customer experience – and increasing market complexity reflecting interdependencies between organisations.
The best-run companies of tomorrow will embrace new business models and conduct their operations efficiently, while delivering a best-in-class customer and employee experience
Now, with the environmental and societal changes that are occurring around us, we must go a step further and consider the impact of businesses on our world’s resources. Consequently, I see the need to add a third dimension to any company’s success – in addition to its top and bottom line, I suggest we add a ‘green line’. I strongly believe that in future, the success of a company will be determined based on all three of these dimensions.
As a result, the ERP systems that power tomorrow’s businesses will need to be fast, flexible and adapted to a new business environment that recognises the importance of transparency, sustainability and purpose to consumers, employees and investors. Tomorrow’s ERP systems will enable companies not just to compete efficiently, but also to play their role in making the world a better place.
A quick look back
The influential management consultant Peter Drucker is quoted as saying: “The best way to predict the future is to create it.” That is what SAP’s founders did when they set about developing the first ERP software. In 1972, five entrepreneurs in Germany had a vision for the business potential of technology, and began work on what would become the first ERP software.
SAP’s founders built on the dream of real-time computing: software that processes data when business customers need it, rather than overnight or weekly in batches. At the time, though, technological limits restricted how close to ‘real time’ they could get.
ERP software was designed to help people in various roles, at all levels, use data to understand, manage and optimise business processes. For business leaders, managing a company without ERP tools would be like navigating a maze blindfolded.
Before ERP systems, business leaders had to rely on ad hoc data that was days, weeks or even months old, and then interpret that data in a near-vacuum. Data was neither connected nor harmonised across the enterprise. This severely limited CEOs’ ability to run their organisations in an efficient, cost-effective way. It also made it difficult to take advantage of the new innovations and business opportunities that were needed to compete in the increasingly global, connected and digital marketplaces that emerged at the end of the 20th century.
Over the same period, SAP’s ERP suite evolved. We moved from mainframe hardware to client-server systems, simplified the user interface and added support for mobile devices, including smartphones and tablets, as they migrated from the consumer markets into the enterprise. Today, the next transformational step is leading us to the cloud.
Today’s world is dramatically different to the one SAP’s founders sought to improve more than 40 years ago. At SAP, we know we can have an impact beyond our own operations. While we often speak about today’s challenges, we should not forget to look ahead. Driving economic, social and environmental change in a holistic manner continues to be a key priority for us. It also makes good business sense.
A survey published by Accenture at the end of 2018, titled From Me to We: the Rise of the Purpose-Led Brand, revealed that nearly two thirds of consumers globally (63 percent) prefer to buy goods and services from companies that reflect their personal values and beliefs, and are ditching those companies that do not.
SAP in numbers:
of the world’s transaction revenue goes through an SAP system
of Forbes Global 2000 companies use SAP technology
Leadership, too, is changing: according to another research report from Accenture, which was published in January 2020, 61 percent of emerging leaders from the World Economic Forum’s Young Global Leaders and Global Shapers communities say business models should only be pursued if they generate profitable growth and improve societal outcomes at the same time. Almost three quarters of CEOs report that citizen trust will be critical to their competitiveness in the next five years.
When we look at how companies have traditionally operated, they have been primarily driven by efficiency. They have optimised business processes to achieve efficiency gains that have a financial impact, but that also have an impact on resource usage and supply chain planning. This is important because customers, investors, analysts and employees of enterprises are becoming increasingly concerned about issues such as supply chain traceability, transparency about fair and sustainable production, transport, and disposal or recycling throughout the entire product life cycle.
Consumers want to know where, for example, their food was grown, how it was harvested and what route it took to market. They want to know that the clothes they wear have not been manufactured using child labour, the fish they eat has been caught using sustainable methods, and that farmers are receiving a fair price for the coffee they grow.
At work, individual tastes are changing too. Today, employees want to access business supplies in the same way that they buy household goods. This wave of consumerisation has had other important consequences for enterprise software developers and their business customers: rather than accepting what is on offer, consumers are demanding personalised goods and services that allow them to seamlessly transition between on and offline channels.
While consumers have become more demanding about sustainable business practices, at work, employees have higher expectations for the user experience of their business systems and the way their work is accomplished. Together, these trends define the future of the experience economy. SAP can address both.
The adoption of cloud computing represents another important milestone in the evolution of ERP software. It has enabled SAP to offer fast, open and flexible business applications that support end-to-end business processes. Running ERP systems in the cloud also helps democratise the software, making its powerful tools and analytics available to small and medium-sized companies that lack the in-house capabilities of larger companies with their own IT environments and dedicated staff. Coupled with the advent of hypermobility, this means that, for the first time, employees have access to ERP systems anywhere and on almost any device. The pace of cloud adoption continues to accelerate as businesses place a premium on flexibility, innovation and speed.
The best-run companies of tomorrow will embrace new business models and conduct their operations efficiently, while delivering a best-in-class customer and employee experience – and all in a sustainable way. A sustainable business is a viable business, which means organisations must be responsive, responsible, and capable of anticipating shifting customer preferences, economic conditions and competitive pressures.
The intelligent enterprise
New technology, mixed with rising customer expectations, has forced companies in every industry to make a choice: transform, or be disrupted. This cycle has repeated throughout history – such is the nature of innovation. Now, it is happening faster and faster as innovation cycle times shrink. As the world moves from analogue to digital, the immediate development of new business models is imperative. This includes turning products into subscription services – for example, selling access to power rather than generators, or mobility rather than vehicles.
In-memory computing is the bedrock technology for addressing these new business realities. It dramatically speeds up data processing, including the huge volumes of structured and unstructured data generated by machines, devices and sensors from the Internet of Things, social media and other sources. Applied effectively, this gives business leaders access to real-time information about their operations, enabling them to react instantly to unexpected changes in demand caused by natural disasters, supply chain disruption and other unforeseen events.
Today’s challenges cannot be solved with yesterday’s technologies and tools
But not all data is of equal importance – some will not need to be accessed quickly or regularly. Combining the power of in-memory computing with intelligent data tiering in a single system enables enterprises to optimise the in-memory size and related infrastructure costs by keeping data that is less frequently accessed on a disc or in a data lake, for example.
Companies are becoming smarter, faster and more agile, and they are using data every step of the way in doing so. At SAP, we call this becoming an ‘intelligent enterprise’. We have a portfolio of solutions to help companies realise their transformation goals, from collecting and understanding data to analysing, planning, taking action and measuring impact. Our broad portfolio covers the entire value chain of an organisation, from end to end.
This is a different approach to business systems than those exhibited in the past. It focuses on predictive analytics for the near future and helping business leaders and managers meet tomorrow’s objectives, rather than simply providing backwards-looking tracking and reporting tools. Additionally, it guides users proactively and suggests decision paths and actions. Today’s challenges cannot be solved with yesterday’s technologies and tools.
A success story
At the heart of the intelligent enterprise is a new generation of ERP: intelligent ERP. It is leaner, faster and more agile, utilising advanced technologies that help companies sense and respond to a wide variety of challenges and opportunities. This is not just about optimising at the margins: according to our research, customers are experiencing benefits such as a 20 percent lower inventory cost, a 44 percent reduction in order lead times and a 25 percent improvement in customer retention.
These companies are deploying new innovations and industry-specific capabilities that help them transform their business models and deliver new value to customers. Importantly, they are doing this around the entire globe: innovation and innovative business are not limited to the world’s largest economies. Having systems and processes that enable business in every corner of the world is critical to capture tomorrow’s emerging opportunities.
The evolution of ERP systems is an undoubted success story, with SAP a true pioneer in this area. But the story isn’t over: digital transformation moves companies to new business models and builds on highly integrated, end-to-end business processes. Modern ERP is at the heart of this transformational shift.
In future, companies will need to design business processes and adapt them flexibly to changing market requirements in order to stay competitive. From a business process perspective, ERP is moving towards a highly modularised approach, offering business processes as a service. As a result, ERP vendors will need to offer modules that customers can pick and choose from to cover those business processes. They will also be required to support the new business models, like consumption-based billing and subscription-model businesses, that we already see emerging in the market.
To enable new business models and provide the agility and flexibility that organisations need, openness is key. The next-generation ERP must reside at the centre of a lively ecosystem, and must also be open for partner businesses that build ERP extensions. SAP’s partner ecosystem, for example, builds applications on SAP Cloud Platform, which customers can use to extend their solutions without adding customisations (and therefore complexity) to ERP.
Thinking end to end
Modern organisations are highly connected businesses with fluid boundaries. This means they link, work and innovate beyond traditional, rigid limitations, building a network of interconnected intelligent enterprises. This, in turn, requires enterprise systems that can manage these interactions.
Our answer to these market trends is SAP S/4HANA. It is the most comprehensive, integrated and intelligent ERP on the market and can be deployed everywhere: in the cloud, using the hyperscale vendor of a customer’s choice, on premises, or in hybrid scenarios. SAP is in the process of moving towards a modular approach that provides exactly the flexibility and speed businesses need today, while maintaining the benefits of an integrated suite. This gives our customers the agility and flexibility to adapt to ever-changing markets and business opportunities.
Benefits of intelligent ERP:
Lower inventory cost
Reduction in order lead times
Improvement in customer retention
Our strategy to deliver the intelligent enterprise builds upon several key principles: first, integration. As our customers introduce new business models, they need a seamless customer experience to support their success. This requires two elements: a strong business process integration across the entire value chain, and a harmonised data model to provide a 360-degree view of the business using real-time data from the company’s SAP environment and beyond.
Second, we prioritise innovation. New technology, such as artificial intelligence (AI), is changing how enterprises are run. SAP has a history of automating business processes across the value chain. Now, by embedding AI into our applications, we believe we can increase productivity significantly. Lastly, we enable flexible deployment. Modern landscapes are hybrid – a combination of cloud and on-premise solutions, depending on customer priorities and preference. As businesses have digitalised their operations and responded to shifting consumer preferences, many of the distinctions between the traditional front and back offices have blurred or disappeared. New business models require new processes, and new processes require a modern, end-to-end integrated ERP system with landscape flexibility that allows for shifting priorities and preferences.
The broad concept of Industry 4.0 perfectly demonstrates why businesses need to think and act in an end-to-end way. We see many companies that have already made Industry 4.0 an integral part of their digital transformation strategy. With increasing demand for hyper-personalised, ethical and sustainable products, end-to-end integrated business processes are more important than ever. They ensure a seamless customer experience that spans the entire value chain. This means companies must embrace new ways of doing business and connect business processes throughout the value chain, including procurement, engineering, manufacturing, logistics, sales and services.
This is not an easy task in a global business environment characterised by diverging markets, increasing volatility, changing demands and global competition. But enabling these end-to-end business processes means enterprises are better able to manage the complexity that comes with individualised, sustainable products through flexible and seamless engineering and manufacturing systems.
SAP’s solutions bring finance, procurement, engineering, manufacturing, logistics, sales and services together in an orchestrated way – from the edge to the core, and from the factory to the boardroom. Naturally, this also includes helping organisations discover and understand what their employees, customers and other stakeholders feel about their products and services through the use of experience management systems.
Cutting the complexity
Through our ERP tools, we are also enabling our customers to harvest the business benefits from new technologies – for example, by using machine learning, robotic process automation and AI to boost processes. This is quickly becoming the new norm. At SAP, we believe that AI will become as ubiquitous as mobile technology is today. It is a natural evolution. We have already built AI into order fulfilment, using real-time intelligence to get packages to customers more efficiently. This is what allows customers to shop and pick up orders anywhere.
However, we recognise that enterprise IT is not a homogeneous environment. Organisations often combine solutions from different software vendors, adding to complexity. Integration across these different solutions, as well as consistent data models and user interfaces, has been a challenge for years. At SAP, our highest priority is to deliver on our promise to customers by realising the vision of the intelligent enterprise: focusing on integration beyond the technical level, driving functionality and innovation for our solutions, and embracing intelligence in our processes. It is all about building today what our customers will need tomorrow.
Doing well by doing good
The bottom line is that a growing number of consumers only want to do business with companies that share their values and ethics. We can use our business process expertise to help our clients meet the aspirations of consumers and lead the way towards a more sustainable world. In this regard, SAP is in a unique position.
A few years ago, we used the slogan, ‘Our code runs the world’. This still holds true today. We have more than 440,000 customers and 21,100 partners worldwide and, according to a 2018 Oxford Economics SAP analysis, 77 percent of the world’s transaction revenue touches an SAP system at some point. In addition, we work with 92 percent of the Forbes Global 2000 companies.
With increasing demand for hyper-personalised, ethical and sustainable products, end-to-end integrated business processes are more important than ever
What unites SAP with our customers is that we want to do better business. This goes beyond providing dashboards to track carbon or other greenhouse gas emissions – it is about supporting our customers to make decisions in favour of sustainable and ethical production and delivery along the entire value and supply chain.
As we move forward, our goal is to anticipate the environmental footprint of any business decision, as well as its impact on society as a whole. The significant transformation that is needed to tackle the climate crisis will require change in our personal lives, in the organisations we work for and in society. Technology and software have a key role to play in helping organisations achieve key sustainability goals – and, indeed, create a positive change and impact across entire economies.
We support the UN Sustainable Development Goals through our work, with one example being the Value Balancing Alliance, of which we are a founding member. This non-profit organisation aims to change the way companies measure and value performance to create a global standard. Recently, SAP also announced it had joined the Ellen MacArthur Foundation’s Circular Economy 100 Network, with the overarching goal of delivering solutions that enable companies to enhance their resource productivity and help realise a circular economy.
Climate change, sustainability and building a circular economy are some of the biggest challenges of our time. With ERP as the linchpin of the business world, we have the power to help build a low-carbon economy and enable more sustainable business practices. When we deliver seamlessly integrated business processes, we must remember our obligation to consider not just the top and bottom-line impacts of our efforts, but also those of the green line: our support for sustainable and ethical production and delivery along the entire supply and value chains. This third dimension is our obligation to ourselves and to the future.
We cannot continue to live and work as we are doing today. SAP has made significant progress when it comes to embedding sustainability in its overall strategy, starting with the pledge to be carbon neutral by 2025. However, to really accelerate the pace of change that is needed to make a bigger impact and significantly contribute to the UN’s Sustainable Development Goals, we need to partner on all levels and across organisations, industries and regions.
In my opinion, the future of ERP will continue to combine business and technology, and should also be the enabler of a more sustainable economy. In our ERP business, our ambition is to spark passion within our broad customer base. Since our business processes are highly interdependent and hyper-connected, the potential is huge. Ultimately, creating the intelligent enterprise is the first step towards more sustainable organisations and a more sustainable world.