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Comment: SAP Retail is all in

For SAP, the answer to a lot of problems besetting the business world is: better software engineering. That's understandable – the very name of the 46-year German company stands for Systemanalyse und Programmentwicklung ("System Analysis and Program Development"). SAP co-founder Hasso Plattner continues to be a thought leader in the world of software engineering, and the company as a whole has followed his lead. In short, SAP is to software what HP used to be to computers – an engineering firm first and foremost.

Arguably SAP's greatest software engineering innovation, HANA, was introduced via a succession of announcements starting in 2010. HANA is an in-memory data management system that was originally pitched as a stand-beside to existing SAP solutions, which since the earliest days of R/3 have been "database agnostic" – meaning that they worked with Oracle, IBM DB2, or Microsoft SQLServer. But performance tests showed that HANA is screamingly fast, and most observers (including me) figured that it was only a matter of time before SAP started pushing it to the centre of its software architecture.

In 2015, CEO Bill McDermott announced a new generation of the SAP portfolio, called S/4 HANA. At the time, McDermott was criticised because it was more of a statement of direction than a "general availability" announcement. But it was clear that SAP was gearing up in a big way to modernise the entire portfolio to be not only "HANA-native", but also deliverable via the cloud, and feature "mobile first" user interfaces.

At that time, Plattner said in an off-the-cuff remark that "If it doesn't work, we're dead. Flat out dead." But apparently it is working. SAP announced its first quarter results last Thursday [21 July], and the company beat analyst expectations, triggering a 5% lift in the company’s share price and prompting McDermott to exclaim: "Our groundbreaking new architecture is accelerating momentum across all businesses – cloud, core, and business networks. As a result, SAP delivered a unique trifecta of double digit growth in software, cloud and operating income. Our S/4HANA pipeline has never been stronger and we confidently reiterate our full year guidance."

But what about SAP Retail?

All of this is backdrop for a meeting RSR was invited to last week that SAP calls the Analyst Base Camp. It was a chance for industry analysts to hear from the SAP team about the company's progress against its roadmap. It's hard to overstate the difficulty of what the company has been trying to do, and the presentations frequently got very technical. But here's my interpretation: SAP is pushing as much of the functionality as they can into a "core" set of services that can be re-used, with most or all of it being HANA-native.

One implication of SAP "going all in" to make its applications HANA-native, is that it is consciously moving away from its long-held position of database agnosticism. Depending on your point of view, that's either a great thing (SAP will no longer depend on competitors' database software) or a bad thing (if you subscribe to the notion of never putting all of your eggs in one basket). But undeniably, it puts SAP in control of its own performance claims. And the company is confident that the extreme performance and flexibility that HANA enables are sufficiently compelling objectives to justify all the work it is taking to get the software to the next level.

At last week's Analyst Base Camp meetings, SAP was ready to talk about S/4 HANA For Retail, the HANA-native successor to IS Retail. Although it proved very difficult for the SAP team to describe the breadth of the changes being made to the retail offering in anything approaching plain language, their importance came into view when we were discussing top retailer priorities.

Take as an example "omnichannel customer order management". For SAP, there is no one product called "DOM" ("distributed order management") such as those offered by Manhattan and IBM Sterling Commerce. Instead, what SAP calls "dynamic order sourcing" invokes different capabilities from the "core" on an as-needed basis to fulfil a customer order that originated from "anywhere" in the selling environment. So when one asks SAP if it has a DOM capability, the answer is "yes!", but when you ask, "what's the name of the product?" you can't get a simple answer. For retailers who tend to favour best-of-breed point solutions rather than functions that can be shared dynamically, this lack of a simple answer to a seemingly simple question could be a problem.

Why would SAP architect their solutions this way? For one thing, by putting more "retail" functionality into the "core", SAP can offer "just enough" retail functionality for non-retail companies that need some retail-like capabilities, such as the Post Office. Achim Schneider, global head of SAP's Retail Business Unit, called this "Retail as a function", and although I'm not sure that that term will resonate with retailers themselves, it makes sense in-context.

While the technician in me sees why removing borders of industry-specifics in SAP's solutions is a good thing, in the end retailers "just want it to work". So what's the benefit of all of SAP's efforts to create S/4 HANA For Retail? The promised benefits go back to HANA, cloud, and SAP's "mobile first" user interface direction. As I said earlier, HANA is really, really fast, and that enables retailers to do things with data that they couldn't do before; more iterations of their merchandising plans, predictive analytics, and understanding non-transactional customer path-to-purchase data. The net effect is that retailers should be able to respond more quickly to changing market conditions.

When it comes to "cloud vs. on-premise", SAP is making their solutions available via the cloud or the old-fashioned way, as a licensed on-premise solution. Retailers can choose a "capex" or an "opex" strategy for their technology agenda.

When it comes to "mobile first", SAP is moving as fast as it can away from un-intuitive desktop interfaces with more intuitive mobile UIs.

And finally (of course), SAP continues to expand its "retail" functionality. For example, the company is aggressively moving on IoT use cases for the industry.

The bottom line

There has been a lot of recent activity in the industry to modernise retail management systems after years of "stability" (meaning: very little innovation to core systems in a long, long time). SAP's message is "we're already there". As it has been for years, one of SAP's biggest barriers is a common perception that its solutions are big, expensive, complex, slow to implement, and inflexible. SAP is fighting to overcome all of those old perceptions, and to offer a new way of doing business in the process.

The company's challenge right now (aside from the obvious: to deliver what it says it will deliver) is to explain its direction in straightforward business terms. Given the technical complexities of getting its portfolio to the new architecture, that's going to take some world-class marketing, not just great software engineering.

This article originally appeared on The RSR Research  website. It is reproduced with the organisation's permission.