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SAP has announced a new growth strategy for its industry business unit, which includes an overhaul of the Leonardo product portfolio and new customer engagement service models. Although a vertical approach to market is nothing new for SAP, the company's increasingly direct service model is the next step in its transition from a siloed traditional software vendor to a digital service provider to large enterprises. Telcos looking to help enterprises deliver digital services should explore the partnership options now offered by SAP.

A simplified, function-focused portfolio with a common purpose

SAP has divided its portfolio in two. The first is its traditional enterprise resource planning (ERP) business, which it describes as a "system of record," the function of which is to collate, process, and manage data. The second is a group of fast-growing technologies that exploit the ERP data sets. SAP calls these technologies "systems of innovation," and they include Internet of Things (IoT), machine learning, analytics, big data, blockchain, and data intelligence.

To help bring these two groups of technology into a single capability, both portfolios have been consolidated under one umbrella brand, "Leonardo," which previously exclusively housed SAP's IoT product. The new Leonardo is designed to take all "breakthrough technologies" and run them seamlessly in the cloud, allowing enterprises to rapidly adopt these new capabilities and business models.

Real-time services, all of the time

By applying the "technologies of innovation" to the "system of record," Leonardo can automate and personalize business outcomes. Whether that means optimizing the process of how planes refuel at airfields or personalizing the manufacture of a trainer to a customer's exact specifications, process and product are much improved by exploiting live operational and customer data. In essence, that is the power of Leonardo: it is a group of technologies with business know-how that, applied together, improve operational effectiveness and customer experience.

By running these technologies in the cloud, using its inherent flexibility, SAP clients can dynamically respond to changing business operations and customer requirements. In offering this, SAP also ventures into relatively new service delivery territory.

To support this move, SAP announced a number of service enhancements:

  • A new customer engagement program, through which SAP employees and consultants design digital enterprise solutions across the Leonardo portfolio. Accenture has been announced as a new partner, joining Deloitte as a preferred partner to help drive customer engagement.

  • A co-innovation customer program, through which SAP designs solutions and develops new products directly with its client base. Furthermore, no SAP new product development progresses without the support of at least one customer.

  • Industry-led process transformation: templated, industry-driven deployment methodologies to solve industry-specific client problems.

  • Customized product extensions: options for clients to develop customized extensions of the core product. Of SAP's 30,000 developers, 600 are working on custom solutions, a proportion that we expect will continue to move toward more tailored solutions.

  • Innovation Accelerators: fixed-price industry deployment methodologies that are designed as proof-of-concepts to support business cases.

Overall, we are impressed with SAP Leonardo. There are a few issues in the proposition, chiefly that the value of the interplay of systems of "record" and "innovation" needs qualification. In particular, SAP's role at the center of this transitioning market could be better positioned and explained. At the moment, Leonardo feels like two products, when in fact it is a single product that orchestrates complementary technologies supported by industry knowledge and methodology.

The service framework, though not revolutionary, is sound. Many of the tools have been deployed elsewhere by others, but it is the scale and pace of change that is impressive. There is an absence of at least notional service-level agreements (SLAs) and guarantees, but we suspect that these will come as the accelerators and customer engagement methodologies are built out. We also suspect that SAP will need to at least partially finance some of the proof-of-concept service design as part of the pre-sale effort, as we have seen with other vendors. The accelerators seem rather large and therefore likely to be too costly, and we think they would benefit from simplification. Finally, the partnership program only targets large enterprises, which we think misses a growing mid-sized-organization opportunity.

However, these caveats represent relatively minor adjustments to a framework that fundamentally changes SAP's engagement model. The impact of Leonardo was clear in the demonstrations that followed in the telco segment of the launch announcement: SAP has developed an advanced revenue assurance service by taking a co-innovation approach. By applying analytics to ERP customer and operational data, new measures of customer profitability are possible, meaning that clients could withdraw unprofitable tariffs, but also apply more rigor to their product development process. With this Leonardo solution in place, one operator is considering the prospect of customer-by-customer real-time pricing and promotions. This ambition may be thwarted by General Data Protection Regulation (GDPR) regulation, though.

The revenue assurance product was a direct result of SAP's new customer engagement methodology. Given its success, SAP is now seeking to collaborate with other telcos in devising new ways to innovate together across enterprise digital services – a prospect that we would have thought unlikely even a year ago.



Richard Mahony, Research Director, Service Provider

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