Ladies and gentlemen, welcome from my side. I'm Stefan Gruber, Head of Investor Relations with SAP. Thank you for joining us here at the SAP Capital Markets Day. It's actually our fourth one in New York City. We are honored to be back at the New York Stock Exchange in this beautifully renovated boardroom. We also honor that the attendance is so strong on-site here in New York, despite this little snowstorm outside. We are a global franchise, and a little snowstorm like this doesn't deter us from running ahead as we had planned it. Now, I would like to walk you at the beginning, as usual, through the agenda of the day. We'll kick off the program with a fireside chat with our CEO, Bill McDermott. The focus is SAP's strategy and vision as we help customers win the new digital economy.
Bill will be interviewed on stage by Maria Bartiromo, the Global Markets editor of Fox Business Network. Welcome, Maria. We move to the product innovation side of the house, leading customers' digital transformation. We have some board members, Bernd Leukert and Steve Singh, talking about the evolution of SAP's portfolio, both the digital framework, but also the extended cloud portfolio. Such an event like this would not be complete without having a strong customer perspective. The next session is one hosted by Rob Enslin, who runs Global Customer Operations at SAP. Rob will welcome on stage Ittaya Sirivasukarn, the INSEE CEO. INSEE is the IT subsidiary of the second-largest cement company in Thailand. We are very honored having a customer traveling so far to New York City to join us here on stage.
We'll continue after the break with another customer deep dive hosted by Jennifer Morgan, the President of SAP North America. We have customers Maui Jim, Microsoft, HSBC Bank, and the Birchman Group on stage. You can see that one-third of our program is devoted to customer sessions, which I believe is a strong signal of the strong and strategic relationships SAP has with its customer base. Finally, the session with our CFO, Luka Mucic. Driving growth, predictability, and profitability is the topic. I'm sure Luka will introduce another three-letter acronym today, we'll see. We'll close the event with a Q&A with all executive board members on stage. The courtesy treatment goes, of course, to all the attendees here in New York City. We invite you to our social hour from 5:00 to, well, basically open-end, probably after 6:00 P.M.
The usual housekeeping items I have at the beginning is the webcast information. This event is being webcast on our investor relations website. We'll make the slides available for download after the event, and we also take questions by email later on this afternoon. The email address is investor@sap.com. The little highlight of my speech, I'm known for this, is the safe harbor statement, and I'm going to read this. Please note that except for certain information, matters discussed in today's conference may contain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect the company's future financial results are discussed more fully in the company's most recent filings with the Securities and Exchange Commission. With that, it's my pleasure to invite Maria and Bill to the podium.
Thank you so much. Great.
Thank you, Stefan.
Thank you.
Hi, everybody.
Great to see you.
Thank you, Maria.
Yeah. Thank you, Bill.
Of course.
Thank you.
To you
to everybody for making their way down here in the snow.
Thank you.
Bill, we want to talk about the past, the present, and most importantly, the future.
Sure.
Really take a look at how you're driving growth at SAP.
Right.
You started as CEO in 2010.
Correct.
Tell us how the company has changed under your leadership and what you envision the company to look like in the coming 10 years.
We-
Five years.
Well, thank you, Maria. We wanted to make the company a highly purpose-driven company. If you look back at 2010, we came off the financial crisis of 2008, change in management in 2009, going into 2010, we determined ourselves to help the world run better and improve people's lives. We wanted an enduring vision for the company. We also wanted a strategy that would endure the test of time. I've always said that leaders owe their company a good strategy, without which the people dig a deeper ditch to nowhere. We wanted to reinvent the data model for enterprises with a HANA-led world, a database that could do structured information, transactional information at huge scale, but also predict the future with real-time analytics on the same platform. We felt that we could reinvent ERP because 70% of the world's transactions were running through an SAP system.
That data in the new economy was going to be really important to know the customer, but also manage the business process. We wanted to move the company to the cloud because we knew the cloud was going to be the computing theme of the 21st century. Moreover, we were focused on inter-enterprise computing, transactions that would take place between companies. We wanted to build this situation to last a decade and a half, then continuously evolve the strategy, which is basically what we've done. If you look at the last seven years in terms of the company's success, I think doubling the revenue, the profits, the market cap of the company, is essentially endorsing the fact that we have a good vision and we have a strong strategy, and that's what we're executing.
Part of the strategy is to upgrade the installed base that you have already.
Yes
while also expanding the cloud. How do you do that simultaneously?
That's a really good question because 85% of our install base has yet to move to our next generation ERP system called SAP S/4HANA. We're in the very early phases of a generational sea change to a new ERP built on an in-memory data platform. This is what's enabled us to be SAP, the cloud company powered by HANA. We give the customer choice. The customer basically has said, our core business is run on SAP's ERP system, and the things that we do with line of business executives, head of HR, head of sales, head of procurement, head of finance, we're choosing to do in the cloud. It's the combination of these forces that's enabling the company to grow so fast. Basically, we have a multigenerational opportunity on the upgrade path, but half of our business or our SAP S/4HANA product is coming from net new names.
Okay.
Net new names. Today, we're making a bold announcement on S/4 Public Cloud Edition for the mid-market, where we're going to initiate a whole new plethora of new names and new customers across 25 industries, 193 countries in the world. We're talking growth company here.
Let's talk about that a little more actually, because these new names, I know the environment has changed a great deal.
Right
just in the last year. Where are these new names coming from, geographies, industries, and what kind of growth are we talking about when you consider that? Characterize the potential in terms of the impact on earnings.
Yeah. What's very nice, I often really take great pride in SAP's business model because we are in 25 distinctly different industries. The diversification across industries is great because at any one time, some industries will go through struggles, oil and gas, oil price is down, struggling industry. Even in a struggling industry where you have change, you need technology and specifically business software to overcome that. If you look at geographies, we have a fast growing business in Europe. At the same time, people say Europe isn't growing. We're growing very fast. Growing in the U.S. We're growing in Asia. Everywhere in the global economy, every company is going through disruptive change, and they either need to take cost out of the equation or run more efficiently, or they need to connect with this consumer in any channel, on any device.
The power of what's happening is they want to connect with that consumer in any channel, on any device, and they have to have the data, and they have to have the process to connect the demand chain to the supply chain. What's unique about SAP is we're the only company in the world that does that entirely, and we stay true to software. What I think the key message is where the growth coming from, it's coming from everywhere. I think the nice thing we're adding on today is really putting an extra emphasis on small and mid because most all the Fortune 2000 run SAP already. We're going to upgrade them, extend them, grow them, but now we're going to get lots and lots of new names.
Do you see an increased willingness on the part of the small and mid-cap sector to spend more money right now? This is a key group.
Right
certainly that this new administration is trying to target, help in terms of rolling back regulations.
Yeah.
Is it empowering that subsector of business?
No question. One of the guests that you'll see on stage today told me about her business, and her core business is cement, but she has to use digital business software to diversify her model and go into a new services space where the margins are better and the revenue growth is stronger. The other thing that made it easier for small and mid, Maria, is the cloud. Now you don't need the infrastructure. You don't need to hire all the people. You just need to consume the software as a service. If you think about a lot of companies that might be capital constrained, if they can simply use it as an operating cost of the business, that gives them excellent returns. The question is, why wouldn't they do it? There's no good reason they wouldn't do it.
That's why I think software as a service for the mid-market is the way to go, and that's the way to scale, and we're going to hit the accelerator on that.
I want to get back to this in a second because I want you to tell the audience how financial analysts should look at the portfolio of solutions.
Yeah
try to pull out where the biggest growth is.
Right
how do you maintain 30%?
Yeah. Well, we've had.
growth rates?
Exactly, Maria. We've had more than 30% growth rates in the cloud compounded annually over a number of years. What's very interesting about our cloud growth, if you look at the fourth quarter of last year and you look at the backlog of our cloud business, it grew nearly 50%, and we have nearly €5.5 billion now in cloud backlog, not to mention a greater than EUR 3 billion cloud revenue business.
Backlog is big.
has unbelievable growth potential. Here's what's interesting. We're the only company at scale in the software industry that's also growing the core, what some people call the on-premise business, because we give the customer choice. Sometimes they want to run our mission critical software in their cloud or another cloud that might be a private cloud. You can run it in your data center, you can run it in a private cloud environment, you can run it in a public cloud environment. We give you choice. I think this choice is helping us because customers like choice. We don't tell them what model they have to choose.
We tell them, "Choose the one that's right for you." What we're finding is, we're growing in all dimensions of our business model, because in the end, the customer and the centricity around the customer is really all that matters. If you do that well, you're going to grow.
What do you think the adoption rate is in terms of this mid and small cap group to the cloud? Talk the same with big business, because I know that.
Yeah
You had a meeting recently with Ginni Rometty.
Sure.
I mean, I want to hear what you're doing for larger companies as well.
Sure. Well, it was interesting because the day that, since you mentioned Ginni, the day that I met Ginni, that morning I was at West Point. The day before that, I was with six oil and gas company CEOs. Basically, what they're telling me is, they're saying, "Okay, we need to recognize our industry is in a state of disruption." One oil and gas CEO told me that the price of crude per barrel has impacted their business so dramatically that he's got a choice to either finance the people, lay the people off, or radically change the way they do work. He had 6 million custom code lines written into his current systems.
I explained to him that with the SAP Cloud Platform, we can reduce the complexity, move you to a modern architecture, consolidate all these legacy old systems, radically lower your cost, and perform better by coming up with new, innovative ways to solve problems with your customers and their customers. For example, in IoT and how you can use the data to shape new business models. Machine learning, to do with machines what labor shouldn't do. We don't think machine learning should replace people. We think it should expedite decision-making and the speed of an institution. You mentioned Ginni. She would like to connect Watson to the SAP Cloud so it drives her digital artificial intelligence business. Also it helps drive IBM's core business because SAP is probably their biggest partner.
The relevance with customers in a state of change, partners that need to innovate and make their new business models come through, is all happening at once with SAP. In fact, a CEO that you would know very well from the pharmaceutical industry basically had 129 different ERP systems, and essentially a system for every billion in revenue, if you think of it that way. Now we're going with a completely new way of thinking about how to run the business and Run Simple. That's why I think Run Simple was ahead of its time, and people are now catching on. Simple. Everything from the data, to the process, to the cloud, to the extended network, driving new innovation in artificial intelligence and machine learning and blockchain, and all things that can immediately deliver value to the business. That's what we're talking about here.
You have to do it in a slow-growing world.
Exactly.
There's not a lot of growth, companies have to achieve that. SAP HANA and the cloud is, SAP is enabling them to do that.
Yeah. I think SAP HANA has hit mass scale. You're dealing with 16,000 companies now running on SAP HANA. If you take SAP S/4HANA, we've only had the product out a year and a half. For all practical purposes, you have 6,000 companies running on it now.
Wow.
Everything is hitting mass scale very, very quickly. Why? Because the customer has to reach their customer in an entirely new way. What we've learned about the core business called ERP of SAP is that data might be the most precious asset in any company. The data contained in those ERP systems is necessary for all the change. We have one client that I met here today. He's a smaller business. He's got to deal with retailers that don't necessarily have all the options available to his consumer. He's got to have a direct-to-consumer business that's razor sharp, because he wants the consumer to know all the good things about the brand, the culture, and the products. They've got to conduct e-commerce. They've got to really change in a brick-and-mortar world that's evolving so fast, as you know so well.
Yeah.
You have to have the data, you have to have the single view of the consumer in every channel, and you have to be able to conduct a transaction. Five years ago, an SFA company talking about internal management of pipelines and forecasts was a popular thing. Now no one cares because everyone's got it.
The new frontier is how do I connect with that consumer? We had another client here that's like, "Look, I want to optimize my supply chain, connect it to my demand chain, and use a business network to basically buy goods at the lowest possible price, ship them in an efficient financial network, close this transaction, have the part where it needs to be just in time to maximize the human capital that I have to do, and that I have to use to deploy and preventatively maintain my products.
The value chain in that, and the savings that could go into a company, and the revenue growth opportunity to go from a hardware to a services model is massive. We don't need the global economy to grow for us to grow. What we want to do is great work so we can help economies and societies for us, for all over the world, that's what we want to do.
Let's look all around the world for a second, because we know what's going on in Europe. Very slow growth.
Right.
You don't need the backdrop to grow in order to see the kinds of numbers that obviously we're seeing.
Right.
Give us a sense of what's going on in Europe. Where are the weakest links, and where is the real growth opportunity?
Well, if you look at Europe, right? There's been a lot of change in Europe, as you know very well with the Brexit matter. You understand the elections that have gone on in Italy and France and upcoming in Germany. There's a lot of concern overall about the strength of the EU and having an efficient network and a global trading paradigm in Europe that in some ways mirrors the U.S. for efficiency and simplicity and, of course, the overall GDP and health of Europe. What we're learning is we have a strong point of view, and we're very relevant. When these countries are going to change their governance, they're going to rethink how they provision services to the citizens. We're in the thick of that strategy. When you think about trade or things that might change between countries, we're in the thick of that strategy.
It reminds me of the Greek debt crisis. People said when Greece was going through the debt crisis, SAP would suffer greatly. That was the greatest year we ever had in Greece. When you think about Brexit, U.K. is the fastest-growing market that we had in Europe. It's like we chose just to be a business software market leader. We didn't go for hardware. We didn't extend ourselves too much in services. We moved the company to the cloud. The things we do bring immediate efficiency and, in some cases, give people immediate growth. It's relevant.
I wouldn't want to be a commodity player in the hardware industry. I wouldn't want to be a commodity player in the services industry. I would want to be right where we are.
When you see disruption like we saw in Britain, that's an opportunity for you.
Yeah
Whatever the situation, they need to upgrade, and they need to move to the cloud.
Right. Exactly. They need to do all of that, and they also have businesses within Britain that may need to extend beyond the borders that they traditionally traded in to get new markets. There may be new trading dimensions and new ways to think about channels and new ways to take your products to new markets. You're going to need software and business software, specifically. If you take a look at this picture, this shows you how you can manage the data on an SAP HANA platform. That data could be transactional. It could also be analytical, where you're predicting what's likely to happen based upon what's going on in that transactional engine. All those cloud assets are things that help companies to be more effective within the enterprise and between the enterprise.
The cloud platform itself that you're seeing, here's how you have an open platform. You have open protocols that allow not only your company to innovate, but also other companies to innovate on your platform.
That platform can be extended. We have great partners like Microsoft, as an example. If you think about Microsoft, they have the Azure cloud, they have Office 365. There's the integration effect between the knowledge worker and the enterprise, and how you can bring massive productivity at scale, not only to consumers, but also to new markets, new industries. These are the kinds of conversations that we're in. For example, if you just take Microsoft, because I know that they're here today as well, they have a Dynamics product that works beautifully with our Hybris product. You can run all this in our cloud, you can run it in their cloud. I think you're going to see a lot of co-innovation on that platform. These are conversations, by the way, since you brought up 2010, that weren't possible in 2010.
In fact, 80% of our net new sales come from businesses we weren't in five years ago. The pace of change and the innovation in the software industry is the one thing that you will be able to guarantee yourself is the only constant, and I really think we're on the forefront of pushing the frontier of innovation now.
That's fascinating. I want to get you to look ahead for us.
Sure
Tell us what you see. First, let me ask you about that point that you just made. Which industry do you think is the most exciting right now? You're dealing with all industries.
Right
at SAP.
Yeah.
Give us a growth story.
Well, I think healthcare. It's not because it's going to be the most operating income-oriented story in the short run, but I think healthcare is a fascinating industry right now. Because if you just think about what we can do for humankind and how we can keep people healthier, how we can connect their bodies to devices and monitor the progress of how their health is going, how we can essentially disrupt a system that is so archaic with electronic medical records and paper-based care for patients, how we can beat back that demon called cancer and truly understand the genome of the individual and perhaps offer remedies that have never been possible before just because we have something like HANA that can sequence data at breathtaking speeds and cost factors never dreamed possible.
That's why we partnered with CancerLinQ, with ASCO in the United States, and NCT in Germany, and many other organizations. One of the things about that platform, we started something with StartUp Health, with venture capital companies, where they're building innovation on this platform to come up with breakthroughs in healthcare.
I think healthcare is interesting. If you look at anybody who's making a product today that has to market it through a wholesaler or a retailer, complete reinvention. I say that because they have to know the consumer, and today they're actually blocked from the consumer. They don't have that single view because they're going through alternate channels. Because those alternate channels are under such stress, they're saying, "I've got to leapfrog past the alternate channel. I have to have a direct linkage to my consumer. I need to know them on that device, what they're doing socially. How can I automate my supply chain with my data in any channel to personalize something for you at mass scale?
Wow.
When you come into a retail or a wholesale, or you're buying online, I need to know exactly who you are, because that's what you're used to with all your social interactions with Facebook and other internet channels. I think that's going to be fascinating. Anybody that makes something and wants to sell something and really jump through alternate channels, you got to have our software.
You talked about new industries. We hear a lot about artificial intelligence-
Right
machine learning.
Yes.
The Internet of Things is no longer a news story.
Right.
These are all opportunities.
They're all opportunities. If you think about diversity, and as you know, Maria Bartiromo, one of the things that we both believe strongly in is the power of diversity, and particularly gender diversity. There was a study that was recently done by McKinsey & Company that's a multi-trillion US dollar opportunity between now and 2025, just to level the playing field between men and women in the workplace. Well, in the workplace, you have to hire people. A machine learning application that we already have is pairing the resume to the candidate and profiling the job. Humans have certain bias because we're human, but machines don't. They just look at the facts. We didn't necessarily want to eliminate the human from the decision-making process, but isn't it kind of ridiculous that somebody's manually matching a job and a resume in this 21st century?
We take care of that for you now. You can get equality in the workplace and remove gender bias from the workplace. I was meeting with a company who does mass transactions on the internet. Mass transactions. They want to use machine learning to match the buy and the sell transaction, and have intelligence built into the buying and the selling equation in the way they invoice match. It goes on and on. I think that machine learning could easily be one of the fastest-growing spaces in the world for SAP. What's different about us? What's different about us is we're building the intelligence into the application to make the work easier for the knowledge worker, and to make the productivity built into the equation of how the work itself is done.
We're not pushing a computer at you and saying, "Buy it." We're saying, "Let's make all the things that you do simple and easy, and drive value and productivity.
Come back to the U.S. for a second. We're going to see changes. I want to ask you about policy.
Sure.
We heard that taxes are going to come down with the new tax reform package, that regulations are going to be rolled back.
Right
that we're going to be tapping into the energy space.
Right.
Will there be an impact to SAP?
SAP is going to prosper any time there's change.
I mean lower taxes. Is that going to be an impact on earnings?
Yeah. For example, we have a very global company. A large chunk of that company is in the United States. We have 21,000 people in the United States. If the United States is a lower tax environment, clearly, I do think that could give us a business opportunity. If there's also investment in technology and infrastructure, there might actually be tax incentives for people to make such investments, such as capital investments in software like SAP. If you are going through a technology infrastructure decision, you're obviously going to have to enable that with software. That's going to be helpful to SAP. I also think that the government is going to have to do more with less.
If you're going to have a lower tax base coming in, you obviously have to increase the efficiencies, increase the jobs, and increase the spending per human being because you're giving more back to the people. All of that's going to need software. We'll be front and center in that change. You also have to remember, I don't think a lot of people realize SAP's involvement in the most significant agencies in the U.S. You can't almost mention a single one that isn't running SAP. You can't mention one in 10 significant companies in the U.S. that's not running SAP. Again, any time there's changes there's going to be new ways to do better things, and the software will be front and center. I also think we have massive opportunity with the midsize customers in the cloud.
In the past, it's just been too hard to buy the hardware, buy the infrastructure, get enough people that knew what they were doing for a small company to afford all that. They can certainly rent the software to get a job done. That's especially true when they can get a great return on their invested capital. Our software returns investments, and that's why companies have always invested in SAP. I really think the environment for SAP will be very, very positive.
With the rollback in regulations, that's going to be real positive for that group, small and midcap as well.
Exactly. Anything, again, that's fostering change and that's business friendly, will give people more to invest in the things that matter.
You said the backlog is unbelievable earlier. Tell us about 2017. What does it look like? What are you expecting this year?
I'm expecting more of the same. We're one of the few companies that not only give an annual guidance. Last year and the years before, we delivered on our promises. Actually, if you think about the third quarter of last year, we had actually upped our annual guidance and then delivered that upped annual guidance. Then this year, we delivered a very strong forecast. We also have a midterm guidance to 2020. We have tried to achieve a very high level of transparency with our investment community. I think that they believe in our track record, and they trust us. We're looking for a very strong profit. We are only in growth businesses. We are only in high-margin businesses. The operating income of SAP is quite significant. We are going to grow our cloud business very fast.
I really think we have a huge opportunity with the midsize, with the S/4 Cloud Edition. We have a massive business network. If you think about spend management, if people do want to focus on expenses, Concur, travel, and expense, unbelievable.
Yeah.
Ground, air, hotel, food, entertainment, everything simplified, no expense reports, beautiful savings.
Yeah.
Great cost takeout. If you think about business network, the way you procure things, buying it at the best possible price, using an efficient network. We have $1 trillion running through the Ariba Network. If you think about the fastest-growing labor force now, it's contract labor, temporary labor. It's a shadow workforce growing at 45%. We manage all this in the cloud. Very simple, low cost, take cost out of the business, complement that beautiful digital core. All these are going to grow very, very fast. Here's the big one. S/4HANA is the enchilada. This is the fastest-growing ERP system in the history of mankind, and I actually see a limitless potential here.
What I love about it is not only the generational upgrade cycle, but the fact that so many of the names are net new.
I think we've only just begun, and I actually think that you should think strong growth in the cloud, very consistent core, highly profitable company. By 2018, our cloud business will actually be bigger than our core, and the trajectory of bending the lines on margins and operating income leverage as you look into the future is not a long putt. It's a pretty short putt.
I feel like in the last several years, companies have been sitting on cash.
Right.
They were unclear in terms of what was around the corner when it.
Right
to the demand side of the story. Now they've got policies moving their way, and they maybe have a little more clarity on the demand side of the story.
Right.
Do you think business starts to unleash now in 2017?
I'm one of the guys that's really optimistic about this. I think that, I'll answer two ways. I'll do the SAP and then the market at large. If you repatriate, I guess, what is it? $ 2.5 trillion, EUR 3 trillion, people are going to do some serious things with that money.
Right.
Probably, if you put a few rules around how you can use that money, if you get such a big tax break, that could definitely stimulate growth. I actually think that that could stimulate a lot of M&A activity. I really do, because what else are you going to do with the money? Are you going to buy back some stock and put everyone to sleep, or are you going to do something to put that money to work, either on the innovation side or the M&A side? I think that's going to be something to really watch out for. Then in terms of our story, we are a very cash positive business, and we have near zero debt because we don't have to. We have been very aggressive when it was our time to be aggressive on the M&A front.
If you look back in the early 2011 kind of era, we took a lot of the best cloud properties off the market quickly.
I think we did it because we wanted to get the best ones before anyone figured out what we were doing. Now that that's behind us, we don't have to do large M&A. We're largely organic. A few tuck-ins to strengthen the story. Then, basically execute the plan that we've laid out that's been ever consistent. We give a great dividend. We obviously haven't bought back shares in a while because we have done other things with the capital, but in the second half of the year, could we? Sure. I think our story's going to be organic, very focused, and very driven, and count on a great dividend. Don't be concerned with us surprising you with a large transaction or something that's out of the norm of what we told you we'd do.
In this year?
This year.
Well, that was some good info there, Bill. Let me tell you, as we wrap up here, I've known you a long time. I don't think I've ever seen you stronger. Where does this resilience come from?
Well, I'll tell you. In terms of the SAP resilience and me personally.
Both.
Well, thank you.
It's true
thank you. That's very wonderful. I think that, on a personal note, I bounced back pretty good. I'm happy, and I have just an immense level of passion and energy, and I actually feel like I'm just getting warmed up.
Great.
You know?
That's great.
On the SAP side, I've never seen the company stronger. Here's the big thing that I'm proud of with the company. We have the highest employee engagement scores in the history of the company, and we're one of the most highly rated companies in the world on Glassdoor. The people are happy. We also just won an EDGE Certification award for the first information technology company to be recognized for gender diversity in the world. I thought it was a beautiful thing. Really do. We have this hiring center for our sales department that Rob Enslin led. There's 51% female, I think 49% male in there. I don't know how you get to that math, but that's what they told me. I think what's really nice about it is it's a company that's on the move.
My board colleagues here today,
The executive board is following you
I'm very proud of this executive board. I told you earlier when we were talking backstage that I don't like kind of baby games, and this board is very mature. I also told you backstage that I think there's a perfect correlation between steady management teams that don't have a lot of turnover, that have inspired executives, that really care about people, and ultimately, the sustainable performance of those companies. I really believe that.
It's leadership.
I give these guys so much credit. You're going to see Bernd Leukert today, who runs development, doing a great job. You're going to see Steve Singh. I was so proud that we were able to acquire a great company like Concur and then give Steve our whole business network group. You'll see a really fine gentleman, Rob Enslin, who's running the sales department for the company and has been for so many years, working with me for 15 years. Luka Mucic, a financier extraordinaire, and I think a guy that speaks plain, and people trust and understand that he knows those numbers inside and out at every level and every department of the company. The best thing is you also get to see the fact that we got our customers with us today.
I see that we have Jen Morgan, who runs North America for us. She'll be hosting our customers. I defy anybody to find a better management team than this. Honestly, I think I've lucked out. I think SAP has a great business, most importantly, we stick together, we want to achieve all of our dreams. We keep coming up with new dreams, but they're built on one core foundation. It's all about the people. If we could just never forget it's all about the people, we'll be fine.
Bill, thanks for sharing the story.
Thank you very much, Martina.
Bill McDermott, thanks everybody.
Thank you. Thanks a lot. Great being with you. Thank you so much.
Thank you.
Thank you.
Well, thank you very much. We've heard a lot about innovation at SAP. As Bill said, we're just getting warmed up. It's my pleasure to introduce the next speaker, Executive Board Member Bernd Leukert, who is in charge of products and innovation at SAP. Bernd, the floor is yours, and you walk us through the innovation story at SAP.
Thanks, Stefan. Yeah, warm welcome. Thanks for coming. It's not easy, Bill, after the superstar who shared the vision, the strategy, and I think for the community here, the growth drivers, to continue and talk about product. Therefore, I want to share with you that I'm coming from the Silicon Valley. We had the development kickoff meeting beginning of the year. I was on stage together with executive from Facebook, from Uber, from Slack. Guess what the topic was that we were talking about? The topic was The Enterprise is the New Black. It was interesting. Yeah, it was interesting to hear from these companies that are best known for leading the digital age, especially in the consumer business, how they approach the enterprise segment.
Facebook, who engaged with us, sharing their consumer data and linking it to our SAP Hybris Marketing, building the best-in-class marketing product, or whether it was Uber evolving from a service that is all known to you of a personal service, who is transporting people from A to B, into a service that is transporting everything and linking that service to our retail shopping experience. This is what Bill said, connecting the demand chain to the supply chain, linking as well the leading enterprise company with the leading digital companies in the consumer space. Now you might ask, why are these companies engaging with SAP? Do they have to? The answer is, if 70% of the global business transactions run through our systems and the data sits in that systems, it makes us the undisputed leader in the enterprise segment.
There is no doubt that with the technology they own and the capabilities and the technology we have, we can jointly, together, define the new enterprise space. We are enabling, with that collaboration, co-innovation, our customers to lead in that what many call the digital transformation. We enable them to ultimately differentiate and create new value, not just transferring what they have today on the on-premise world and transfer this to the cloud. I know some other companies are doing this. We are doing this as well. We go beyond. We enable our customers in co-innovation with Facebook, with Uber, with Slack, and many more others, to build new business processes, to build new business models, and digitize their business and make them win in the new digitized world. I think Bill elaborated this very well.
Only if you are able to link the demand chain that goes across several channels with the supply chain, and in many industries with manufacturing, you are able to lead the digitization of enterprise processes within and beyond companies. I would like to focus now how our portfolio is enabling our customers to win in that digital journey. In translating this digital business framework into products, we give customers a clear answer to the question everybody has on his table. How do I make sure that I'm not disrupting my perfectly running existing business, which I have built over one or two, or sometimes three decades, with a perfectly running mature IT system, and in combination, not miss the trend to the necessity to react very quickly to changing market dynamics, to new business models, to new business opportunities?
These are, I would say, the two questions our customers have to answer. We are lucky that we are in a position to serve them in both aspects. On the one hand side, we are able to provide them on an ongoing basis end-to-end business processes. The original idea of SAP to deliver standard software is more than ever relevant in the cloud. It is less a technical transformation. It is significantly more a commitment of customers to run standardized processes, best practices consumed in the cloud. While in on-premise world, they had the chance to modify, to customize, to enhance, to add. That time is over. Now they are in the situation that some of them say, "Never touch a running system." We are proud that we are serving more than 70% of the business transactions globally.
On the other hand, we are as well proud that we are able to lead the disruption that is necessary. There is Darren, he said it this morning very nicely in an interview, that up to the CEO, if they are not buying into that opportunity, they might not be a CEO of a company very soon, or their company might get out of business. We as SAP have to give them an answer to fast innovation, to ease of consumption, I would even say, to freedom to build completely differentiating solutions. These are the two separate modes of IT every company has to deal with. Each of these modes has to be perfectly integrated. We had that conversation with some of you this morning.
It would be completely wrong not to build on the strengths, on the best practices you have built in the past, and build these new opportunities completely separate and reinvent what you have already as an asset. Therefore, integration, which was a strength in the past, is more than ever relevant as well going forward. Let's begin what is, I would call, the core of that digital strategy. The core is that we help our customers to bring ERP, to bring where we have defined market leadership into the cloud. Of course, by permanently optimizing existing processes. More important, by simplifying them, by making it scale, and by enhancing it with new capabilities like machine learning, like an award-winning user experience. Who of you would have guessed that SAP has won a couple of prizes in user experience a couple of years ago?
I would not have betted on that. That's reality today. We have, with purpose, decided to invest a significant amount of money into machine learning capabilities to make the existing processes and the new ones more intelligent, to have contextual reporting and analytics as part of any application. Together with our strong domain expertise across 25 industries, and not to underestimate this, with the strong and loyal relationship with 300,000 customers, we are able to lead and enable them to win in the new digital world. Just take an example. I was with Jen at Nike. Nike committed to us to transform them into the digital age. There were others like Coca-Cola. There were others like Tyson, very traditional companies. There were others like Ameco Beijing who are on that journey already.
These close to 6,000 customers who already on the path of using S/4 or will soon use S/4 Live, we see that the market momentum has outpaced our own expectations. We see as well that the move to the cloud of an entire ERP has just started now. The number of customers who we got with our S/4HANA Cloud ERP only in Q4 was the same number as we had in the six quarters before. This means time is relevant now. Time, it's the moment where the ERP, not just of small enterprises, as well of midsize and even of large enterprises, is going to the cloud. Of course, with our commitment to, let's say, expose APIs of the rich portfolio to a cloud platform. Of course, with the significant value proposition that Time to value and time to implement is the big advantage.
With the commitment that we permanently embed machine learning and artificial intelligence on an ongoing basis into the product. We will do the same in on-premise as well, but it will take customers 15, 18 months at least in order to consume it. If time matters, cloud is the only way to succeed, and therefore, SAP S/4HANA Cloud is the natural choice for any company looking and taking advantage of core ERP cloud computing. It is not just S/4 Cloud alone. In the meantime, we have decomposed the richness of what was formerly called the business suite into more than 80 cloud applications, and I have just illustrated a few of them here on the slide.
To enable our customers to run as well in the cloud and on the transition to the cloud, complete end-to-end processes, we have committed that integration is coming with the HANA Cloud Integration out of the box. Of course, anybody of our customers can pick and choose between several solutions. The consequence is that they have to engage with implementation partners. They again are in the dilemma of hiring consultants, of building integration projects, and instead of letting their IT focus on value creation, they are busy with integration of a bunch of cloud solutions. I think integration out of the box is more relevant in the cloud than ever before. We have as well understood that in that digital age, what I said before, transforming is more than just taking an existing process from an on-prem to the cloud.
Take omni-channel e-commerce or take the traditional order management, which we had in ERP and still have. In future, it's not enough to have order management for selling physical goods or for selling services. In many cases, in the digital age, you sell a product combined with a service, and you have to have the configuration, the pricing, the quoting embedded in order management and, of course, integrated into billing and entitlement. This is what SAP Hybris Revenue Cloud is all about, which we just launched last, I think, four or six weeks ago. This should just act as one little example that we are completely generating, redefining existing processes where we are leading in the market as well today.
With the holistic portfolio of best-in-class applications and with our commitment that the applications itself are perfectly integrated out of the box, we go beyond and expose the richness of the portfolio as well on our cloud platform. As the architecture below these applications follows a microservice approach, a microservice approach that allows us, but more important, our partners and our customers to massively scale. To scale that sizing of hardware, that consumption of services is not limited by individual solutions, and that the combinatorics of these services enable our customers, in many cases across industry, to build new applications. It is not a secret that the digitalization will as well kick out certain elements, certain steps out of the value chain. There will not just be industries that are winning. In many cases, steps will be eliminated.
Our approach to address this and to innovate new solutions, to enable our partners to innovate new solutions is with a platform-as-a-service that will become the center of gravity for anybody who talks about enterprise software. Therefore, that digital platform, which we call platform-as-a-service, is of higher value than many of you know from the infrastructure providers. We use infrastructure providers in infrastructure as a service on our own. We partner with others. The cloud platform, which will be renamed or which will be officially announced to be renamed for the SAP HANA Cloud Platform, will become the SAP Cloud Platform, as the comprehensiveness of the offering of that platform as a service was not reflected in the name. When I said it was not reflected, of course, SAP HANA is the foundation. SAP HANA is the foundation of everything we do in future.
When we talk about user experience, when we talk about collaboration, when we talk about integration, when we talk about machine learning, when we talk about analytics, when we talk IoT, all of these services are incorporated in that platform. We make use of these services for our own services, more important, we give them for consumption to the entire ecosystem. Our customers embrace that strategy. They embrace the openness, which we have never had in that order of magnitude as SAP before. It is as well that these services can come from SAP, you see here as well that we have SAP HANA, we have Vora, we have the link to open source like Hadoop. We did on purpose an acquisition of Altiscale that we are able to provide Hadoop as a service in a big data scenario to everybody who needs that.
That the strategy is the right one can be proven by numbers. We have added more than 200,000 software engineers on the SAP Cloud Platform over the last six to nine months. We have triple-digit growth in bookings, I would say with platform-as-a-service, we are just getting started. There is no doubt that when people talk about digitalization, about the next big wave, that Internet of Things comes into your mind. That all physical equipment, buildings, air conditionings, any kind of product will be in future equipped with sensors. Connecting things, connecting human beings will be the new normal in future. I think Bill announced just end of September that we as a company will invest EUR 2 billion alone in that business segment. We have combined our assets, which we have already today, in a new IoT portfolio.
We just recently announced the brand for that, SAP HANA gets now a new brother or son, it is Leonardo. SAP Leonardo is that innovative solution portfolio that enables all companies in building new business model with the connectivity to individuals and to products. We will provide, of course, packaged solutions that are sometimes industry vertical specific, that are sometimes LOB-specific. We will as well provide services on our platform that are able to connect future solutions to any product. We will enable as well our customers with the big data architecture to have, let's say, an architecture blueprint, which is essential that customers get and support what data is stored on a device, what is stored locally, and what is stored centrally. These questions will have to get answered in any IoT scenario. We will add these scenarios with machine learning.
Machine learning brings the intelligence into these applications. Not just into IoT applications, as well in any line of business and industry application. Our commitment is that on the one hand side, we will enhance with machine learning any existing application and making it more intelligent, more intuitive to use. More important, we will add these capabilities into our platform. What does it mean when we add these capabilities into our platform? It means that some IT companies think that the old paradigm of extracting data, moving it into a machine learning platform, running algorithms, neural networks, getting insight, putting analytics on top of it, then transferring that back into an execution system will be the future. This will be the road to failure. In a real-time business, you have to incorporate these services into your platform.
Therefore, I am happy to announce that SAP Clea, which is the sister of Leonardo so HANA gets now children. Yeah, quite a few of them. The family is growing. As business is growing, the family is growing. Clea stands for Computers Learning Enterprise Applications, incorporated into our platform. We have a few of these applications ready to be released. We have a cash application. We have brand intelligence. We significantly have invested in service centers. We have invested with Mike in resume matching, in SAP SuccessFactors, there is more and more to come. This is just the starting point. The key differentiation is that we believe that machine learning is well documented in books, in libraries. You can go to any university. That software itself, which by others is in many cases open source, is not the differentiating thing.
The differentiating thing is making them applicable in applications and applying them into a platform, which will become the center of gravity for the enterprises in future. Let me briefly summarize before I hand over to my friend, Steve. We have with SAP S/4HANA Cloud, the leading software-as-a-service ERP. We have de-componentized, resulting in a modular suite in order to simplify consumption, in order to optimize processes, and in order to digitize any end-to-end process a company has within and beyond their boundaries. We will continue to provide all these capabilities, the business capabilities, the technical capabilities on the SAP Cloud Platform. With that platform, we will address both challenges I introduced it to you at the beginning. We are able to serve customers who have an urgent need to build completely new businesses and business models.
On the other side, we help with S/4 Cloud to transition from an existing ERP in a best practice cloud ERP going forward. We will provide integration Through the new line of business-specific cloud applications. That modular suite is the overall visualization of our entire portfolio, therefore, this is the moment where I would love to hand over to Steve. My friend. Welcome.
Thanks, man.
I want to hand over to Steve, explaining the other part of the portfolio.
Sounds great.
At least as relevant as the one I have talked about.
It's more relevant, it's okay.
We will see. I love competition.
Thank you. I had the privilege of working with Bernd across the SAP product portfolio. I also had the privilege of working with Rob Enslin across some of our go-to-market activities. Today, I'd like to share a little bit of business detail around a handful of our products, as well as some product details, some innovations that we're driving. The thing I would ask you to think about is I'm going to share that detail in the context of four principles. Whether you're talking about our core ERP, S4, S/4 Cloud or Business ByDesign, or the line of business applications that sit on top of those core ERP systems that extend across the enterprise and frankly, into our supply chains for our customers. There are four principles that we try to ensure that we live to across all of our products.
These principles fundamentally are customer-facing. They are really designed to make sure that we're best in the world at what we do. Very simple four principles. We want to be best in class for obvious reasons. As a suite decomposes into its component parts, customers have incredible choice, and we want to make sure we deliver a set of choices that the customer says, "Given all the range of choices in the world, I'm going to pick this, and I'm going to pick this because it actually meets my needs, and it does a wonderful job for my company." Number 2 is, as much as we want to be best in class, the real value of SAP to our customers is when all of our products and services integrate seamlessly and integrate without any effort from the customers.
Now, here we have some work to do still, but we're committed to this objective. We want to make sure we're phenomenal for our customers on this. Third is, look, as much as SAP is at the epicenter for most of our customers, is the epicenter of their digital core and their digital strategy. The great thing about cloud computing is that more and more business processes can get solved. More and more business processes can be automated. That automation is occurring not just at SAP, but around the world. We want to make sure that the SAP platform, whether you're talking about the core or the line of businesses, are open so others can add value on top of that, including, by the way, our customers. The fourth objective is really that, and this is aspirational for every company in the world.
We want to be easier to do business with. We want to be more connected to our customers. This is a wide range of topics, everything from the obvious, which is, it ought to be easy to buy, easy to interact with our customers. We also want to make sure that we're pushing the boundaries on delivering value to our customers, even how they consume our services or how they move up or down the consumption of our services. With that, my team is already confused because I'm not following the slides in any way, shape, or form. Let me just move really to our first principle, which is best in class. Seriously, you guys can catch up, right? Come on. All right. You can just ignore the slides, and I'll just keep going. Look at best in class.
Let me maybe hit across a couple of themes. Let's take Ariba as an example. Oh, that's the problem. It was me. There's no service here. It's a user error, big user error. In best in class, one of the real successes that I've been privileged to be a part of is the incredible progress that the Ariba team has made over the last handful of years.
This is led by a gentleman named Alex Atzberger, who, when he took over the Ariba organization, said, "Look, I want to make sure that we have delivered the most delightful user experience, the most integrated set of services, and frankly, I want to drive innovation, above and beyond, just what our customers need, but frankly, into what our customers should need in the years going forward." Whether you're talking about guided buying or AribaPay, or our extended supply chain management, this is a set of innovations that we've just a small set of innovations that we've delivered over the last couple of years that are pushing the functionality set, not only to where our customers want it, but frankly, where they will actually need in the coming years.
When you drive innovation and when you drive a great customer experience and frankly, really focus on delivering an NPS, an improving NPS environment, guess what happens? Sales take off. That's effectively what's happened with the Ariba business. In fact, the bookings of the Ariba business have almost doubled over the last couple of years. Right? That just is a reflection of the fact that we focus on the customer, focus on what the customer needs in innovation, results follow. If you look at, for example, the Fieldglass business. This is a business that I hope you'll learn more about over time. This is a business that's focused on contingent labor and services management.
When you think about a context where every company in the world, about 30%-50% of the team of people that work with that company tend to be outside employees or outside consultants. Right? What Fieldglass does is allow you to do the same thing with your contingent labor workforce, SuccessFactors allows you to do with your internal workforce. Manage them, hire them, pay them, everything. This is an incredible business where our product is not only the innovation leader, but literally we win 85% of the time we actually enter into an account. Right? Because the service is that valuable to the customer and the product is that forward in innovation. Also, when you think about retention, Fieldglass literally sets the bar for what retention rates ought to be.
In fact, as much as some of you know the Concur retention rates from back when Concur was a public company, Fieldglass is actually higher than that, which I didn't think was possible, but apparently it is. In fact, one other innovation I'd like to talk about within Fieldglass is that, this last of December, we launched Fieldglass Flex, which is a middle market version of our product. What it allows you to do is actually consume the product directly over the web and deploy it over the web. In fact, typically, we can deploy Fieldglass Flex in a matter of hours. A customer can be live entirely over the web in typically less than a couple of hours. Concur obviously continues to drive the innovation agenda within corporate travel. I won't get into a lot of detail around that.
I'm obviously very happy with Concur and where it's at. It continues to see its growth rates improve. It continues to be at the same win rates and retention rates that we were at prior to our acquisition by SAP. The thing that has improved is our growth rates, and I'm very happy to see that. Actually, there's one innovation within Concur I would love to touch upon, and it's an innovation that you don't often see, but it's an innovation that's equally important to our customers. This past June, we went live with real-time integration into S/4 and real-time integration across a number of our other products. This really touches upon this theme of integration, which is critically important. Right?
I want to make sure that all the products and services we deliver are integrated across all the other SAP products and services that we deliver out of the box. Right now, that's an ongoing set of objectives because this is obviously a very large objective, but it's an ongoing set of objectives that we're working against. Let's move to this concept of one SAP. Obviously, Bernd shared this slide earlier to highlight our broader portfolio, but I think it's a good visual across the integration objectives. As I mentioned, we're delivering against that set of objectives, but it's not just the integration across things like Concur into S/4. Right? When you think about the complexities of some of the companies that we deal with, some of the biggest companies in the world, they're running S/4. They're using S/4 to run their core business.
Their subsidiaries might actually be running Business ByDesign. The integration isn't just from Concur to S/4, from Ariba to S/4. It's BYD into S/4. We want to make sure that there's a nice migration path across those products, and there's an easy roll-up of financials for our customers. Okay. Let me move to an open platform set of comments. Now you guys are moving the slide. Thank you. As I mentioned, it's a critical part of how we will succeed as a company going forward. Right? We will always be that digital core. We'll always be at the epicenter of our company, of our customers, but there has to be an acknowledgement that our customers are going to use other products and services. Okay?
When we think about open platforms, there's a couple of examples I'd like to just share to give you a sense of what we mean by open platforms. By the way, you know that Concur had built an open ecosystem, and we have literally hundreds of partners on top of that ecosystem. What you may not know is SuccessFactors has also built an incredible ecosystem of partners. In fact, I think Mike announced it at the last SuccessConnect, that we have about 140, 150 partners sitting on top of the SuccessFactors platform. Combine that with the integration across Fieldglass, and you really start to solve a wide range of HR problems and business issues for our customers. The open platform goes well across that set of objectives.
Think about how we've made this shift from effectively, I would say, client-server to cloud. There's an ongoing shift over to microservices. What that means is that the way applications behave and the way that we want them to behave is starting to shift. Let me give you a simple example that kind of puts that into context. Right? Today, I may go into Concur to book travel. The natural way for us to do that would be if I send an email to Rob and to Mike and to Alex and say, "Hey, look, you know what? Let's meet in Wichita to go see this customer around a number of opportunities." Why couldn't that email automatically call into Concur and say, "I see that you want to go to Wichita. I know all your travel policies.
I'm going to go ahead and start that booking process for you." In fact, that's the way that we see technology continuing to evolve. We want to make sure we open up the entire, not just our core services, but all of our LOBs, open up those platforms, so integration and value can be driven across any number of opportunities. Does that example help make that more accessible? Okay. Obviously, one of the things that I think that it's important for us to bring out is that integration, or I'm sorry, that open platform integration is available not just within our line of business applications like Concur, Ariba, Fieldglass, and SuccessFactors, but across SAP Cloud Platform. Whether you want to use SAP Cloud Platform or you want to use an external cloud platform to integrate across and extend SAP applications, we're open to any of those environments.
Okay? Obviously, the best way to do that is across SAP Cloud Platform. I'd like to now move really to talk a little bit about what I mean by connecting to our customers. Why don't we go move beyond the Concur and SuccessFactors slide. I'm going to try to catch up on the time. Okay. Oh, sorry, leave it there. Let me highlight this. As we open up a platform, there's a number of interesting opportunities that become available to our customers. One of which I'd just like to quickly highlight is the SAP Business Network. What this service really allows you to do, and this is an opt-in service for our customers that will be delivered later in 2017.
It's an opt-in service for our customers that says, if you want to put your data in a pool that can be used in an anonymized model across other customers of our products and services, you can get some incredible value. For example, if you happen to be using Fieldglass to look for contingent labor to solve a particular project problem, imagine being able to look at how you can staff that project in any city across whatever set of resources you want, looking at availability, pricing, and skill set information on a real-time basis. Right? That's the power of a company like SAP. That's the power of scale. When we've had a chance now to show this to our customers on a beta model, the responses were phenomenal.
They would love to be able to understand this information and use that to drive better business decisions, better business behavior. Now we're going to go to the next slide. Actually, I will touch upon this. This is a topic that's near and dear, not just to SAP's heart, it's near and dear to my heart. This concept of business beyond bias is a concept that we really need to start folding into how we operate. One of the things, when I first heard about how software can drive a change in how we operate around bias, you don't really understand the detail until you just kind of dig into it. For example, if you think about when you just open up a job req, right? Something as simple as saying, "This is a job that requires you to come to the office.
This is a job from nine to five based in this location," actually has a bias in the people who actually apply for those jobs. This is critically important. If we want to fully engage the entire world in a model that says, "These are opportunities that are available to you," and you want to get the best candidates for a position, you've got to think about how even our core basic processes, whether it's at the application level or at the human level, effectively drive an embedded bias. What I love about what Mike Ettling and the SuccessFactors team have done with the SuccessFactors is using technology to drive that bias out, to allow us, frankly, to enable better decisions.
Let me move now to really the fourth principle, this is one that I think is critical to how we operate, is that we want to find a way to be more connected to our customers. This obviously, is more than the obvious, that we want to provide better service. We want to provide a better quality set of products. What we're really targeting is, how do we become so good at our products and services, and so easy to do business with that our customers can actually buy from us digitally, that our customers can actually move up and down their consumption on a real-time basis, right?
One of the things that we did at Concur in the early days was when we went after the SMB market, what we said was, "What if we got rid of the concept of a contract?" We didn't quite get to that, but what we did do is we got to a 90-day contract. Instead of the three- to five-year contracts we were signing with large enterprise, what we said, "We'll do 90-day contracts." What it did is it required all of us in the company to go deliver a product that was so reliable, so good, that we could make sure that if the customer decided to leave in 90 days, we'd still not lose money on that customer. Right?
When we tried to put in policies like, "Hey, let's make sure that we allow our customers the incredible ease of how would they do business with us," it actually improves the performance of our company, frankly, we deliver better service to our customers. When we talk about being connected to the customer, when the way Bill refers to as empathy for our customers, that's what we're talking about. We want to make sure that no matter what, across any of our products and services, we're literally the best choice in the world for our customers. That's the other objective that we're committed to. With that, I think it's helpful to put all this in the context of a real customer relationship and see how we're doing against that set of objectives.
If you'll join me, please, in welcoming my colleague, Rob Enslin, to the stage, who'd love to expand upon that.
Thank you. Okay, good afternoon. Man, I want to listen to some customers now. That was lots of products. Great job, guys. Thank you. It's great to be here today. I'm delighted to provide customer context to what you saw or heard in the last couple of minutes. They've learned, Steve showed around the innovations to support our customers. I'm actually going to try to bring it to life. I'm not going to speak about it for a long time. I'm actually going to show you some customers, then we're going to bring you here up on stage to really talk about it. I'm really proud to do this in a manner that surpasses any of our closest competitors, providing customers with a comprehensive, transparent, end-to-end view of their business and allowing them to be digital disruptors.
We're going to talk about digital disruption, digital transformation, and how SAP is enabling that. It's easy to agree that all of our customers start their journey in a different place and often differ on the expected outcome. Through the course of thousands of customer engagements that I've personally been on, we also see a distinct similarity in the elements required for success. These elements make up what we call the business framework that has been shown at least five times today. What I'd like to do is just spend a couple of minutes digging into this framework, but most especially in the digital core, which is represented by the middle section there. Well, now it's no longer the middle section, it's actually the centerpiece, the infinity model. Here you can see how they expand a core representing continuous information flow that is fundamental to any digital enterprise.
In general, this data flow begins by connecting the world of business processes to the explosion of sources of generating data. These connections and the resulting unprecedented abundance of data they create is what makes data management one of the most significant challenges in the future. As you're all aware, SAP plays a critical role in bringing this all together. By helping customers address this data space through SAP HANA, Apache Spark, Hadoop, and other technologies that were shown earlier today. We continue to provide customers with an outstanding analytics portfolio to ensure collected data is wrapped in intelligence to drive smart decisions. Also, declining cost of technology has enabled many businesses that were not able in previous times to move into a digital world. Many more businesses are now able to focus and implement digital strategies and actually see them come to life.
One such example, which is dear to my heart, is the City of Cape Town. Here is a city that crossed 11 municipalities together, created one mega municipality, and has completely digitized the ERP system on HANA and customer engagement and commerce for one purpose: to provide the community with an amazing service and use budgets that actually improve the lives of people. We're going to show you how this looks, how they created the emergency management system, and you will see the infinity model in action.
In the emergency services space, if something goes wrong, somebody dies.
In the past, fire, police, and responders from six total agencies couldn't see how each other responded to the very same emergency, and there was no connection.
No connection except for the phone. It's chaos.
That resulting chaos meant none of the individual six agencies could see the bigger picture of how a disaster was unfolding. The SAP HANA-based system streamlines emergency info from six departments into one incident report, and then immediately shares it.
I'm very glad to say we've gotten to the point where we are operating in real time with speed.
The city's emergency response system is enabled by HANA, customer engagement and commerce, connecting sensors to geospatial and actually managing it absolutely in real time. It's actually pretty amazing to sit in the control room and watching this live. Customers like the City of Cape Town are realizing that thriving in a digital environment requires more than traditional business intelligence and analytics offerings. It requires capabilities that require machine algorithms, predictive analytics, artificial intelligence, capabilities that allow customers to move seamlessly from data collection and turn these into insights. Further, we continue to connect these insights with SAP Cloud Platform beyond the walls of the enterprise, integrate them with partners and ecosystems which are critical to this customer's success. We see this cycle playing out in a number of business cases within our customer base.
I was asked a question this morning, "Is it only about S/4?" No, that's the start of the journey. It's expanding S/4 into sources of data, making the software intelligent, allowing decisions to be made at the point where they need to be made. This is a brand new world, and you can innovate in this world in any place in the world really fast. I'm going to roll another video. It's actually 42 seconds. It's really cool as well.
The collaboration between SAP and NTT Group, we provide co-innovation solution for not only each customer issues, but also social issues. A developed IoT solution for transportation safety is the first step.
The hitoe sensor vest is the core element of the new SAP Connected Transportation Safety solution. It measures data such as your heartbeat, GPS location, and posture in real time.
In this solution, the driver wear the hitoe shirt, the body information will be collect and processed in a smartphone nearby. The certain information will be sent to the backend system.
Using pattern recognition, the SAP HANA Cloud Platform is capable of predicting changes in the driver's behavior, like increasing stress or fatigue. The fleet manager receives a dashboard alert and can then radio the drivers and alert them on a mobile device. We can catch the driver's unusual movements when he is driving and an abnormality occurs. We expect that this will help us make the vehicle stop safely. SAP Connected Transportation Safety provides benefits for all parties, a perfect monitoring tool, the best support for drivers, and improved safety for passengers.
I was beginning my portion of the program today with these examples, because I believe that for every customer that you will see on the stage, there are thousands more out there that are relying on SAP to bring digital to life. Just watching your faces, that's pretty cool to see how we can actually change perception of people and actually create a really safe world with technology. That's the power of digital. It also reflects the power of SAP's SAP S/4HANA and the SAP HANA platform, coupled with our machine learning capabilities, SAP's Digital Boardroom, our SAP BusinessObjects analytics portfolio, and many other technology tools that integrate completely into S/4. The infinity model represents a never-ending process of data collection, analysis and insight, and action refinement.
I'll use the word action refinement because the difference is you can now react to actions if you have the intelligence and enough data to know what's going on. A process that extends to all facets of business, whether a customer is addressing the customer experience with Hybris, and Carsten Thoma was there, managing the workforce with SuccessFactors and Fieldglass, addressing spend management with Concur and Ariba, and devising an Internet of Things strategy. It is a complete and comprehensive framework that allows customers limitless possibilities. As the head of sales, with only 15% of our customer base moved to S/4, I feel that the opportunities are limitless for SAP. I share these stories with you because I truly believe you've got to feel it, you've got to bring to life, and you've got to actually imagine what a digital world could look like.
These are absolute real stories. I've sat in these control rooms with people that run it and have seen the changes in their lives. I've obviously been to Japan. I know the bus company. It's only 300 people. It's doing amazing things. Can you imagine when we bring it to the world? Not all my examples are videos which I had control over, but I am delighted. I have known this lady for a while now. When I first met her, I was astounded by the innovation that she is bringing to her company. Mrs. Ittaya Sirivasukarn, the CEO of INSEE Digital. Let me welcome Ittaya to the stage with no further introduction. Thank you.
Thank you.
Stay there.
Yeah.
Ittaya, thank you very much for traveling all the way from Thailand. It's yesterday, but it was yesterday. We met yesterday. You landed yesterday. You've had a fabulous time in New York City. It's been awesome. You're head of applications and infrastructure, the CEO of the INSEE Digital business.
Yes.
Just help us understand a little bit about how your business looks today.
Interesting to say that Siam City Cement, we are the company in Thailand, and we are regionals player. We are the second-largest cement producer. It means that we are fully commodity, right? The question is, we are commodity. Can commodities company use the technology to differentiate yourself? The answer is yes. You should differentiate yourself. That's why for our company, digital transformation is so important. Because at the end of the day, cement is a cement. But if you use the technologies to touch the customers, you will understand customer behavior. You will understand what they want. You can feed that information to R&D. If you can touch the last mile customers, you're going to have a different channel that can able us to give the benefit back to your own channel, which is B2B.
This kind of thing has give the opportunity to the company who so-called commodity product. More or less, I don't know, have you aware or not, we talk about the customer, but how about the other business partner who also contribute to your business? Can we use the technologies to help them to become better in service to you, to your customer, or use the technology to help them to gain more revenue? More or less, the last one is so important. Generation. I know people talk about customer, but you may need to aware that the new generations come.
Even in a cement business, we're talking about the new generation?
Yes.
Really?
Yes.
Come on.
This is interesting because the business has been built from the old generation.
When they grow old, they need to pass on to the new generation. The need of the customer in the new generations are different from the past. If you run the business, have you prepared the model and have you prepared a service that match to your new generation customer or new generation of your consumer?
That's cool. What does the digital economy, digital transformation, digital, what does it mean to you and your business and where does SAP fit into that vision?
Interesting. We believe that digitals is the core of the transformation for us, if you want to differentiate, that's the only way. By the way, thank you, SAP, you have S/4HANA. We implement SAP S/4HANA as our core for digitals. If you want to connect anything, you can connect easily.
You implemented S/4HANA quite a while back. I think you were the first company
Yeah. In Thailand
in Southeast Asia almost, right?
Yes. In Thailand. Yes.
Why did you jump in so quickly?
That's interesting. The thing is, you need a core that can connect to all the things. At that moment, SAP launched S/4HANA, and when we see it, we said, "Yes, this is the way forward." We need to connect with a lot of technology, so why don't we implement it? At that moment, we want to adopt the new technologies, and you also launched the Simple Finance, which you do.
That's why for us, the mindset is clear. We need to transform.
You did it in what? How long?
Nine months.
Nine months.
We implement SAP S/4HANA with 36 SAP module connected with 31 non-SAP application within nine months. Greenfield, not upgrade. Greenfield. That opportunity give us to rethink the whole process.
Relook at business models, different business models, change the whole thing.
Yes.
When you look at it, I'm certain it wasn't all a bed of roses, everything worked perfectly. How did it actually go?
It's interesting when the new technologies come, and then when you jump in as a pioneer, and you say, "Yeah, let's adopt it." Right?
A lot of challenge we have because the resources in the country doesn't have the skill. I need to thank you to SAP, because once we asked for help, so even the global support, regional support, they jump into it.
Yes, with a strong partner with SAP, we can able to go live. Everything, not cut anything, goes code, and we go live within nine months.
Ittaya, it wasn't about implementing S/4, right? That was just the starting point on the journey. You truly believed in digital disruption.
You believed that there was a smart plant, that you could connect sources
Yes
of data to it. This was the defining step. Why don't you just talk a little bit about the journey and putting the whole journey together?
Okay. When I mention about the generation change, it's not only the customer. When we're talking about the generation change in Thailand, by 2030, we will become the aging society. More than 30% of the population in Thailand will be elder citizens, and the birth rate is reduced much more. Question would be, how could you, as an enterprise, can able to operate with less human resources? That one is a big deal right now. The things that we are doing, we are preparing the company for future. If the enterprise need to run the business still with less capacity of the people, of the human resources, how could we increase the efficiency of the process? If we can do that by automations and by the smart machines, the cost reductions will happen, and then you will gain a benefit on pricing in the market.
That's why this kind of idea and also the futures problem come, we decide to implement the IoT. Because the big plant of cement require a lot of resources to run it. That's why right now we are under the program and the projects to implement the first smart plant in Thailand applied IoT in there. It will cover the predictive maintenance, where we will finish the spare part only if needed, so it reduce the cost. We also create the system for contractor management, where we know exactly where they are in the plant. We can control the safety, and we will make a transparency between the plant and the finance when they paid. More or less, we will have a smart control room, et cetera. The thing is, the technologies is here.
It depend on the business, how to apply it to be most benefit to you. That's the way we do.
What are some of the key innovations that you feel will help your business move into the next or the future?
It's quite aligned with what SAP predict as well. The IoT for sure. The IoT for sure, because with IoT connectivity with everything, you can do automations for the whole process.
The business model can be changed. Because bot will help you to increase the efficiency. For sure the cloud solutions and mobile technology is still very important because that is the channel where you can touch base to your real customers. Those technologies can able to help you to enable the new business model.
I've got to interrupt you.
Yes.
I don't think they understood what you meant by the last mile customer.
Yesterday when you told me, I had to ask you five times.
Okay. That's fair.
Do you really mean a customer in the cement business? I mean,
Okay
Does this mean?
Okay. Normally, the product cement business, you will be enterprise who produce the cement. You send the cement to a distributor, and that is your customer. The distributor will send the cement to retailer, and retailer will send the cement to the person who consume it. There are so many steps that you haven't touched on. The question is, what if you can touch to your real last mile who use your cement? What does it look like? It will open the opportunity for you to understand what need of the real customers, and also what kind of the additional service that those customer would like to have. At the end of the day, if you figure out that recipe of success, you can able to offer the values, some of the value, some of informations, some additional service back to your retailer and your distributor.
At the end of the day, you can able to create a very strong ecosystem. That's the way the business right now need to think about it.
If you look at any of these McKinsey reports or any of these reports, they talk about digital disruption. They would probably say that the cement industry is on the slow side of digital disruption, and that it's waking, it's raining, no storm yet, it's not a hurricane. Right? It feels like you are in the hurricane already, and that you've actually decided you're not going to deal with any storms. You're going to just handle the snow and just go for it. What advice would you give to companies that are going to start on this journey and they feel a little slow and conservative?
Okay.
What advice would you give them?
For me, I think we shall not wait until the storm hit you, because you don't have the time to do anything. If you have the time, my suggestion is be the first. Be the first pioneer. The thing is, the time is matter. Be brave to do something new. Think fast, fail fast, learn fast, move fast. Once you get that learning, you get the knowledge, you get the recipe of success. You're more advanced. You already implement that one. The competitor cannot able to catch you, because you are the first one who run, right? I think this mindset shall need to be in the corporate. No matter what size you are, we need to keep moving.
Okay.
I think that one will ensure the safety for your corporate and also satisfaction to your customer, where I believe everyone want to see the customer smile.
Ittaya, thank you very much for joining us today.
You're welcome.
Thank you very much.
Thank you.
Thank you. That was great. Thank you. I'm going to catch up on some time. What Ittaya spoke about and I think is really important in the digitization journey. We're talking about connecting supply chains. We're talking about consumers, the end-to-end supply chains, digitizing it, understanding data, and how to make it relevant for the consumer. In simplistic terms of the cement industry, the focus was on consumer, the supply chain, and making it effective. When I say we talk about S/4 and we talk about the products, SAP Cloud Platform, we have to bring all of these together to create an amazing customer experience, and I think you saw that with Siam City Cement. I want to thank you, and look forward to the rest of the day. Thank you.
Thank you, Rob. Thank you. We now have a short coffee break, 10 minutes, and we'll continue at 2:55 P.M. Thank you.
I will try to say something right to make you feel complete. At this time of night, I just hold back all my thoughts. I will try to let them out, they're all I've got. I don't see what's wrong with talking to you. The words I want to say are stuck to my tongue like glue. As you walk on by, I feel it in my heart. All the feelings rush in but I don't know where to start or stop. At this time of night, I just don't know what to say. I'll say anything I think could make you stay. At this time of night, I don't want to be all alone. I'll say anything if it means that I can take you home. I don't see what's wrong with talking to you.
The words I want to say won't come out the way I want them to. As you walk on by, I feel it in my heart. All the feelings rush in but I don't know where to start or stop.
This working life is getting me high. I'm feeling fresh and fine. I don't know where to start, where to start or stop. You take me in, you take me out. You kick me over and you shake me all about. You lift me up, you spin me around. You flip me upside down. When I need some adventure, you're the one I call. When I'm too much to handle, you don't mind at all. Stay out late 'til the break of dawn. Sometimes we don't make it in. We sleep all morn. You turn me left, you take me right. You take me out, and we stay up all night. You make me cold, you make me hot. You make me crazy, like it or not. When I need some adventure, you're the one I call. When I'm too much to handle, you don't mind at all.
Stay out late 'til the break of dawn. Sometimes we don't make it in. We sleep all morn. Monday, Tuesday, Friday night. Thursday, Sunday, feels so right. Monday, Tuesday, Friday night. Thursday, Sunday, feels all right. All right. All right. Ooh, don't you know now. Ooh, don't you know you're crazy? Make me feel all right. Come. When I need some adventure, you're the one I call. When I'm too much to handle, you don't mind at all. Stay out late 'til the break of dawn. Sometimes we don't make it in. We sleep all morn.
This is the place. This is the time. It's the chance to prove this destiny is mine. When the spark deep inside turns to flame. Victory is waiting to claim. Through the hard-fought tears and years of work and pain. To the moment they can never take away. When time stands still. I'm laying it all on the line. Do or die. When time stands still. I'm living the fight of my life. Do or die. If you believe you can't, you never will. A star isn't born, it's made. It's the destiny you choose to fulfill. It's win or lose, not just how you play the game. I'm one step closer every single day. To the moment they can never take away.
Ladies and gentlemen, please find your way back to your seats. Our program is about to resume. Thank you.
When time stands still. I'm laying it all on the line. Do or die. When time stands still. I'm laying it all on the line. Do or die. Yeah, I'm laying it all on the line. Do or die. Hold on for awhile.
Ladies and gentlemen, we want to continue with the program. Another customer deep dive. Obviously, the coffee has been so good in the pantry room. It's my pleasure to introduce Jennifer Morgan, our President of North America, here on stage. Jennifer, you will introduce I'm too fast here. Silence. My pleasure to introduce Jennifer Morgan, President of SAP North America, here on stage. Welcome, Jennifer.
Yes.
You will introduce the customers.
Yep.
Before we start, I also want to introduce the LOB executives we have in the room for additional Q&A later on. Alex Atzberger for Ariba, Mike Ettling, SuccessFactors, Darren Roos, S/4HANA Cloud, and Carsten Thoma, Hybris. With that, I hand over to you, Jennifer.
Thank you very much, Stefan. Good afternoon, everybody. Again, my name's Jennifer Morgan. I have responsibility for leading our North American business. I'm really proud to represent the 25,000 employees we have in the U.S. Unparalleled portfolio. It's really the people that make a great company, and Bill talked about that a little bit earlier. Steph will introduce my colleagues who are here and will be available for Q&A afterward. I also want to just recognize and thank the executive board. We will have time for Q&A at the end of the program, so I look forward to that. We're going to get right into our panel.
What I love about the customers that we have on stage today, they're from different industries, they're from different regions, and they're all innovating in different lines of business. It's going to be a great conversation. What's really interesting is despite these differences, they all have a lot in common, and the commonality lies in the focus of every board's world. The topics that are front and center, growth and innovation, how to enter new markets, new product innovations. We talked a lot about M&A for growth. How do we get more?
Globalization, risk, the C-suite, the audit committees, the risk committees on the board want to understand how are companies managing through the regulation, the complexity, the localization requirements, and doing business across multiple countries in the world. How about the workforce? Every C-suite right now is focused on the war on talent. How are you going to win this war? How are you managing your engagement of employees? How are you reaching new talent pools? How are you looking at your succession of your C-suite? Technology is a common element across all these areas, because not only is technology relevant to each of those other areas I just mentioned, technology is no longer just the enabler. It's the driver. Boards and the C-suite are looking to the CIO, to the lines of business, and to technology to drive new ways of doing business.
We're excited because each one of these line of business owners and leaders in their functions have the ability, as do all our customers, to truly empower the enterprise. With that, I'm going to introduce our customer panel today. We're going to have some fun. I've got Jim with me from Maui Jim. I've got Georgina Jarratt from HSBC. I've got Richard Taylor, who is at the Birchman Group, and I've got Robert Michaud, who's from Microsoft. We're going to have a great discussion. Please join me in welcoming our customers and our panelists today. Jim, I'm going to start with you. Maui Jim, I think everybody here has not only owned a pair of Maui Jims but has probably been devastated when they've lost a pair of Maui Jims at the beach, right?
Sure.
Maui Jim has just a really cool culture. It's very innovative. How do you continue to keep that, I think you called it a digital ohana, right, in the midst of all the changes happening in your industry?
Well, I mean, who else wants to talk about sunglasses February in New York? I think that it's interesting when you think about Maui Jim. We're in the business of sort of plain sunglasses. We have prescription sunglasses. More than that, we're in the business of people, and most of our customers range for pairs of our sunglasses.
We really don't think just about the product. We think about the lifetime relationship that we end up having with each of those customers. What we're trying to figure out is how do we extend our great customer service? The company was built on this idea that no matter what happened, we were going to take care of you. 30 years ago, the way that we would interact with our customers, really different. It would be a phone call, you might walk in to just a dealer. You might just end up mailing a product in.
Sending it off into the void and not really knowing what was going to happen with it or what the response or whatever. What we see is sort of a shortening of the interaction time and the true establishment of the gold master of the customer. When we talk about our digital ohana, it's not just the end consumer who wears our glasses, it's also our retailers. The brick-and-mortar industry has changed so radically. If you speak with anyone that's worked in that side of the business and sort of reported earnings last year, they are so concerned with what's happening with their digital business. It's going to be the brands that really understand how to support those retailers with technology to provide true visibility of customer and to support them in their deployments that are going to be successful.
We have to compete just like everyone else has to compete. The retailers compete against each other, we compete against other brands, we're going to make sure that we have the best technology that's going to arm everyone within that digital ohana to be successful.
To do that, though, right, you talked about sort of retailers, the B2B business that you had. You have a growing B2C business.
Yes.
All the while, consumer tastes are changing constantly.
Absolutely.
That means you have to continue to innovate much quicker and bring product to market much quicker and get that to the customer much quicker. Talk to me about the rapid innovation cycles that you're using in your company.
Well, it's really akin to what you'd see almost in the enterprise space, right? You had a lot of iron, it wasn't as nimble. Now we keep talking about cloud services, microservices, how we can spin things up pretty quickly. When we think about the same offerings to represent our products. We have design processes that occur, how the styles are created, then how do you get that messaging out to customers quickly? How do you make sure that they know what's coming down the pipeline to allow them to do their demand planning-
To really understand that? Much like the previous customers up, it was sort of greenfield for us. We ended up creating an ecosystem of a native application for our 400 sales representatives, account executives that service 30,000 doors in the U.S. We platformed with SAP Hybris Commerce in six months in the U.S. and Canada.
We have a global rollout that's tied to that. When we think about deploying product, you can't take months to get collateral and product information management details out to every partner that you have. It has to happen almost instantaneously to make sure that when that product is ready to hit, it hits every channel in the most complete way, that everyone has visibility of where it actually exists within the supply system. Then also what's happening predictably is extremely important for us. It's not just sell in, it's sell through. Looking at that at an extremely granular level. My job used to be looking at big aggregate numbers. Now the story is very localized.
It is hyper-specific, it has to do with how we can actually capture that information and track it in the ecosystem that really becomes of great value. We have partners that are extremely sophisticated in the way that they go to market, we have others that are really at the beginning of their e-commerce strategy. As a brand, we look at our service component, it's not just delivering great product. It's not just picking up the phone or servicing that account. It's really providing them the tools and the insight that they're going to need to be successful. I think any brand that's really looking holistically at how they are going to grow is not just thinking about solving their problems, but they're going to solve their partners' problems.
It's about building that branching structure, that's where the future is for us.
You talk about rapid innovation.
What about rapid delivery? I know you're using Hybris. You had great success.
Yes.
Now you're doing something pretty cool, connecting that through a microservice to UberRUSH.
Yes.
Tell us about that.
We had an opportunity to work with Uber, to create a pilot service in Chicago, where we have actually enabled a local dealer. We don't have any owned and operated stores at Maui Jim. They're all independent or retail chains that carry our product. What we're able to do is to provide an inventory position that would then also allow a consumer to come to our brand website, and if they would want delivery within an hour, within a specific geography, they would have the opportunity to buy that product, and it hooks directly through our CaaS installation.
There's a service call to Uber. Driver comes to the door and picks it up. Why is that important? It's important because we do a lot of brand advertising, and there's a specific brand story that we want to put out there. We want to connect our customer to the local dealer because that is the first point of support for that customer. Again, they don't have the technology, the infrastructure, or the ability to do that. We have to be able to provide a consistent service level and manage that as a brand. It's one thing to just say, "We want to enable delivery within a specific time period." It's very different to think about what is that delivery service going to look like when the delivery person arrives at the consumer?
What happens when the person isn't there, or there's a refusal of delivery? All the edge cases. That's what we think about with our partners in a service like this. The amazing thing about this is that we stood everything up and got it running in three months, which for speed to market, given the complexities of all the integrations, that was amazing. When I see the big graph, the big graphic come up there, the things that I get excited about are what's happening with the platform that allows an SMB like us to really do things. There's one little section of that graphic that may have been lost. It was the use of Swift as a development language, which is sort of a native iOS language, but it's being expanded for deployment.
The small things like that, and the inclusion of MongoDB as sort of like a data source, again, it's a little bit nerdy, but when you're looking at an SMB that may not be expanding into larger infrastructures, even though we do run HANA, we just switched over.
Those types of opportunities are extremely important for us because it allows us to do things at scale in a way that we never would have, and we can also build on all the things that clients like this group over here would be paying for at HSBC.
I love it. You've been a great partner and customer, and we're excited to see what's next at Maui Jim.
Thank you.
The pink sunglasses that we talked about.
Yes, those will be coming.
Okay.
Absolutely.
Okay. We're going to completely kind of pivot here. Different part of the world, different industry, different line of business. Georgina Jarratt, you are living in a complicated and regulated, very big world. You have 45 million customers, 250,000 employees, 71 countries. Tell us about the environment you're working in.
Okay, Jen, well, thank you very much for a start, for asking me to come and talk to you. We are a relatively new customer of SAP, actually, even though we are one of the biggest banks in the world. I would hate to say which level we are at because it depends which way you look at us. Certainly in terms of the number of employees we have, we have a lot, and as you say, a very large global reach, which is partly why SAP is a great partner for us because you too are pretty much everywhere we are, in fact, in probably more locations. The environment is extremely complex. I'm sure everybody in here doesn't need me to tell you that.
We pretty much are transforming absolutely everything we do because we have to and because the regulators are expecting us to do that, and that is across the industry. It's not specific to HSBC, obviously, the broader the reach, the bigger the organization, the more you have to do. Actually quite fast, and changing any organization of our size very quickly is hard work. Partnering with the right firms is definitely the right answer. Yes, I think it's important to recognize that we are under compliance and regulatory rigor, and correctly so, across the workforce, but also across the industry and all the customers and clients and products that we transact.
Georgina, when we were talking, it was interesting because you're using SuccessFactors, and around the learning component, you're leveraging that to meet some of the regulatory requirements-
Yes
The engagement and training of your employees. I want to hear a little bit more about what you're doing there. You also said, "We're doing that because it's something we need to do.
Yes.
Right? At the same time, we're also innovating and transforming in other ways because it's the right thing to do for the business.
Yes.
Talk to me a little bit about the regulatory nature of why you're doing this, and a little bit more about why you're doing it for the good of the business and the workforce.
I think the interesting learning between the two organizations or the industry and SAP around learning is that for us, learning is something that certainly under U.K. regulation, we have to put our staff through, and they have to comply with doing those courses on time. If they don't, they get financially penalized for failing to do their courses. That obviously drives very interesting staff behavior because when you are a trader, that's quite a lot of money.
Yeah.
A % of your variable pay is quite a lot of money. The learning platform isn't. I suppose it's more akin to the pharmaceutical industry, actually, where it's mission-critical that the staff are trained, but this is under the regulatory regime. If you look at the broader work we're doing with SuccessFactors across the HR suite, that's not driven by regulatory change per se. It's driven by the need for the organization to move its technology to a brand-new, very innovative, forward-thinking platform. Being a bank, we would never, ever have HR technology at the core of our capabilities. It wouldn't be the core of what we do, so why would we try and do that in-house? It's one of the concepts, I suppose.
I was actually amazed at the numbers. You have actually completed more employee learning courses than any other SAP customer. Is that 5,000 per day?
I know. Don't blame me for that. That seems slightly insane, I know. Yeah, we do huge numbers, and being somebody who's sent these training courses on a regular basis, they do seem to come around rather quickly.
Yeah.
It's because everything changes so quickly and because everything that we have to train the staff on is very, very complex, and they have to understand it, and they have to put it into practice at every moment of every day that they come to work. It's mission-critical, and it's something the regulators expect of us, hence the fact that we enforce it upon our staff.
Some of the other transformation that you're doing.
Yes
in addition to the learning aspect. Talk to a little bit more.
we're live on learning, which is why you have those superb statistics.
It does make me question if we are the biggest user in the world, that we might need to look at ourselves, and maybe we've made ourselves yet more complicated. Anyway, we're also looking at the platform for the rest of the HR transformation. We're in the process of that program right now. We're right in the middle of it. It's probably one of the most insane things I've ever taken on, but there we are. I'm aging by the day rather faster than I otherwise should be. We are doing basically in two to two and a half years a full move from an in-house ER system, which we've spent 25 years overcomplicating, to Mr. Ettling's SAP SuccessFactors product, which we are religiously trying to stick to on a vanilla basis.
Which means that the bank has to reverse engineer itself onto the platform, which is easy to say and very difficult to do across 71 countries who passionately believe that their way is the only way they can do something. I guess some of the weight for me of working with your company is saying to them, "Listen, 5,000 clients on that platform cannot be wrong, and we cannot know better than every other organization in the world how to do this HR stuff, which broadly is the same between one industry and the next." Yes, I suppose that's what we're doing, and the rest of that transformation, you could argue, is not regulatory driven.
Therefore is about simplifying, standardizing, and globalizing our model.
Right. Okay. We talked about all this regulation, size, and scale, but yet you chose to go to the cloud.
Yeah.
How do you make that happen?
That's an interesting one, isn't it? The regulatory issues with going to the cloud is putting the personnel data in the cloud. That means we're giving it to SAP into their data centers. That makes organizations like ours go into a spin of panic because obviously, we're very, very happy to keep everything in the walls and own it all ourselves and make sure we feel that safe and secure.
There's an emotional move there. There's also a sort of regulatory and compliance move where certain of the countries, and I forget the statistics, around 20 or something, have to have individual participation agreements with SAP. We have to have legal agreements directly from the country to you in order to give you our personnel data. We're breaking some barriers here.
The upside is about the speed of delivery, and we could never do that quickly in-house, and also the innovation where we have to keep running with you. We can't stand still and go, "Actually, we'll stick on this really awful old version because we can't move." We have to keep going. It'll be an interesting test. We're not there yet, but we'll see.
You don't have a long history with SAP.
No. Not yet.
Not yet. I like that answer, Georgina. That's a really good answer. Talk to me about why you chose to partner with SAP. How did that come about?
The process that we went through in typical HSBC style was very rigorous. We go through a very active RFP process whenever we do something like this. I wasn't actually personally involved in that, so I can't take any credit for the decision. However, we were very, very religious about looking at which of the products had the proper coverage. We needed basically a full suite from an HR capability perspective. We're one of the few organizations in the world that have a global platform, actually. We already use, although we have customized it, get the correct word there-
to within an inch of its life. We do have a global platform everywhere in the world, which is quite unusual for an organization of our size. That makes it easier to move from one to the other. Yes, we went through a very rigorous selection process to come out with selecting SAP.
No, we're glad you did. Thanks, Georgina.
Pleasure.
Okay, I'm going to move over to you, Richard, the Birchman Group. First, tell us a little bit about Birchman Group.
Yeah. Good afternoon, everybody. Birchman is a fast-growing international consultancy firm. We operate out of the U.K., Europe, Middle East, Southern Africa, and South America. In terms of our strategy as an organization, we grow through the acquisition of businesses and international expansion, and that's part of our ongoing strategy.
Yep.
I think from when we started, we very quickly moved into five continents, and therefore that international element is very important to us, yeah.
You're growing.
Yep.
We're fortunate at SAP, we really count on and feel very blessed to have a very vast partner ecosystem. We love when our partners not only use our technology, like what you're doing with SAP S/4HANA Cloud, but also bring that to our customers and bring that value to customers. Talk to us a little bit of how you're using SAP S/4HANA Cloud.
Okay. Whether it's internally or with our customers, we talk about removing friction. Friction is the sum of all those things that makes doing business today a bit harder or more expensive than it should be. Yep. Our IT strategy is very much focused around removing friction. Yep. There's three key elements to it from our perspective. First of all is scalability. We need a platform that is robust, secure, easier to implement, easier to maintain, scalable with a lower cost of ownership. Yep. Secondly is from a business operations perspective, we want to have a cloud-first approach so that all of our core operating processes are in a software as a service environment. Yeah.
What we've done is we've chosen to put SAP S/4HANA Cloud in the center of that, with SAP SuccessFactors from a HR and people perspective, and SAP Concur from an expenses perspective. Yep. The reason we did that is because we see that as being a truly integrated cloud solution, which is important from our perspective. Thirdly is, we need to innovate from a products and services perspective. It's important for us that we keep that core solution as standard as possible. At the end of the day, that's going to keep our cost of ownership down to a minimum. We need the ability to be flexible to innovate around the edges. We're using the HANA Cloud Platform from that perspective, integrating it into SAP S/4HANA Cloud. If you look at it from a customer perspective-
if you stand back a little bit and say, what's happening with a lot of our customers, whilst their business models are different and the challenges they're facing are quite different, actually, there's a lot of similarity. Yep. Organizations need a platform for growth, a scalable platform. They need a core solution which is efficient and effective in delivering their underlying operating processes, and they need the flexibility to innovate.
As a professional services company, people are your greatest asset. You also are using SuccessFactors, I believe, right?
That's right.
A very different size and scale than Georgina at HSBC.
A little bit, yeah.
Tell us a little bit about how you're leveraging that and the areas of focus for you.
Yeah. As you say, we are a people business. Our people are also working anywhere in the world at any given point in time. SuccessFactors is quite an important part of our solution, and we're using it from a core HR perspective with Employee Central and also from a talent suite perspective. The two sort of key elements to that for us is really around talent acquisition, yeah, so the recruitment-
onboarding, and building and maintaining talent pools. Yep. Secondly is really around engaging our teams, especially when they're working in quite diverse environments in terms of different geographies, et cetera, and different projects environments. Yep. We're this year moving to the continuous performance management process within SuccessFactors.
Excellent. We're excited to see your growth and where you're headed. Thanks for being with us.
Thank you.
Let's move over to Robert at Microsoft. Microsoft, awesome company, awesome customer, great partner of SAP. We're doing a lot together. When you look at your business, Robert, right, the device business, the Surface business is growing in double digits. It's a huge part of your business, and you're innovating in a lot of different areas. Tell me a little bit about what's happening in this area of the company.
Well, Microsoft is becoming much more purpose-driven. You mentioned the story about your kids playing Xbox, our mission is to empower people first and organizations to achieve more, maybe your kids are achieving more.
Yes
by playing Xbox.
You've empowered my children to spend way too much money on Xbox.
Seriously, I mean, I'm looking out in the audience. I see Surface devices. I see Microsoft devices.
Four years ago, that business didn't exist at all. We created a new category of two-in-ones, which you're now seeing everywhere. We've got HoloLens, Surface Hub, 85-inch touch capacitive devices. My job as CTO for the supply chain is build a platform that allows us to connect wherever those devices are made to wherever customers are, and to be flexible and elastic both up and down. When I think about the complexity, we serve six channels. Our own direct channel, our e-commerce business. We have 116 brick-and-mortar stores. We have big box retail. We have distributors. We have enterprise, and increasingly, we're going direct to enterprise. We needed a platform that allowed us to be really flexible and agile as we went out and did that. We really re-implemented SAP at Microsoft.
When we first implemented SAP, it was really around our software perpetual licensing kind of business, and when I started Microsoft, we were still punching disks. It's amazing where the company has come. SAP's been a good partner because of the agility that we've been able to build around the platform. Then obviously taking advantage of, I think the great complementary nature of the technologies that Microsoft has, whether it's Azure, our Power BI, our Cortana Intelligence Suite, and we wrap that around SAP to make a really good platform for us for the future.
You mentioned we've done business together for, I think we tabulated it, was around 25 years or so. When you looked at how you were going to innovate on the supply chain and those new areas of the business, what were the traits you were looking for? What had to be different going forward?
Well, I was skeptical at first. When I was given the task of really creating this platform for our future, we called it our digitized supply chain. Taking all the data, connecting our customers back all the way to the point of manufacturer, how do I create a platform that allows me to I don't know which device. Our job as an innovation supply chain, Microsoft really isn't in the business of huge volume, pushing huge volume. It's about driving innovative product categories. Like HoloLens is a very good example. It's something unique in augmented reality. We're putting a bunch of software like Windows Holographic to actually support that product.
Where Windows is going as a platform means that the device is an entry point, basically a portal to those services. Satya challenged us to say, "We don't know what product we're going to build. We don't know what volume it is, but give us a platform that's going to allow us to do that and keep driving innovation, and not allow the operation, the supply chain, our supply base to constrain our vision.
It was really important for us to connect that network of suppliers. We're using Ariba around the edge. I think we've got, what is it? EUR 3 billion now flowing through Ariba. We've got EUR 10 billion or EUR 15 billion of direct spend, so we've got a lot more potentially to go and onboard that.
That's since when? That's since, you were saying
Since September. We've onboarded, I think, 37 key suppliers. The challenge that we have in the supply chain is that we're not a typical supply chain like a Dell or an HP or consumer electronics. We're generally given really tight timelines, really tight dates. We have to spin up the supply base. We have to go qualify these suppliers. We have to build those supply chains into those six channels that I talked about.
Yeah.
Very different products too. Xbox is very different product than the 85-inch Surface Hubs that you see on CNN.
Different customer base, different channels, completely different manufacturing process.
How have the innovation and the pace been working with SAP as you implement this?
At first, the old reputation of SAP as an old, pretty slow, old line enterprise software company. Being at Microsoft, we have a lot of software engineers. The first thing that people want to do is go build everything.
What I have to do is determine what's really core to us in our operation and where is our comparative advantage in selecting someone like SAP? The key thing is they have to move at the same speed we do. Otherwise, they're going to be a constraint for what we want to spin up. That was when I challenged SAP in Palo Alto about a year and a half ago to say, "Hey, look, I need you guys to behave like a startup. Together, if we co-innovate and we do some things, we can go deliver some really innovative things." An example, our product team said, and just our Xbox group actually said.
We want to build custom controllers. We want to have millions of different combinations, colors, buttons. People can customize these controllers." We used SAP Core and Ariba to connect our supply base to allow real-time commitment to say, "Hey, is that color available? Is that resin available?" We create a unit of one. We create a bill of material and a production order of one and then ship that all the way directly to the consumer. That has been a good success story, and that's using base functionality. We built a service, basically, that allows us to onboard any number of products. Now we have Surface looking at doing it with some of their accessories. It just gives us a capability as a supply chain, now we can become a competitive lever.
Yes
in a way, yeah.
That is an awesome story. I know Bill and Satya are spending a lot of time together, so thanks for sharing that story. Okay, I'm going to close this up before we move to Q&A, and I'm going to hit you all with a little bit of a surprise. I call this the lightning round. Okay? It's just give me one or two words, and the question is What about SAP and working with SAP gives you confidence and trust in SAP as your partner for the future?
I have to say it's innovation.
Agility. I would echo what Robert was saying, this preconception of it being sort of a slow-moving.
That's not the impression that I've had in my experience of working with SAP and SAP Hybris. We're a small business, and we need to move and react quickly, and there's been a commensurate and responsive behavior from the partners that we've had. That's of critical importance to us.
Awesome. Thank you, John. Georgina, how about you?
Jim totally stole my answer.
That's what happens when you go first.
You can use it again.
For us, it's all about pace and innovation, really.
Okay
Partnering with a company that provides us a proper service.
Awesome.
Yeah.
John.
Relevant businesses thrive, yeah? I would say, I strongly feel this, that SAP is now more relevant than it's ever been. I think that's a really important part of partnering up from our perspective, both in terms of the customer and from.
an implementation perspective.
Excellent. Thank you. Robert?
I think for me, it's two things. One is we have a relationship, so there's an amount of credibility and trust
that's been built over the 25 years. Secondly, I think SAP has a point of view. Increasingly, I think there was a lot of themes up here of increasingly it's about taking the core processes and running and standardizing them. There's not a lot of strategic differentiation and figuring out a unique procurement process
You really want that stuff just to work. Increasingly, you're going to want that to be automated, and you're going to want to drive machine learning. You're going to want to get people out of the way. What we're doing is we're looking at where to strategically use SAP at the core with what they're really good at because we trust them.
We're looking at where we can get our people to focus on more differentiating activities.
I love it. Thank you very much. Let's give a round of applause to this panel. We're going to set some mics up for some Q&A. While we get those ready, I want to turn to my colleague, Darren Roos. Darren, this morning you had some discussion around everything we're doing with S/4HANA in the cloud. I wanted to turn it over to you to spend a couple of minutes giving an update about our plans for 2017.
Sure.
Some discussion around everything we're doing with S/4HANA in the cloud. I wanted to turn it-
Thanks, Jen. This morning we spoke quite a lot about the launch of S/4HANA Public Cloud, which is our ERP solution positioned in the enterprise space, for organizations with over 1,500 employees. Our Business ByDesign product is aimed at the lower segments under 1,500 employees. This new product is really about bringing next-generation intelligent ERP to the marketplace. We've worked really hard to bring to market new capabilities around machine learning, around embedded analytics, around our new digital assistant, which is called SAP CoPilot, into the product to really provide transformational capability for organizations who are looking to innovate in 2017.
Excellent. Thank you, Darren.
Thanks, Jen.
I would like to invite the audience to not only ask questions to our panelists, but we also have our line of business leaders here, Carsten Thoma, who leads SAP Hybris, Mike Ettling, SAP SuccessFactors, Alex Atzberger, SAP Ariba, and as you just heard, Darren Roos with SAP S/4HANA Cloud. Can you get a microphone over here?
You want me to stand up? I'm Walter Pritchard with Citi. I guess question I'm not sure who to direct it to, but maybe Georgina, since I think we know some history of your company. You've had a high-profile board member from a competitor.
Thanks.
I'm wondering.
If anyone wants to come in and comment
Just generally, there's this idea that maybe the application suite is re-fragmenting to some degree, that it was a very kind of monolithic, went with mostly one vendor, and it consolidated for a number of years, and now maybe cloud and microservices and so forth has enabled a re-fragmentation. I'm wondering if you could talk about if that's happening in your environment or if it's going back the other way. I'm just curious if you could comment there, that'd be great.
I'd hate to talk as if I was the CIO of HSBC because I'm definitely not. The move to the cloud is definitely something that's happening with us. My personal view, and it's just my personal view, is that we're pretty agnostic as to who the provider is. It's all about the product, it's all about the relationship, and it's all about the innovation and the offering. Yes, my view is it's moving. It's moving from a more limited set, and that's also shown by us taking stuff out of the organization and considering taking service from external providers.
Anyone else like to comment on that? Rob?
I think it's ultimately about choice, right?
Yeah
At the core, you've got the core process engine is really solid, especially if you look at where it's going with SAP HANA, which supply chain anyway is a huge optimization problem because at any given point in time, you've got variables changing, you have suppliers, you have fires, earthquakes, snowstorms, all these things that need to be balanced in real time. The engine of being able to connect demand back to the points of supply and then optimize, so against variables because you still need to maintain margin, you don't want to expedite. All those things are really powerful. Also the ability, for us anyway, you saw that SAP has a lot of their own analytics tools. Microsoft, we have Power BI and a lot of our own Azure machine learning capabilities.
We're able to utilize our own capabilities. Still leverage, I think, the power that SAP has at the core. As well as things like the Ariba Network. I think that we're underselling a little bit the power of this connected, the Facebook of business, so to speak. Because if I can get all my supply base connected on this network and my downstream demand partners and be able to bring in the demand signal up to supply, that creates a capability to be smarter, faster, essentially. Because now I can say, "Hey, here's where this demand's coming in. Here's where I'm seeing supply disruption. How can I make a commitment?" And where we're at, we compete against Apple, Samsung, everyone else for the same supplier, same parts.
Oftentimes we've got to be right there first in line, and make a commitment, sometimes a EUR 1 million buy right there. Creating that information flow and making it faster is really important for us. I think it's not really about fragmentation, it's about choice. Really, looking at where the core of SAP is for us anyway, and how we're leveraging that.
Thank you. Another question.
Sure. Richard, you obviously practice what you preach in terms of deploying SAP software yourself. Can you maybe compare and contrast your experience with the public cloud version of S/4, how long it took you to deploy it, the level of functionality, say, relative to the on-premise suite? I would expect it's probably a more limited functionality today, more suited to a professional services company like yours than the on-premise alternative.
Okay. Yeah, for sure. We purchased the Enterprise Management Edition, and we're implementing the professional services industry solution. Our initial scope is three legal entities. Started the project in October last year and went live with the first legal entity, just before Christmas on the 23rd of December, yeah. At the moment, we're focusing on the second and third and integrating with SAP SuccessFactors, and then following the 1702 release, we'll then implement SAP Concur. Yeah. You're correct in the sense that we're using the professional services industry solution, and that was one of the first industry solutions available on SAP S/4HANA Cloud. That makes sense from that perspective. One of the core reasons that we want to go with software as a service, as a principle is the continuous innovation cycles, yeah.
We are a bit of an early adopter from an SAP S/4HANA perspective, but the innovation cycles are going to be significant, yeah. We can see from what's coming out this release in February and what's planned for May, they're big jump forwards, yeah. There's quite a big difference between the previous sort of on-premise private cloud sort of implementation approach versus what's happening with the SAP S/4HANA Cloud. First of all, there's a big fit to standard as a core principle. From my perspective, that is very important because I don't want to mess around with that core solution. I want it to be a standard, as you're doing in HSBC, as standard as possible because that's actually how I keep that working efficiently and effectively and enabling SAP to worry about that problem and making sure the innovation for that product continues.
Our expectations are high from that perspective as well, yeah. You've got the fit to standard element, which means you don't need to go through a long-winded sort of a blueprinting exercise, yeah. From a configuration perspective, it's far a simpler configuration. What SAP called a guided configuration. In actual fact, you see the project timescales, budget, et cetera, for implementation massively reducing down. We were discussing this in the earlier sessions this morning, that if you look at the past, the critical path was around technical and functional work, yeah. Actually, the critical path is around people and process change and the business adopting the technology, yeah.
We have time for one more question. In the front.
Thank you. Adam Wood from Morgan Stanley. Just wanted to ask a little bit about integration of the technologies. One of the big debates has always been between standalone applications, best of breed, and then the suite approach. Obviously, SAP has the core, and it's bringing out these new applications that many of you are running. For those of you who are running the core suite and some of the add-on applications, could you maybe tell us how important was integration to that decision for you to take both? In terms of the quality of integration, where are we and where would you like it to go to? Thank you.
Okay.
Because we were an early adopter of SAP, I think we implemented in 1995, we've kind of come up, and we have this on-premise version. We have a lot of core financials that sit there. We have a fairly complicated environment as well because we wanted to run on a single instance of SAP and then run on SQL so that we could show customers, like, "Look, you can run huge enterprise workloads on a single instance on SQL." It wasn't always that way. We worked with SAP to get it to that point. That was Bill Gates and partner early on made that commitment to get our products to work well. We have this complication. The way I see it is really we can create a bridge.
For supply chain, I want to leverage S/4HANA because that's, for me, where all the functionality is going. I want to leverage Ariba as a network. That's something that I've asked SAP to really step up and build that bridge. In fact, Bill and I were just talking about that this morning, because I think there's a lot of customers, I think Bill said we've got 70% of business transactions going through SAP, but most of them are on-prem, especially, old line companies, and they have to be a really good reason for them to want to invest in the new thing. I think that SAP is going to build a path for those customers in through this integration, especially in their core financials. Over time, you'll see the functionality all move into the cloud because it'll just make sense.
It'll make financial sense to do it. You don't need IT departments, you'll have very solid cloud infrastructure, lights out support. For us, it's about this kind of phased approach. We're taking Ariba, which is in the cloud. We have IBP, which is in the cloud running on HANA. We've got these features around. The big one for us is going to be can we get our transactional engine there? Will SAP then provide that bridge back into the on-prem financials? I think companies will say, "Wow, there's killer applications here from a business function. By the way, I'll have to invest in lift and shift of all of that core infrastructure over time." That's what I'm excited about, is being able to bring it along. We think that's probably three to four years, I think.
SAP said by 2025 they want to kind of move their from ECC into S/4HANA. We want to help do that.
Thank you, Robert. Jim, Georgina, Richard, Robert, it's been an honor and a privilege to have you with us today. For everybody in the audience, thank you so much for investing your time. I'm going to turn it back over now to Stefan. Thank you.
Thank you, Jennifer. Thank you. Thanks very much. Thank you. Well done. Thank you. Thanks. Thank you. Thanks. I keep my introduction very short. A very important element of the day is, of course, the financial framework of SAP, our last presenter for the day is our CFO, Luka Mucic, who will walk you through the financial model, including an update on increased transparency in our segment reporting as of Q1 2017. Luka, the floor is yours.
Thank you. Thank you, everybody. A special thanks from my side as well to the customer panel. It's really incredible how many great insights and ideas you can get from customer examples. I certainly took some with me. Some of my board colleagues will probably be able to guess which one I like most. It's true, we often try to save the best for last, and the best obviously is customers and finance. What better elements could we have for the end? Of course, when you go last, you have to somehow try to keep emotions high and keep the energy level high. I thought about this a bit, of course, it's also important that my board colleagues keep their energy level high.
Bill, you won't like this, but you will have soon emotions, as I want to really have a call out to all of my friends in Boston that I will see tomorrow for my roadshow there. Congratulate them from the bottom of my heart on a really epic Super Bowl final on Sunday. Bill is a New York Jets fan, I have to apologize for this, I think, why do I mention this? A, I believe epic is indeed a fitting theme for what I have a privilege to cover today. Because there are similarities, but also differences to what the New England Patriots pulled off last Sunday. What is great about SAP is that indeed, I would say we are a tremendous example of a successful business model transformation.
In the first half of our 10-year plan that Bill laid out in 2010, I think we have done better than the New England Patriots. We definitely have beaten our initial expectations. We are a strong, very strong, growing player in the cloud. We continue to have a resilient and solid core business. We're firing on all cylinders. I'm equally convinced that the best, as in the Super Bowl final, is actually yet to come in the second half, and that we can accelerate from this already great performance going into 2020. There will be an overtime for us as well, because life for SAP will continue in 2021 and going forward. I believe we will also be poised to win in the overtime. I want to tell you why, from a financial performance perspective, this is what you will see.
I have three very simple themes for you this afternoon. Those themes are around growth, predictability, and profitability. In all of those, you will see that I will use the word commitment a lot, because this management team is absolutely committed across all of those dimensions, growth, predictability, and profitability, to drive truly stellar outcomes and long-term sustainable value generation for you, our shareholders and investors. Let me get into this, start with the growth theme. SAP is unique in our industry, Bill calls this the great trifecta that SAP has been able to pull off, in that we command very strong growth in the cloud, we command this growth without it going at the expense of our core license business. When you have listened to the presentations from Bernd and from Steve, you will understand why.
We have an extremely synergistic portfolio. We have complementary assets that really help customers to drive end-to-end digital transformation, as we have heard from the customer panel, and the example that Rob hosted in his session as well. The question then may be, will you be able to sustain or even accelerate that strong growth in the cloud that was the engine of very strong and fast expansion of our business for the last few years? Actually, for the last four years, we have been growing at greater than 30% organically. We have had a strong backlog growth, as Bill has alluded to. The answer is absolutely yes. Why? We have strong assets that are operating already at scale, where we continue to innovate around SAP Concur, around SAP Ariba, around SAP SuccessFactors.
Equally importantly, we don't stop at harvesting that innovation that we have already at scale. We innovate in new areas. We have fast growth businesses. Think about the CEC portfolio, think about Hybris in the cloud. These are assets that grow at a much faster pace than our average portfolio does, and it's already operating and starting to get into scale. This is a triple-digit business actually for us in the cloud already. Think about the HANA Cloud Platform, sorry, the SAP Cloud Platform, which is the next of our cloud assets that will reach this triple-digit million threshold this year, actually already. I'm convinced about that. Think about analytics in the cloud, SAP BusinessObjects Cloud, which is a solution that I'm extremely happy to use inside SAP to power our SAP Digital Boardroom, and which has seen phenomenal uptake in its first year of existence.
Next to that, think about the SAP HANA Enterprise Cloud, which is also an extremely positive business, which also grows faster than this. Because of all of this new innovation that we are having in the company, there is no doubt that we will continue on the growth trajectory that we've seen in the past few years in the cloud, also going into the future. Actually, to call out a secret, even after 2020. We equally have a very strong and resilient core business, and we will continue to have this resilient core business also for the years to come. SAP S/4HANA is a truly groundbreaking innovation in an area where many have thought it cannot be innovated anymore. It allows you to completely, as we have heard from some of the examples, to completely transform an enterprise.
With its industry-specific capabilities now being rounded up, it's poised for even further growth in the years to come. Yes, of course, in the core, there are areas that are transforming to the cloud, and we are actively pushing and driving this transformation because we believe we can win in this place. This is the areas around HR. This will be in the future also to a slowly increasing degree, areas like analytics. Overall, we have become way more confident, as opposed to the time where we devised our original midterm ambition around SAP S/4HANA's ability to uphold the core and uphold licenses at a very high level. We don't project any more high single-digit declines, as many of our competitors would love to see, because they are actually declining in double digits.
We believe, and that is, I believe, a prudent assumption, that until the end of the decade, we will see at maximum low to mid single-digit declines in licenses. We believe that we have an opportunity to even better than that. Actually, for a fact, in the last two years, we have been doing better than our original expectations, and we have been seeing growth in on-premise licenses even. If you pair this with the fact that our support business remains tremendously resilient, that we see a very, very high renewal rate. Now, for many years, despite the fact that we have the cloud transformation ongoing, you can see two things. A, of course, that the complementary nature of our portfolio is true, and therefore, we don't see a huge cannibalization effect in terms of support revenues.
You can see, as well, the stickiness of our solutions and the customer satisfaction that goes along with that. That's why we have extremely high renewal rates. With a net renewal rate of around about 96%, as we shared at the last Capital Markets Day last year, and that is after migrations of customers from enterprise support to product support for large enterprise because they buy more licenses and have become eligible. That is after migrations to the cloud as part of our Cloud Extension Program, and a weighted average maintenance rate of 20%. It's easy to see that even in a declining license scenario, support revenues, and hence the combination of software and support revenues, will continue to grow.
That's why, as a strong commitment by this management team, we will see, until the end of the decade, high single-digit cloud and software revenue growth for SAP as a group. Let me come to the next theme and to the next commitment. It's a commitment about a growing predictability of our business overall. Of course, the strong and exponential growth in our cloud business, as well as the great resilience of our support business, inevitably has led already over the course of the past few years, and will continue to lead to a growing share of predictable, highly predictable, recurring revenue streams within SAP. That's a combination of cloud and support revenues. We are already at more than 60% revenue contribution of these two revenue sources. Until 2020, we will be at up to three quarters of our total revenue being based on these revenue sources.
What does that mean for us? Yes, of course, it means that we will have less volatility in our revenue performance. It will be more predictable from a top-line perspective. It equally means that for us from a planning perspective, from an investment perspective, we will have much better Line of sight in order to make investment decisions, because we will not face an as high risk as in the past through more one-time revenues or upfront revenues, to not know exactly how we will be able to end up in the year. This is for me, from a CFO perspective, of course, an extremely valuable feature of our overarching business model transformation. Hence, the second commitment that I want to give on behalf of all of my colleagues here is, that we will relentlessly push for maximizing the predictable revenue ratio in the SAP group.
We will not sacrifice neither the cloud revenue growth, nor the support revenue growth, for maximizing short-term upfront revenues. We believe in the power and we believe in the value generation that is connected with this shift towards more predictable revenues. We are all in, we are leaning into this, and we are very confident that this move will, of course, continue as well in the overtime after 2020, and will only amplify as an effect. Let me come to the third important element, and that is the point about profitability. Let me start with a clear statement. SAP has always been committed and very much focused on driving its business model transformation while continuing to deliver profitability and profitable growth for the company. That's why we have had no single year during our business model transformation in which operating profit would have declined.
We've actually expanded upon it. We are reaching now a point where we have reached scale in our cloud business to an extent that we will see, especially as of next year, when our one-time investments in the cloud to make us even more efficient in this business that we have highlighted before, have run their course to see exponential increases in the efficiency and the gross margin contribution of our cloud business. We have already reached a point where cloud, despite of a tremendous revenue mix shift that we are seeing, in 2016, we were at 14% revenue contribution of our cloud business. In 2020, we will be at almost 30%. That this strong revenue mix shift effect does not have a reducing effect on cloud and software margins in total.
This effect of increasing cloud and software margins will only amplify itself once these investments have run their course as of 2018. You see our targets for 2020 here. We are shooting for a tremendous improvement of our gross margins across all of the business models that we are running in the cloud. Our SAP HANA Enterprise Cloud business, which in 2014 when we started, was heavily dilutive to cloud margins, but also to company margins, has broken even in the second half of 2016 at a gross margin level. Guess what? In 2017, it will already have a very decent gross margin contribution. Next year, it will start to have a positive operating margin contribution for our business. As we march to 2020, it will actually be quite accretive to operating profit.
Our software-as-a-service, platform-as-a-service, as well as business networks assets, will climb up to 80% gross margins, which mean at this point they will be exponential absolute operating profit contributors. Of course, we are not there yet. As I've said, we are investing currently in a converged cloud infrastructure. We're investing in data center consolidations to be more efficient in our cloud operations. We are migrating away from legacy databases to our SAP HANA database platform for our scale assets that have been built on third-party databases. This is, in 2016 and 2017, resulting in dampening effects. However, all of these investments are making us fit to see this exponential gross margin expansion that I've been highlighting. We will provide you with even further transparency as of this year in how we are doing in this respect.
I'm happy to announce that we will, as of Q1 2017, change the way how we present our segment reporting, so that in our so-called application technology and services segment, we will break out separately the revenue contribution, the expense contribution, and hence the gross margin performance of both the IaaS, as well as the software-as-a-service, platform-as-a-service business. We are very confident that you will have all of the transparency to track whether we are following through with those commitments that I've shown to you on the last slide. It's not only a fact that we will improve across all of our business models in terms of efficiency, and hence the cloud gross margin will improve dramatically by eight percentage points until 2020. We actually see that we still have great potential left in our software and support business to further increase its efficiency as well.
In 2015, we gave a rough target that by 2020, we want to be at around about 88% software and support gross margin. Quite frankly, now, two years later, we are already at 87.4%. I believe this is becoming a more and more conservative target, and we should be able, if we are focused on this, to do much better than this. Why is that so? Because, A, the relative weight of support revenues as a total of software and support gets bigger. B, our share of expenses that we have to pay to third parties, for example, as royalties for our databases, is getting smaller and smaller as the share of HANA-based licenses that we sell gets bigger and bigger.
In combination, while of course, the mix between software and support and cloud revenues will dictate the ultimate cloud and software margin, if you have both elements so strongly increasing, of course, it is very, very likely, if not certain, that the cloud and software margin will go up. Services was, in 2016, the only reason actually, why the total company operating margin was not already seeing the trough and was not starting to increase again. Let me be clear. Our services business operationally is already very healthy again. We did a great transformation of that business in 2015. We see that billable utilization is at a very high level. We see that the underlying performance in terms of services bookings is trending upwards.
However, we consciously engaged in a small number of high-profile co-innovation projects with customers in Asia, that have resulted in quite a number of investments that are booked in the services business that are dampening the margins still. However, these projects have now run their course. They are ending in 2017, we fully expect that we will see an upwards trend of our services margin again. We will certainly not achieve the traditional margins in the high 20s or even 30s for our services business anymore because that business has transformed to the cloud as well, nimbler, smaller, faster implementation projects. However, I am very confident that we will see the margin trending up above the 20% mark again. This year, we should definitely see this mark with the projects running out.
If you take a look at this and couple it with the fact that our cost ratios will also improve. Our R&D ratio, after a period of heavy investment, is expected to slightly trail the performance on the top line, and hence, the R&D ratio will come slightly down over the years to come until 2020. The sales and marketing ratio is expected to grow in line with the growth of the business. G&A, after a big decline in 2015, after our company transformation program, where we have slimmed down quite a lot of the overhead functions across the company, will remain stable at this lower level. Actually, I believe there is scope to even further slightly reduce the G&A ratio. Of course, the final question comes, and I get this in every discussion with investors. Okay, when are we seeing operating margins trough then?
Shouldn't there be scope for an increase in operating margins again? Indeed, we believe this trough is coming now. In 2016 and in 2017, we still are subject to the effect from revenue mix shifts. Yes, we have still the substantial investments in our cloud infrastructure. You see this also from our CapEx spend in 2016. We had around about EUR 1 billion in CapEx spend. I will show you towards the end that also in 2017, we expect further increases in CapEx and to finalize these programs in time by the end of 2017.
As of 2018, when the cloud has finally taken over our classical on-premise license business, when all of these investments can be transformed and translated into the operational savings from a converged cloud infrastructure from the consolidation of our data centers, we will see an exponential improvement in the contribution of our cloud business to absolute operating income. Together with our efforts to increase the efficiency in the rest of the business, in software and support, and especially also in services, we should see margins trending up again. As you have seen, we have recently updated our guidance, not only for 2017, but also our midterm outlook going into 2020. While we are pretty unique in our industry, giving such an outlook four years out, it should give you a great sign of our confidence as a management team.
As we have upgraded this ambition even, we have been facing some questions, where do I see the leverage in these targets? Well, let me be clear here as well. When we set this midterm ambition, we want to be absolutely clear and certain and sure that we will hit this guidance across all of the different metrics. We believe in the mix between achieving these targets one way or the other, being skewed more to the one or to the other of the targets, or even outperforming one or the other of these targets. There is definitely scope to absolutely see a quite steady and positive increase of the operating margin as well. Finally, one more thing and one more commitment to all of you.
Let's talk about capital allocation across the group, because this is something that is also top of mind in a situation where you have seen also Bill stating very clearly that we believe we have the most comprehensive portfolio in our industry, that we have all of the core assets that we need to continue along this impressive growth trend, and that we see a need, of course, to augment our capabilities in some areas through tuck-in acquisitions, that it's highly likely that they will not be of material nature. That's why, of course, you're getting the question. You have such a positive and strong cash generation profile in your business. Indeed, we have seen a very strong CAGR of our operating cash flow development, especially in 2016, where we have been growing operating cash flow by 27%. Admittedly, 2014 and 2015 were also affected by one-time effects.
You see that despite of the fact that we invested heavily in CapEx in order to increase our cloud capabilities and become more efficient as of 2018, despite the fact that we paid a very strong and raising dividend, we were able to substantially, at the same time, down pay debt and have now a very healthy net liquidity that has already reached 3.2% net debt, and we are continuing to pay down debt as it becomes due. What does that mean? It means, of course, that we have scope, and we have optionality in terms of the usage of cash going forward. We believe that our operating cash flow performance will continue to follow the positive development of our business, of our growth.
If you make the math and take a look at what we roughly want to grow on the top line, I think it's reasonable to assume that we will end up in 2017 with an operating cash flow of round about $5 billion as an example. Let's talk about the priorities in the usage of capital then. Those are the same ones that we've always had as a key priority. A, we, of course, want to continue to invest in our business, and in measures to make us successful in the long run. These are the cloud investments on the CapEx side, for example. We believe that we will continue to see increases in CapEx investment across the group in 2017. The growth rates will already be lower than what we have seen in 2016, we will start to trend down.
As of 2018, this will more radically flatten out. In 2017, we'll still have an increase in CapEx, probably somewhere less than $1.3 billion. We want to continue to pay a strong and growing dividend. How much exactly that dividend will be, will be official once the supervisory board of SAP has made the corresponding decisions two weeks from now in its meeting. I think it's fair to say that it will be higher than the one that we have seen in 2016. We have EUR 1.4 billion in debt repayments that are coming up, 1 billion in EUR bonds and round about EUR 400 million in USPPs that will be becoming eligible for repayment in the second half year. Which means we have optionality of round about EUR 1 billion to either do tuck-in acquisitions if we want to pursue any smaller opportunities.
If we don't pursue them to a full extent of the buffer that we have left, of course we would have scope for additional returns to shareholders. In that case, we will consider in the second half year a corresponding share buyback. We are committed, and that's the last commitment with which I want to end, to absolutely appropriately have our shareholders participating in the success of the company through a strong dividend. Also, if we generate excess cash, which admittedly was not the case in the last ten years due to the acquisition activities that we had, which nevertheless have now run their course, that we then also engage in a share buyback as we have done it in the years in 2007 and before when we had a situation in which we generated excess cash.
Let me close before we go to Q&A, and I would like to invite all of my colleagues on the stage for this. By just leaving you with the following thoughts that you should take away from this capital markets day.
A, I think it is clear that SAP is winning in our industry. We are a leader, and we have extended this lead actually in many areas. If you think about SAP S/4HANA and the digital core, there can be no doubt that SAP is taking substantial market share. If you think about business networks, we are the clear market leader in all of the categories that we are covering there. SuccessFactors is a winner powering the biggest and most complex organizations of the world.
We have great new assets around SAP S/4HANA Cloud, around our CEC portfolio, when you think about what Maui Jim is able to do with the Hybris solution portfolio. We have never been in a more relevant position to serve our customers from a strategic perspective end to end than we are today. This was only possible because we were committed towards investing. To investing both in innovation from an organic perspective, but also sometimes making bold moves in making acquisitions in the right assets, in premium assets, not in a me-too asset, and paying sometimes, yes, also a premium for that. It was fundamentally the right and the only way for SAP to retain and extend its relevance and ensure our long-term success. Now we are there, and we are absolutely firing on all cylinders.
As we continue our acceleration to the cloud, we will, as a matter of fact, and we are entirely committed to that, increase not only the predictability of our top line, but we will also improve margins, profitability, and cash flow. We are absolutely able to appropriately, A, return value to our shareholders. B, also have the options in our hands to do out of our strong operating cash flow generation the right investments to safeguard SAP's success, not only for the second half, but also for the overtime. Thank you very much, and now we do Q&A. Thank you. Hmm? What?
She wants to present.
Oh. Yes, please. Just like to ask Bill, Bernd, Rob, and Steve to join Luka on stage for the final Q&A. I'm not sure at this point in time whether there are still people awake in Europe, but we do take questions by email. Please send them to investor@sap.com. Thank you, Bill.
Thank you. You're doing a great job.
Thank you.
Can we do a safe harbor together?
No, we had the safe harbor hour already. I think we start here in the room in New York, and I see one question here from Charlie Brennan, Credit Suisse.
Yeah. It's Charlie Brennan here from Credit Suisse. Just two quick ones actually. You've shown us that diagram of the wagon wheel with SAP HANA at the core and the applications around the edge. Can you just tell us how many of those cloud applications like Concur and SuccessFactors are currently running on HANA? Of the ones that are not on HANA, what's the timeline to deliver that? Secondly, just a customer question. We've heard about some big successes for SuccessFactors at companies like HSBC, but a lot of investors are asking me about Walmart. Was there any specifics in that deal in terms of functionality that favored your competitor in that situation?
Maybe I could start off with the Walmart one, then you guys can talk about the cloud and the migration to HANA. First of all, on the Walmart one, absolutely a relationship plan failure. Okay. The team won on the solution, the team won on the value, from the pricing to the value of the solution. Walmart conducted an M&A, the Jet.com relationship plan was not adequately thought through in the relationship plan from SAP. That happens when you don't cover all your bases in the sales cycle. The important thing that I would like to reinforce with our dear investors is we won on functionality, we won on the business value. We fumbled the ball on the relationship plan. That's it. No more complex than that.
Therefore, you should not believe in any way that that's a leading indicator of SuccessFactors versus the alternative in the marketplace.
Do you want to?
Want me to continue on SuccessFactors?
No.
The entire SuccessFactors portfolio runs on HANA today. However, we have 30,000 database schemas in our cloud data centers across the globe, which we have to migrate. Now, we have every quarter a plan, how many of these do we migrate? Of course, the new ones which are coming in, they will automatically, immediately go on HANA.
How many customers?
How many customers we have today migrated from the installed base, roughly 50. We will have end of the quarter, 200. There is a clear message. Priority is first, that we serve the customers according to their needs, and we have no pressure in terms of migrating existing running solutions towards SAP HANA. We target to have this entirely done end of the year.
Sure. SAP Concur will be off of whatever portion of Oracle that is being used by the end of, I think it's 2018. Having said that, just to be clear, it is literally less than 2% of the revenue of SAP Concur actually sits on top of an Oracle database. It was an acquired asset, even by SAP Concur a number of years ago. SAP Concur is in the process of moving, obviously, to the SAP HANA database overall. SAP Ariba is about halfway through that today. The network side is on SAP HANA, and the application side will be there roughly by the end of 2018.
Maybe just to finalize this, these are the acquired entities. SAP, as Bernd has shown, has plenty of own developed cloud applications. They all run on SAP HANA. Obviously, we have not built them on a third-party database. If you think about SAP Business ByDesign-
SAP HANA
you think about the CRM portfolio on the cloud.
At the-
This is all built on HANA. The only assets that we are currently migrating are the ones from the acquired entities, that's areas like SuccessFactors or Ariba.
One thing that may be a point of interest in looking at the world through the eyes of the CEO of the companies that we serve is the whole company called SAP runs in a digital boardroom. With S/4HANA and with all of our solutions, we pull through all the important in-memory real-time data from these businesses and how we look at the business in our own boardroom, and how we manage our supervisory board as well as our executive board. I have not seen too many companies that have the kind of technology SAP has and actually run their entire company in a digital boardroom. Anytime you want to come visit us and see it, we'd love to show it to you. It's pretty breathtaking.
Thank you. I see next question here from Phil Winslow, Wells Fargo. Then we take a question here the first row.
Hi. Thank you. Phil Winslow, Wells Fargo, Charlie's old colleague. Just a question for Bill and Steve here. Bill, you talked about north of 70% of business transactions hitting an SAP system. Then obviously, we talked about machine learning.
Yeah
The old adage is more data and a simpler algorithm is actually better analytics. Obviously, you've got a lot of data. How do both of you all think about monetizing this, call it from a core applications perspective, also the business network? Is this making the applications stickier and providing incentive to go to SAP S/4HANA? Is this sort of an additive sale? Yeah, how do you think about that? Just one quick follow-up for the rest of the team.
Yeah, sure.
You want to start?
Okay. You want to start, Steve?
I'll start.
I'll start. Basically, where we think about it is this SAP Cloud Platform. Think about that HANA in-memory database. When I talk to the CEO of a company, we talk about having the transactional data in your business in real time. We talk about being able to analyze the data in real time, and actually predicting what's likely to happen next based on all the algorithms of facts. Now you're running a fact-based real-time business. That's powerful to the customer because they don't do that today, because they're stuck with a 20th-century database technology and an infrastructure where most of the data in these enterprises is dark data, and it never gets looked at. That in and of itself is a breakthrough.
The other thing about S/4HANA, when you think about the power of that data, today our dear customers were up here talking about business model innovation, rethinking things on the fly. How do I do a IoT? How do I take advantage of AI and ML? We didn't get into a whole lot of detail on blockchain, but removing middle people from a business process, healthcare, financial services, retail, all kinds of industries are really focusing in on that now. Having that data in that system is unbelievable. The last thing, Phil, that I've really come to appreciate is the most powerful brands in the world really care about getting at the data that's in those SAP systems. When we think about the ecosystem effect, you think about the early days of ERP, it was having systems integrators to implement ERP.
We don't think about that anymore because that's not relevant. Now that the cloud has taken over, it's like, how do you digitize services to educate the consumer on what is possible with a modern system like S/4HANA? All the other labor equation kinds of things is going to go away. I think our customers spoke about that today. The biggest brands in the world want to partner with us because they want access to that data, and they want to have partnership on that platform where they can use those open APIs, build new innovative applications, or use their technology to help the customer with the data that's in those systems.
I think we became much more strategically relevant in the ecosystem, and I think to these customers who want to run a real-time business and have a single view of the customer from the supply chain all the way through to the channels and social and conduct commerce. I don't know how you do it without having your hands on that data. That's the power of that data and in-memory HANA-based technology.
Phil, I'll just add maybe two things to that. First and foremost, I think the value of the application goes up, right? If data is used to actually drive a better experience of the application or for that matter, the application taking action on behalf of the company, that's a higher value application. I think that's priority number 1. I think the second opportunity is really that when you think about systems like ours, as you've implied, where all this data can be collected, I think within the proper permissions, within making sure that there's a total transparency around how that information is used and with the permission of the customer, I think there's an incredible opportunity to then use information on a real-time basis if you select to also share your information.
That example I shared earlier around the SAP Fieldglass example, it could apply just as easily to SAP Concur and just as easily to SAP Ariba or anything else. If I want to know, hey, look, what is the cost of a giant tire for Rio Tinto on their tractors that are operating out in remote areas? What is the availability of those replacement parts, right? There's tremendous value that I would say that we can deliver as a service that the customer could choose to participate in and purchase.
All right. The follow-up.
Just to follow up on the cloud side, so I guess it would be SaaS plus data as a service, I guess now, too, the combination. On the cloud front, Luka, you talked about a doubling of the contribution effectively a little bit more from 7% to 15% of the private cloud. The question for the rest of the team here, when you think about that, obviously the public cloud side, obviously growing quickly as well. How do you think from a customer perspective, how are you all thinking about what % of your customer base choosing private and why, and which goes for the public additions? Thanks.
Yeah. First, I would also suggest your other question as well. We're going to monetize SAP Leonardo and SAP Clea on top of SAP S/4HANA, so it's a natural pull to actually continue to monetize a bigger portion of that whole platform that we spoke about early on. We said 50% of the customer base will continue to move in on-premise world. The reality is what we see is now that some of the larger customers actually want both. We actually started to see them actually asking for SAP S/4HANA Cloud as a basis for at some time in the future when they're ready to actually move the other SAP S/4HANA piece onto that technology as well. It'll take some time, but it's a combination. it's a switch out at some point in time in the future.
Good. The next question comes here from the first row, Keith Bachman from BMO Capital.
Hi, thank you. I wanted to ask Luka your question. You mentioned that, or Bill mentioned 15% of your customers have converted to the HANA platform, and you've also grown license revenue over the last couple of years. Your comment was, to 2020, you expect license to decline mid-single digits call, which is better than your previous prediction, but if you have 85% of your base you're still going after, I'm not clear on why license can't actually replicate the performance you've had previously.
As part of that question, I wanted to ask a twist. Perhaps, Bill, you want to jump in here. As you think about HANA specifically, how do you think about on-prem versus in the cloud? Thank you.
It's a good question. Of course, when you look out four years into the future, you have risks and opportunities, and you want to carefully weigh them to, hopefully, have a really safe basis to arrive at your prediction at a minimum, and if possible, do a little bit better. I think that's also how you should look at this low to mid-single digit decline assumption that we have implied in our guidance leading into 2020. At a broader perspective, I think we need to understand a few things here. A, we believe over the course of the next few years, we will have a great future with S/4HANA Public Cloud, which will be a SaaS product, consumed as subscription.
At this lower level of the market, we believe that there will be a shift going on into subscription, which is good for us because it drives a higher total customer lifetime value, for SAP. S/4 will continue to drive growth and will be a license growth contributor throughout this timeframe. No doubt about this. As you said, we have 85% of our customers still out to be converted, and we believe that a very good share of those will be converted in the period until 2020. Despite that fact, of course, what you will continue to see is a continued migration of the HR LOB solutions to the cloud. We still have an on-premise business in HR. We still have an on-premise business in procurement. These spaces will move and will be actively migrated by us to the cloud over time.
That process is not entirely finished. B, there are new areas where we believe that we can add a lot of value to our customers, but also drive value for SAP, by starting migrations to the cloud in spaces where they have not happened yet. One of those areas where we see a great opportunity is analytics, for example, where with SAP BusinessObjects Cloud, we have a really cool solution that combines planning as well as analytics functionality, which has seen explosive growth in the first year of us having established it, which we believe will be very soon a sizable business for us. There are additional incremental effects of migrations to the cloud that go against that.
To what extent this will level out against each other, to what extent there might be still incremental on top growth of licenses, or to what extent our current assumption of low to mid-single digit declines will come through, that's to a certain extent unknown. The only thing I can tell you is we feel very safe with the current implied assumptions that we have in case.
Yes. Many thanks.
One question here in the back, Kirk Materne from Evercore ISI.
Thanks very much. I was wondering if you all could talk a little bit more in detail about just your Platform-as-a-Service strategy, specifically as you think about trying to bring more ISVs onto the platform to build out services like IoT that might have more specific use cases in certain vertical markets. If you could just talk about that a little bit and maybe how that interplays also with your relationships with some of the infrastructures of service companies. Just trying to get a little bit more color on platform to service and how we should think about you over the next year or two in that area. Thanks.
You want me to start?
First of all, thanks for the question because this is one of the big opportunities, looking at our 2020 ambition, where massive growth is possible. Far we have focused on building line of business specific cloud applications. Now we move with ERP to the cloud. If you have listened to me, there is a huge opportunity to digitize core value processes of any of our customers across 25 industries. While this was done in the on-prem world, with massive implementation partners, either adding capabilities to our system or using just our development workbench to edit, this will now the place to be in the SAP Cloud Platform. Rob and I are driving strategic partnership within Accenture, within Capgemini, but with, as well, a series of smaller partners. They are all, at the moment, onboarding into that platform.
I shared with you that only in the last six months, we have added more than 200,000 software engineers outside of SAP who are using now the SAP Cloud Platform to build complementary new applications, which are enhancing our portfolio. There is a massive opportunity for us. We predict triple digit growth. We have seen it over the course of 2016, and there is no indication that this will stop. Rob, you want to add something?
Well, let Steve particularly give some comments about the ISVs, because I think it's a very important part of that strategy, and also the open portability of the SAP Cloud Platform-
Yeah.
-to Azure and Google and other ISVs.
Maybe I can just add a little bit to that. I think that-
SAP Cloud Platform, the opportunity around it is fundamentally driven by S/4, it's also driven by all the business network assets and obviously SuccessFactors and Hybris, allowing any of our partners or customers to actually drive a set of extension or integration around SAP Cloud Platform. I do think it's critical for us, and it's really driven by the customer, that regardless of our cloud platform that we deliver, regardless of the fact that we have HANA Enterprise Cloud, that we want to make sure these services are available on any public cloud infrastructure, really at the customer's choice. We take the view that we are multi-cloud in our approach. We can sit just as comfortably on top of Azure or AWS or Google Cloud Platform or other cloud, across all of our products and inclusive of SAP Cloud Platform.
Good. Bernd?
Maybe an additional comment Rob just made. I mean, Carsten, this was the front runner with the Hybris portfolio, YaaS with Hybris as a service, for us internally to test, to pilot whether that microservice approach is an approach that is resonating well with the market. We have been overwhelmed with the positive feedback from the customers, from partners, but as well from analysts, and we will leapfrog with that approach. Some other known companies in the cloud who think today that they are the dominant player, I would rather phrase they have been the dominant player with their strategy and approach in the past. They will not be the dominant player going forward, we will see that we outpace them in terms of growth. It's a question of time when we overtake them.
Okay, thank you. Next question goes here to Alexandre Stott from Deutsche Bank, I think we have Adam Wood from Morgan Stanley.
Yeah.
Thanks, guys. You mentioned with Clea, the machine learning package solutions that you've now got.
How are you pricing those? Is that encouraging you towards some innovative pricing models, perhaps around the human input that you're replacing? Is there any way of monetizing that? Just commentary on how you're pricing those solutions. Luka, you sounded very confident on the margin side of things. Are there any circumstances in which we would not see margin expansion? Are you, in fact, being perhaps a little bit cautious because if we look at the way the gross margins are trending in the different components and the commentary around leverage on the indirect costs, it sounded like the midpoint of the guidance to 2020, which is, I think, about 31%, is not a huge amount of margin expansion relative to where we think we'll be in 2017. Is it even potentially conservative?
Yeah. Should I have the margin question first?
Yeah.
Okay. What could happen to not see the margin expansion in that way would actually be, and that would be a very nice scenario to have, if we would have even more exponential short-term growth in the cloud.
The negative year one effect of, let's say, not a 40% growth, but an 80% growth in the cloud would dampen the margin expansion. That would be a very, very nice problem to have, and I would love to have it. I think under reasonable planning assumptions, I'm indeed very confident that we will get there. The planning and the question whether it's conservative, I think it's all a question of how the different components fit together. We are now at the point, and that's something that was, I would say, for the last two years, the last bearish argument that was left against SAP. I think the market has understood that we grow faster than competition, that the growth in the cloud is not coming at the expense of the core. I think that point is ticked.
The only point that was available was, okay, the mix shift is dragging the margin down. We are already at the point where at the gross margin level, actually, the mix shift in the cloud business is not hurting cloud and software margins in combination anymore. Yes, there is a mix shift effect, but our core business is also expanding its profitability. I think there are a number of unknowns. If, for example, the ratio between the different cloud business models that we have would come in differently than how we are planning it right now, all of them will be contributing to absolute operating income. That's the good news. I know about the early concerns about HANA Enterprise Cloud. We have now a very clear line of sight that this will be a very nice contributing business to SAP.
The distribution between those, of course, could have a bearing on the degree of margin expansion, also the ratio of the other revenue sources next to it. That's really why it's difficult if we look four years out to come up with this with, let's say, tremendous precision. We can come up with it with sufficient precision to tell you that in 2020, we will not talk about a margin trough anymore. We can also be sufficiently clear about the fact that our businesses will all remain strong enough growth businesses that we were able to upgrade our total revenue ambition at the same time. That's the level of confidence that we get to.
You are right, there are scenarios possible, you can think about scenarios in which the overarching progression from a margin perspective would be stronger than what you can imply and calculate. If it's not the case, then it would be because of a different revenue mix, that would mean that some very healthy parts of our business are growing even faster than we currently project, that would be a nice problem too.
Your question on how do we monetize AI, I think we have to distinguish between different use cases. We will incorporate machine learning, artificial intelligence, into our existing applications. The monetization comes with the fact that we will have then the superior solution in the market, and we will win market share. There is another use case where we say, because of machine learning, artificial intelligence, we are able now to bring new innovations to the market. There, we as well will not monetize individual technical component, we will rather monetize the new applications which run on our cloud platform. There is the third aspect, which makes our SAP Cloud Platform the center of gravity, where we have, of course, machine learning services, where we have IoT connectivity services, where we have analytics services.
There we have a platform usage monetization model, so it's based on consumption. We will make it transparent how the partner or the customer is using our platform. It will be a natural ingredient of a technical service available on our platform and not a value in itself, which is standalone. As the huge comprehensiveness of the platform makes the big difference. It's not the individual service. You might go anywhere to find bits and pieces of these services, but you will find nowhere a service environment where you have application services across the entire portfolio Bill illustrated, where you have technology services across our entire technology portfolio. Where you have the new growth drivers with IoT, with machine learning as well on that platform available for consumption.
As Steve said, we will make that platform available in our own data centers, but as well on public cloud infrastructure as a service providers.
Okay, thank you. The next question goes to Adam Wood from Morgan Stanley.
Thank you. Maybe just a follow-up, first of all, on that artificial intelligence question, and really just thinking about the delivery. SAP's customer data sits both on-premise with the customers, but also in cloud environments. You're going to have competitors in that space, Salesforce.com, Azure, and so on, where all of the data sits in the cloud. When you think about how you deliver those services, is there any advantage to all of that data being pooled in one area for those companies so their customers can start to build applications on that cloud environment in a pure sense? Does the advantage you have on the application side give you a benefit there?
Really, how do you think about the competition on AI and how that gets delivered with you having that mix of where the data sits versus others maybe having the data purely in the cloud? If I could, just on the SMB space, you talked quite a bit about the SMB opportunity. On an ERP side, you've pushed products, kind of pulled back from them. If I'm an SMB customer today, what product do you sell me and how do you sell it to me? Thank you.
Darren, do you want to start with the first piece of this?
I didn't get completely the real question, I have to admit.
The data and the application with things like machine learning, right? That's where you were going? None.
No.
No.
Yeah.
I think, yeah.
Yeah. No, first of all, I think when you look at artificial intelligence and the way we think about it, the more data you have, the smarter you're going to get, the more pattern recognition you're going to get. We have to process data. If you look at where we're going from an analytics point of view is to try to process as much data at source rather than trying to bring everything in, right? In our environment, our data is actually quite a really a small piece of what an AI is going to be. It's our ability to use the IoT platform, go out, and then actually create these algorithms, store these algorithms, and actually process the data at source. That's a lot of where we're headed right now.
Just to complement, it is rather an advantage for us, not a disadvantage. As Luka was illustrating about our SAP BusinessObjects Cloud solution, that is a solution where the code runs in the cloud. That solution is able to connect to any data source. Of course, it can be our own data center with our cloud platform, but it can be as well any data source, any service API that sits somewhere. We have seen already customers who have been adopting SAP BusinessObjects Cloud, that they prefer that the data stays in their data center while they have no problem of consuming a cloud product. What is happening is that at one time, take your mobile device. The data is extracted from the customer's data center, partially maybe as well from cloud, partially as well from public cloud services. Think of maps.
Using data. Therefore, I do not consider this as a disadvantage. I rather consider this as an advantage that we can build a trusted channel to our on-premise customer data centers, while this does not have to be the case. In many cases, it's reality today.
Let me just add a couple of things there. First of all, SAP applications probably have more enterprise data than any other enterprise company in the world. If you look at what's happening in technology, the whole model is shifting. You're not moving data anymore, you're moving applications. What will happen is the applications themselves will move to where the data is, get what you need to get, deliver the result, and then the application itself will go away, right? There's a massive shift in the technology model. Fundamentally, the customer owns this information. There's no disadvantage to a SAP or anybody else around where the data is. The advantage is, what company moves fast to deliver applications and services that can understand the data, get a result, deliver value to the customer? That's the answer to that question. Now, let's move to BYD.
Look, this is my area of responsibility, and I fully accept the fact that I think we've been less than clear on our strategy in the SMB space. I want to be very clear about this. We deliver a great ERP solution for the SMB space, and it's called Business ByDesign. It's a product area that's run by an 18-year Concur executive named Barry Padgett, who understands that segment of the market exceptionally well. We've actually done a fair bit of work around that, the technology stack, to actually open it up, allow more innovation to be driven by our partners on top of that. As well as, frankly, integrating it to Concur, Ariba, Fieldglass, SuccessFactors, every one of our public cloud products. In fact, you're going to see Carsten's YaaS technology stack actually being used to deliver e-commerce within that suite of services.
What's been missing, in my view, has been how do you take that type of product and deliver it through a very effective channel into the SMB space? That's one of the things that, frankly, Concur brought to the table. Now, obviously, Rob's team has done a great job in delivering into the SMB space. We're just adding value on top of that. We think that there's a tremendous future for BYD. More importantly, BYD and S4 public cloud are very complementary. How a customer migrates across those products is up to them, and how they use it in any combination or mix is up to the customer.
I think one of the best-kept secrets that hopefully you got today is SAP is a platform company now. The data arsenal that we have is not limited to an ERP system. It's actually all these clouds and network systems, and it doesn't matter what part of an enterprise, either owned data center, somebody else's private cloud, or public multi-tenant cloud where the data resides. SAP HANA and the SAP Cloud Platform can get at anything and give you instant visibility and predictability on what your next move should be as an executive making important decisions. This guy right here, Carsten Thoma, I met him when we first bought Hybris. I knew he had the vision to stay a step right past SFA and SFA-related platforms with a single view of the customer from the data all the way through to the channel and the commerce associated with it. Okay?
When we picked up SAP SuccessFactors, we knew, and I think Georgina underscored it today, that that could be the global platform for the largest companies in the world. Like Gartner says, if you have more than 5,000 employees and you're not running SAP SuccessFactors, you didn't read the memo. Alex Atzberger has completely reinvented SAP Ariba with a beautiful UI. We don't get caught up in small competitors who took a run at us with a better UI because we just build a better one. I think it's not any one thing that makes SAP highly unique. It's the combination of all of these things in a formation around customer-driven value. I will tell you the most important conversation I'm having with customers is showing them the slide you saw today, which is SAP S/4HANA.
The cloud and network assets and the platform and the extensibility of an open platform, and how to leverage that data in new business models. That's the big thing. Steve's got a data-as-a-service business. He's working with Helen Arnold, who runs data as a service for him. If you take a company who today might be in the shirts and shoes business, what they're really concerned with is the data on the device and connecting the wearables and the embeddables so they get all the data on what the athlete is or isn't doing. Why is that important? Because they can take that data and provision that as a service to the people that want to sell into their consumer base, which could be a community of a couple of hundred million people. That might be actually more valuable than the shirt and the shoe you make.
You're seeing all these new business models evolve only because you have a real-time in-memory database and you have complete visibility with the supply and the demand chain in all the channels. When I think of my good friend Jim back there with his Maui Jim product, I think to myself, my goodness, the frustration when you have a great culture like that, you make a beautiful product, and you're limited by the channel, and what the retailer does or doesn't tell you, consumer who's dying to have the best of your product. Well, how are you going to deal with that? You're going to go direct, and you're going to create an unbelievable online experience.
That way they know if they go into the store and they don't get what they want, they can go back to your purpose online and find something that they really want that fits them. That's what's happening in all these companies. The wild part about this story is I could just change the industry thought leadership or the domain around the industry and plug and play the story I just told you in 25 industries all over the world and it resonates. It's almost a little too easy. Okay. It really is.
Thank you. I think given the fact we have to move over to the social hour and cocktails pretty soon. Time for two more questions. I see here one from Michael Briest and then Walter Pritchard. Michael Briest, UBS first.
Thank you, Stefan. Michael Briest at UBS. Luka, you've given a very clear picture on the P&L out to 2020 and you've obviously talked about cash flow through the balance of the year. Can you maybe say something about how you would expect to allocate cash in the later years, assuming there was no large acquisitions? Should we be expecting that that cash would come back in the form of buybacks? Then one for either Bill or Rob, I guess. There's an IoT strategy here, clearly. One of the feedbacks we get from customers is that around your indirect access fees, that makes it quite hard for them to develop some IoT offerings with you. Can you maybe say if you're going to do anything on the pricing model there?
I'll do the easy one. On the pricing model, we already actually starting to launch consumption-based pricing. Obviously, we took that into account when we launched IoT, the way to open up the SAP Cloud Platform. It's easily accessible not only to our customers, to our partners. Consumption-based pricing will be offered in that space. It'll clearly be based on value-driven. That's how we've launched Leonardo.
Yeah. Okay, on the capital allocation, I would say in the absence of large acquisitions, that picture will probably look very similar in years to come, just that the numbers are getting a little bit bigger, obviously. Our cash flow will increase, our dividend payment will increase, our debt repayment will decline because this year is actually the last year where we have a debt repayment coming up that is substantially above EUR 1 billion. Next year, it's EUR 1.2 billion. All of the remaining years are below EUR 1 billion. That means this optional column, so to say, of what is left for either tuck-ins or returns to shareholders, will tend to get higher over time. What we will not do is to engage in debt-financed share buybacks. This is a policy matter. We are not a financial services institution.
We are in the business of driving innovation on behalf of our customers and driving value from that. That's kind of the way how to think about the following years, so to say, 2018, and going forward. In terms of the third element of a P&L, the balance sheet, I think the one item that will be very likely the case there is that goodwill will not substantially further increase as a part of our balance sheet.
Okay. Thank you. The last question goes to Walter.
Hi. Thanks. I guess either question for Bernd or for Rob. You have 15% of the base now on S/4. Can you talk to us about what sort of patterns have emerged around incremental spending from those customers? Do they distinguish themselves between customers who haven't upgraded? Any numbers you could put around that would be great. Is there sort of a kind of template in terms of what types of products they add on in addition to their core upgrade as they go through that process?
Yeah. It clearly depends on the size of customer.
I'm thinking more the install base, not the half that are newly installed.
Yeah. If you look at the install base, what we see in the larger customers, once they've decided to move to S/4, they're pretty much locked in on all the cloud products as well, on the line of business. Whether it's Ariba, SuccessFactors, Hybris, they actually sign up for the full portfolio. What they drive us to do is to make certain that we deliver the integration in a very flexible way. You can just look at the results from 2016. We've seen tremendous uptake across the board in both on-premise for S/4, and then clearly all the cloud products. The move in S/4 has actually moved much further from the 1611 version of S/4, which was the logistics version. Originally, we were just doing a lot of finance with Digital Boardroom, and now you're starting to see significant uptake in logistics as well.
That's why you start to see companies like Microsoft do the integrated budgeting and planning. Supply chain has become really important as well, and has become another significant revenue stream in the cloud for us. Just lastly on Bill's comments and Luka's comments, because I know we mixed HANA and S/4 up a little bit. With HANA, we had 16,000+ customers. With S/4, we had 5,400+ customers. Q4 was a 1,200+. We see a significant opportunity coming in 2017 in that space as well. As we add on Clea and Leonardo, that's truly when we start driving the whole digital experience into what we showed you from the customer base today in, I would say, mass scale.
Walter, maybe just to add one additional data point. While before S/4, we have seen just small incremental numbers in net new names. Since we launched now S/4, we have seen, depending on the quarter, close to 40% net new names. This is what makes us so optimistic. It's not just a conversion of our installed base towards S/4. It's the first time, I think, since more than a decade, that we have significant growth with net new names in our core business.
Yeah. Finally, these are predominantly companies of the size that we are targeting with S/4 public cloud, but not only. That's the really interesting thing, that we see net new name replacements of major legacy competitor customers. You do not do this easily. You only do this if there is a huge transformational opportunity to do things completely differently. Companies that are entrenched, that are in a competitive environment and want to really change and drastically simplify their operations, they see this as an accelerator to transformation. Even if they are very big and very large legacy competitor customers, they switch over. We had these examples last quarter actually, in a very exemplary fashion across quite a few regions, with Asia probably leading the pack here.
Mm-hmm. Thank you very much. This concludes the official part of the Capital Markets Day 2017. We hope that some of you can join us for the cocktails here in New York City. Our next investor relations event will be at CeBIT in Hanover, Germany in mid-March. Thank you, everybody.
Thank you.