Partners need to target SAP SMB market for cloud transition

SAP SMB customers make up a large percentage of SAP's overall customer base. Most SMB customers rely on SAP's extensive partner network for sales and implementation of SAP systems. And SAP, in turn, is relying on its partners to help transition its SMB customer base from traditional on-premises ERP systems to the next-generation SAP S/4HANA Cloud ERP platform.

In this Q&A conducted at the Innovate Live by SAP event in November, Claus Gruenewald, SAP global vice president of Global Partner Organization portfolio management, discusses the roles that SAP partners play in selling to and servicing the SAP SMB market. Gruenewald explains that partners who have been successful in selling on-premises SAP systems will need to change their strategy to become successful in the cloud.

Why are SAP's partners important for the SAP SMB customer base?

Claus Gruenewald: The SMB market is one which SAP predominantly serves through and with partners. So the partner business is a very important one for SAP SMB customers. Most SMB sales are driven by partners, and most of the partners are local. Sometimes we see the global partners in the SMB space, particularly Deloitte, but we don't see that often. It's a very local business. These partners really know the market space; they are also trusted by their customers because the name of the brand is known in the local space.

How many partners are currently active?

Gruenewald: There are a little over 800 active selling partners for SAP S/4HANA on-premises, and there are 300 partners that actively work on cloud with around 100 partners actively closing deals for SAP S/4HANA Cloud. There's such a difference in on-premises because the sales and service cycles are longer compared to cloud. If a customer decides to go for on-premises on purpose -- and there are reasons for this -- typically the partner needs a little longer in the sales cycle, and partners are able to do one, two or maybe three projects a year, depending on the size of the partner. So it's not a volume business, it's a value business for the partner.

Claus Gruenewald

What are some of the differences between on-premises and cloud implementations?

Gruenewald: The sales cycle and the project scope is shorter for the cloud, and it's more often led by best practices. In on-premises, you sell an ERP on-premises license and the customer comes with precise requirements about what it wants to solve with the ERP implementation. The partners can then make a customized, on-premises ERP that's specific to the customer, which makes the sales and implementation cycle longer. One strategy for customers is that they can differentiate in their industry with a specific customized ERP, so they may choose on-premises. However, another customer strategy is to say that almost everybody in the industry already has ERP, so the strategic differentiator … is fast rollout and using best practices in the industry, so they may choose the cloud.

What are some of the differences in the ways partners approach on-premises or cloud implementations?

Gruenewald: The on-premises partner typically doesn't do more than three to four projects a year because it needs the resources and it only has a given amount of consultants. With the cloud, the partner is successful if it has a fast go-to-market [strategy], which means going after many customers. The cloud business model only works if a partner has four to six customers a year. The money from the cloud customer comes in quarterly fees, so the partner has to cover a cash flow dip in the beginning. But if it keeps the customer for one and a half years, the cash comes back. So the partner does well if it has four to six customers in the first year. The first year of cloud business for everyone is an investment business, but after one and a half or two years with six or seven customers, the profitability and cash flow curve is super steep. That's if you don't lose customers.

How can partners who have been successful with on-premises implementations focus more on cloud business?

Gruenewald: We have trainings for that but it's also a mind shift to get into that business. Make the customer understand that it's best to take it as is, it's a best practice in cloud. So don't sell feature functions, sell best practices. Once your customer accepts best practices, then it's a cloud customer. The customer will be happy almost forever because in ERP, a customer usually doesn't change the vendor because [ERP is] mission-critical for them. They usually don't do it because the switching costs are simply too high, whether it's cloud or on-premises.

What are some specific ways partners can sell their customers on the cloud?

Gruenewald: The partners understand ERP very well but if the partner just goes in with too many feature functions to a cloud-minded customer, that will not succeed. The partners have to help customers understand that SAP has a pretty good understanding of their industry, and that these are the best practices. For example, here are the best practices that matter in consumer goods or component manufacturing -- and that's pre-configured in the system. You take it to your customer with a demo system and show them the software, show them the nice [user interface], show them what has improved using machine learning and AI, show how much automation has to be put into the system. It's not the original ERP system anymore where everything was done manually, which was nice for a professional user 20 years ago. Now, the ERP application has changed and is much more automated. It's not made for these super professional users for only that system. This saves them time, which they can use for something else, because the system automatically gives them not a decision, but a decision proposal. It's not just a system that you have to feed all the time with master data and transactional data, it's basically automated now and all that process stuff is going away.