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SAP Using Blockbuster Qualtrics Deal To Redefine The Software Industry

Beyond all the flashiness of the SAP-Qualtrics deal—the “unicorn” getting snatched on the eve of its IPO, the all-cash $8-billion price tag, the transmutation of “X-data” and “O-Data” and more—is the simple fact that this is the latest step in SAP’s ongoing redefinition of the enterprise software industry.

Earlier this year, SAP and CEO Bill McDermott issued a blunt challenge to CRM kingpin Salesforce.com by launching what it says will be a next-gen version of CRM called C/4HANA that transcends the old norms by offering more of a 360-degree view of the customer through the inclusion of relevant supply-chain and other ERP data into the CRM equation.

That recalibration of the “old” view of CRM rattled that part of the business rather severely, leading Salesforce to speak more aggressively about the virtues of its MuleSoft acquisition, which simplifies and accelerates data integration and application integration across the CRM and ERP silos. In my view, these are all very positive developments in the Cloud Wars.

While there’s been a great deal of debate about the virtues and value of SAP’s gambit into CRM—see this extensive and thoughtful analysis offered by CRM guru Paul Greenberg—there is simply no question that the arc of not only the traditional CRM business but also the traditional ERP business were forever changed by the SAP initiative.

Here’s a quick excerpt of how I analyzed SAP’s move into CRMearly this year when CEO Bill McDermott first began talking about it:

McDermott said, “This end-to-end is what we do. I have believed for a long time that commodity CRM is just SFA—commodity CRM is like a marketing campaign associated with the sales promo. But when you get into the digital-business scenario of direct to consumer and channel marketing and leveraging an ecosystem and applying geospatial, now you’re talking CEO language.”

SAP’s going all-in on its belief that its bigger and broader portfolio of SaaS applications—including broad sets of apps for HCM, ERP and CRM—will give it a significant competitive advantage over Salesforce because SAP’s wider range of apps will allow its B2B customers to know more and understand more about their consumers—and that those deeper insights will help those B2B companies create new business models centered on what customers want rather than what the seller happens to be able to deliver.

In a similar fashion, SAP intends to use the acquisition of high-flying Qualtrics—which expects to post 2018 revenue growth in the range of 40% for a total of about $400 million—to turn the theme of the “experience economy” into a real-world and fully codified software business that leverages data about customer experiences—that new-fangled “X-Data” thing—into indispensable and high-value insights for the digital economy.

Now, it’s no secret that SAP CEO Bill McDermott is an effusive and passionate speaker whose comments almost always set him apart from other tech-industry CEOs. As it turns out, I’m a fan of that approach—the cut-and-dried commentary dribbling out of most tech firms is one of the big reasons that enterprise tech is considered boring or even intractable to most people outside the industry as well as to too many insideit.

So take a look at the business potential that McDermott sees in this deal as he describes how Qualtrics’ ability to track and quantify consumer experiences can be blended with the operational data that SAP has helped companies master for decades.

“Together, SAP and Qualtrics represent a new paradigm, similar to market-making shifts in personal operating systems, smart devices and social networks,” McDermott said in a press release announcing the deal.

“SAP already touches 77 percent of the world’s transactions. When you combine our operational data with Qualtrics’ experience data, we will accelerate the XM category with an end-to-end solution with immediate global scale. For Qualtrics, this introduces a dynamic new partner with the belief, passion and scale to bring experience management to millions of customers around the world.”

McDermott went on to offer this perspective: “The combination of Qualtrics and SAP reaffirms experience management as the groundbreaking new frontier for the technology industry. SAP and Qualtrics are seizing this opportunity as like-minded innovators, united in mission, strategy and culture. We share the belief that every human voice holds value, every experience matters and that the best-run businesses can make the world run better.”

On the Qualtrics side, CEO Ryan Smith described a mission that most companies would eagerly embrace: “Our mission is to help organizations deliver the experiences that turn their customers into fanatics, employees into ambassadors, products into obsessions and brands into religions. Supported by a global team of over 95,000, SAP will help us scale faster and achieve our mission on a broader stage. This will put the XM Platform everywhere overnight,” Smith said, adding that the deal represents a “once-in-a-generation opportunity to power the experience economy.”

That’s a wildly disruptive approach for a company that, more than 40 years ago, pioneered enterprise applications and created the ERP category. And it’s equally disruptive and jarring for an industry that for too long has attempted to carry 20th-century physical-world software categories into the rapidly emerging and profoundly different digital reality of 2018 and beyond.

Because, just as “front office” and “back office” are fast becoming terms that have no current relevance due to how modern businesses are structured today, so too are the siloed manifestations of ERP, CRM and HCM becoming outmoded, backward-facing and perhaps even counterproductive.

Every company in every industry is engaged in a high-stakes battle for world-class talent that is as strategic an issue as any executive could conjure up—yet far too many of us still cling to the notion that HR is a “back office” function.

As real-time ERP allows companies to get products to market more quickly, create customized offerings more effectively, close financial books much more quickly and deploy resources more intelligently, why in heaven’s name would anyone, anywhere think of finance and logistics as “back office” functions?

Look at the revolution in Customer Service, now seen as incredibly valuable in creating customer loyalty and perhaps even in generating new revenue streams—why would that be considered “back office”?

In that context, SAP’s dynamic efforts to radically overhaul the products it offers and the types and range of value it can offer to customers will force other big software firms to perform similar self-assessments and to think long and hard about whether their current offerings—and how they describe them—are geared to the physical world of the 20thcentury or the digital future of 2020 and beyond.

Perhaps this is the right way to look at it: if ERP helps drive organizational transformation, then perhaps XM, in combination with all of SAP’s other assets, has the potential to help accelerate and intensify customer-driven business transformation in the digital economy.

Strap in—this should be a fun ride!

 

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