This is a repost blog from my LinkedIn account. Follow my LinkedInfluence posts on that channel.
I like to use the expression “business judo” with my clients in situations where disruptive forces attack the seemingly mature strengths of a business model. Large and mature organization which miss a disruption cycle at best require deep modernization to right-track growth efforts, in the worst cases miss the opportunity altogether and either need to leap frog ahead through clever innovation or decline like the infamous “inflection point” espoused by former Intel CEO Andy Grove.
A classic case of business judo is unfolding right before our very eyes in the tech space. Large ERP companies are battling it out not over on-premesis software applications but over cloud applications and revenues. But is this the disruption? Or is there a judo move at work that is less visible to the naked eye?
SAP’s recent acquisition of Concur on the surface is a head-scratcher on many fronts. At a disclosed purchase price of approximately $8B it appears to be a big push into non-organic and cloud-based growth by the company. Indeed, even Forbes greeted the news with some skepticism and suggested over-evaluation which led to a near-term drop in SAP stock price. This puts SAP on pace to keep up with Oracle with anticipated public cloud revenues for current year at $2.3B and $2B, respectively. (Ibid) On paper this looks like a keep up with the Jones’es move to show cloud growth on par with its strongest ERP-based competitor.
However, if you look closely at other recent acquisitions and internal transformation from SAP you will see a larger story emerging around the business network. The concept of a business network suggests that the more participants in the network offering cloud-based services and products, the more revenues can be generated in a captured marketplace. Think of Amazon with its Amazon Prime business network of an estimated 20 million consumers. In a B2B environment – which eventually translates to B2C in the value chain – the business network rules.
In 2013 Ariba (the purchasing and online commerce network now owned by SAP)had over 1 million trading partners in over 190 countries. With additional acquisitions over the years of SuccessFactors (HR and talent management), Concur (expense management) and other organic cloud-based systems, SAP expects to grow its cloud subscriptions to 50 million from 38 million currently. These levels are on par with Amazon and while not publicly available one wonders if the recent IPO-buster Alibaba could claim such subscription levels even with a broad audience base in mainland China.
So go-on ERP companies. Keep thinking the play is to increase cloud-based revenue earnings. Meanwhile companies like SAP will continue to grow its business networks and show us just how well it knows a few business judo moves.
In full disclosure these are my own views and are not influenced by corporate information not available in the general public domain or containing and forward-looking statements. My publicly obtained sources are highlighted in this blog for reader review.