Navigating Digital Transformation and AI with SAP
Transcript
All right, welcome to another episode of the CTO Advisor podcast and we'll publish at least a portion of this, not all of it, in video. You know what, the and now that I have access to all of Futurum Group, I have this really unique capability now to bring in super interesting guests. This week's guest, Dion Hinchcliffe. Dion, this is what, your third week at Futurum Group? at Futurum Group, yep. And you lead our CIO practice. First, introduce the audience to you cuz I don't think you've ever been on the podcast.
We've known each other for years now, but you've never been on the podcast. Yeah, yeah, so I I've known you Keith for a long time, but I've I've done a lot of work in the IT industry. I've been in the industry 30 years. I'm an ex-practitioner, so I built really big systems, been chief architect for a couple of very large organizations delivering very, very difficult things. So, I know the buy side, the delivery side real well, but right now I focus really at the CIO level, IT strategy, digital transformation, everything from budgets to innovation cuz the chief information officer's becoming the chief innovation officer and so that's really what I'm I'm going to working with to build the Futurum CIO community and so great to be on the show, Keith.
Thanks. Well, I'm honored to one, have you on the show and then two, more most importantly, when I got with that you might be working with the with the Futurum Group, the CIO practice within the Futurum Group, I got really excited. There's nothing but respect and I think the audience will see that as we do a recap. One of your first events, or rather your first event with the Futurum Group covering the Futurum Group, was SAP Sapphire. We both, I believe, met each other at Sapphire many moons ago and the message the message from Sapphire has been consistent in the in the aspect of like what where they want to go.
The technology has shifted a bit and of of course AI has kind of thrown a wrinkle in all of this. I'd love to get your insights from a CIO perspective and then as a CTO advisor I would follow that up with kind of what will it take to get there. So, what the strategy and what you heard from a strategic perspective and then what I heard from a technology perspective to meet that that strategy. Yeah, absolutely Keith. So, yeah SAP had very interesting show because the world has changed as you know Keith.
AI is on the CIO agenda. The CIO is is getting a lot of pressure from the board to do something competitive significance. They know if they don't put AI in the core of their business that the competition will, maybe new digital gazelle will and just and eat their lunch and they see that as a threat. And that's that's a board level responsibility. And so they're breathing hot and heavy on the CIO and SAP knows this. And so the message very clearly you know and it was a Christian Klein show for sure.
You know, he came out in the beginning and really immediately jumped into AI. Here's all the use cases. Here is we have we have two things that we're doing. We're putting AI into all of our products. We're enabling specific use cases and we built this this intergalactic ecosystem of strategic partners who are going to build best of breed SAP implementations of of AI use cases. So, everything from you know maintenance to customer service and presumably marketing. They said they're they're really focusing by the end of the year to to 10 really juicy you know, high-value use cases in each um business domain that they service, each main business domain.
So, about 100 really move-the-needle use cases. And these are from, you know, big partners from like Accenture and Deloitte and things like that. They had a They had a who's who list up on the stage. And that was the primary message. Um and and and so, one is putting AI throughout their product, and the other one is they brought a co-pilot that is an expert on ERP, and they're building their own model around this. So, they were really coy about what's going to be in that model, and it's opt-in, and so, the customers can train it on their data so that it is really relevant to them, but it's an opt-in thing.
We don't make you do it. Um and it talks to Microsoft's co-pilot. So, there's still only one co-pilot. So, that was the other really big uh message. It It's called Joule, and so, the like the energy unit, not like the the gem, right? So, uh but I think that's it's supposed to play, you know, a dual kind of um a dual plan words, if you will. Uh and and so, there were many more announcements, but that was the lead-up.
" And that was they just beat everybody over the head uh for that. And rightfully, I think the audience was expecting that. So, so, that was that was That was my impression. We can go over all a lot of the other announcements. I'd love to hear what what you thought about from a practical standpoint, um uh what's this going to mean for for customers at that as they have to actually implement this. Yeah, so, you know, if you're been around the SAP ERP space for a while, you know that these large ERP companies, especially SAP, has been pushing their user base to the cloud.
I remember managing SAP way back in 2015 to 2017, basically. Uh or 2014 to 2017, practically. And that whole time period, SAP was pressuring us to move our SAP operations to the cloud, but there was very little business value back then. It was understood like why they would want us to move to the cloud from their perspective, but from a customer perspective, I didn't understand that. Or I didn't buy the reasoning. Today AI, you know, you you know this from a CIO perspective, we don't want to do these projects on premises if we can avoid them.
We got enough challenges from a infrastructure perspective managing the infrastructure around traditional technologies, cloud technologies, AI is yet another technology to manage. And the push to cloud makes a little bit more sense. The challenge, and every CIO and CTO knows this, this is not a technology problem in itself. It is absolutely a people and process challenge. In order to get to the cloud, getting to that clean core, which is what we heard a lot this this SAP Sapphire, we've heard it previous Sapphires, getting to that clean core where we're not using customizations and preventing the move to the cloud, that was the biggest barrier that I heard to getting to that vision.
We can talk about the specifics around the advantages and some of the opportunities and challenges around specific features within AI, but AI being what I walked away thinking, "Wow, this is the first time that SAP has had a compelling stick and carrot to get people move from on premises instances of SAP S/4 or previous versions of SAP to the latest version and not just the latest version, the latest version in the cloud. Well, I thought I liked the clean core messaging, too, and they were very clear about that that is if you want to be able to move fast with SAP, you better get a clean core.
That's the approach. And I asked their SAP customers what they get made give me special access to a few of them and I asked them about clean core and they're all signed up for it. But but Keith, here's what I really want to know from you. Um so, you know, I'm an SAP customer. I I I let's say I buy in that AI is going to save me a bunch of money in customer service and I'm doing predictive maintenance in my factory.
I like these use cases and now I'm going to be running AI all the time, all day long operationally. Um that's going to take a lot of compute power. You know, doing inference requires access to a lot of GPUs. Um and my research is showing that it doesn't always make sense. If you have a lot of very hot always-on high-intensity, you know, HPC-style workloads, HPC meaning high-performance computing. Um and you're running AI all day long, does public cloud really make sense?
I know SAP is actually now pushing both sides. They got grow and rise, both, you know, say, you know, if you want on prem, we'll give it to you and if you want public cloud, we'll give it to you. You're you're covered either way, but in practical terms, what does it mean, Keith? How how how are companies going to run these workloads and and do it affordably? Yeah, that's an insightful question and I think one of the challenges the challenging questions is and this is not just across SAP, you know, if we're talking about SAP adjacent and competitors, Salesforce and every SaaS offering that now needs to have a some type of AI inferencing capability and being able to get close to your data.
You know, all of the big equipment OEMs will tell you this is the opportunity for them to shine, for you to put your equipment in a colo or somewhere close to the cloud so that you can optimize for not just cost, because cost is a legitimate concern as you mentioned, capability is a legitimate concern across the the different data sets, but also latency of data. Like, if your data is sitting in Salesforce in the Salesforce cloud, if your data is sitting in on prem in flat files in your NAS traditional NAS services, in SAP in the cloud, that latency matters.
And that ability to get to business intelligence, the value what Dell would call, we'll borrow Dell's term, the AI factory, getting from your data to intelligence, all of this is concern. So, from an enterprise architect head, as I look at the data, where my data resides, where I need to put the AI closest to the data in order to get those results, these challenges come to mind. " SAP was light on that messaging on what how to get AI closest to the data sets in RISE and to and what that cost model will look like.
So, I'm I'm I'm anxious to kind of understand that hybrid approach. I I agree. They were not explicit about what the costs were going to be. They were saying some of the right things like you, you know, I heard, you know, them saying in private sessions that we had that were not NDA, that, you know, if you're not going to use a model that costs $8 to answer a question when you can use an AI model that costs 2 cents to generate an answer, right?
Um so it was they're making sense about that, but they didn't clear about how they're going to deliver it to the customer. And so um I like the AI messaging in in terms of they are they're showing that they are investing at a at a world-class level um at you know, a top-tier uh vendor level. They're investing enough to be able to deliver AI strategically for large swaths of the business. They're not covering everything. You know, you know, I I think they're going to get the customer experience.
You know, SAP does have a customer experience product and they talked about marketing and some customer care and things like that, but um you know, when they talk about finance and they're talking about um you know, factories, you know, that's where SAP has the credibility. And I expect that they are going to deliver the value for their customer. It's clear they're very committed and they have they've they've oriented the whole company around it. Um but that wasn't the only message uh that that they had uh by any means.
Um you know, and you know, they've really been talking about um as well a lot of strategic collaboration. Uh cuz they can't everything's now built with everything these days. And and we're all building on the shoulders of giants. So they had like the new CEO of AWS up there. That was a big proof point. He came up up early in that in that keynote. Um uh you know, Garmin um who said, you know, they're really committed how they're they're going to bring the Graviton chips uh to to bear.
So that that that that's special sauce cuz Graviton um is something that AWS is not selling. They're only renting it to the market. You cannot get a Graviton chip as you well know, Keith. Uh but then they had they had Meta and they had Mistral up there. Nvidia they had of course uh the CEO of Nvidia come in call call in from from Taiwan um and they say that SAP basically runs their supply chain. And they're the you know, they basically he was he was saying that they brought almost the entire capabilities of Taiwan and video has to to bear on the AI problem, but all of that's being run by SAP.
That was compelling and that got a that got an almost standing ovation just to show how you know, not only is is SAP delivering on AI for their customers, but they're enabling the AI revolution itself, right? So all those I think came across really really well, really good. But now the delivery part's coming and that's I think that's this is these questions that you and I are having about how do they actually do it? You know, how are they going to make this cost effective?
And this is one of the things that they've I want to say stumbled on in the past the messaging around cloud and partnerships. You know, you can go all the way to back when they partnered with what became a subsidiary of EMC and all the way through the start and stops with the previous cloud providers. I don't get the sense that SAP believes that they can go at this alone anymore. You know, before I thought they really wanted to control cloud not just from a architectural design perspective, but from a relationship perspective.
They knew they know the value of the relationship. SAP has had the challenge that once the solution is deployed, they lose that relationship with the sponsor with that initial sponsor, the person that drives the the strategic value. As a CTO or as a architect, SAP can come to me all day and talk to me about the value of clean core. Okay, yeah, I get it. That's awesome. I want to do it, but if I can't get the business to come along with that journey with me because that requires transformation.
This was a conference about transformation. If you know, if if I had to wrap it up in one word, it was transformation. Technology, process, people all wrapped up in the bubble of AI and getting to AI. And SAP as a organization, what I heard with those partnerships was a transformation, which was we're going to play nicer with AWS. With You know, when was the last time they had a hardware vendor at all on stage at SAP? They had two, yeah.
Never cared. If you know, that that's the thing that that the the solutions provider provides what hardware is going to run on. To have Nvidia on stage was a huge deal. Well, and and it shows you how important chips are are critical again because getting the computer to do AI and doing it cost-effectively is is really becoming one of the major challenges. Um but Keith, I'd be curious to know also from your standpoint, I'm a big proponent of low-code and I think not I don't even just think, I now have evidence I collect because I collected that CIOs are now looking at low-code as a way of of catching up and doing digital transformation much faster.
And SAP actually said it a number, I can't remember off the top of my head what it was saying that most business processes are going to get touched this year to have AI added or otherwise transformed. And we see things like SAP Build, SAP Integration Suite, and then they had Jewel showing there that's their co-pilot AI modifying SAP processes in a very low-code fashion. It was it was really impressive. And and and even creating new integrations. They they were demonstrating this in keynotes.
I couldn't tell if they were live. I mean, they looked real, but um yeah, you know, this is this is the holy grail. This is what people need to transform fast. And that was the message you heard over and over again. You're you're going to touch all of your processes soon because you have to add AI to them and a bunch of other things. You you need to integrate everything. Jewel's going to help you do it. We're saving 2 hours per SAP developer per day using Jewel now developing going forward.
I thought that was an interesting proof point and that pays for that will pay for it if I do a back of the envelope computation. That will pay for Jewel most likely just by itself. Um but it the the question I have is how fast now can users really get this um can CIOs get this to market cuz I'll tell you the dirty secret, Keith, is a clean core is great, but that most of our customers didn't start with that approach. So, they still have this big tangled mess.
Everyone going forward, new customers are are sitting pretty cuz their customizations are compartmentalized. But the reality is I talked to CIOs and they're they're two, three, four, five versions behind on SAP cuz they have all their customizations mixed in with the core. And so, I don't know it's it's great to talk about these things. They were really important announcements, but my worry is still it will take years for most customers to do this. Yeah, so if you look at the common problem between CIOs, CTOs, resources.
Yep. Where are the people that need to take the business logic and convert that into some type of application or technology? Coding. That is the problem. I can go out and hire 100 developers. But if these developers don't know my business, I am going to create more friction than I do potentially capability. They're just going to sit there and spend a year or two learning the business before they get anything useful done, right? Yeah, in an ideal world, I have these Excel superstars who are just their line of business users who learned how have use Excel out of a necessity to do their business process.
Whether it's Excel, SmartSheet, or some adjacent technology that sits around SAP, they built business process on top and around of SAP. So, you add customizations to that and now you have turtles all the way down. You know, I have I've built this process using a third-party tool in my department that is based off a customization within SAP. And now you want to go to a clean core, take away that customization from me, and now my business process is broke on two levels.
One, I might have to change my business process, and then two, this customization that I built within my department now has to change. Where is the resource to help me make that change? This is the promise of Jewel, right? That Exactly. I think that's what they're hoping is Jewel's going to be able to dig people out of that hole. That [snorts] that, you know, and and we've seen some evidence of this in traditional Python, Rust, Go, and other languages, folks who are not application developers, they're process experts, being able to talk to these co-pilots, ask for code, and code is spit out.
" But, that's the need, right? We we need process experts who have low-friction access to tell the system what they want from a from a business outcome perspective, and then that to be just generated. Well, and I you bring up a very good point. So, where does those system process experts come from? I believe SAP is hoping that customers are going to opt in, let Jewel get trained up on on their entire code base, um and then be able to make modifications based on that.
Uh if I mean, I'm virtually certain that's what their their plan is. And say you you got it you got to train um you you've got to do the opt-in process so and then you'll move at light speed because Jewel can just write all you know, all the change orders. Whatever change orders come on down, you can take the you literally give copy and paste the change order into Jewel and it will generate the changes. That's you know, that's revolutionary. And if when organizations can get there, if if Jewel can be used to move people to clean core, so they can start you know, deconflicting that that those those you know, those problems cuz I'll tell you here's the issue, Keith, is a lot of CIOs are still versions and versions behind.
They can't run all this new stuff because they've got everything hardwired together into a giant you know, giant spaghetti code um spaghetti code base. And so, You know, could you imagine as a CIO, could you imagine being you know, on you know, pre-HANA? Yes. Matter of fact, I run into that all the time. Yes. You all the time. Just pre-HANA. I'm not talking about, you know, R4 or or I mean, uh yeah, R4 or you can be even before that, you can be R3.
Some some customers might be Yeah, exactly. There's a couple of couple I know of a couple. Yes. " And you're a CIO and that board member comes to you and said, "All of this that I saw at uh at Sapphire, that's exactly what I want. " That would be a nightmare scenario. Yep, and that's where the where I advise CIOs to to to try and plant the seed ahead of time saying, "You're going to see a bunch of stuff at Sapphire.
" Um you know, so be aware that there is a cost of entry and that's cuz that's that's that's the reality. Technical debt is pretty high and and and one of the things SAP did is always been good at, but they were very good at this at Sapphire was they had lots of customers up on stage singing the praises of how fast they could implement SAP or how fast they could migrate or whatever. And that was great, but there was there was really a shortage of clean core examples.
I think they had one one customer up there expounding it. The problem is is that approach is just it's too new for most CIOs are not I would say many CIOs are not yet there to the point where they can get that. So that's the gap that SAP has to close. They're they're writing a lot of checks that people want to cash, but a lot of people just aren't there on the place in their in their enterprise technical debt bank account to to do it to get you know, to actually turn all this stuff on.
So Diane, it was great having you on. I I I I'd be remiss without saying that I've gone through the clean core experience moving from multiple instances of SAP global at at V to consolidated down to a single instance in a single instance clean core. Wonderful outcome. But the pain of getting there and that $50 million number for at V I'm this is a t-shirt size. Low. So the for a company the size of at V that's a you know, that's just a a low.
So it it varies for company. But That's a middle of the road number. I agree. Yeah, but without the without the without the number just the I can't understate the amount of work and just attention that this needs from your staff. Like this is a all-hands-on-deck we're putting almost every other project related to the business on hold as we do this because the ask from a partnership between IT and the biz business line teams is not small. It is tremendous ask and that for me is more was the the greater learning than the technology journey itself.
It was absolutely It had to It had It had to have board level buy-in for it to happen. Well, it is because of the dollars. And here's the here's the dirty secret, Keith. Um the number average number of ERP systems that a Fortune 500 company has has risen from an average of eight per company to 20. Uh that's the data I collect. Uh because they're acquiring companies and they can't integrate them as fast as they acquire them. It takes It takes years to justify that that to integrate an acquired company so they're all on one standard ERP.
And so Um I know one sports manufacturer who's acquired all these little companies. He's got 33 ERP systems. He's never I don't know what he's going to do. And remember this is not this is not a question of platform versus platform. It can be the same platform. SAP not clean core, SAP uh clean core. It's got to integrate them. It takes work, right? You got to integrate them. It is It is an It is a good challenge and this is why folks like us exist.
Diane, thank you so much for joining the podcast. I am privilege. I've always wanted to be on. So it was thrilled that you invited me. Uh thanks so much. Yeah, we're we're going to do a lot more of these of you know CIO CTO lenses and this is just the first and I think it's probably the perfect example of the partnership moving forward. Yep, totally agree. Thanks so much, Kip. All right. If you want to know more about the Futurum Group, you can find us on the web, the futurumgroup.
com. We're the Futurum Group on X, not confusing at all. If you want to learn more about me, I'm on X at CTOAdvisor, and I still run the CTOAdvisor. com, which is where you get the more technical content versus the Futurum Group. Diane, you're you're pretty active on X. Yeah, I am. You can find me at at D Hinchecliffe, which I am everywhere on all social channels, and and elsewhere. So, looking forward to uh to to getting this out, and I'd love to spark discussion in the industry about the these topics.
This is this is well, it's front and center right now. All right, we spent a little extra time on this episode, but I think it was worth it because this is a heavy topic that a lot of folks are challenged with. Talk to you next CTOAdvisor podcast.
