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SAP Pledges Root and Branch Operational Overhaul

"A key component of the operational review is to position SAP as a best-in-class provider of cloud applications across any type of cloud delivery model"

By CBR Staff Writer

SAP has pledged further sweeping changes at the German company, intended to “accelerate operational excellence” as it increasingly refocuses on its rapidly growing cloud business, aims to boost margin and innovate faster and more efficiently.

The root-and-branch overhaul will be led by a special executive board committee which will “identify, evaluate and execute on operational levers across all functional areas of SAP’s business” SAP said, pledging a focus on “growth, innovation and efficiency”.

Its operational priorities: faster development cycles and speed of execution; significantly increasing investment in core product areas; and focussing more on cloud. Its financial priorities: cloud gross margin of 75 percent and approximately 500 Basis Points of operating margin improvement by 2023, SAP said today.

SAP’s restructuring has already been deep. This operational review is more focussed on making the company faster-moving.

“A key component of the operational review is to position SAP as a best-in-class provider of cloud applications across any type of cloud delivery model”, the company said today, announcing an “operationally focused” Capital Markets Day in November.

This will lay out the details of “several new initiatives” to accelerate value creation amid an ongoing shakeup at the company that has included 4,400 redundancies, SAP said.

In a nod to staff that further deep cuts are unlikely, the company added: “It is not envisaged that any of these initiatives trigger additional restructuring plans”.

SAP CFO Luka Mucic said: “The achievement of our new cloud gross margin target is critical for our long-term success and supported by the successful completion of our multi-year program to converge our cloud solutions on SAP HANA.”

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SAP Earnings: Strong Cloud Growth (Again) 

The note came as SAP reported strong Q1 earnings, announcing 324 new cloud bookings for the quarter against 245 in Q1 2018, with cloud revenue exceeding €1.5 billion for the first time in a quarter, up 45 percent year-on-year.

Total revenue was €6.091 billion, up 16 percent.

Software licence revenue grew slowest, rising just 4 percent to €650 million. SAP S/4HANA adoption grew to more than 10,900 customers, up 30 percent, with over 40 percent of the additional customers being “net” new.

The company said it aims to triple cloud revenue by 2023.

CEO Bill McDermott said: “SAP’s results are another illustration that we are a rarity in the enterprise applications software industry. We have a strong core business, the fastest growing cloud at scale in enterprise software and impressive non-IFRS operating profit growth. We are focused on leading a best-run SAP so we can drive significant margin expansion in the quarters ahead.”

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