SAP and The Future of Productivity | The Six Five Summit

Hey everyone, the six five is on the road here in beautiful Barcelona, Spain. We are here at SAP Sapphire 2024 and I'm very excited to have someone that I've had the chance to speak too many times but have not yet had on the six five. Dominic Assam, C-F-O-S-A-P.

Thanks so much for joining me here. It's great to finally get face to face and finally have you on the show. Oh, thank you Daniel for having me.

Yeah, it's great to chat. I wanna start off, you know, since this is the first time I've had the chance to really bring you out to the six five audience, I wanna talk a little bit about your background and how you arrived at SAP. You have a really strong history, not just in tech, but also in manufacturing CFO role at Airbus.

Talk a little bit about kind of the journey you've had to this current position at CFO of SAP. Yeah, obviously, um, one of the key products of SAP is the CFO tool suite. And I've been using that all my life in my prior roles, going all the way then into the operations, manufacturing, supply chain, procurement.

Um, so basically SAP more or less was part of my job description, my prior job. And I think it's not bad if you had that experience prior to arriving here to understand what's the customer needs and what are the pain points and how can you evolve the company As a, um, industry analyst firm, one of the things we always say is the two biggest proof points are customers and of course analysts, but you work the customer. And so over many years, having used the, the product used the applications, you saw the value it brought to business and now you kind of sit in a different role.

So now that you've been here for a little while and you're sitting in the chair as CFO probably still using all the tools, how are you finding, you know, how, how are you finding the job, the role so far? How are you finding the experience of leading and helping lead SAP? I joined SAP because I've been seeing that on the corporate side, on the customer side for CFOs, there's like a triple challenge of things hitting you.

One is increasing regulation, the most recent case being A-C-S-R-D, which is about sustainability in Europe, which is a big challenge for companies there. Yep. Hopefully if you work in the right business, you grow, so you have to manage growth.

Yep. More and more activity every year. And then third point is your business models change.

You have to manage the app. And now at SAP we have exactly those same challenges and we basically want to lead by example, introducing new tools to help our customers to drive better in that kind of challenging environment. Yeah, I really like that you, you said that about kind of the new challenges I've had this kind of thesis that CFOs in the era of artificial intelligence are gonna become increasingly important because driving that investment is a shift in the way it spends, A lot of it, by the way, tends to roll into the CFO if not directly indirectly.

You're, you're, you're overseeing the funding and of course as companies are sort of retooling business models 'cause it's not just new tools inside it's new business models outside and they're gonna need the financial officers to, to really support those investments to drive efficiencies and productivity. And we're gonna come back to AI in a minute, but I wanna talk about the cloud for a minute. Um, one of the big opportunities and challenges for SAP is pivoting, right?

Uh, had the chance to hear from your CEO Christian Klein. He talked a little bit about this kind of 85%, um, you know, of, of the application can be done kind of standard and then that, that customization. But you know, historically there's a lot of customization in SAP, but to get people to move over, it has to be simple.

Your cloud growth has been good, it's been impressive. How do you kind of keep that cloud growth moving? How do you get companies that have lots of customization to see that they need to move to cloud to get the best functionality and capabilities?

I know this is something you're helping drive from from your chair. Yeah, absolutely. The good news is with AI it's clear that the velocity of innovation, if anything, will accelerate.

And that acceleration means that whatever we as a software and SAS provider can give to our customers has to be consumed by the customers fast. 'cause otherwise we will be left behind and the customer will be left behind. Besides all the challenges I mentioned, there's another one which is productivity.

Um, inflation is high. Cost of labor is hiking in our shop, 69% of the cost base is labor costs. So we have to make our people more productive.

There's 300 million users we have in the cloud already and counting, so there's a huge salary loss we can work on. So you're right, the role of the CFO in terms of driving profitability will need to leverage these tools to make sure that productivity throughout the company is really driven. And you cannot do that if you're not exemplary as a CFO yourself.

You cannot ask other people should become more productive if you're not demonstrating the productivity yourself. Yeah, it's a really big opportunity with not just cloud. So moving to the cloud, and this is something I've said a lot about moving S four, is that it provides the platform the opportunity to go to clean core, as you like to say at SAP, get your data right and put yourself in a position to innovate more quickly on your applications to drive those two things that what you said, productivity, I always say efficiency, productivity, but ai, so the AI trend line is, is, is is pretty exponential.

Um, but the early era of ai, Dominic is really about companies, I I call it prune to grow. It's maybe not as popular in terms of outwardly to the media, but internally I think as a CFO you're first looking at where do we implement these technologies to become as efficient as possible to turn investment towards growth. So talk to me a little bit about kind of where AI fits into SAP, how it's gonna be the story of growth into the future and how maybe initially maybe you're seeing customers including you as customer Zero using AI to find those efficiency and growth opportunities.

I mean, I think the first and most important topic in that journey towards AI is to laying the ground and the basis that you can build that on and, and our platform, the SAP platform is, is doing that. And this is why we see that tremendous growth on what we call the cloud EP suite. The cloud EP suite is basically the engine that is making all the people transaction money services, goods in the company flow through the organism of a company.

And that kind of cloud offering we have is growing for 30% plus now nine quarters in a row. I would say that that is also supported by the advent of AI and people recognizing that they need such a platform to really run themselves efficiently, to be future proof, to leverage these scenarios, these use cases. Because if you don't have access in the right way to the data, you don't have a good management of the data, it's not really possible.

And then of course the next stage of the rocket is monetizing the AI use cases on top of that, but it's not the only growth driver we have. You also see we have still a huge install base we convert from on-prem to the cloud. And last but not least, we also have a fast growing mid-market offering.

I'd say starting of embryonic bases but exponentially growing. So these are the three kind of, um, ingredients of the growth we are going to see. And based on that we have high confidence of saying that the kind of 10% roundabouts growth we have indicated to the market as our ambition from 23 to 25 will even accelerate between beyond 2025 through 2027.

Yeah, the cloud growth for SAP has been palpable and I've tracked it quarter to quarter, year on year and it's been very good. And that's indicative of customer behavior changes and understanding how they're going to accelerate their own innovation with the platform. Um, I also like, and I think it's worth calling out kind of what you said about the install base.

There's a lot of sort of market consternation right now about monetization, but I think it's important that the market, Dominic appreciates two things. One is the stickiness of AI features keeping these customers, these, these a RR customers that you've worked so hard to develop on the platform. And then of course the second is incremental.

And I think, you know, in this really fast moving market era of ai, everyone wants to see immediate margin expansion, revenue expansion, but part of it is securing the, the flanks as I like to say. You secure your customers, they see that they have what they need from an AI standpoint and then you can turn up with the 300 million users at your disposal. So I'm curious, you seem very optimistic, um, there's a lot of reason to be optimistic, but you also called out, look, the economy's still in sort of a, an an interesting place.

I know in the states we have big elections coming up, we've got high inflation, this is all over the world. Interest rates sit high. This causes all kinds of challenges for CFOs.

Why so optimistic and gimme a little, gimme a little taste of what you think the future looks like. I think our transformation journey is a secular trend and there is of course more the macro exposed business models which are more volatile in nature, maybe more discretionary for the company, but we then go really into the guts of the company and you have to make sure that you're future proof on these journeys. We see actually an unabated demand we've seen over the last couple of weeks.

There was some nervousness about competitors announcing results, which sometimes disappointed especially on the growth rate. But frankly we really asked ourselves, are we missing something? But honestly we don't see that at present.

We feel that the ambition we have indicated is a solid one. And we had the opportunity last week at our financial analyst conference in Orlando to clarify that. And then we had a counter reaction.

I mean there was some really cross from the competition to our share price. But with that clarification, um, the share pretty much snapped back. So I'm not 2%, that was a market wide, uh, sort of reaction in my opinion to something that just isn't really long term data driven.

We haven't fully seen the use cases, the AI incremental revenue opportunities and like I said, how critical, you know, you use the 300 million number but hundreds of thousands of companies that depend on the software platform. And I just don't see migration off happening at any sort of meaningful pace. What I see is more value with what you've done with JUUL abstraction layers that enable people to simplify the software process mining.

So Dominic, I think you're in a really good shape. Really appreciate you joining the six five here on the road at Sapphire 2024 in Barcelona. Let's have you back again soon.

My Pleasure. Thank you. Alright everybody, you heard it here.

Dominic Issam, CFO at SAP. Great conversation. We dug into all the things from how they're going to iterate in the cloud to innovate with AI to a little sneak peek at the future.

Dominic will be back soon I hope. But for now I gotta say goodbye. Thanks so much for tuning in.

We'll see y'all later.