SAP is progressing on its Next Generation Partnering initiative as demand for cloud enterprise resource planning (ERP) increases among its customers.

SAP’s Claus Gruenewald

Claus Gruenewald, SAP’s global vice president of Global Partner Organization portfolio management, has been heavily involved in efforts aimed at helping to shape the initiative, including the recent launch of free partner access to test and demo systems on SAP S/4HANA Cloud and SAP C/4HANA that was first announced during the SAP Global Partner Summit in May.

This shifting focus toward encouraging partners to develop their own IP on SAP technology has also included a reorganization of the SAP Global Partner Organization, which included the appointment of Karl Fahrbach to chief partner officer — a first of its kind addition to the C-suite.

This week, Gruenewald visited SAP’s offices in Tempe, Arizona, to introduce partners to its sales team there to help them build their business. In a Q&A with Channel Futures, he gave an update on the initiative and growing demand for cloud ERP.

Channel Futures: How do you work with partners and how has that changed?

Claus Gruenewald: We have done a couple of major changes during the year. The vast majority or almost all of our VARs were the service partners, they had some very good business success in the last 10, 15, sometimes 25 years with the ERP on-premises. And since SAP is changing and the market is changing, which is very much to ERP cloud, there’s still a lot of customers who use ERP on-premises, but we see a significant shift that more and more customers small and larger are asking for ERP cloud. And they have a reason for that. It might be total cost of ownership (TCO) or it might be fast innovations. There is a reason why they ask for ERP cloud, and that has from a business model, from a service model and from a selling model meant some significant differences for us at SAP and of course for the partner. And that’s why we have adjusted the partner go-to-market, as well as also how we work with the partners, how we simplify the processes with the partners so they get quick into business. We subsidized that under the initiative Next Generation Partnering.

CF: So how does Next Generation Partnering work?

CG: In on-premises, classically the business model works where either SAP or the partner sends the software to the customer and then typically it takes quite a while until the project has been set up, all the capacity and right resources on the project and then they start the project work and they implement that project in the SMB sometimes four months. We have quicker ones, but in general, sometimes nine months depending on the complexity of the project. The cloud expectation by the customer is much quicker. The customer asks or activates the cloud product in order to have the values of the cloud product very quickly. It’s not so much the functionality depth that they’re asking for, but rather…

…that consumption speed for innovations … how fast can I go live, how fast can I roll out my ERP cloud.

The business model in cloud is that it’s not that the customer pays everything up front, but pays them per month or per quarter depending on the payment terms to the partner and then to us for the next 12, 24 or 36 months depending on the contract duration. So as SAP and as a partner, we have a very high interest in having a very happy customer because otherwise they stop paying. Therefore the customer success is a very important measure, which we measure with the partners if the partner’s responsible for the delivery, and there we must help. And this is all subsidized under Next Generation Partnering, where we have not only made sure that the partner has a better demo system … but also that we look at those partners which matter for the customer success.

CF: What’s your partner breakdown with on-premises versus cloud?

CG: We have more than 800 active selling ERP on-premises partners, which means they do at least one deal and one project per year. In cloud, because of the business model, we don’t need so many partners, but we need the right partners per region because … this is where the business happens, meaning North America, in the market units in the countries, in Indonesia, in Australia, this is where I need the partners, which help SAP to deliver on that promise. Therefore there is a land and expand typically, where the partner sells software, they do a project to go live, and then it continues with new versions of the product … which the partner explains these are the new things in the product, it’s relevant for you as the customer and your industry, and in your market, or maybe it’s not relevant and we don’t have to implement this. It goes on and on, and typically should not stop after the first go live.

So we’re talking less than 100 partners, not 800 like on-premises, which we have selected. We work very intensively with them and under the brand Next Generation Partnering we now have for S/4HANA Cloud, that initiative which we call Partner for Success or S/4HANA Partner for Success.

CF: Is SAP seeking more partners?

CG: Yes. Since the S/4 business is our fast-growing (business) at SAP … and we see that it’s around 100 partners, next year we certainly need more. We are already onboarding partners, but not in the hundreds. In this business model, instead of having a volume of partners, I’d rather like to have a volume for partners in cloud to make them very successful from a business model as well as from an expertise point of view. That does not mean that we stop with 100 partners. For the moment, we see that we work intensively with about 100 partners and I see that growing. But it’s not that the partner immediately…

…will be successful. We have regional experts everywhere we go to market that identify other partners. So it can be net-new partners through recruiting, or that we identify existing partners of SAP in on-premises where we say this partner has a very good ERP background and a huge install base, and we also help them to transition parts of their business. They will never transition the entire business because they still have install base as well as on-premises business, as SAP does as well, which is a good business. But the hyper growth happens in the cloud business.

CF: How does this transition process work?

CG: How we do that is training and enablement. New now is that I want the partners to use the software. In a cloud software, a customer will want to have a demonstration of the software, understanding what are those best business processes and best practices, meaning we have now given to our partners a free test and demo system of S/4HANA Cloud. That was for quite a high price in the past and we’ve changed it as of July 1. I want qualified people to work with the system, not just rookies … but people who understand ERP. If they show us they have three certified consultants for S/4HANA Cloud, the test and demo system is free of charge for the next 12 months. We just want to make sure partners understand it’s a good investment to have qualified, meaning certified consultants.

CF: What’s driving the growth in cloud and therefore more opportunities for partners?

CG: The growth in cloud is driven by fast innovation and faster value gain. When I see that a customer tells me and asks strongly about fast consumption of a product, fast go-live and fast consumption of innovation, and not so much asking for features function, that’s an indication that it’s typically a cloud customer. Typically these customers are fast-growth companies, they have growth plans or they have an aggressive expansion plan into other countries with subsidiaries. And they don’t necessarily want to implement another on-premises product because a subsidiary might be a manufacturing subsidiary only, or doing sales only, so they have a specific plan of how they support these subsidiaries with SAP software and with ERP software. That’s usually a strong indicator for cloud, for consuming the ERP on the cloud. If a customer is rather convinced that in their industry they are either a niche player or a very dominant one, and they differentiate because of deep functionality, this is an indication for ERP on-premises.

CF: What’s the status of the goals for the Global Partner Organization this year?

CG: We’re on a journey, so not everything has been reached. But the overall goals of Next Generation Partnering is to simplify the business with the partner, which has various flavors. One thing is doing business, so that’s the transaction that a partner goes into, that this is being supported and simplified. Another was the partner test…

…and demo system, and I would say yes, it’s delivered. And the other thing is on the learning side. We’ve continuously heard from the partners make it easy for us to consume learning, especially everything which is about cloud … that the partner does not have to sit in a classroom training … instead of working with their customers. So all of that learning must be digitized and much of that is already digitized, but not everything. So the team is working on it. The complete cloud content, what the partner needs to know for sales, pre-sales and service, is being digitized, and they can consume it whenever they have time. And partners ask make it affordable and this is something we’re working on.