By Carsten Krause, December 8, 2024

Transforming Enterprise Software: SAP’s Strategic Shift to Cloud Excellence

In the rapidly evolving landscape of enterprise digital transformation, SAP has positioned itself as a leader by leveraging its extensive industry expertise and a strong commitment to innovation. The transition to cloud-enabled systems leveraging S/4 HANA signifies more than a mere technological upgrade—it represents a fundamental reimagining of business operations and innovation strategies. Central to this transformation is SAP’s Clean Core Strategy, which aims to eliminate common ERP challenges such as technical debt, sluggish upgrades, and fragmented architectures.

This strategic shift is not occurring in isolation. SAP’s approach stands in contrast to competitors like Oracle Cloud ERP, Microsoft Dynamics 365, and Workday, each of which offers distinct cloud ERP innovations. However, SAP distinguishes itself through a tightly integrated ecosystem that includes tools like LeanIX, Signavio, and Cloud ALM, as well as the groundbreaking Joule AI solution. This comprehensive suite enables scalable, intelligent, and adaptable business processes, setting SAP apart in the competitive landscape. This case study explores SAP’s strategy, its impact on customers, and how it compares to other offerings in the market.

The Role of RISE with SAP

RISE with SAP acts as a comprehensive framework to:

1. Simplify the cloud adoption journey by consolidating ERP modernization, infrastructure management, and business process transformation into a single package.
2. Reduce the complexity of managing multiple vendors by bundling all essential tools and services under one contract.
3. Support businesses in creating intelligent, sustainable enterprises through a scalable, cloud-first approach.

End-to-End Transformation with RISE

RISE Component	Supporting Solution	Impact
Cloud Migration	Clean Core Strategy, LeanIX	Simplifies migration by decoupling customizations and visualizing IT landscapes.
Business Process Transformation	Signavio	Ensures workflows are optimized before migrating to the cloud.
Innovation Enablement	BTP, Joule AI	Drives innovation through AI-powered insights and cloud-native application development.
Lifecycle Management	Cloud ALM	Monitors and optimizes the performance of cloud applications.
Sustainability and Resilience	SAP Ecosystem Tools	Builds scalable, resilient, and environmentally conscious architectures.

---

The Clean Core Strategy: Simplifying Complexity for Agile Enterprises

In today’s fast-evolving business landscape, agility is paramount. Traditional ERP systems, often weighed down by heavy customizations and technical debt, have hindered organizations’ ability to adapt quickly to market demands. SAP’s Clean Core Strategy addresses this challenge head-on by transforming how enterprises manage customizations, enabling them to streamline operations, enhance agility, and reduce costs.

---

What is the Clean Core Strategy?

The Clean Core Strategy fundamentally reimagines the ERP architecture by decoupling customizations from the core system and shifting them to SAP’s Business Technology Platform (BTP). This innovative approach ensures that the core ERP (S/4 HANA) remains standardized, simplifying upgrades and reducing maintenance complexities.

Key Principles of the Clean Core Strategy:

1. Minimize Technical Debt: Reduce the burden of legacy customizations that create inefficiencies and slow innovation.
2. Streamlined Upgrades: Enable faster, hassle-free upgrades by keeping the core ERP system clean.
3. Enhanced Agility: Allow businesses to quickly adapt processes by developing innovations on BTP.
4. Future-Proof Architecture: Support seamless integration with emerging technologies like AI, IoT, and blockchain.

---

The Core of the Clean Core Strategy

Result: Organizations can stay ahead of market changes by leveraging the latest ERP capabilities without long delays or disruptions.

Decoupling Customizations
Traditionally, customizations were embedded directly into the ERP system, making upgrades and maintenance cumbersome. SAP’s Clean Core Strategy removes these customizations from the core ERP and relocates them to the BTP, a cloud-native platform designed for innovation.

Example: A manufacturer can move their custom supply chain management tools to BTP while maintaining a standardized ERP core, enabling faster updates.

Process Optimization
Leveraging tools like SAP Signavio, businesses can analyze existing workflows, identify inefficiencies, and optimize processes before migrating to S/4 HANA. This ensures that only efficient, standardized processes are integrated into the clean core.

Example: A retailer uses Signavio to streamline order-to-cash processes, reducing redundancies and improving operational speed.

Automated Upgrades
A clean core allows businesses to adopt SAP’s automated upgrade tools, ensuring faster deployment of new features and patches.

Case Study: Nestlé’s Clean Core Transformation

Nestlé, a global leader in food and beverage, embarked on a journey to modernize its ERP landscape. By adopting the Clean Core Strategy, Nestlé achieved the following:

• Migrated custom production planning tools to BTP, ensuring scalability and innovation without disrupting core operations.
• Reduced ERP maintenance costs by 30%.
• Streamlined upgrade cycles, achieving 50% faster deployments.
• Integrated predictive analytics to enhance demand forecasting, resulting in a 20% reduction in inventory holding costs.
• Source: Nestlé Case Study on SAP

---

SAP Joule Innovtion: Integrating AI into ERP

SAP Joule is the latest innovation in SAP’s AI arsenal, offering a conversational, generative AI solution designed to embed intelligence across SAP’s enterprise ecosystem. Joule aims to empower business users with actionable insights and automation, transforming ERP processes by integrating AI into day-to-day operations like finance, supply chain, and human resources. By leveraging SAP’s extensive business data and process knowledge, Joule provides contextual, predictive, and prescriptive analytics that elevate decision-making and productivity.

Timeline: Evolution of SAP Joule

Year	Milestone
2020	SAP begins integrating machine learning capabilities into S/4 HANA through SAP Leonardo.
2021	SAP announces plans to embed conversational AI into its ERP ecosystem.
2022	Pilot programs for Joule’s conversational AI capabilities begin with select enterprise clients.
2023	Joule is officially launched at SAP Sapphire, with initial features focusing on finance and HR.
2024	Joule expands capabilities to include predictive analytics and supply chain optimization.
2025	Integration with third-party platforms, extending Joule’s reach beyond SAP’s ecosystem.
2026	Advanced industry-specific modules for manufacturing, retail, and healthcare are introduced.

Key Features of SAP Joule

1. Conversational Interface
   Joule enables users to interact with their ERP system using natural language. Employees can ask questions, request reports, and automate workflows through an intuitive chat interface.
   • Example: A finance manager asks Joule, “What are this quarter’s revenue projections?” and receives a detailed forecast based on real-time data.
     
2. Predictive Analytics
   Joule identifies patterns and trends in enterprise data, offering actionable recommendations before issues arise.
   • Example: In supply chain management, Joule predicts potential delays in shipping due to weather conditions and suggests alternative routes or inventory allocations.
     
3. Automation of Repetitive Tasks
   By automating mundane tasks, Joule enables employees to focus on higher-value activities.
   • Example: Automating invoice reconciliation or generating expense reports.
     
4. Embedded Insights Across Modules
   Joule integrates seamlessly with SAP’s various modules, including S/4 HANA, SuccessFactors, and Ariba, providing holistic insights across the enterprise.
   • Example: Joule combines HR data from SuccessFactors and financial data from S/4 HANA to identify cost-saving opportunities in workforce planning.
     
5. Industry-Specific Intelligence
   SAP leverages its domain expertise to tailor Joule’s capabilities to industry needs, from predictive maintenance in manufacturing to personalized customer experiences in retail.

Competitive Edge of SAP Joule

1. Data Richness
   SAP Joule leverages vast amounts of enterprise data across various industries, offering insights that are highly contextualized and actionable. Competitors like Oracle and Microsoft have AI capabilities, but SAP’s integration with its extensive ERP ecosystem provides a distinct advantage.
2. Seamless Ecosystem Integration
   Unlike standalone AI solutions, Joule is embedded directly into SAP modules, ensuring a seamless user experience and unified data flow.
3. Scalability Across Industries
   Joule’s modular design allows it to cater to diverse industries, from manufacturing to retail to healthcare.

In contrast, Oracle’s AI capabilities focus more narrowly on financial operations, while Microsoft Dynamics AI tools emphasize customer relationship management and sales pipeline management, highlighting SAP’s broader integration across various business functions. However, this space is rapidly evolving and innovations are being delivered in an agile fashion. For instance while not directly related Microsoft customers are leveraging Co-pilot functionality which is based on OpenAI across its office collaboration tools for planning and collaboration in this space.

---

AP Cloud ALM: Enabling Seamless Lifecycle Management in the Cloud

SAP Cloud ALM (Application Lifecycle Management) is a cornerstone of SAP’s RISE framework, designed to streamline and optimize the lifecycle of cloud applications. Tailored specifically for cloud-native environments, Cloud ALM simplifies the deployment, monitoring, and ongoing management of enterprise software. It equips organizations with tools to ensure operational excellence, minimize risks, and continuously improve application performance.

Benefits of SAP Cloud ALM

1. Accelerated Implementation
   With predefined templates, guided procedures, and automated workflows, Cloud ALM reduces the time and effort required to implement cloud applications.
   • Impact: Enterprises report up to 30% faster deployment times when using Cloud ALM (source).
2. Reduced Operational Costs
   By automating routine tasks and identifying inefficiencies, Cloud ALM helps organizations cut costs associated with application maintenance and support.
   • Impact: IT teams save an average of 20% in operational costs by leveraging Cloud ALM’s automation capabilities.
3. Enhanced System Resilience
   Continuous monitoring and intelligent issue resolution ensure systems remain stable and secure, even during high-demand periods.
   • Impact: Businesses achieve 99.9% uptime for critical applications managed with Cloud ALM.
4. Improved User Experience
   Real-time insights into system performance allow IT teams to optimize application interfaces and workflows, enhancing end-user satisfaction.
   • Impact: Employee productivity increases by 15% due to smoother and more reliable application performance.

Aligning Customers and Partners

SAP’s success in driving cloud adoption is heavily reliant on aligning with customers and partners. The company provides robust tools such as LeanIX, Signavio, and Cloud ALM to guide businesses through their transformation journeys:

• LeanIX: Offers real-time visibility into enterprise architecture, enabling rapid decision-making during S/4 HANA migrations.
• Signavio: Simplifies the process of analyzing and optimizing workflows to align with Clean Core principles.
• Cloud ALM: Delivers application lifecycle management tailored to the cloud, streamlining deployment and ensuring continuous improvement.

This ecosystem not only supports transformation but also differentiates SAP from competitors like Workday, which lacks a comparable integrated suite for enterprise architecture and process optimization.

---

Case Studies: SAP’s Clean Core Strategy in Action

Case 1: Unilever’s Transition to S/4 HANA

Unilever, a global consumer goods leader, collaborated with SAP to transition its operations to S/4 HANA. Facing challenges with technical debt and legacy system complexities, Unilever implemented SAP’s Clean Core Strategy and leveraged Signavio for process optimization.

• Results:
  • Achieved a 30% reduction in total cost of ownership.
  • Completed its first upgrade cycle 40% faster than previous systems.
  • Reduced downtime by 50% during migrations.

The integration of SAP BTP for custom app development further enhanced agility, allowing Unilever to build customer-specific innovations without disrupting core operations.

SAP Insider

Case 2: Siemens’ Enterprise Architecture Overhaul

Siemens utilized SAP LeanIX to modernize its enterprise architecture as part of its migration to S/4 HANA. The North Star Framework provided a clear roadmap for transitioning to a cloud-first model, ensuring alignment with business priorities.

• Results:
  • Reduced technical debt by 25%.
  • Improved operational efficiency by 50%.
  • Enhanced scalability, supporting the integration of IoT and AI initiatives.

This success story underscores SAP’s ability to address not just ERP migration but also broader digital transformation goals.

Siemens Assets

---

Contrasting SAP with Competitors

While SAP leads in comprehensive cloud transformation, competitors offer distinct approaches:

• Oracle Cloud ERP: Focuses heavily on financial operations, with deep analytics and AI-driven insights, but lacks SAP’s breadth across industries.
• Microsoft Dynamics 365: Emphasizes CRM and sales processes, offering a more modular approach but lacking SAP’s integrated ecosystem.
• Workday: Specializes in HR and finance and lacks robust capabilities for complex manufacturing or supply chain management.

SAP’s edge lies in its comprehensive ecosystem, which is tightly integrated across business functions and industries, allowing organizations to achieve seamless innovation and operational efficiency.

Feature/Aspect	SAP (S/4 HANA)	Microsoft Dynamics 365	Oracle Cloud ERP	Workday
Core Focus	Comprehensive ERP with industry-specific solutions.	CRM, sales processes, modular ERP.	Financial analytics, deep data-driven insights.	HR and finance, people-centric processes.
Customizations	Decoupled via Clean Core Strategy, hosted on BTP.	Moderate modularity, limited advanced customizations.	Allows customization but not as modular as SAP.	Limited customization, focuses on pre-built tools.
AI Capabilities	Broad integration (Joule AI) for processes, supply chain, HR.	Focus on CRM, sales pipelines.	Focus on finance with AI-driven analytics.	Limited AI; primarily for HR use cases.
Industry Breadth	Extensive coverage (manufacturing, supply chain, finance).	Strong in mid-market businesses.	Financial-heavy industries, some retail focus.	HR-heavy industries, less manufacturing support.
Ease of Upgrades	High, due to Clean Core Strategy.	Moderate, upgrades may require vendor support.	Moderate, financial upgrades streamlined.	Easy, due to its focused modularity.
Business Agility	High, thanks to decoupled innovations on BTP.	Moderate, good for dynamic mid-sized businesses.	Moderate, agility focused on financial tools.	Low, less suited for rapidly changing environments.
Scalability	High, supports large-scale global operations.	Good for mid-sized companies, less suitable for large enterprises.	High, especially in financial analytics.	Moderate, HR and finance-centric scalability.
Adoption Rate	High adoption in finance, manufacturing, and retail.	Popular with SMBs and mid-sized enterprises.	Dominates in finance-heavy enterprises.	Strong presence in HR-focused industries.
Tools Ecosystem	LeanIX, Signavio, Cloud ALM, Joule AI.	Integrates with Microsoft Power Platform.	Oracle Analytics, AI, and cloud services.	Workday Adaptive Planning, HR Analytics.
Strengths	Industry-wide coverage, Clean Core agility, AI depth.	CRM, sales processes, and Microsoft integrations.	Financial precision, strong analytics.	HR and workforce-centric innovation.
Weaknesses	High initial adoption cost, requires change management.	Limited industry depth, not ideal for manufacturing.	Narrow focus on financials, limited AI breadth.	Lacks manufacturing and supply chain capabilities.

SAP’s Clean Core Strategy and tools like Joule and BTP exemplify this strength, offering a balance of scalability, flexibility, and enterprise-grade security that competitors often struggle to match.

---

Visual Insights

Chart 1: Clean Core Strategy – Key Benefits

The chart highlights cost savings, agility improvement, and upgrade speed as the top benefits, each quantified by percentages from SAP’s customer surveys.

Chart 2: BTP Adoption Trends Across Industries

This bar chart compares BTP adoption rates in manufacturing, retail, and finance, with finance leading adoption at 75%.

Chart 3: AI Integration in ERP Systems

This comparison chart showcases AI use cases across SAP Joule, Oracle AI, and Microsoft Dynamics AI, highlighting SAP’s superior integration across business areas.

---

SAP Enterprise Architecture – The North Star Framework – Putting it all together

The North Star Framework is SAP’s guiding methodology for enterprise architecture in the era of digital transformation. Designed to align IT and business strategies, this framework ensures enterprises have a clear vision for navigating cloud migration, modernization, and innovation. It serves as a roadmap for organizations to achieve scalable, resilient, and future-proof operations.

---

The Core Principles of the North Star Framework

SAP’s North Star Framework is built on three foundational principles:

1. Clarity of Vision
   The framework helps businesses define a unified vision for their IT and business strategies. This alignment ensures that cloud migrations, infrastructure upgrades, and new technology investments are directly tied to business outcomes.
   • Key Element: Identifying measurable objectives for agility, efficiency, and cost optimization.
   • Outcome: A clear path to achieve strategic goals through cloud-native solutions.
     
2. Incremental Modernization
   SAP emphasizes an iterative approach to modernization. Rather than pursuing a disruptive “big bang” transformation, the North Star Framework advocates for phased implementation to minimize risks and ensure steady ROI realization.
   • Key Element: Breaking large transformation projects into manageable phases.
   • Outcome: Reduced disruption, improved stakeholder engagement, and measurable progress.
     
3. Resilience and Scalability
   With unpredictable market dynamics, the framework ensures enterprises are equipped to scale operations, adapt to disruptions, and maintain resilience. The North Star Framework incorporates advanced capabilities like predictive analytics and automated processes to support business continuity.
   • Key Element: Integrating redundancy, security, and compliance into the enterprise architecture.
   • Outcome: Sustainable and reliable operations under varying conditions.

---

SAP’s architecture methodology is closely aligned on the TOGAF Open Architecture Group Architecture Framework which eases the adoption across the solution landscape and supports business outcome technology alignment:

Key Components of the North Star Framework

1. Architectural Blueprinting
   • Purpose: To create a detailed map of the current state architecture and define the target state, ensuring a smooth transition to the cloud.
   • Tools: Leveraging SAP LeanIX for real-time visibility and insights into system dependencies.
   • Benefit: Avoiding inefficiencies and ensuring alignment between business and IT systems.
     
2. Process Optimization with Signavio
   • Purpose: To analyze and streamline business processes before migration, reducing waste and optimizing workflows.
   • Integration: Signavio identifies bottlenecks and provides recommendations to align processes with the Clean Core Strategy.
   • Benefit: Higher operational efficiency and enhanced process transparency.
     
3. Lifecycle Management via Cloud ALM
   • Purpose: To provide centralized management of cloud applications and services.
   • Features: Monitoring, root cause analysis, and automated corrective actions.
   • Benefit: Enhanced visibility and control over the migration process, ensuring timely delivery and quality.

---

Benefits of the North Star Framework

The North Star Framework is designed to address the most pressing challenges of modern enterprises, delivering benefits such as:

• Holistic Alignment: Ensuring IT investments drive business outcomes.
• Cost Optimization: Reducing total cost of ownership by minimizing technical debt.
• Improved Agility: Enabling faster response to market changes and customer needs.
• Future-Readiness: Building a scalable architecture that supports AI, IoT, and blockchain innovations.

---

How the North Star Framework Differs from Competitors

While competitors like Oracle and Microsoft offer frameworks for enterprise architecture, SAP’s North Star Framework sets itself apart by:

1. Deep Process Integration: Leveraging tools like Signavio to ensure business processes align with strategic goals.
2. Cloud-Native Capabilities: Fully embracing cloud migration with solutions like BTP and Cloud ALM.
3. Industry-Specific Expertise: Providing tailored solutions for industries like manufacturing, retail, and finance.

---

Steps for Adopting the North Star Framework

1. Assessment and Vision Definition
   Conduct a thorough assessment of current systems and define a target state aligned with business objectives.
2. Tool Selection and Integration
   Choose appropriate SAP tools (e.g., LeanIX, Signavio, Cloud ALM) based on organizational needs.
3. Phased Implementation
   Execute transformations incrementally to ensure minimal disruption and measurable ROI.
4. Continuous Monitoring and Optimization
   Use Cloud ALM for lifecycle management to ensure the architecture remains optimized over time.

---

The North Star Framework is more than a methodology—it’s a strategic enabler for businesses seeking to thrive in a cloud-first world. By aligning IT architecture with business goals, SAP empowers organizations to innovate faster, operate more efficiently, and achieve sustained growth. For enterprises ready to embrace digital transformation, the North Star Framework is a proven guide to success.

The CDO TIMES Bottom Line

SAP’s transformation, anchored by its S/4 HANA platform and Clean Core Strategy, represents a paradigm shift in enterprise software. For decades, ERP systems have been criticized for being too rigid, costly, and slow to adapt. SAP is tackling these issues head-on by decoupling customizations, streamlining upgrades, and shifting innovation to its Business Technology Platform (BTP). This approach not only addresses long-standing challenges but also positions enterprises to thrive in the fast-paced digital economy.

Why SAP’s Approach Matters

• Strategic Flexibility: By eliminating technical debt and centralizing customizations in BTP, SAP provides organizations with the agility needed to pivot their operations quickly in response to market demands.
• Future-Ready Capabilities: SAP is integrating cutting-edge technologies like AI, IoT, and blockchain directly into its ecosystem. The Joule AI solution exemplifies how SAP is embedding intelligence into business processes, driving efficiency and enabling proactive decision-making.
• Global Scalability: With robust tools like LeanIX, Signavio, and Cloud ALM, SAP offers a structured and scalable framework for managing cloud migrations and enterprise-wide transformations.

Competitive Edge Over Alternatives

SAP’s competitors—such as Oracle, Microsoft Dynamics 365, and Workday—offer strong ERP solutions but often lack the depth and breadth of SAP’s integrated ecosystem. For instance, while Oracle excels in financial analytics and Microsoft Dynamics leads in CRM, neither matches SAP’s holistic, industry-spanning approach to ERP transformation. Workday’s focus on HR and finance, while valuable, cannot compete with SAP’s ability to address complex supply chains and manufacturing processes.

Risks and Considerations

Although SAP’s strategies are well-designed, executives must approach adoption with careful planning:

• Adoption Costs: Initial investments in tools like LeanIX and Signavio can be high. However, these costs are offset by long-term savings in maintenance and upgrades.
• Change Management: Transforming to a Clean Core requires significant organizational alignment and commitment. Without proper training and stakeholder buy-in, implementation risks may increase.
• Competition for AI Leadership: While Joule AI offers broad integration, SAP must continue innovating to stay ahead of competitors like Oracle’s AI-driven financial solutions and Microsoft’s advanced analytics tools.

Final Thoughts for CDOs and CIOs

For Chief Data Officers, Chief Information Officers, and other enterprise leaders, SAP’s approach offers a compelling roadmap for navigating the complexities of digital transformation. Aligning with SAP’s frameworks—such as the North Star Enterprise Architecture—ensures clarity and strategic focus. Moreover, leveraging tools like BTP for innovation and Joule AI for intelligence can help organizations unlock new value streams and operational efficiencies.

SAP’s transformation strategy is not just a software update—it’s a blueprint for how enterprises can build resilience, adaptability, and competitive advantage in the digital age. By adopting SAP’s tools and methodologies, executives can position their organizations to excel in an era defined by rapid change and relentless innovation.