Thinking in Algorithms

Algorithms and data structures in the age of AI

The temptation to chase IT megatrends instead of forging your own path is great. SAP CEO Christian Klein has been keeping his finger on the pulse and is using the right buzzwords for big IT trends: AI and cloud.

Financial analysts and investors are eager to hear these signals, as other IT companies are also focusing on AI and cloud trends. In the end, the majority must be in the right. But SAP has a very specific European past. It remains to be seen whether the US megatrends and buzzwords make sense here.

SAP's strength has always been in business algorithms, i.e., software for controlling a company's organizational structure and processes. If IT tools such as AI are now being used for these algorithms and data structures, this is not necessarily a bad thing; a cloud can also be a useful extension of the ERP architecture. Whether SAP CEO Christian Klein should now align the ERP company directly with AI and the cloud, however, seems worth discussing.

Making money with software

According to a report by the German business magazine Handelsblatt, Siemens was able to improve its balance sheet thanks to its strong software business. Deficits in the past were compensated by growing software sales.

SAP's core competence is standard business software. Why SAP CEO Christian Klein is now leaving this successful path and focusing on technical components and buzzwords such as AI and cloud can only be explained by the general IT zeitgeist. Since everyone in the IT scene is talking about AI and the cloud, SAP is doing the same. There is a risk that SAP will lose its unique selling point and become a competitor to hyperscalers and AI innovators.

SAP has earned a good deal of money with standard business software and SAP's customers expect the company to continue on this successful path. Hardly any SAP user expects the global ERP leader to offer special services in the areas of AI and cloud, so long as many of the challenges of digitalization on the organizational and business side remain unresolved.

Software engineers at SAP

Software can be a lucrative business; just look at Siemens. But software is also a challenge for innovation and engineers. The SAP community has been confused by reports that SAP intends to cut or restructure up to 10,000 jobs, mostly in development. Who will develop enterprise software in the future?

However, the situation is not as dramatic as it seems at first glance: SAP CEO Christian Klein and CFO Dominik Asam want to increase the efficiency of the ERP company. Such plans are always quite successful when fixed costs, especially personnel costs, are reduced. But SAP will still have enough software engineers on hand in the future because Christian Klein relies heavily on his partners.

Thousands of software developers work for SAP on a contract basis, but they do not appear on the balance sheet or in the statistics. Official figures are scarce, but it is estimated that more than 10 percent of SAP's developers are on the payroll of SAP partners. These human resources are billed through project contracts. This means that innovative, business-oriented algorithms will continue to exist at SAP in the future.