Burgess COMMENTARY

Peter Burgess

SAP Expands Its Reach with Merger Activity

Business software giant SAP has been going beyond its traditional enterprise resource planning specialty to expand into areas such as supply chain management, travel and expense management, and the Internet of Things.

Thack Brown, former CFO of SAP Latin America and current GM, Global Head of Line of Business Finance, at the company, visited the Accounting Today offices last week to provide an update on the company.

“We’ve done two big moves outside of ERP,” he said. “One was going from the large companies and getting down into the midsize and smaller companies, which has been a large growth area for us and quite successful, both dealing in classic financial systems as well as the new cloud-based systems.”

Thack Brown

Last November, SAP’s streamlined version of its software for small and midsize companies, SAP Business One, signed its 50,000th customer.

In recent years SAP has acquired a number of cloud technology companies, including a 2012 purchase of supply chain management software company Ariba for $4.3 billion and a 2014 deal to buy travel and expense management developer Concur for $8.3 billion. In 2014, SAP also bought Fieldglass, a provider of vendor management systems, for over $1 billion.

“As we’ve gone outside ERP we’re looking into the Internet of Things and what the implications of the Internet of Things is, what they call omnichannel commerce,” said Brown. “How do you manage when you have apps, stores, call centers, all of these ways to reach customers? How do you do it in a consistent way, have one view of the customer and manage the whole front end of commerce? We’ve done a lot in the space of business networks, which is really about how you digitally identify, contract and manage the relationship, all the way to payment enclosure of a contract with suppliers, across multiple areas.”

Brown explained how the various acquisitions fit together. “We’ve purchased a company by the name of Ariba which is known for purchasing systems, but they have a supplier network built out that does approaching a trillion dollars a year in B2B commerce today, with tens of thousands of companies on the network,” he said. “That’s all about sourcing indirect materials. We then bought a company by the name of Concur, which is all about travel and expenses. With Concur, that is obviously about the management of travel, but it’s also about networks, it’s about interconnecting with the hotel systems, the rental car systems, the airlines, etc., to manage travel expensing. Another company known as Fieldglass does the same thing for contingent labor, third party labor. That is a major trend we see, how these business networks are starting to interconnect.”

He sees the importance of having systems that all link together. “More and more companies are going to interconnect and interact, but for finance it’s hugely important because it’s about digitizing those transactions,” said Brown. “If you look at the networks that we’ve purchased, we’ve effectively purchased networks that work in all of the areas that a company will buy: indirect materials, core materials, people and travel. Those are the expenses that you buy. By doing that through a network you can then automate the financial processes that come behind it, automating the accounting, automating the payment and cash flow management. We’ve been investing very heavily in these areas. It’s been about moving from the very large companies downward. It’s also been about keeping what is our core, ERP, highly relevant by expanding its capabilities and connecting these new capabilities back into the core of ERP.”

The German software giant has also been investigating emerging trends such as Bitcoin and other uses of the underlying blockchain technology for digital currency.

“In talking with a lot of treasurers and people in the industry, there’s a big expectation that this is going to be very disruptive to the banking space,” said Brown. “Part of what’s happening now is the banks are trying to figure out how they use the technologies that were in Bitcoin to make them standards so they remain an important part of the movement of cash.”

Although Bitcoin has experienced a turbulent history to date with a number of popular Bitcoin exchanges going bust, Brown believes these are early days yet for such technology. “It’s fascinating to watch and there are a lot of experts and specialists dedicating time to looking at it,” he noted.

SAP, like many of its customers, has needed to cope with the complexities of M&A deals, including merging together some vastly different financial systems.

“That’s an area where we’ve been putting a lot of investment in providing systems that will allow companies to integrate multiple ERP systems into a consolidated view of their financials, exactly to handle this wave of mergers and acquisitions that’s going on,” said Brown. “A lot of companies have typically done a sort of warehouse approach where you just take a bunch of data and dump it into a single system to do reporting or to try and get a consolidated statement by tying things together, but it’s very cumbersome. It’s very manual intensive. It’s really, really ugly work. A lot of times you may get a consolidated financial statement out of it, but you rarely get the kind of detailed information that you need for management reporting and for other reporting and analysis purposes.”

Instead of resorting to a data warehouse approach, SAP prefers to act as an intermediary for what it refers to as “central finance.”

“We’ve basically put an instance of our ERP in the middle of an existing landscape, and we connect all of the other ERP systems to it,” Brown explained. “Then as we post transactions into these source systems, what our technology does is allow us to post those transactions into the central system so your central system effectively becomes the repository of all of your financial transactions, but it’s an ERP system as opposed to a data warehouse that you’re just dumping data into. It comes in with all of the structure and rigor you would expect from an accounting system, from an ERP system. As long as you have a consistent chart of accounts mapping, which is part of what we do within the system, then you can get a consistent view of the organization across all of these ERPs.”

Companies like SAP that are doing a lot of M&A deals can tie together their financials more easily that way, according to Brown.

“For a company that’s on a mergers and acquisitions spree, this means the ability to connect up new companies in a matter of weeks or months as opposed to potentially years to replace ERP systems and other things, or live with a very hazy kind of view of what’s going on,” he said. “We’ve had substantial demand for this coming from accounting organizations who are saying they are really worried about getting the granularity of information, standards and reporting, in timely fashion, and having enough time to analyze and understand the reporting. Now with changing accounting standards, how do they get visibility across these multiple acquisitions? The demand has been enormous, especially in the very large companies. It’s not necessarily something for midsize companies. For the larger billion-dollar-plus companies that are doing acquisitions, it’s tremendously beneficial. With the wave of M&A that we see, that’s going to continue and be more and more in demand.”