Last week RSR attended SAP’s Analyst Base Camp, a gathering of the industry analyst community brought together to hear about SAP’s positioning and gain some insight into the direction the company is pursuing in each of the industries it supports with its portfolio of solutions. So it was that team RSR spent time with industry analysts covering (to mention several) manufacturing, public sector, finance, telecommunications, health science, insurance, consumer products… and retail. An additional boon for us was that we got to meet the new head of SAP’s Retail IBU (industry business unit), Lori Mitchell-Keller, and hear where and how SAP will focus its efforts in our industry.

Ms. Mitchell-Keller is an SAP insider, having been at the company since 2007 leading idea-to-delivery in solution management for Supply Chain Management, Product Lifecycle Management, Manufacturing, Procurement, Operational Performance Management and Business Networks. From a retail perspective, a great part of her experience is on the supply chain side of the business. That experience should serve the new IBU leader well as the company continues its push into the retail vertical (which SAP regards as one of its top three focus verticals). Indeed, although retailers don’t like to admit it, a lot of what can be learned in the supply chain can be applied to retail as well. For example, Lori (then the SVP of Suite Solution Management for SCM, PLM, and Manufacturing) observed in an article entitled The Inside Edge in 2008:

SAP’s supply chain customers still find it easier to perceive themselves as silos rather than as links in business processes. Most of them don’t yet think or work in a beautifully choreographed value chain that spans across design, manufacturing, distribution, finance, HR, or more importantly, other companies. When business challenges arise, the tendency is still to buy software… rather than to uncover the root of the pain point and then seek the solution or outside partner that will solve it. “

Replace the words supply chain with retail, and you have a neat definition of one of the retail industry’s biggest challenges, that no retailer is an island , even though many continue to operate as if they are.

At the Analyst Base Camp, the Retail IBU leader talked about multi-industry value chains, where companies overlap (for example, consumer product manufacturers and retailers overlap in the supply chain, and mobile network providers and retailers overlap in the area of mobile consumer touchpoints). SAP believes that it is well positioned to help companies not only better manage what happens inside the four walls but what happens outside of them — in those areas of overlap.

SAP’s Positioning

SAP’s overarching message is that its solutions help businesses to run better (I particularly enjoy the ad that equates better with “sleeker/ worldlier/ higher/ brainier/ smarter/ sharper/ cooler/ louder/ awesomer/ artier/ longer/ tougher/ grippier “). What the phrase run better means can’t be a surprise to any businessperson with a pulse: increased market share, improved average basket size and sales per sq. ft., customer satisfaction, etc. – all of that is motherhood and apple pie to any retailer. Where the discussion got interesting is in what the drivers are that are pushing retailers to run better.

Ms. Mitchell-Keller outlined those drivers as: real real-time, the mobile revolution, globalization and consolidation, price and margin pressures, and omni-channel retailing. Those who regularly read RSR’s research reports know that we have covered these issues extensively. The good news for SAP customers and those that are considering SAP is that the company is confident that it can help its customers address each and every issue, with continuous innovation (new functions and enhancements delivered quarterly), strategic innovations (major investments, particularly in the big three focus areas of banking, retail, and healthcare), and breakthrough innovations (which center around enabling technologies in-memory computing, mobility, on-demand delivery models, and business analytics).

For retail the message is that SAP offers solutions innovations that enable consumer insight, consumer-driven supply network and unified customer interactions, all on a platform of technology that can be delivered on device , on demand , or on premise , depending on the needs of the customer. Lori summed it all up by saying SAP wants to help companies run, grow, and transform. It’s a strong message, and with the advent of the company’s new and reportedly vastly improved Retail Planning platform (including completely revamped merchandise planning capabilities for retailers), as well as its push in mobility on the wings of the Sybase acquisition and new business analytics capabilities powered by SAP’s revolutionary HANA in-memory capabilities, SAP feels that is has the solutions to back up its claims.

The Elephant in the Room: ERP

Retailers are notoriously single-threaded when it comes to adding new technology capabilities to their businesses. As RSR continues to point out, it’s not because they are Luddites when it comes to new technologies, it’s because of the brutally narrow gross margins that they have to work with to pay for running the business and still deliver earnings to shareholders. Less than 1% of revenue is a common assessment of the average spend in retail IT – far below most other industries. And most of that goes to maintaining what’s already in place. For that reason above all others, the idea of implementing an ERP is dead-on-arrival for many retailers.

But SAP (as well as some of its competitors) has been working hard for the last decade to re-architect its portfolio of applications to make components deliverable in pre-integrated chunks , along a roadmap to value that makes sense to the retailer. That means a couple of things: first, that retailers can think about front-loading value delivery from the IT investment so that it can afford to attack other problems later; second, that when a retailer chooses any component of a pre-integrated portfolio such as SAP, it can think of it as either a standalone solution or as the first step along a path that could eventually transform the IT portfolio into an end-to-end single vendor portfolio (what used to be called ERP ).

SAP frankly hasn’t done a good job at pointing out that adopting its technology isn’t a swallow it whole in one bite proposition, but the new retail team is clear that that is changing. SAP has taken it one step further; in recognition that no company is likely to be single-vendor (and also in recognition that increasingly companies in a value chain need to integrate with each other), SAP has developed what it calls a business process orchestration capability as part of its enabling technology platform. What this is meant to do is make it much easier, cheaper, and faster to integrate technology components that are foreign to each other. This is where the discussion can get really technical, so suffice it to say that it exists now.

And so the question for retailers who are trying to address the new challenges in the marketplace, the question really should be, “why not an ERP? “, not the other way around. Perhaps we should all abandon the feared acronym now, and instead talk about pre-integrated portfolios – and get on with the business of tooling the company for the digital age.