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At first glance, SAP Industry Cloud may sound like the company is simply porting its vertical ERP offerings to the cloud. In fact, it's something very different.
In essence, Industry Cloud provides a modular approach where SAP or partners can develop niche functionality in the form of services. It's an open business process and technology platform with an application programming interface framework providing a pathway to capabilities in SAP's core business applications, such as S/4HANA. Customers can add the services of their choice to their existing SAP landscape with relative ease, regardless of whether their current systems are on premises or in the cloud. While this modular approach is certainly not unique to SAP, it provides a valuable new paradigm for doing business in the age of digital transformation.
Industry Cloud vs. previous vertical portfolios
Historically, when SAP wanted to roll out functionality aimed at a particular vertical, it would embed that functionality within the existing ERP code base. Every customer got the same software, but if one of them needed access to an industry-specific version, SAP could simply flip an "industry switch" to make it available. For customers that didn't require the functionality, those vertical features would remain hidden.
This approach had some significant shortcomings, though. First, it pigeonholed each customer into a single, well-defined vertical. An electric utility that also does construction projects, for example, could have access to all of the functionality they needed to run a utility company or the functionality needed for engineering and construction, but not both. Second, this approach resulted in an increasingly bloated code base, making it more and more difficult to manage as new functionality was added.
That traditional approach also limited the pace at which new innovations could be rolled out. When SAP added functionality to its core ERP software, customers typically gained access only by upgrading to a new version. In other words, a company's decision to accommodate a single new business process in SAP could potentially have cascading effects on its entire ERP landscape.
Today's business environment requires much greater flexibility.
Digital technologies have created a multitude of new opportunities, including vertical integration, "servitization" and increasingly complex collaboration scenarios that drive higher revenues, lower costs and new business models. To compete effectively, companies must be able to incorporate new business processes quickly. Major software vendors, including SAP, are shifting to a more modular approach that better lends itself to that kind of adaptation and growth.
SAP Industry Cloud is not about a new SAP "version" for each vertical. Rather, it's about providing a collection of products that address very specific needs, then making those available à la carte as cloud-based services. Those can be assembled into a complete system far more easily than in the past. New functions can be added without undue disruption to the customer's core ERP system.
A few Industry Cloud examples
The construction industry has some unique (and very complex) requirements for managing project billing. In large projects, payment schedules are driven by percentage-completion milestones. Change orders and mid-project negotiations are common. Payments to subcontractors must follow suit, and are usually subject to strict requirements for timeliness.
Those kinds of complexities call for specialized software, but SAP's existing industry system for construction doesn't provide that. For companies that needed specialized billing, previously the only available option had been to develop a custom application in-house. Not only is that expensive, but it also makes it far more difficult for the customer when they want to upgrade to a new version of SAP.
Today, those complex billing scenarios can be addressed with one of the Industry Cloud services for engineering, construction and operations (EC&O). Other cloud services for EC&O include 3D modeling, construction equipment management and employee health and safety. Each of those is offered as a distinct product, built on the SAP Cloud Platform and made available as a service that integrates to a customer's existing SAP landscape.
SAP is aggressively rolling out Industry Cloud software for the automotive industry as well. Disruptive technologies are pushing automakers to explore new ways of doing business. Several have recently rolled out subscription-based services, and many are predicting that the industry will eventually shift from its current focus on selling vehicles to an increasingly service-based model. That calls for a range of new business processes including fleet management, predictive maintenance, geolocation capabilities and scheduling.
In the past, those kinds of initiatives would have required a significant upfront investment. With a modular approach built around cloud services, though, it's now possible to add support for those kinds of business processes relatively quickly. Businesses can roll out pilot programs and test the feasibility of new business models in months instead of years.
Even if a company is fully committed to keeping its core ERP systems on premises, Industry Cloud offerings can provide some very important benefits. For SAP customers that need to extend their existing ERP landscape to address new business processes, Industry Cloud provides a faster, more flexible way of getting there.