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SAP restructuring focuses on AI, affects 8,000 employees

Amidst strong earnings results, SAP announced a restructuring plan that focuses the company on AI-based growth, with 8,000 employees expected to be reskilled or leave.

In the wake of strong earnings for fiscal year 2023, SAP is restructuring around AI -- a move that's expected to affect around 8,000 employees.

The restructuring will focus on growth areas, particularly SAP's business AI capabilities, and is intended to set up future growth, the company said in a statement. Business AI at SAP refers to applications and AI models that have been trained on SAP-specific, business-relevant data.

The details of the company-wide restructuring have not been spelled out but will occur in 2024 to "ensure that SAP's skill-set and resources continue to meet future business needs," according to the company.

The company did not say if any of the 8,000 affected employees will be laid off but said the positions are expected to be covered by voluntary leave programs and internal reskilling efforts. SAP expects that its current headcount will remain the same by the end of 2024. The company employed just over 107,000 as of December 2023.

The restructuring was announced as SAP reported strong financial results for the fourth quarter and full year of fiscal 2023. This was highlighted by strong cloud growth, as the company reported a 25% increase in cloud revenue in Q4 2023, and a 27% increase in the current cloud backlog. SAP defines this as the amount of revenue it expects to recognize from customers contracts.

For the fiscal 2023, total revenue rose by 5% and operating profits were up by 9% compared with the previous year.

The reported earnings indicate that SAP is "stronger and more relevant than ever," SAP CEO Christian Klein said during a press conference Wednesday at the company's headquarters in Walldorf, Germany. But the technology industry is moving faster than ever, and SAP must always "think ahead to what comes next," he said.

Klein called the restructuring an investment in future growth. The company plans to invest almost 1 billion euros in AI by the end of 2025 in areas such as supply chain and sustainability applications.

However, not all employees will be needed in the transformation.

"Out of the 8,000 [affected employees], hopefully we can handle two-thirds through voluntary measures like early retirement," Klein said. "We will invest over [100 million euros] in education to help people find new jobs in the growth areas."

In total, SAP will allocate around 2 billion euros into the restructuring program, he said. The program will be balanced throughout the company business units and global regions.

Making Wall Street Happy

The restructuring appears to be a play for Wall Street's attention because it demonstrates that company leaders are "doing the right things to tighten the belt," said Josh Greenbaum, principal at Enterprise Applications Consulting. However, it will likely not have much significance on SAP's ability to execute on its game plan, and the company is likely seeing turnover of more than 8,000 a year regardless.

"They will be refocusing on AI, at least in a pro-forma way, because it's the sexy new thing that Wall Street likes," Greenbaum said. "But I'd be hard pressed to think that any large-scale personnel shift will have a significant impact on customer success."

Wall Street seems to be responding, as SAP stock hit all-time high values in after-hours trading, he noted.

They will be refocusing on AI, at least in a pro-forma way, because it's the sexy new thing that Wall Street likes. But I'd be hard pressed to think that any large-scale personnel shift will have a significant impact on customer success.
Josh GreenbaumPrincipal, Enterprise Applications Consulting

SAP is emphasizing its business AI portfolio, which is where the restructuring will be focused and where Greenbaum expects to see employees transition into both development and marketing. But he added, that SAP will need to make sure that it keeps investing in the continuing migration of its legacy customer base to S/4HANA.

"This is a big deal because the deadline [for ending support of legacy systems] is getting closer and the complexity of the problem of the customer base is getting larger as well," he said. "The longer these companies don't pull the trigger, the harder it's going to be for them to do it. So SAP's going to have to put a lot of resources into trying to get these customers to make the jump."

Enterprise vendors are trying to operate more efficiently and are also anticipating AI-fueled growth opportunities if they can seize them, said Jon Reed, co-founder of Diginomica, an enterprise industry analysis firm.

One aspect of this efficient growth is that enterprise technology vendors, not only SAP, are considering targeted restructurings that might include layoffs now, he said.

"The tech spending environment is cautious, but vendors sense that AI will bring in some waves of future revenue," Reed said. "Any employee, SAP or not, should seize the reskilling opportunities that they see or are being offered."

Jim O'Donnell is a senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.

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