. . Uy A Discussion on Digital ~~ Meee n- ane ats ae Z A Q&A with Bill McDermott on strategy, solutions, and customer ambitions 7. ae SST2% of CEOs see the next 3 years as more critical than the past 50 for their industries." At the epicenter of change is the customer experience, which redefines every company's business model and how they deliver value. 2 ezerrarsterencar slate conouny Alighe eaned New technologies like machine learning, the Internet of everything, blockchain, cloud, and the SAP HANA® platform will transform value chains to enable completely new business models. Why now? The answer is simple—most of these technologies are now viable, and the return on investment (ROI) is very attractive. SAP is leveraging these technologies to solve pertinent business problems across all industries and regions. Our mission and vision are to help every customer become a best-run business and to help the world run better and improve people's lives. Customer-driven innovation is the core value that connects our past, present, and future. This spirit of co-innovation has always been central to our success. It will continue to ensure agile and innovative solutions for our customers. In this time of transformation, we believe cloud-based enterprise applications powered by advanced technologies are the central nervous system of the intelligent enterprise of the 21st century. Even as so much changes, we believe that trust is the ultimate human currency. We humbly commit to honoring this enduring constant, even as we harness the relentless forces of the digital revolution.In this unique document, we talk with SAP CEO Bill McDermott to get his perspective on market dynamics and SAP strategy, SAP’s portfolio, and how companies can work with SAP to accelerate value creation through digital technologies.>< It’s no longer a matter Ea a Customers want to know what is fueling SAP. What do you hear from CEOs that forms the basis of SAP's vision and strategy? Two years ago, digital was 2 new trend, and the awareness was low. Today, companies and government agencies are thinking through how to transform the way they deliver existing products and services and create new ones. This is the essence of every conversation | have with leaders. Companies directly interacting with consumers are further down this path, but other companies lke oll and gas, transpor tation, and mining are waking up to Industry 4.0. In government, the cost of healthcare, the heavy trend towards urbanization, ‘and education are just a few of the many pressing topics—con: ted cities, disaster preparedness—the list goes on and on. When people need a burning platform. | give them this: half of last year's Fortune 500 companies actually lost money." There is a tsunami of economic, societal, and environmental factors to address. Today, you're seeing established companies shake things up on their own terms because a failure to do so froma position of strength willresult in a fast decline It’s no longer a matter of "what if” It's ll happening now. en ee eneWhat is digit and why now? |, why does it matter, | can define it in one sentence. Digital is intelligently con- necting people, things, and businesses, When you do this, 2an infinite world of new possibilities opens for companies to reimagine their business models, the way they work, and how they compete. The limitations of ald technology are lifted. The timing of this is the bigger issue. If you look at productivity growth over the past few years, ithas gone close tozero.3 We are destroying value for the next generation. We need a step change in productivity, and we need to reimagine everything we do, We also need to recognize that everything is connect- ed. Environmental factors influence the economy. Societal change impacts business behavior. Ir's all one puzzle, On the “why now" question, technology is only measured by the value it delivers, and value is often driven by adoption. Many of these "new" technologies like machine learning and artificial inteligence are actually “old” ideas. Now we have a situation where hardware costs have plummeted, and cloud innovation cycles are so much faster. The result is a massive boost in the feasibility and viability of digital technologies, Asan example, the idea for self-driving cars is from the 1930s, but until now was impossible at scale. Only six years ‘ago putting sensors in a car would cost US$75,000. Today it's less than $250. Now every car can be connected. The RO! on technology is becoming more and moreattractive where seven or eight technologies ere all reaching maturity at the same time. This is a phenomenon we've never experienced before. People could say, “We have seen inflection points before.” But you say this one is different. Why? This one's happening at an unprecedented speed. Think about how long it took for PC technology to reach 100 milion users versus technologies like mobile or social. The pace of adoption has gone from 10 years tos littleasa week. Adoption is so fast that the innovation cycle has to be much faster for companies. With mobile enabling billions of users to be connected, a new technology like augmented reality or digital assistants can reach maturity at scale one to twa years, In the industrial and even in the Internet economies, we had some modest buffer between early adoption and mainstream adoption. Today we con't. It's almost to the point where we have only two categories: early adopters and also-rans. Per- fection can no longer be the enemy of "good is enough.” It’s all about speed to innovation and differentiation. Companies that act with urgency will win, The pace of adoption has gone from 10 years to as little as a week. The ROI on technology is becoming more and more attractive’ om GD. | | L IL 600x 40x 4 1 |S 2OX7 SAP Soran SAP ita comsany ane rasan 5Let's keep to the big picture. Give us SAP's vision and strategy. How should a customer look at SAP? Our vision is ever consistent. We are focused on helping the world run better and improving people's lives. We have committed cur people and products to address the world's biggest economic, environmental, and societal issues. ‘SAP® technology is helping to prevent and cure cancer, Giabetes, and other diseases, monitor and forecast flooding, and protect people and property from fie incities. Through Ariba® Network, as one example, companies are able to combat child labor with total transparency as to where products are ‘coming from, On the strategy side, we believe there is immense value in SAP aggregating al these emerging technologies—cloud, mobile, machine learning, blockchain, the Internet of everything— ‘and combining them in the most integrated fashion to help businesses and governments reimagine business. With SAP HANA, me added a platform to our arsenal that gives our cus- ‘tomers massive differentiation in a new economy that is 100% built on data. In the end, the single measure of our success has never changed: business value for our customers. How do you make that a vision and strategy sustainable? How are you strengthening the company? (One example is our commitment to diversity and inclusion, (Our goal is to build @ business beyond bias. We have @ man: agement team that is getting more diverse every year. Our ‘employees make up more than 150 nationalities, and we have five generations of workers creating a new dynamic. We are the first multinational technology company to receive EDGE certification for our focus on gender diversity. To deliver value to our customers, we are committed to having a healthy, hap Py company that is totally inspired by our vision. Let's switch gears to mergers & acqui What should customers expect? Ifyou think about the customer-driven investments we've made, the most recent large-scale investments were more ‘than two years ago. This means that today SAP is lergely an ‘organic innovation company. Does that mean we're open to. new investments if we believe they serve our customers’ in: terests? Of course, At this moment, we believe in the strength ‘of our products and our expanding ecosystem as the ultimate value drivers for our customers moment. 6 eaerr arse crencar silt comoany ligt eaned On to partnerships: You have long-standing partners and new partners that seem unusual for SAP. What's the strategy? Everyone knows the depth and breadth of our ecosystem, especially our traditional partners lke systems integrators and hardware manufacturers. These are highly strategic companies that are very fast to adopt the latest break: throughs and always ready to help our customers scale. It's become increasingly clear to other companies that the enterprise is the ultimate opportunity for disruptive growth, Think about Apple, the most valuable publicly traded com- panyin the world. Tim Cook and | made the announcement, together about the software development kt that empowers the iOS developer community to build native SAP Fiori® apps. on SAP Cloud Platform, We are changing how people interact with data and technology at work. As Apple innovates with augmented realty, Sir, and other breakthroughs, SAP willbe right there. On the infrastructure side, we know the worldis going to be producing petabytes of data. SAP will never be Amazon Web Services, Google, or other hyper-scale infrastructure providers. That's why we want our technology to be compatible with these platforms. Everything is integrated from a security perspective to ensure these deliver the reliability our customers expect. For the Internet of Things (loT), we have the software, but other companies are manufacturing the machines. We can't do this alone. No company can go it alone in the digital economy. We are partnering with the best to give our customers access to the best. Before we move to products, get us back into the boardroom. If there's one single topic that comes up in every CEO conversation, what is it? People. Every CEO is obsessed with consumers and employ- ees. People are at the epicenter of everything we do. This ‘means connecting the front office and back office with a con: sumer-grade user experience and industry-specitic expertise, When I'm asked, what willbe the consistent theme for winning companies of the next decade, | always say, “The winners will have a 360-degree view of every consumer and serve them better than any competitor.Let’s get into SAP's products. You have a lot going on—Cloud, SAP HANA, networks, new breakthroughs. Help customers understand the big picture, Italways comes back to that consistency of what we started back in 2010. Over the past seven years, we've invested more ‘than $50 billion in innovation for our customers. When you think about how that portfolio has evolved, | would offer you a simple framework: we help our customers “run” as best- run businesses, and We help them innovate to “win.” This is Consistent with what you hear from the analyst community— ‘the idea of bi-modal innovation or, put another way. habitual innovation across the business. First, our customers need to “run.” The key for SAP is deliver: ing the solutions our customers need torun ona day-to-day basis in 25 distinctly different industries and 12 increasingly strong lines of business. This portfolio is embedded with best practices and domain expertise from SAP and our open partner ecosystem. Customers are also innovating to "win." We want customers to have a state-of-the-art platform to codify ‘heir differentiating processes, products, and services ona consistent data model You can't separate these two categories. They need to work ‘together in one virtuous cycle. The CEOs | speak with make itclear: "Helo connect the supply chain to the demand chain inany channel on any device—that keeps me in the game. Then help me disrupt my own business with the latest break- ‘throughs so | can be ahead of my competition.” SAP is the only company that is prepared to lead on both fronts.RUN It’s clear that SAP has thousands of customers relying on you to run. What your overarching focus for them? We should always remember the CEO leadership priority of the 2ist century: to defeat complexity. That's why SAP made the bold move to go for Run Simple. Companies need to run in the most efficient and sustainable way possible. They need to manage five business pilars: customers, workforce, assets/ supply chain, suppliers, and corporate functions, These pillars need to be managed in an integrated way and in realtime. That's what SAP's new cloud-based business sulte delivers across 25 industries. CEO leadership priority of the 21st century: to defeat complexity. With technologies like machine learning and loT, we are turning systems of record into systems of intelligence. Beary ears erencarsltecomoany Alghe ecaned Can you describe SAP's new digital business suite? Our cloud-based portfolio powered by SAP HANA anc built with a world-class user interface, SAP Fiori isbased on five fully integrated solution categories. Ital starts with a fully integrated digital core: SAP S/4HANA® represents the most preeminent cloud-based ERP solutions in the market running in real time powersc by ur in-memary platform. This digital core encompasses the very best practices of SAP's 45-year history. ‘Second is the customer experience: SAP Hybris® solutions are #1 in B2B and B2C commerce.* Every business wants to reach individual consumers in every channel, on any device. SAP Hybris solutions are at the forefront of the digitized customer experience, marketing and sales force automation. Third, is the people: They are the past, present, and future of any company. With SAP SuccessFactors® and SAP Fieldglass® solutions, we are the only company that can deliver visibility, into the total workforce and drive end-to-end talent manage- ‘ment, We are also bringing machine learning to workforce engagement, lke eliminating bias in the hiring process, and, inteligentiy matching candidates to specific job openings. Fourth is assets and supply chain: With technologies like IoT, blockchain, and machine learning, we are truly reinventing, how assets and supply chain are going to be run in real time with predictive analytics. This will unleash an enormous amount of productivity in the manufacturing and logistics industries. Fifth is supplier collaboration and spend management: With ‘SAP Ariba, SAP Fieldglass, and Concur® solutions, we are the only company that can manage every spend category from procurement to contractor labor, to travel and expense. This is not something that can be accomplished within the four walls of a company. it has to extenc toa company's ecosystem— true “inter-enterprise computing.”What's the guiding principle for your products? Everything begins and ends with empathy for our end users. SAP Fiorihas become the new standard for our user experience, which we believe does and should rival any consumer-grade user interface. We know that standards for the user experience will evolve quickly. The commitment. and the operating priority are that SAP remains ahead of that curve. It's all about users loving to interact with our solutions. That's the only standard we'll accept. How do you differentiate in the market with this portfolio? + Inthe cigital core, we have fully integrated solutions, powered by SAP HANA, spanning 25 industries. This allows companies to run in realtime, integrate processes end to end, and adjust business models any way they need to unlock enormous amounts of value. We made the SAP Fiori user experience the new standard to change how people interact with our software, + Incustomer experience, we are the only company that can integrate the front office and back office through solid aigital core. No other company can deliver the total experience and enable personalized services to every unique customer. Industry analysts have validated ths. + For people, the fastest growing segment of the workforce is project-based workers. SAP is the only company taking aholistic view of the total workforce. + Forthe supply chain and spend management, we were the first company to focus on extending the business, processes beyond the walls of the enterprise. Business networks give us massive scale and change the game.on business collaboration. We can deliver a personalized customer experience at scale because we have fully integrated the front and the back end operations through a solid digital core. ‘SAP's cloud-based business suite of applications sever customer conabortion Enoenence Digital Core = or wenn ‘Sey Chain Terma Teas aur ap eran at comsay lane rconee 9WIN Let's shift gears to the new breakthrough technologies that SAP working on. What is SAP's story here? Customers need to innovate to win. We believe companies have to codify and protect their intellectual property (IP) and. core competencies. Software will be embedded in products and services offered by every company. Inthe end, every company will become a software company because data is the new gold, This represants a big opportunity for our customers. SAP is well-positioned to help them meet this, new business mandate. We know how to build software, we know how to innovate, and we know how to enable our customers to differentiate. That is why we are launching the SAP Leonardo system, powered by SAP HANA, to give our customers the same capability we provide our own developers and ecosystem, Help customers understand SAP Leonardo. What is it and how do they consume it? ‘SAP Leonardo is the result of hundreds of innovation scenarios, we buitt with our customers over the last three to four yeers. From that experience, we came to several conclusions that are critical for delivering and sustaining innovation at scale + Most innovative scenarios require @ combination of the new technologies, which | already mentioned. As an. ‘example, 2 predictive maintenance scenario requires loT services to acquire data from sensors, Big Data storage for managing data, predictive algorithms to make sense of the data, and access to application program interfaces (APIs) from our core ERP solutions to coordinate and ‘execute the actual asset repair. The power comes from all of these technologies—machine learning, loT, Big Data, blockchain, and analytics—working together to