Even as SAP profits rise, Europe’s biggest software company wants to cut 8,000 jobs after cutting another 4,000 last year. The German company is increasingly focusing on artificial intelligence. By the end of 2025, SAP will invest almost one billion euros in this area.

The group is one of the world’s best listed companies. According to the calculations of the consulting firm EY (Ernst&Young) for the year 2023, SAP occupies the 61st place, last year SAP shares increased by more than 40%.

A painful transformation

The SAP software group, based in Waldorf, Baden-Württemberg, is planning a major restructuring. At the same time, SAP is increasing its investments in strategic areas of growth, primarily in artificial intelligence (AI).

It also affects work. SAP says it wants to cut about 8,000 jobs worldwide.

“We are now entering the next phase of the transformation,” said the company’s CEO, Christian Klein, as quoted by Tagesschau.de.

The focus on artificial intelligence requires different corporate structures and different skills among employees, and SAP relies on two options: reskilling or downsizing and hiring workers with different skills. Despite all the announced cuts, SAP expects the number of employees to remain stable in the future.

In Germany this year, a social plan that excludes layoffs is still in place. When it comes to job cuts, SAP relies not only on retraining but also on retirement provisions. SAP hopes to find a good solution for as many victims as possible through voluntary measures, the company’s CEO said.

The restructuring is expected to cost approximately two billion euros. Last year alone, SAP cut about 4,000 jobs in several stages. The head of SAP’s European trade union committee, Andreas Hahn, criticizes these plans. Given the very good balance sheet figures that have been presented, he sees no justification for cutting staff, he told German television.

Austerity measures are also reflected in current balance sheet figures: SAP managed to increase operating profit by 13% to 8.7 billion euros. In particular, the direction of software for cloud business, which is very important for SAP, grew by 20%. The group wants to further increase sales and profits in 2024, and this is where the cloud division is vital.

Generative AI in SAP

Last year, SAP accelerated the pace of artificial intelligence development. The main focus is on the so-called generative artificial intelligence, which as a self-learning system can create new texts and content. SAP expects this to provide a wide range of opportunities for business customers. It is software that can analyze various connections and improve processes.

Many companies are now experimenting with large language models, explains analyst Mirko Mayer of the German bank Landesbank Baden-Württemberg (LBBW). “In our view, when it comes to generative artificial intelligence, SAP is on par with its international competitors in standard business software such as Salesforce,” Mayer says.

Over the past year, SAP has repeatedly presented innovations in this area, for example, its own AI assistant Joule. SAP wants to gradually extend the software to all cloud applications.

However, there are still many unanswered questions from the users’ point of view, and some experts believe that SAP automates classic standard processes extremely well and professionally, but is only at the beginning of generative AI.

In its AI strategy, SAP relies on partnerships with, for example, industry heavyweights such as Microsoft or Google. The group also invests in smaller companies, for example joining Heidelberg startup Aleph Alpha, which is seen as a European alternative to ChatGPT.

Brief history of the company

In the first phase, CEO Christian Klein said on the company’s 50th anniversary, for broadcaster SWR, SAP handled the distribution of heavy monitors that were moved from basements into buildings. For five decades, the activity has improved and expanded, moving to a corporate culture.

Thanks to its business model of personalized operating software, SAP has become one of the most valuable companies in Europe. With a stock market capitalization of about 120 billion euros, the software developer plays in the same league as the American aircraft manufacturer Boeing and the American bank Goldman Sachs, with Volkswagen, Airbus and Siemens. In 2023, its turnover amounted to 31.2 billion euros.

More than 107,000 people work for SAP worldwide, including 25,300 in Germany. The company has more than 400,000 customers and claims that 87% of its global trading volume is generated by SAP customers. The market power of the group is enormous.

LBBW analyst Mirko Mayer said in an interview with Tagesschau.de: “Anyone who works in IT, in an industrial company, cannot avoid SAP. Everyone works with SAP in one way or another. According to Mayer, individual components of the software can be used to control an entire company, “from procurement to control, accounting and human resources.”

But even if almost no company can do without SAP programs, the software producer is unknown to many private individuals, thus falling into a shadow cone compared to other global corporations such as Apple or Microsoft, which offer their products and software for private use.

After more than half a century in business, SAP is facing serious challenges. ServiceNow, Salesforce, and Workday are new vendors that are attracting customers with more flexible solutions. There is particular potential in the field of cloud solutions, that is, programs that are no longer installed centrally on company computers, but which can be accessed from all over the world via the Internet.

According to a survey by the German-speaking SAP User Group – an association with more than 60,000 members from 3,700 companies – only about 30% of respondents had a good experience with SAP’s cloud applications, compared to twice as many with other vendors. But it is precisely in this area of ​​business that SAP sees its future. By 2030, most applications are expected to be in the cloud. (Photo: Dreamstime.com)