Innovation at the Vertical Edge: New Business Models for a Digital Economy

All industries feature well established business models — that’s just a more sophisticated way to say they have “proven ways to make money.” These business models are supported by integrated end-to-end processes modeled on best practices in enterprise systems.

We at SAP know this because we have developed the best practices over decades with our customers in all industries. And we drive continuous innovation to deliver next practices that make business processes more efficient and transparent.

So far so good. Or is it?

Startup Spirit

I have observed a few trends affecting many industries that give me pause. Startups aggressively investigate how they can give incumbents a hard time by competing on different terms. They are not burdened by a customer base with expectations, there is no legacy — or treasure — of business relationships and commitments. There is nothing to break, nothing to protect.

Innovative big players are tuning into this spirit and looking along their value chains to directly engage with the customers of their customers, or to capture the revenue and margin their suppliers make today. Digital technologies and abundant – but still hardly exploited – data are the key ingredients to power the next wave of innovation and disruption for business models, business best practices, and the way businesses operate.

Crisis as a Catalyst

I have viewed the current crisis initially from the humanitarian perspective; after all, the pictures we have seen are hard to digest. But there is also the gigantic economic impact, and we expect a mix of V, L, and U shapes for the recovery and restart. But we can also observe how very large enterprise super tankers turn on a dime, innovate in days and weeks, and break established rules and habits.

New industries are shaping a public health sector that will look different as research institutes, life science companies, healthcare providers, technology companies, and the public sector work on keeping the world population safe and healthy. I have the opportunity to see this firsthand. SAP plays an instrumental role in developing a COVID-19 tracking app for Germany and beyond in close collaboration with public health institutions (Robert Koch Institute), government, and tech companies, including T-Systems, Google, and Apple (for the smartphone APIs). It is quite an experience to see how tech giants and government fall into a collaborative innovation mode rather quickly.

New Business Models, New Speed of Innovation?

Many SAP customers in their industries feel a similar sense of urgency as business practices are redefined by market pressure and by digital technologies that enable new, data-driven business models – innovative ways to generate revenue streams from knowledge, data, and customer insights.

Over decades, SAP has earned a reputation for being possibly the most reliable partner to solve the most difficult business problems with best practice solutions that service many customers. But when fast-paced innovation is a critical success factor not all innovative solutions can be added into the large applications of our intelligent suite. The upgrade effort would be too high to allow for a rapid adoption of innovations. What’s more, the clear path to the cloud for enterprise software disrupts our partners’ business model of adding new capabilities to SAP Business Suite by modifying and extending code in our joint customers’ systems.

The obvious consequence is that we need a new innovation model and extension model for our intelligent suite and our business network.

Industry Cloud: A New Response to a New Challenge

Our new industry cloud is an open yet integrated innovation space for SAP, partners, and customers, which provides both best-practice business processes and advanced digital technologies to create next business practices and innovate at the vertical edge.

The processes and data domains of the intelligent suite are a key asset for our customers. Many developer years and significant brainpower have gone into creating business best practices for all industries that take care of the business essentials. We make those capabilities available through open APIs and expose the business process and domain models.

This open integration layer gives us, our partners, and customers a structured access to build next practice solutions that optimize the end-to-end processes supporting our customers’ current business models with “next practices.”

The industry cloud is also the innovation space for experiment and exploration. All digital technologies of the Business Technology Platform are available, including machine learning, the Internet of Things (IoT), analytics, and blockchain to drive innovation at the “vertical edge” — trying out ideas that may fail or enable our customers’ breakthrough to develop successful data-driven or ecosystem-driven business models.

The industry cloud also makes development of new solutions easy, with business services that provide common functionality like currency conversion but also subscription management, billing, and other services that create a simple and unified user and customer experience. For more information, see the industry cloud whitepaper.

Starting the New Ecosystem for Innovation

To jump-start the wide adoption of the industry cloud as an innovation space, we have selected an initial set of four industries that span a wide spectrum of processes and business priorities.

Automotive companies are currently balancing their classical, sophisticated business models with the disruptive forces of new mobility. Energy utilities are managing the transition to renewable energies and the new opportunities from a redefined relationship with their commercial and retail customers. Consumer products businesses have long been at the leading edge of digital innovation, and engineering, construction, and operations is catching up rapidly with digital twins of buildings and capital assets for intelligent operations and new service offerings (read the partnership announcement we made with Honeywell last week).

Industry 4.Now

Many industries are looking forward to capitalizing on the promise of integration operational data from the shop floor with the data coming from business IT. This convergence benefits both the manufacturers of vehicles, industrial machinery, or buildings as well as the industries that use this equipment to make chemicals or mill products, operate buildings, drive logistics services, or run mining and oil and gas operations.

Our Industry 4.Now initiative is an integral part of the industry cloud strategy and we are already on our way.

Beginning of a Journey

We are starting a multi-year journey to write a new chapter how we drive innovation with our partners for the core business of our customers in their industries.

More industries will join this initiative every quarter and I look forward to the innovations and to the vibrant ecosystem of customers and partners that the industry cloud will foster and shape.


Peter Maier is president of Industries and Customer Advisory at SAP.