Companies, especially in the IT sector, are facing frequent and rapid disruptive changes, including macro-economic challenges, intense competition, innovation, cloud transition, AI advancements, and evolving business models. SAP’s IT organization (namely Corporate Processes & Information Technology) has adapted its operating model to navigate these challenges, leveraging an enterprise architecture driven approach.
SAP implements a comprehensive enterprise architecture strategy using tools like SAP LeanIX and SAP Signavio, focusing on business capabilities as a common language across SAP. This approach enables SAP to manage its IT portfolio, adjust target architecture, optimize application portfolios, and support growth and new business models. Regular maturity assessments of business capabilities inform investment decisions. SAP also applies an enterprise architecture approach to strategic decisions on IT architecture, exemplified by the greenfield approach to cloud business, enhancing agility and process standardization.
Industry-specific challenges – in short, constant change
SAP was and is in a strong position in its industry. Being a leading global enterprise software company for decades, means to always be agile and quick to respond to change. Transforming SAP from the business of traditional on-premises and license-based software to a cloud company comes with changes across the entire value chain. In addition, the software industry is at the forefront of disruptive changes, and it is imperative to stay ahead of them – or the market will do its magic. We just want to mention a few challenges that are most relevant to any modern enterprise: Generative AI, competitive pressure and the economical changes.
SAP has put major changes in motion to revolutionize its business architecture:
- From license revenue and software downloads to providing services.
- Transition to recurring revenue models.
- Building and running robust cloud infrastructure.
How we approach enterprise architecture and use it to manage transformations
In a digital, cloud-native company, the role of the enterprise architect is more important than ever. Enterprise architects connect the dots from strategy to execution and provide frameworks to promote business driven change across organizations. In SAP, the strategy-to-execution process always starts with the business architecture – leveraging business capabilities as a common language. A business capability is the ability of an organization to perform a core function and achieve a specific outcome or objective. We use business capabilities to model SAP’s business and its functions. To manage this efficiently, we have implemented SAP LeanIX – in a journey that started in 2018. We use business capabilities for the following use cases:
- IT portfolio steering: Level 3 business capabilities are assigned to portfolio epics in our backlog management tool. IT portfolio steering is based on the ratings of the assigned business capabilities. It takes into consideration both the maturity and the strategic relevance of the capabilities. Maturity consists of multiple dimensions: process, data, and technology. Strategic relevance indicates how important the capability is to SAP’s success.
- Architecture evaluation: One of the key assets of any IT transformation is the target architecture. A key step is outlining long-term change and aligning teams on a common roadmap. We use the business capabilities as a basis and determine which applications are intended to deliver those capabilities in the mid to long term. We do not just apply this method to determine our target architecture, but for any evaluation we take a capability-based approach to determine the best path forward.
- Application portfolio optimization: Our application portfolio is managed through business capabilities. Candidates for application harmonization are identified based on their functional fit for business capabilities and their technical debt. Any company with significant M&A in recent years knows how important it is to keep the IT application portfolio lean – or at least try to do so.
- Designing new business models: SAP’s business must adapt to support customer needs. We leverage a business capability-based approach to determine those business needs and frame the scope of IT implementation programs. This approach helps to ensure that new business functions have a suitable IT platform.
To deeper understand how cloud transformation affects SAP’s enterprise architecture and to get more insights into next-generation cloud selling on our cloud runway check out our case study linked below.
Key Lessons Learned
As we wrap up our investigations on our change approach, highlighting recent decisions and our strategies to implement them using SAP’s business transformation tools, we’re keen to share insights gleaned from our experiences. Understanding that reflection is key to enhancing efficiency and success, we now delve into our analysis of lessons learned:
- Enterprise architecture follows business architecture.
- Decoupling new business models from old ones in a greenfield approach.
- Focus on business outcomes in your decision making.
- RISE with SAP is an optimal offering for your transformation.
- Focus on unified customer experience.
We provide unique insights into the inner workings of SAP’s IT organization (Corporate Processes & Information Technology), the engine that fuels SAP’s business operations. We provide background, analysis of the challenges we face, and the enterprise architecture approach we use to address them. The Case Study concludes with our detailed lessons learned and implications for future practices.