COVID crisis creates inflection point and ‘true catalyst to accelerate’ business digital transformation

28 October, 2020

One of the most popular forms of cloud computing is software-as-a-service (SaaS), a software distribution model in which a service provider hosts applications for customers and makes them available to these customers via the internet. US SaaS company SAP, which offers end-to-end enterprise application software, database, analytics, intelligent technologies, and experience management, says the crisis has “created an inflection point for customers, a true catalyst to accelerate their transformation effort”.

Its CEO Christian Klein told analysts this week that SAP is at “an inflection point where customers are asking us to help accelerate their business transformation to gain resiliency and position them to emerge stronger out of the crisis”.

He says the pandemic has “put a spotlight on the resiliency which is more than just about the underlying infrastructure and its move to cloud. Resiliency and sustainable long-term growth and profitability comes only by transforming the company to the needs of the consumers and employees in a digital world”.

SAP demonstrated its resilience in the third quarter with stable total revenue and an improvement in operating profit and margins. It says that in the COVID-19 crisis “customers realise the strong need to transform and automate operations and adapt to new business models”.

But it has been influenced by the longevity of the crisis. Back in Apr-2020 the company’s full year forecast reflected “our best estimates concerning the timing and pace of recovery from the COVID-19 crisis,” according to CFO Luka Cucic. Back then, like most businesses at the time, there had been an assumption that the demand environment would gradually improve in the third and fourth quarters.

Now, while SAP still sees “robust customer interest” in solutions to drive digital transformation, “regrettably, lockdowns have recently been reintroduced in some regions. Infection rates have reaccelerated, and as a result, demand recovery has been more muted,” he notes.

This is evident in its SAP Concur travel booking and expense business where revenues declined -14% year-on-year in 3Q 2020 to EUR357 million. As such, he acknowledges: “We no longer anticipate a meaningful recovery in SAP Concur business travel related revenues for the remainder of the year.” In fact, Mr Klein warns of a “more conservative COVID-19 recovery” that will “impact the economies through at least the first half of next year”.

“Nobody can predict the COVID-19 economic impact beyond 2020. But given recent developments, it is prudent to assume a more gradual recovery, which we have now done,” he adds.

Still, Mr Cucic says that SAP has successfully “navigated through a challenging environment in 3Q 2020 and amidst the COVID headwinds “improved our operating profit and operating margin against a very strong prior-year comparison”.

Travel as we knew it prior to 2020 will not return for an unknown period of time, and rather than keep debating when it might happen, has the time now come to say ‘travel has already restarted’ and reposition according to the new rules rather than hoping you can survive until the old rules potentially return one day.

The evidence from SAP seems to suggest that is starting to happen. American Express Digital Labs VP strategy and innovation Johnny Thorsen, a Traveltopia futurist, highlighted during the inaugural CAPA Live – a new monthly virtual summit offering insights, information, data and live interviews across a next-gen virtual event platform – that the time has now come “to accept that we have entered a new phase in the never-ending odyssey known as the travel industry”. To reposition in the ‘new normal’ he urges businesses to make changes and adapt.

In the first of a series of Travel technology interviews conducted as part of the wide-ranging CAPA Live content, Mr Thorsen spoke to Gene Quinn, co-founder and chairman of TravelScrum, a non-profit movement fusing all layers and skill sets in the travel and tourism industries.

While development of digital travel solutions has stalled amid the impacts of COVID-19, "now is the time" for businesses to invest in digital transformation projects to remain competitive throughout industry recovery, said Mr Quinn. He noted that “paper trails are giving way to data trails” and “companies that were far along, or in the midst of a digital transformation in their industries, have to accelerate to stay relevant”.