India is now a global product development hub: SAP's Bernd Leukert

European enterprise software giant SAP is set to double down in India with a new 40-acre campus in Bengaluru. The city is already home to the $27-billion company’s second largest research and development hub outside of its German headquarters and employs more than 7,500 people. In an interview with TechCircle, Bernd Leukert, the company’s executive board member and head of product and innovation, spoke about the manufacturing sector’s moves towards the Industry 4.0 paradigm and how large companies are moving from a seller to a services business model with the advent of emerging technologies. Edited excerpts:

How important is India to SAP?

India is committed to digitisation starting with the government's digital agenda and we are committed to supporting the massive opportunity in terms of investments. Outside of our headquarters in Germany, the Indian R&D division is the biggest facility. We see strong growth locally and we will not stop investing in engineering and product development and sales. Also, we will continue leveraging the digital competence, skills and assets that are available in India for developing global products.

To what extent has India contributed to the firm’s global product development process?

When we started the India R&D division in 1998, the sole purpose of the centre was to localise a global product for the Indian market. That was the genesis of the small 100-member team, which still exists. But it comprises just 5% of the workforce today. The rest of us work on the global products. We still cater to local requirements when a new rule or regulation is created. For instance, we were among the first to implement changes when the goods and services tax came in.

We have a strong product management team based in India, which is required from the legal and compliance points of view. From a local perspective, we have become a global product development hub.

Usually, while engineering our products, we take many inputs from our customers. We select a handful of customers, who are open to co-innovate with us on new products or the next generation of products. Some customers with whom we are strategically engaged, for instance Asian Paints, share their business complexities and that allows us to digitise our products better. We use that approach globally to select companies worldwide. So, India is a source of inspiration for some of our products and tools.

Do you think the technology industry has moved fast enough to address the Industry 4.0 challenge?

I would say technology products and tools have developed faster than the ability of companies to adopt, which is good. The focus of Industry 4.0 was the manufacturing sector and to make the process automated and flexible. The biggest change would be that the product would go from one machine to another and all the customers would get the same finished product. Industry 4.0 allows manufacturers to customise a mass product for individual customers. That means the demand is coming from the customer.

The second benefit is smart services, which goes beyond the Industry 4.0 paradigm. From selling a product to selling what it is able to do. For instance, in order to sell a car in the automotive industry, manufacturers will probably sell mobility. You don't sell the car anymore. You get the car as a service when you need it. We have companies in Germany now selling not just a compressor, which is sold cheap or free, but they also sell compressed air.

You spoke about customisation at scale. Do you think large enterprises are nimble enough to do that?

I would say companies that are agile and can flexibly adapt to new customised needs are going to be the winners. Often, big companies take much more time to reinvent the business model, but small companies can do that faster. The probability of disruption is much higher these days than it was 20 years ago. The companies that are willing to disrupt themselves are in a better position than a startup because of the customer relationships. But there are many small mosquitoes in most industries, which can disrupt the big elephants in the market and there have been several successful disruptions.

Do you see the gap between the digital haves and have-nots narrowing in the modern enterprise technology world?

Nobody can afford not to deploy the latest technologies. We are trying to do that with our cloud offerings, which is based on a pay-per-use model. That, in turn, is based on a consumption-based subscription payment model. So, if a small company uses less, they pay less. The era where companies could not afford the latest technologies is over because that was the old on-premise licenced selling model.

Does Europe lag behind the US and China with respect to artificial intelligence?

It depends on which element we are talking about. In terms of creating algorithms, Europe or Germany has not lagged behind. But for AI to function or made into products, you need data. Europe is lagging behind in data because infrastructure providers for data like Google, Microsoft or Amazon are from the US. Why is this an issue? Because if you don't control the data infrastructure, you don't have access to data. So they have lagged behind in incorporating AI in products. The AI research is top class and is not the issue.

As innovation head at SAP, is disrupting yourself your most important challenge?

Yes, absolutely! This is valid for large enterprises as well as for us. That requires entrepreneurial courage. Technology has always disrupted and that is not an issue. It is the pace of disruption. It applies to the skills you learn too. In the future, you will have to upskill in 24 hours. It is a culture of constant training and learning. But everybody is worried about getting disrupted because those who do not will have a problem. Then suddenly one morning you will get a wake-up call you would not like.