SAP and medium-sized companies were two different worlds for a long time. Here the Dax group with its comprehensive software solution designed for large companies, there small and medium-sized companies with limited resources and special needs. A Perfect Match looks different.
But now Europe’s most valuable tech group is making a new attempt to win over medium-sized companies: Grow with SAP is the name of the product package presented in March, which is aimed at companies with 500 employees and more and promises them practically a complete operating system – and the way to the cloud .
There is a simple reason why a giant like SAP has discovered its love for small and medium-sized companies: the need for IT services by small and medium-sized companies is growing rapidly, while at the same time many local service providers who previously served companies from craft businesses to regional industrial companies are from the technical development overburdened.
Because the future lies in the cloud for medium-sized companies, too, which represents an immense challenge for many companies.
Global cloud computing revenue doubled to nearly $491 billion between 2019 and 2022, but many midsize businesses are still stuck in the old world of servers and desktops. Even many IT managers in companies still have trouble with the idea of storing data and applications in virtual space.
In a study by the IT consultancy Techconsult, 43 percent of the medium-sized companies surveyed stated that they shyed away from their own cloud strategy because of concerns about being dependent on large providers such as AWS (Amazon), Azure (Microsoft) or Google. 35 percent fear management difficulties, 31 percent complain about a lack of know-how in their own company (see graphic).
Nevertheless, 35 percent want to move more work processes to the cloud in the future. Not least because of the pandemic, their importance has grown. Because as a result of Corona, many employees have migrated to the home office – and with them a lot of data in the cloud.
Skills shortage drives outsourcing
The need for cloud solutions in medium-sized companies is great, says Carlo Dannies, founder and managing director of Hafn IT. The Hamburg-based company is one of almost 13,000 medium-sized IT service providers in Germany and, with around 20 employees, paves the way for other medium-sized companies to enter the Microsoft cloud.
“We do all of the office IT,” says Dannies. In other words, what has traditionally been done by internal IT staff or system houses. According to Dannies, the latter are often too expensive, too slow and too inflexible for many medium-sized companies. And it’s difficult to find qualified people of your own: the job market is almost empty.
According to the Bitkom industry association, there is a shortage of around 137,000 IT specialists in Germany, and the trend is rising. And while supply is shrinking, demand continues to grow. According to Bitkom, spending on IT, telecommunications and consumer electronics will increase by 3.8 percent this year to a volume of EUR 203.4 billion. IT services make up the lion’s share with 47.8 billion euros, the greatest growth (plus 9.3 percent) is expected for software.
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In order to keep up technologically, medium-sized companies can either buy office applications according to the building block principle, resort to industry-specific special solutions – or hire an external service provider. However, these are becoming increasingly rare: After years of growth, the number of IT companies in Germany has recently fallen. Above all, small local providers with annual sales of less than EUR 250,000 as well as freelancers and one-man companies with sales of up to EUR 50,000 have disappeared from the market. In the case of the latter, the number fell from just under 22,500 to around 18,400 within a year.
Data centers in Germany should convince skeptics
One of the main reasons for this is the growing cloud business. Because such small companies can hardly offer comprehensive services in the data cloud or network-based IT strategies. “Those who don’t change will disappear,” says Andreas Baresel, CEO of the IT service provider Datagroup. Instead of selling hardware and software licenses, digital services are in demand today.
Thanks to the Internet and cloud computing, the software comes practically from the network – but setting it up can be difficult. Added to this is the growing need for strategic advice and increasing demands on the security of IT systems.
Datagroup wants to fill this gap. The company from Pliezhausen near Stuttgart, with 3,500 employees and annual sales of around 500 million euros, is one of the largest medium-sized IT companies. In order to meet the needs of medium-sized companies, a modern IT service provider must replace the previously dominant trade in hardware and software with a modular service portfolio for IT operations, says Baresel.
IT outsourcing is nothing new for large companies. “But medium-sized companies are only just discovering that it makes sense to work with external service providers,” says the Datagroup boss. In order to convince skeptical customers, he also advertises data centers in Germany that are subject to European data protection guidelines.
Due to the growing complexity, according to Carlo Dannie’s experience, it is difficult for companies with 20 or more employees to manage their own IT without external help and to put together hardware and software themselves. At some point, the question of support, security, data protection, networking – or simply a competent contact person will arise.
Hafn IT offers a so-called community management for this, a kind of help for self-help. If that is not enough, there is classic support by phone or e-mail. If a customer needs additional software solutions that the Hamburg company does not offer, Dannies puts them in touch with colleagues who specialize in this.
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However, the transfer of the company’s own data to the cloud is much more decisive for the entrepreneur than hardware components or programs – because there are a few pitfalls here. “In the end, we don’t just want to update the technology, we want the processes in the company to improve,” says Dannies. However, this often requires a comprehensive change – especially in the way employees work. “And confidence in this new world.”
Does a large corporation like SAP understand how medium-sized companies tick?
Medium-sized companies are considered demanding customers who pay close attention to ensuring that the technology used fits the company and the industry. “We need to know what the customer wants to do with the IT that we deliver to them,” says Baresel. “In the end, the customer doesn’t want to understand everything, they want it to work.”
To ensure that the margin is right despite the comparatively small number of jobs, both Datagroup and Hafn IT rely on fixed structures and off-the-shelf offers. Most products are standardized, many processes are automated.
Anything that doesn’t fit will be adjusted. Hafn IT boss Dannies emphasizes that it is by no means a matter of making the IT specialists in the company superfluous. “We want to take the employees with us, train them and set up a structure.” Ideally, the company can later take over the newly structured IT itself. “And we are retiring as a service provider.”
It is by no means certain for medium-sized IT service providers whether SAP’s recent advance towards medium-sized companies will be successful. “5,000 jobs are no less complex than 50,000,” says Datagroup boss Baresel. At least he is not afraid of the overpowering competitor. “The others also have to work their way up to becoming a medium-sized company first.”
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