Podcasts > Strategy > Ep. 32: IoT is not new in China -- What are the trends and challenges in this highly attractive and confusing market? -- An Interview with Hunter Dong of SAP -
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Ep. 32: IoT is not new in China -- What are the trends and challenges in this highly attractive and confusing market? -- An Interview with Hunter Dong of SAP
Friday, May 04, 2018

What is the Chinese focus in IoT and digitalisation? How is the Made in China 2025 plan impacting the market so far? Who are the companies most ready to move beyond pilots to real deployments in IoT? What are the trends for companies using IoT to differentiate their business and how does that impact IoT solution providers?

In this episode, Hunter Dong of SAP discusses the challenges in China market for IoT implementations — unique characteristics in the market that give rise to unique challenges. He also gives advice to companies that are taking the first steps of assessing an IoT solution. 



Erik: Welcome back to the Industrial IoT Spotlight. I'm joined today by Hunter Dawn. Hunter is the Director of Global Strategic Partnerships at SAP. And today, we're going to be speaking about three topics with Hunter. First is the evolution of SAP beyond an ERP company. Second is a deep dive into SAP’s new Leonardo suite and the work that they're doing in IoT. And then we'll end our conversation with a look at the rapid evolution of the Chinese market and in particular, the initiative across Chinese industry to digitalize. Hunter, thanks so much for taking the time to speak with us today.

Hunter: Thank you, Erik and IoTONE, [inaudible 01:42], we would like to share our vision and industry trends with the team and audience. Thank you.

Erik: So Hunter, before we jump into a broader discussion about SAP and its evolution, give us a quick background into yourself, what's your role in the organization?

Hunter: So I'm managing the global [inaudible 02:06] partnership like the Lenovo, Huawei and China, definitely we have, either Alibaba, Tencent and Baidu, all of these internet giants move to the enterprise, look through industry IoT. So we have a lot of things on the technology collaboration and business go-to market. So I think, based on all the challenges of partnership, we can contribute a lot to the market and to our customers and partners.

Erik: So mostly you're focused on working with the Chinese multinationals, primarily in China or are you also working with them globally?

Hunter: We step out from China to global. So we definitely have the more reference and bring in Latin America, Africa, India and the Middle East, so it’s pretty much global collaboration.

Erik: But talk to me about SAP’s evolution. So SAP has got a proud history as an ERP market leader. And now when I look at SAP HANA as an example, the functionality is just incredible, they're really expanding outside of the core business. Give us a background. When did this start and where are we today in terms of SAP’s evolution?

Hunter: So, we are on definitely the ERP, so with a top enterprise application software supplier and we serve over 350,000 customers in over 180 countries and region. But now the field of customers are all requesting to the cloud journey and ask for more in industrial IoT. So we SAP, we offering definitely more than traditional ERP. We have this data warehouse focused, around that we have the business network, such as Ariba we acquired as the global [inaudible 04:32] network and also we focus on HCM, the HR field. We have the [inaudible 04:39], and also for the foundation database field we have in memory real time database HANA.

And from two years before, we launched our S4 HANA, the new next generation ERP system S4. By today, we already have the over 6,000 global key customers running their ERP and T application SAP and for HANA. So, in short summary, there are some interesting figures. Around 80% of the world's food manufacturing with a product and over 80% of the world's medical devices, so all these are SAP customers.

Erik: So as you've been rolling out these new products, how's the customer base evolve? So if we look at Chinese private industry, you've got a lot of medium sized companies that don't have strong IT teams that are really powering the Chinese economy. But I would assume that most of those are still not using a traditional ERP system today, and so they need maybe solutions that are a bit simpler to use a bit more focused, maybe more standardized. Is SAP also changing customer focus as you evolve your product suite? Or how does this look in the China market?

Hunter: Just like we talked about the Industry 4.0, so my observation is that, okay, in China local market, we have from the Industry 1,0, 2.0, 3.5, 4.0. So to meet and make our customer run their business better in China, so we also offer cloud solution, very easy and flexible to implement it, and integrate to their traditional systems. Also, we offer the B1 business ones which is perfect for the SME market. And we enable our [inaudible 07:03], our SI Partners, they can offer the more industry best practice, by industry, by geography to our SAP in China. And in top 500 in China with the poor and they’re getting more business process optimization, so the feedback is pretty much good.

Erik: Our audience, some of them are highly technical, a lot of them are more from a business background? So when you start talking about product names, and categories and so forth, this might not mean a lot to some of our listeners, break it down in terms of functionality, how are the problems that you're solving as a company changing? But what are the new problems that you're seeing come to market that SAP is focused on solving today?

Hunter: So all around, actually is data. We've seen some the challenge in today's business in every company, almost everyone. So for example, we see there is the manufacturing system, MES, they have the logistics, they have the warehouse and also the R&D, finance system, HR. So how to combine and make data more efficiency, generate more business value in real time, that's the challenge to every enterprise.

So for example, today, the end user, the customers, they are asking for more flexible customers-wise the goods for example, from their shoes, from electrical devices to generator; all kind of the goods the customer asking for more flexible and customer-wise. So how we can meet the market change, how we can beat our competitors in market, that's a big challenge.

Behind that, we SAP like to offer our optimized business process to sustain our customers business. Based on that, we now offering more the digital innovation platform, for example, Leonardo. Leonardo is not a simple product like the ERP or database. No. Leonardo is kind of where it’s so called the digital innovation platform. Behind that, we have the foundation, we have the partner running on the air infrastructure hardware to support our performance. We work with Intel and [inaudible 04:14]. Above that, we have the other HANA in memory database, is the centralized data measurement and calculation.

The Leonardo is the platform, based on data, we offer the IoT accelerator. For example, we call it Connected Zeros, the connected fleet, connected vehicles, check and achieve, predictive analysis, all these kinds of new solutions that’s the customer needs in their manufacturing, R&D and whole systems. So overall, we SAP today works on the application and business-driven and how we can lead customer digital transformation from Industry 1.0-4.0 step by step to define the journey. And we offer kind of design thinking methodology to help our partner customers to have a better business.

Erik: Talk to me a little bit in greater depth about this concept of real time and why it's so important. This comes up in a lot of company introductions. We are focused on real time data. Sometimes it's used a bit as a buzzword, but it's obviously incredibly important. But what's the meaning behind that and how does this change how businesses are operating, having access to this real time data? And why is this a challenge? Why is this an important differentiating capability for a product?

Hunter: We’re all facing in the huge amount of the data generated from the business, from the machine, from people. The first rapid application are running and are handling all these huge amounts of data and to generate the business revenue and for each element in the business process. The second, and the full future, the mobile access to the data is a must today. So, anywhere, anytime you need that it’ll real time generate.

For example, for the executive teams still in the meeting room, they will actually look at not just the monthly financial report, more like the daily. And what happens if we change the financial figures, we change the pricing, how we can forecast our business and the good or bad impact. For the people running up factory, so how digitalize our factory to meet and shorten our delivery time? That's the key.

Well, for example, we have the case in [inaudible 13:35] in America, so that almost every customer today is asking for that customer-wise design at the [inaudible 13:45]. So how we meet that, the only way we can do is beginning from the warehouse from the digital order process to logistics and manufacturing line. So we shot them from the seven day deliver rates to four hour. That means our customers and users, they put order in the morning and half day they can get their own fashion model in factory if they want. That's the key.

And for the retail, for example, the real time make more sense once customers step into your shop and you can have here member card, what the shopping history and we can get the more reasonable representation. Technology changed the way we make business, both for executive for manufacturing for retail consumer. So SAP, we have the entry and the software to sustain whole systems behind that.

Erik: Let's now focus on Leonardo in particular and do more of a deep dive into what is actually behind the Leonardo platform. So you just explained the importance of real time in business competition today from strategic decision making coming down from a month to a day to manufacturing, being able to customize do small batch sizes, or even batch size of one in direct response to customer’s inquiries. And then also in operational or retail environments where companies want to be able to improve their service levels by engaging customers with real time access to data that's relevant to them. Talk to us about how Leonardo is making this happen. What's the value proposition behind the Leonardo suite?

Hunter: So we've seen a lot of the Cloud Platform in marketing today. They offer the differentiation business value to the customers and market. So SAP Leonardo is kind of the IoT Foundation. It's built on top of SAP Cloud Platform. And we deliver the SAP innovation surveys. So, I would like to emphasize here is the Leonardo Innovation Survey, so it mean that Leonardo is not as simple solution.

Our Leonardo center, very close to the customer physical location and a faster and more efficient co-innovation. It means we have the full methodology, full lifecycle to work with our partner and a customer for their industry IoT journey. So based on the different business demands, we translate the business language to the technology for the methodology. So based on that, the customer, we will have not the real time but where we are fast, business all come. So based on that, they can define their second phrase, third phrase and to meet the business. That's the key. In addition, the survey connects business to a broader ecosystem and including the University startups and a tech communications. So the SAP Leonardo, so we are at the center of the cloud global and to serve our global customers.

Erik: So Hunter, SAP has an absolute army of independent consultancies or third party consultancies around the world that are helping customers to deploy SAP. Are you saying that with Leonardo this is a place where SAP is working as not just a software provider, but a service provider level strategically with companies to help them develop solutions? Is that more of the operating model where it's software plus service equals Leonardo?

Hunter: You are right. This is the ecosystem and the way we run Leonardo with our partners. So for example, we offer the Explorer is covered and the design and the prototype and the delivery. So it's the full process for our customers.

For example, so the first thing is where we can start, so the customer always ask questions. So in the fridge one Explore, the SAP we bring our customers with bring our service teams togather and have to be event thinking workshop to help our customers to understand and figure out their business needs.

So if not the pinpoint, if not the problem solving, what's your next step journey to meet your future business? So based on that, we can discovery what kind of the solution we SAP and the partners we can offering and then the design and [inaudible 20:34] go up and then delivery. So that the end-to-end process for SAP Leonardo platform.

Erik: I think it was at the World Bank or one of these financial institutions just put out a report called IoT Pilot Purgatory about all of the companies that are building IoT pilot projects and then are stalling and they're not making progress towards scale, because they don't have the confidence to adopt these technologies into their core businesses beyond the pilot.

Where are you operating these today? You mentioned that they're close to customers, does this mean that you have many service centers around the world that are providing this service? Or are you working through partners? How does this look from a service side on the ground geographically?

Hunter: Both. It’s the cutting edge technology and offering. So we have SAP Leonardo center globally in New York, [inaudible 21:58] Germany, and also definitely Asia and China. So also, we encourage and enable our partner to build their own solution center, so that we will be better way to engage the market.

Erik: Let's go into the technology. What does the technology of the Leonardo suite actually comprise? Is it a specific set of technologies? Or is it more a suite that integrates different technologies from across saps businesses?

Hunter: Yeah. So, fundamentally, we have the SAP HANA database, and both of them that we have get cloud platform. And we work with our partners to offering the app path. And we let Leonardo pretty much focus on the application. So, my observation is [inaudible 23:03]. So, the key thing we are missing in the market is the application, flexible and they’re dynamic application.

So for example, Leonardo platform, we have for device management, we can offer the onboard, configure, manage, and demonstration any remote device for business management. It's for device. But from the business angle, how we can manage although these devices and to get the benefit from the messaging functionality, remote device control and scalability required to collect preprocessed and a high volume sensor data through the cloud or at the edge, we work with the partner.

And also for combined, with a data handling issue, we follow the global rules. And for protocol, we have some stands are critical today in industrial IoT but it's not good enough. So we work with the different sensor vendors and the transformation when they're together to have the integration with connected platforms and also for the data security. We make it simple for our partner and customer for Leonardo. We call it IoT Accelerator. Today, we offer more than 20 SAP Leonardo IoT accelerator package for each package to meet specific needs. All these packages provide industry knowledge, proving software and the design thinking survey together with an express methodology for health recovery [inaudible 25:04] and the deliver innovation within eight weeks. So that's the IoT accelerator package in Leonardo.

Erik: Let's do a case study here. Is there one or two customer examples that you can walk us through? I know this is new in China. It'd great if you have one in China. But if not, we can look at a global one. And let's talk about what's the problem being solved, what are the challenges, cybersecurity, privacy, latency, whatever the business challenges and how SAP work to deliver a result? Do you have one or two ideas in mind of customer cases we can discuss?

Hunter: Yeah. The first example is the Hamburger Port Authority. So yes, so the cargo handling capability is the key for Hamburger Port. And we work with the customers in past two years to make big analysis first. That's the Explorer for you. For example, what's the challenge they would like to fix and have to fix that before the future business grows? For example, for the data hub, and the real time information exchange, that's the key from the logistic, from the cargo warehouse, from the truck driver and system management.

For the silo data systems, how we can integrate interconnected system together and generate more efficiency and business value? So that’s the objective: the real time information exchange, greater cargo handling speeds and interconnected instructor. So we SAP as a result, we are doubling the cargo handling capability with just optimize logistic based on our HANA cloud platform and a Leonardo IoT accelerators. So we work with the Tuesday firm together to make an example, smart port logistics platform as the customer right.

So, during the food journey, we help Hamburger Port to build a smart port a logistic platform and work with Tuesday firm integrate telematics, upgrade the mobile terminal devices and build the geography managing system for communication integration. And also we implement a call the coffee logistic solution. And also, we connected the entire port supply chain. That's so important to providing everyone with the complete traffic information in real time.

And finally, we enabled the graphics representation of truck positioning and infrastructures data for transportation security. So based on that, we can see that’s a huge business value and we've got [inaudible 28:38] from the Hamburger Port Authority CEO. And also, we define a future plan that will be to extend service and sales promotion for smart port logistics to external partners.

We plan to bring this case as a solution to China as well. And we are working on with the Shanghai and the [inaudible 29:05] on the seaside. And we enable the container at the port and it shifted left nurse for the [inaudible 29:13] So all these things, we've make a step for and we will introduce this case globally.

Erik: Is this one integrated suite? Or are you working with them to build out a set of applications that are going to be used individually by the different end users in this environment?

Hunter: I would like to say the business demands day in the market for each customer, they have their each specific business needs and technology offering to meet them. And we are happy to actually to offering customers co-innovation platform and to define their own application.

Erik: But for the Hamburg port case, because the solution that you described is a very highly integrated, complex solution, is that one individual solution or were you helping them for example, for supply chain partner management? Is that a separate application from say port operator management, or is that all wrapped into one application that you were helping the Hamburg port to develop?

Hunter: I think that's our advantage to have the IoT accelerators. So again, what we’re offering for over 20 accelerators, they fixed very specific needs for each application. So we picked up a couple of them to meet and make up a solution for Hamburger port, for example. So the customer today, they don't need all full [inaudible 30:34] package. So we just pick up the logistics connected vehicle and check on the trees, for example, four of them to meet the port needs. And for future journey, we can offer more accelerators. That's a very specific need and that will make it customer-wise integration.

Erik: So you have these modules that are already semi-complete, and then you'll customize and integrate these for customers based on their needs?

Hunter: Yeah, that keep things simple.

Erik: In terms of the development of Leonardo as a product, where are we today? Are we still in kind of version one of Leonardo and you expect it to evolve significantly in the next two to three years, or do you feel like it's already a mature product? Where are we in terms of the development of the product itself?

Hunter: So IoT is not new actually. So actually, we SAP already work on this field in past couple years, work in the ecosystem. So we launched Leonardo, especially from the last year sapphire our global customers’ event. And pretty much we will actually have a more generalized solution for our customers to make customer very easily to implement that. That's the key today. Especially there is no mature tender in IoT world. And we SAP continue to develop and optimize our specific accelerators.

Leonardo is mature innovation platform and a service platform. Based on that, we will have more and more way to add it accelerators based on customer needs. That's our strategy. And I believe 2018 this year, we will have more and more connected solutions to meet more traffic. For example, in China, we haven't seen more the predictive analysis, remote monitoring in real time. So that's a very good business scenario we will actually [inaudible 34:14]

Erik: So let's shift our focus now to China in particular. Maybe we can start with Leonardo. Where is Leonardo in terms of market adoption in China? Are you currently in the process of go-to market? Do you already have customers here? What does it look like for Leonardo adoption in China?

Hunter: We are very happy to introduce the global best practice to China market and our local partners. So we started from 2017. We build up the program to enable all the ISV and the partners to have more investment together with us in the China market. And now we are educated and empowered partners. We are doing the promotion stage and analysis, what China customer specific they are asking for. So, we already [inaudible 35:21] pretty much strong partners. We leveraged their potential, we leverage the Leonardo, Huawei, Hans and the local partners together and also co-innovated with the industry ecosystems, and together to build up the value chain in China and transportation logistics, and check entries, connected fleet for elevator manufacturing, although these are our focus points this year in China.

Erik: The Made in China 2025 policy is very expensive. And then you have the internet plus policy as well, which is even broader. But the digitalization focus here covers pretty much every segment of the economy. But is it the case then that in 2018, you're primarily focused on the supply chain parties, is that right, so logistics manufacturing? Are you also looking into spaces outside? Or do you save those for 2019 and beyond?

Hunter: We have the segmentation analysis among 25 industries we define. So couple of them is where we are hot and are more mature to embrace new technology and they are investing more and more. For some of the other industries, they are just started their digital journey. So for China for 2018, that's why we focused on and started pretty much from the transportation logistics industry. We also work with the China government and university institution together to contribute, make the examples to promote and align with policy of the China manufacturing 2025.

Erik: And then who are you seeing as the companies that are the most ready to begin digital transformation in China? If we segmented into the state owned enterprises, the private Chinese enterprises, and then the multinationals, who do you see as the companies that in 2018 are ready to move beyond pilots towards real deployments?

Hunter: For all these export even manufacturing customers, for example, for some home appliance, actually devices manufacturing for mobile phone, and for some high tech companies, they already have the global imprint and they are working while both in China and a global. All kinds of these companies they do request a global consistent for their business process, for their manufacturing system and logistics. So they're asking ICT to help them to optimize, to build up the end-to-end lifecycle of the systems. So we call a co-innovation instead of just a simple solution. So we have the service team, we have the dedicated design thinking team to work with customer then a couple of weeks and a month together to define their digital transformation journey. So that's what we are doing. That's what we are investing in China.

Erik: So you're looking for companies that already have global operations and are trying to align processes and improve efficiencies across global and standardize operations across global. What challenges are you seeing in the China market in terms of either communicating to your initial customers or helping them to move from decision making towards implementation. What are the challenges that you see unique to the China market?

Hunter: The first thing is the customers, they should make the final decision. What kind of the platform they will actually choose for their future business? By end of last year, we have seen over 168 industry IoT platform in China, from [inaudible 40:41]. But they do miss the key application, the SaaS layer. That's where SAP, we would like to contribute China.

The second, the IoT is not new for manufacturing sensor already there and optimization is also not new. But the cost, the customers into balance to manage ROI model, how much I would like to invest today or in future. And the future demand of customization, if I don't offer such kind of flexible goods on a logistics, our customers will do that. The people pursue the individual unique product to show their own personality from shoes to automobiles. So that's the challenge to market also to SAP. We definitely will offer a better solution to help our customers partner run business simple.

Erik: I guess those are problems across the market, so identifying ROI very challenging for companies that are developing IoT solutions for the first time. In terms of data security, privacy, are these issues that come up frequently or is it more of the business oriented issues that are the focal point for your discussions?

Hunter: And also for Chinese market, our customer, some of them will like to keep their data in-house, not running on public cloud. And also, we support private cloud mode for business process handling. And in future, the customer will actually have the hybrid mode cloud, is also okay, will definitely fully comply with the local regulation.

Erik: think it might have actually been one of your colleagues from SAP who was saying that people were buying their cloud platform as an add on and then not using it because maybe like somebody in their board of directors said, we need to explore cloud, so they would just kind of purchase it and then it would sit there unused for two years because in reality they just were not comfortable moving data to the cloud. So maybe that's still a transition in mindset that has not yet happened in China.

What most excites you if you look past 2018, I think we're still in 2018 in a very early market education phase. But if we look out into 2019-20, what trends most excite you where you see that there's a really big opportunity both for SAP but also for companies in general in China to differentiate based on industrial IoT solutions and added capabilities?

Hunter: So my point of view, especially focused on the ecosystem and the partnership. I'm looking at the collaboration in this market. The collaboration it means both SAP and value chain partners and also customers. So take the manufacturing for example. The people and management as a customer and partner, they are quite familiar with the so-called operational technology, the OT and some partners and customers they have these IT. So my understanding both IT plus OT is the IoT. So, it means if these value chain and system end-to-end solution, the customer business revenue.

So if I were to say, next three years, we would like to have the more standard business processing, to handling all the data and generate more business value behind above today's system. That's the one off chain. And the second, we would like to see more and more the SaaS, the application on the cloud more easily to access by our customers, especially in the mobile devices. That's the two points I'd like to share.

Erik: I see a lot of companies working on developing more standardized solutions and helping to reduce complexity and implementation costs for their customers. You'd mentioned at the start of our conversation, you're working with Huawei, you're working with a nice suite of partners. I know this is a little bit of a sensitive topic, but in the IoT space, companies are competing with other companies that were never a competitor before and they're also collaborating with competitors that previously they wouldn't collaborate, so the boundaries are shifting. How does this look for SAP? I mean, you guys you're expanding your scope of business, you're partnering with a wider range of companies. How do you look at this collaboration, competition dynamic in the China market?

Hunter: It's so dynamic. So what are we going to do? The first thing, we are pretty much the application provider, it mean we have no plan to offer any hardware, for example, from the server, from the sensor, from the backhaul transportation is not our focus. We would like to quite open with these partners and for the industry solution provider, from the communications, the telco provider and the carrier, and also for the integration provider. So we are quite open.

And in some fields, there's overlapping. We all have the strong industry focus. We SAP, for example, for the IoT field, we also have a quite strong solution in entertainment and sport. So this is somewhere totally different from the manufacturing. So it's totally okay. And I don't think the market, although just over 100 platforms can survive in next couple years. So what unique value proposition and who would like to work with such as SAP, we offering the SaaS, that will have the more better growth and have more customers.

Erik: So we have end users technology providers, range of people in our audience. If you were talking to an end user who is looking at how IoT solutions can help address an existing challenge in their supply chain, what advice do you give companies as they start to take the first steps of assessing a solution so that they can prepare themselves for an intelligent, successful decision making process?

Hunter: Don't hurry to a solution at the beginning. That’s my otherwise to the end user customer. So make analysis, what today is your business folks on and what your future business? In the backend, how we can make sure our end-to-end system can sustain, can support, can lead this business transformation journey, just like the [inaudible 50:29] explore. Do please spend some time with your partner for example SAP together to analysis your business and how we can define is the journey, for example, the five years journey from the steps 1,2,3, that’s key. And then emphasize and make a decision on the highest priority where we start, maybe the optimization is good beginning, not just the new solution.

Erik: So don't choose a technology solution to begin with, but instead focus on looking out what's your five year objective, how is your business going to change, how do you need to scale to accommodate that change, and then work your way back towards the high priority issues, the things that are the most important to address in the early stages. And then I guess you can choose the solution that helps you to address those solutions, but it's also going to be able to scale to meet your long term solutions. Hunter, thank you so much for taking the time to speak with us today. I really enjoyed it.

Hunter: Thank you so much, Erik, you and IoT ONE contribute a great asset to the industry [inaudible 51:55] to China market. So thank you.

Erik: Appreciate that. Hunter, final question, for our audience in China, how can they get in touch with you and your team if they want to partner or if they want to work with Leonardo?

Hunter: Free to reach me to my email address is there hunter.dong@sap.com. And you can find me well in LinkedIn.

Erik: Alright, Hunter, have a great day.

Hunter: Thank you, Erik. Thank you.

Erik: Bye.

Hunter: Bye-bye.

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