After what must have been years of negotiations, two longstanding market competitors have become more like friends with the announcement of SAP and Siemens Digital Industries deciding to form a partnership that includes PLM.
For Siemens, this applies more specifically to the cPDm side (collaborative Product Definition management) where everything indicates—even if it’s not stated outright—that SAP will begin to phase out its main solution SAP PLM, which consists of a number of related modules. Instead, SAP will start selling Siemens’ PLM suite, Teamcenter.
For SAP, Siemens will sell SAP’s Intelligent Asset Management solution ("plant management system"), as well as SAP's Project and Portfolio Management.
Of course, it’s the nature of things that these companies are launching this partnership as a win-win deal for both parties, and there are certainly those elements in the plan. But a reasonable assumption is that above all this deal makes Siemens' PLM side and the Teamcenter PLM backbone suite the big winner.
This is the most reasonable interpretation of the sensational news that these companies released this morning. How? I will take look at that and some other aspects of the partnership in today's article.
On a deeper level, the meaning of this surprising partnership is still unclear in terms of in-depth details. In a press release published this morning, the tone is general. It initially is stated that "together, industry leaders Siemens and SAP will deliver integrated end-to-end software solutions across product lifecycle, supply chain and asset management.”
The idea here is obviously that within the framework of this alliance, SAP and Siemens should systematically and under a formal partner relationship begin to utilize each other's expertise and technology, and also put effort into creating the integrations needed for users to have really smooth flows. Furthermore, it is noted that this is about, "providing a true digital thread that helps enterprises eliminate process and information siloes, drives digitalization and delivers a comprehensive solution for the fourth industrial revolution (Industry 4.0)."
New Constellations are Needed to Develop Competitiveness
Klaus Helmrich, Siemens Digital Industries' CEO and member of Siemens AG's Board of Directors, states as a background to the new alliance that digital transformation will be crucial to the manufacturing industry's ability to increase productivity, flexibility and accelerate innovation.
“Therefore, companies must come together in new ways to enable the digital company,” he says, and adds that the partnership between Siemens and SAP is the excellent example of such a 'reorganization' in these relationships.
“This exciting collaboration between two industry leaders is about more than just interoperability and interfaces; it is about creating a truly integrated digital thread that unites product and asset lifecycle management with the business that enables customers to optimize production of products,” said Helmrich.
Furthermore, Helmrich and his SAP partner Thomas Saueressig, head of Product Engineering and member of SAP's board, claim that this agreement will complement and integrate their respective offerings to supply customers with the first truly integrated and improved product lifecycle management solutions (PLM from Siemens), supply chain, service and asset management (ERP/SCM/EAM from SAP).
“As manufacturers design and deliver smarter products and assets, access to real-time business information across networks is critical to bring new and improved innovations to market faster,” asserts Saueressig. He added, “Bringing together expertise from SAP and Siemens to offer Industry 4.0-enabled business processes allows enterprises to create a digital thread for the entire product and asset lifecycle. With this end-to-end solution, teams across the business network can efficiently work together to design and deliver innovative products productively, profitably and sustainably.”
Sensitive When Two Market Leaders Work Together
Formulations in this style belong to the business rhetoric surrounding large alliances of the kind that this partnership entails. But no matter how much you want to “beat the drums” for this partnership, it is important to act with some caution, not least because of the tough antitrust laws that apply both in the U.S. and in the EU.
The fact of the matter is that SAP is the world's largest business systems player. Nearly 80 percent of the world's total IT business transactions take place on an SAP system.
At the same time, Siemens Digital Industries has advanced rapidly in recent years and was in CIMdata’s 2019 reports regarding direct software revenues on the PLM side—the largest player before Dassault Systèmes, Autodesk, IBM and PTC.
But it doesn’t stop there. Due to the merger between the PLM and automation divisions a few years ago, Siemens is by far the world's largest actor in terms of tools for both product development and factory automation of the type necessary for the Industry 4.0 concept.
These are conditions that antitrust authorities will take a closer look at, so it is important that SAP and Siemens keep these pieces apart in a tasteful way, while at the same time making it clear that this is an alliance that only applies to certain areas.
For example, SAP is related to things such as manufacturing industry in automotive, aerospace, machinery, telecom and other large industry segments when it comes to things like production of “manufacturingBOMs” (manufacturing Bill of Materials), while Siemens is big on “engineeringBOMs”—that is, BOMs from the product development side created in PLM systems.
This has always been a tough, competitive situation where a number of players from the product development and PLM side have cast bright eyes on the manufacturing area. This is because, as former Siemens PLM manager Chuck Grindstaff once said in an interview with engineering.com, "it would be natural for" manufacturingBOM’s to be developed within the framework of the system that created the products, i.e. the PLM system."
Regardless of how things stand in this matter, it is important to clarify that in this and similar cases, "full business battle still applies" and other PLM players such as Dassault or PTC are treated in a fair way.
Per Högberg, SAP digitalization evangelist for PLM strategy and implementation, commented on this aspect in a LinkedIn statement where he said, “That SAP would stop others like Dassault is unreasonable. The strategy that has described this step (which has now been going on intensively for a while) is to generally build ERP and PLM together and have TC as the basis there. Some parts are more ERP close and others PLM close, which is why the intersection point is not easy, not least because TC works with other ERPs and SAP with other PLMs. But now to stop trying to compete with PLM systems enables SAP's important investment in the PLM area, which is the basis for Experience Economy (XO), which SAP has invested over $10 billion in recently.”
Siemens and SAP Partnership Should Worry Competitors such as Dassault, PTC and Aras
Of course, it can also be assumed that competitor PLM developers such as Dassault Systèmes, PTC and Aras PLM will probably view this collaboration with some concern. It is easy to understand why. A reasonable interpretation and foreseeable consequence of the approach of SAP being a Teamcenter reseller is that Siemens is the big winner commercially. Why?
Here’s how you could reason this: No one can be the best at everything, not even the giant SAP. The German ERP developer's investment in the PLM area in this perspective has been a bit sluggish, and technically they have not managed to take their solutions to the top—neither in terms of the number of users, although formally many are said to have received PLM solutions as almost free modular options if they bought into SAP's large business system, nor in terms of technical capacity and sophistication.
Above all, disruptive things have happened in the field of technology related to the PLM and product development tools, particularly with sophisticated and technologically complex solutions including IoT, IIoT, generative design, VR/AR/MR, solutions for additive processes, advanced simulation and others that require full focus and significant human resources to be developed. From this perspective, one could say that today's message is tantamount to SAP seeing the difficulties in developing the competitive solutions required to remain in the top tier.
It is probably an exaggeration to say that SAP gave up the battle for PLM, but it is probably not too far from the truth. Instead of continuing to develop their own solutions, SAP has chosen to bet on and focus their resources in areas where they are already sharp, and instead become a reseller of a PLM system that can live up to the highest market requirements.
Instead, today’s announcement indicates that SAP and Siemens together aim to develop sharp integrations towards this globally dominant cPDm solution, and on the business side to take home a positive net result when compared to staying in competition with expensive development costs and in the long run uncertain sales levels related to the difficulties of being able to match the others' technology content and platform-integrated approach.
By doing so, SAP can focus on solutions and areas where they are already globally dominant and technically sophisticated, such as the SAP HANA database, their cloud solutions and S/4HANA including financial systems, facility management solutions, edge computing, transaction systems for the engineering industry and more.
A Commercial Hit for Siemens Teamcenter
In my opinion, today's announcement really represents a commercial hit for Siemens. Very few of the world's large and medium-sized companies do not use SAP, while Siemens Teamcenter does not have an equally dominant position. This opens up a great opportunity for Siemens to get a series of exchanges of SAP PLM solutions for Teamcenter with SAP's extremely large, but sometimes a bit "tired" sales organization. It’s not a rare phenomenon to find there’s a risk of being a little “spoiled” as a representative of the market-dominant player. Without burdening their own sales organization too much, Siemens can take home a net income with SAP as the commercial driver can.
But as I said above, even though on the surface this looks like a better deal for Siemens than for SAP, it should not be forgotten that Siemens has many customers who may be interested in SAP's software in Enterprise Asset Management (EAM) project and portfolio management solutions.
Right now, what remains is to work on the further integration between the two partners’ software platforms, put together good and fast solutions to get the respective organizations to both learn the other party's solutions and to develop a strong sales methodology around these.
These are not easy challenges, with tens of thousands of employees who will need to be "trained" in the new solutions, but it is possible.
A Positive Tone from Analysts
In conclusion, both SAP and Siemens will profit from this cooperation, and both will be able to offer new solutions that combine their technology to help companies shorten their time to market by utilizing Industry 4.0-enabled data with intelligent facilities and products. This will also give organizations the benefit of integrating customer insights into product development through comprehensive solutions, from product design to service and asset management.
As a first step in the partnership, SAP will offer Siemens Teamcenter software as the core foundation for product lifecycle collaboration and data management, and Siemens will offer SAP “Intelligent Asset Management” and SAP “Project and Portfolio Management” solutions to maximize business value for manufacturers and network operators.
Both companies will work together to develop end-to-end life-cycle applications to help users achieve a seamless digital thread that improves overall business performance.
“Combining Siemens' Team Center and SAP S/4HANA software gives companies the ability to handle everything from product design to decommissioning,” comments Bob Parker, senior VP of Industry Research at IDC. "The IT benefits of pre-integration of PLM, ERP, asset management and supply chain applications and the business benefits from having a more resilient response to changing market demand make this a compelling consideration for companies seeking a competitive advantage in the digital economy."