Published on January 24, 2024, 10:06 am
SAP, the software giant, has recently announced its plans to invest over $2 billion in integrating generative AI tools into its key business areas. This significant restructuring program aims to drive efficiency and deliver substantial revenue boosts for the company.
Despite this large investment in AI, SAP has made it clear that it will not be resorting to mass job cuts. The corporate restructure is expected to affect approximately 8,000 roles. The company stated that it intends to capture organizational synergies and AI-driven efficiencies through its operational setup transformation, preparing itself for highly scalable future revenue growth.
In 2023, SAP experienced strong revenue growth that exceeded expectations. Looking ahead, the company anticipates double-digit growth in revenue from cloud services. This raises the question of why such a comprehensive restructuring initiative is necessary when the business is already performing well.
Similar to other companies in the tech industry, SAP sees generative AI as an opportunity to automate roles and increase profitability. Concerns about job losses due to AI were prevalent during the early stages of generative AI’s rise, with warnings of widespread disruption in labor markets. While these concerns have not materialized fully, there are indications that business leaders view this technology as a means of reducing staff numbers.
A recent CEO outlook study by PwC revealed that leaders expect to reduce headcount by at least 5% in the coming year due to using generative AI tools. Examples of this trend can be seen with BT’s plans last year to automate positions by cutting thousands of roles and IBM’s decision to replace thousands of back-office staff with AI.
However, SAP’s approach appears more measured compared to others in the industry. The company emphasizes that it will not engage in a mass layoff spree. Instead, SAP plans for affected positions to be covered by voluntary leave programs as much as possible. This approach marks a significant change in tone compared to recent actions taken by industry stakeholders.
SAP also highlights that internal re-skilling measures will be a key focus of the restructuring program. The company intends to train its staff in relevant AI skills and embed them within different departments, showing a commitment to investing in its workforce.
The rapid adoption of generative AI in the past year has presented significant skills challenges for companies across various industries. Research indicates that an emerging ‘AI skills gap’ will be a major hurdle for firms in the coming years.
SAP expects to end 2024 with a headcount similar to current levels. Currently, it has over 100,000 employees worldwide. While revenue boosts are anticipated from this restructuring initiative, they won’t yield immediate results. SAP projects substantial costs associated with the program, and this is expected to have a negative impact on its earnings in 2024.
However, looking towards the long-term benefits, SAP predicts unlocking €500 million ($544 million) in operating profits in 2025 due to efficiency improvements resulting from the integration of generative AI.
In conclusion, SAP’s decision to invest heavily in integrating generative AI tools within its operations is part of its strategy to drive efficiency and boost revenue. Unlike some industry peers, SAP plans to avoid mass job cuts and instead rely on voluntary leave programs for affected positions. The company emphasizes internal re-skilling measures as a way to equip its workforce with relevant AI skills for future growth. Despite the anticipated costs associated with this restructuring initiative, SAP expects long-term benefits through increased operating profits and organizational efficiencies propelled by generative AI integration.