Published on January 24, 2024, 10:09 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. However, the company has also been keen to emphasize that this integration will not lead to mass job cuts. The restructuring program will affect approximately 8,000 roles across SAP.
The goal of this program is to enhance efficiency by utilizing AI tools and generate significant revenue growth. SAP stated that in 2024, it will increase its focus on key strategic growth areas, particularly Business AI. Additionally, the company aims to transform its operational setup in order to achieve organizational synergies and prepare for scalable future revenue growth.
In 2023, SAP experienced strong revenue growth that exceeded expectations. Looking ahead, they forecast double-digit growth in cloud services revenue. This begs the question of why SAP is undertaking such a comprehensive restructuring initiative if they are already performing well.
Generative AI has offered companies like SAP an opportunity to automate roles, reduce headcount, and drive profitability. Initially, there were concerns about widespread job losses due to the rise of generative AI. Although those concerns have not materialized as predicted, there are indications that business leaders view this technology as a means to reduce staff numbers. PwC’s CEO outlook study revealed that leaders expect a reduction in headcount of “at least 5%” due to the integration of generative AI tools.
Other companies have already taken steps toward automation through generative AI. For instance, BT announced plans last year to automate thousands of positions while IBM intends to replace thousands of back-office staff with AI. Google has also replaced staff in its ad sales division with AI.
However, unlike some industry stakeholders who have pursued significant job cuts during their restructuring efforts, SAP’s approach appears measured. The majority of affected positions are expected to be covered by voluntary leave programs rather than abrupt layoffs or disgruntled employees leaving offices with boxes.
One key focus of SAP’s program is “internal re-skilling measures.” The company plans to train its staff in relevant AI skills and embed them within different departments. The rapid adoption of generative AI has resulted in significant skills challenges for companies across various industries, with a growing AI skills gap becoming an obstacle in the coming years.
SAP expects that by the end of 2024, its headcount will be similar to current levels, indicating a commitment to maintaining a stable workforce. However, the costs associated with this restructuring initiative will be substantial and may negatively impact earnings in 2024. Restructuring expenses are estimated at around €2 billion ($2.18 billion), with the majority likely to be recognized in the first half of 2024.
Despite facing initial costs, SAP anticipates long-term benefits from this restructuring effort. The company expects to unlock €500 million ($544 million) in operating profits in 2025 alone due to efficiency improvements.
In conclusion, SAP’s decision to invest over $2 billion in integrating generative AI tools demonstrates their commitment to leveraging AI for business growth and efficiency. While there will be some restructuring and role changes, SAP is taking a measured approach rather than pursuing mass job cuts. By focusing on internal re-skilling measures and voluntary leave programs, SAP aims to maintain a stable workforce while capitalizing on the benefits that generative AI offers.