P A R T N E R S P O T L I G H T

Creating the Platform for Digital Transformation:

The SAP-Red Hat Partnership
Sponsored by: Red Hat
Philip Carnelley
January 2016

THE DIGITAL TRANSFORMATION IMPERATIVE

IDC predicts that within the next two years, two-thirds of Global 2000 enterprise CEOs will put digital
transformation (DX) at the center of their corporate strategy. The percentage of enterprises with
advanced DX strategies and implementations will more than double within five years. This scale-up of
digital business strategies will drive everything that matters in enterprises' IT investments.

IDC segments organizations into two camps Digital Thrivers and Digital Survivors. Digital Thrivers
are proactive rather than reactive, driving their own agenda rather than being driven by external forces.
They are able to exploit the 3rd Platform the digital technologies of cloud, social, mobile, and Big
Data, and the allied acceleration innovators like the Internet of Things (IoT), cognitive systems, and 3D
printing to radically change their business model and processes to create sustainable competitive
advantage, to enter new markets, or to provide new value propositions. We see manufacturing
companies morphing into service organizations, retailers becoming banks, and technology companies
becoming healthcare service providers or auto-industry players. Startup companies like Uber, Airbnb,
or indeed Amazon have shaken up decades-old industries that thought they had settled down into
stable middle age. Today, no company can afford to assume that its competition will remain static, or
that its business model will remain unaffected in the coming years.

IDC has created a model to measure organizations' readiness for this transformation a digital
transformation maturity model. Our research shows that the majority of organizations in Europe, and
indeed around the world, are in the earliest two stages of DX maturity. Most are what we would
classify as Digital Explorers or Digital Players. Few can yet call themselves Digital Transformers or
Digital Disruptors.

There are many moves that organizations can and indeed must make to position themselves to
execute on a digital transformation program and to develop their DX maturity. These will include
transforming strategy and leadership, process, workforce transformation, and customer experience.

A critical strategy element for organizations positioning for DX is to base their operations on the right
technology platform one that allows them to fully exploit these transformative digital technologies.
SAP and Red Hat are two companies that have recognized the importance of digital transformation to
their customers and are articulating individually and in partnership with each other how their
offerings can support a customer's DX agenda. Indeed both have publicly recognized the importance
of IDC's Digital Transformation Maturity Model and can explain to customers how their own offerings
map on to the elements of IDC's model to assist with the DX journey. The fact that they are partnering
together in this will, in IDC's opinion, make it easier for their customers to follow a DX agenda.

January 2016, IDC #EMEA40942916

FIGURE 1

IDC's MaturityScape Digital Transformation Stage Overview

Source: IDC, 2016

DIGITAL TRANSFORMATION A CEO-LEVEL AGENDA

IDC research shows that digital transformation is a key priority for most organizations around the
world. That is, transforming products and services, business processes, and relationships with
customers, partners, and employees by exploiting digital technologies, in particular the "four pillars" of
the 3rd Platform of computing (cloud, social, mobile, and Big Data analytics technologies).

Private and public sector organizations alike are grappling with how to address the impact of these
technologies on their decision-making processes, their operations, product rollouts, promotions, and,
most importantly, how they engage with their customers. They can see disruptive newcomers shaking
up formerly staid, mature markets like Amazon in retail, Uber in taxi services, Airbnb in hospitality, or
Zoopla and Rightmove in real-estate sales. Retailers, banks, utility companies, and auto
manufacturers are nervously looking over their shoulders at companies like the U.K.'s Atom Bank (an
app-only approach to banking), Google, Facebook, and Apple (rumored to be considering entering the
auto market). Forward-thinking CEOs know that they don't want to be "Uber'd." They want to take
advantage of the new mega-trends and technologies: the Internet of Things (IoT), robotics, 3D printing,
hyperconnectivity, cognitive systems, cloud-stored data, and real-time analytics/decision making.

IDC predicts that within the next two years, two-thirds of Global 2000 enterprise CEOs will put digital
transformation at the center of their corporate strategy. The percentage of enterprises with advanced
DX strategies and implementations will more than double within five years. This scale-up of digital
business strategies will drive everything that matters in enterprises' IT investments.

2016 IDC #EMEA40942916 2

Today's customers continue to expect more and more from their suppliers. In the consumer domain,
for example, people now expect to be able to engage with their suppliers over multiple channels: for
instance, to view a product on their mobile, to check an order on the Internet, and return the delivered
goods to their nearest store seamlessly. They also want to shop around: an IDC survey in the U.S.
found that one in five shoppers said they had bought goods on a mobile while in a competitor's store.
Such trends reduce margins and force firms to compete ever harder for business through better
customer service, sales, or marketing. Suppliers need to reappraise their internal and customer-facing
processes to embrace omni-experience.

In some cases these changes can truly transform a business, for example, from bricks-and-mortar only
to omni-channel, entering new markets or even moving from a product manufacturing business model
to a services-led, repeatable revenue stream, much more "sticky" to customers and potentially much
more lucrative. IDC predicts that by 2017, 75% of "product-oriented" companies will gain more than
50% of their revenues from services.

Examples of where this type of transformation is happening right now include the following:

The Hamburg Port Authority needed to dramatically increase its container handling capacity,
yet was unable to expand physically. The organization implemented a mobile business cloud
based on a real-time data platform for smart logistics, saving truck waiting times and
improving throughput. Real-time information lets shipping agents view the availability of
containers at the docks and work with terminal operators on collection schedules that reduce
waiting times. By assigning new orders before the trucks reach the terminal, transport
companies can optimize their capacities and the port can make better use of available parking
spaces. And, drivers also receive timely information that lets them know which routes to
choose and how long they might have to wait at a destination.
Electronics manufacturer Philips launched a "connected toothbrush" that gathers data from
opt-in customers and delivers the information back to them via a mobile app. The company is
delivering a subscription service to consumers who are provided with advice and feedback on
whether they are using the product effectively. It also indicates when parts should be replaced
based on usage. Perhaps most interestingly, Philips is looking to bring in third parties as part
of the value proposition, such as dental insurance providers.
Rolls-Royce has moved from selling aero engines to selling "thrust time" where engines are
rented out on an hourly basis. Today, most Rolls-Royce engines send telemetry data to its
offices, where reportedly around 4,000 engines are monitored under the company's TotalCare
program, for scheduled and predictive maintenance to minimize downtime. Some four-fifths of
Rolls-Royce aero engines are now "sold" in this way.
U.S. railroad companies are able to implement a new, mobile solution allowing trains to detect
and react to unsafe conditions in real time, reducing the risk of accidents due to human error.
The Positive Train Control program is to be implemented across most of the U.S. rail network
in compliance with a federal law passed in 2008. Train companies were supposed to be
compliant by December 2015, but this has proven challenging. A new solution from
Meteorcomm, a company providing real-time data communications infrastructure solutions to
the railroad industry based on 3rd Platform technologies, is now available to make this more
feasible.
Spanish bank BBVA has set up a digital banking unit to deliver a seamless customer
experience across new digital channels alongside the traditional ones. The digital banking unit
is also making significant investments in building out application programming interfaces
(APIs) so that its new digital capabilities can be exposed and leveraged by other stakeholders
in the ecosystem. The objective here is to create a seamless customer experience across all
its channels as the banking unit creates new, easier, and more attractive business processes
for areas such as account opening, money transfers, and loan origination to fend off
competition from new entrants.

2016 IDC #EMEA40942916 3

It's worth noting that DX is not just something for large, global players but is equally important for small
and midsize services and manufacturing companies. IDC is seeing a democratization of the
technologies involved, and often smaller companies are best placed to spot an opportunity in the
market they can exploit, with the agility to change quickly to capitalize on that opportunity.

DRIVING DIGITAL MATURITY

To implement digital transformation of this scale and profundity requires a great deal of readiness and
ability what IDC calls digital maturity. This means putting in place the right platform, governance,
culture, and skillsets, allied to having the right business goals.

IDC has developed a model for digital maturity to offer guidance on strategy and to allow organizations
to benchmark different facets of their organization to assess that maturity. Much more information on
IDC's Digital Maturity model is available on the IDC website and in many of its publications, but in
summary, IDC's Digital Transformation MaturityScape Benchmark comprises five key dimensions:

Leadership
Omni-experience
Information
Operating model
WorkSource
Each dimension is targeted at a key aspect of DX mastery and can be assessed independently as a
measure of the relative maturity of a specific aspect of business functionality and performance. Each
dimension also falls naturally under the domain of certain business leaders, including CEOs, CIOs,
CMOs, CFOs, COOs, and line-of-business (LOB) management, but digital transformation is a "team
sport" that requires collaboration across all business domains.

The model allows organizations to be placed on a five-point scale, along each of these dimensions
and in summary. The model and its five-point scale is summarized in Figure 1, shown earlier.

Perhaps unsurprisingly, IDC's research in this critical area of business has shown that the majority of
European organizations are still at the early stages of digital maturity Ad Hoc and Opportunistic (as
shown in Figure 2). The final section of this paper gives guidance on how organizations can think
about ways to improve their digital maturity.

In summary, the story told by Figure 2 is that the majority of the European companies surveyed have
yet to establish DX capabilities and expertise at the Digital Player level (i.e., repeatable maturity), and
are still at the stage that IDC identifies as Digital Explorers (i.e., opportunistic). We also find that
companies that have proactively and seriously committed to DX ("thrivers") exhibit a different set of
traits from those that are still reactively and cautiously exploring DX opportunities ("survivors").

Underlying this headline data, IDC finds that some countries and industries are more advanced (on
aggregate) than others in their digital maturity. A further research finding is that U.S.-based
organizations tend to be more advanced in terms of digital maturity than their European peers.

2016 IDC #EMEA40942916 4

FIGURE 2

European Digital Transformation Maturity: Proportion of Organizations at Different

Maturity Stages
40%

35%

30%

25%

20%

15%

10%

5%

0%
Ad Hoc Opportunistic Repeatable Managed Optimized
Digital Resister Digital Explorer Digital Player Digital Transformer Digital Disruptor
Business is a Digitally enabled Business provides Business is a leader in its Business remakes
laggard, providing customer consistent, but not markets, providing world- existing markets and
weak customer experiences and truly innovative, class digital products, creates new ones to its
experiences and products are products, services, services, and experiences. own advantage, and is
using digital inconsistent and and experiences. a fast-moving target for
technology only to poorly integrated. the competition.
counter threats.

Source: IDC European Digital Transformation Benchmark Survey, June 2015, n = 413

RED HAT AND SAP CREATING A PLATFORM FOR DIGITAL TRANSFORMATION

Digital transformation is about leveraging a modern digital technology platform what IDC terms the
3rd Platform technologies of cloud, mobile, social, and Big Data analytics to transform business
operations and models. So, while it's by no means the end of the story, getting the right platform is an
essential part of being able to implement a digital transformation strategy. Today's base platforms
need to be dynamically scalable, open for multisource integration, and allow rapid application
development and deployment, supporting new development approaches such as containerization.
They must also be suitable for multiple deployment options private cloud, public cloud, and hybrid.

Two companies that have very much recognized the need for organizations to adopt the right platform
for digital transformation, and indeed have endorsed the IDC Digital Transformation Maturity Model,
are SAP and Red Hat in partnership and individually.

Furthermore, SAP has produced a mapping between its SAP HANA platform and the IDC digital
maturity model, to help its customers to select the technologies they need to match their digital
transformation maturity level and business goals.

2016 IDC #EMEA40942916 5

Both SAP and Red Hat also stress their
dedication to simplification of process
and architecture: IDC believes that "We [SAP and Red Hat] are looking the same
reduction of complexity is a key strategy way."
for CxOs to free up budget otherwise Mathias Kaldenhoff, Head of Business
spent on maintaining current systems Development Platform Solutions, SAP
and processes, to repurpose it for digital
innovation and to meet new business
goals.

SAP and Digital Transformation

SAP's view is that its HANA platform simplifies digital transformation initiatives, while the S/4 HANA
application suite with its simpler interface and data structures allowing a real-time view on business
data improves agility in key processes. At SAP's TechEd conference in Barcelona in November 2015,
the global president of the SAP Platform Solutions Group said the SAP HANA Platform was "the
Digital Core" that could help transform an organization into a digital enterprise.

SAP HANA is a computing platform comprising database, middleware, and developer tools, offering
database, application processing, and integration services on a single platform. It has had a
considerable impact on the database world, particularly due to its use of in-memory storage for data
processing and its native ability to handle poly-structured data. The same architecture provides
libraries for predictive, planning, text processing, spatial, and business analytics.

One of the virtues of SAP HANA is that it allows transactional and analytical processes to run
concurrently against the same datasets, helping to create what might be called a real-time decision
platform, thanks to its rapid query response and bridging of operational data, analytical data, and
Hadoop-stored contextual data. This can be used to rethink approaches to key business processes,
such as rethinking the way a logistics company does product delivery scheduling and routing.
Optimizing routing in real time has a large potential impact on a company's ability to offer and meet
new customer-delivery SLAs, with using real-time updates available thanks to the spatial attributes. In
fact, availability of real-time location data is a key enabler for a lot of digital transformation initiatives
for example, an insurance company offering car insurance charging based on GPS tracking of the
distance traveled by a vehicle, and even the driving style of the driver, monitored by sensors in the
vehicle.

Red Hat's Support for Digital Transformation with SAP

While it is not the only option, one of the primary platforms for SAP HANA comes from open source
champion Red Hat, which offers a broad
range of products under the open source
model, including the Red Hat Enterprise "SAP HANA is the heartbeat of the digital
Linux (RHEL) operating system and the platform."
Red Hat JBoss Middleware range of Mathias Kaldenhoff, Head of Business
offerings for integration and process Development Platform Solutions, SAP
automation, together with development
tools and storage systems.

Linux is a very suitable platform for running SAP, and Red Hat's version, RHEL together with its
associated middleware and development tools is increasingly popular in the enterprise for running
SAP systems, including SAP HANA, using its specially developed Red Hat Enterprise Linux for SAP
HANA. Red Hat provides enterprise-standard support services and its engineers are SAP-certified and
work closely with SAP on joint development projects, Red Hat being a SAP global co-innovation lab
member, and member of the SAP Benchmark Council.

2016 IDC #EMEA40942916 6

Red Hat believes that one of its key virtues with respect to the digital transformation agenda is the
openness of its offerings. Much of today's leading-edge platform development is taking place in the
open source arena such as Big Data technologies around the Hadoop ecosystem and new
development approaches like containerization. Furthermore, some organizations' procurement rules
particularly some government organizations mandate the use of open standards where possible.
Thus Red Hat technologies can be part of an infrastructure standardization program: another aspect of
simplification, part of an organization's strategy to reduce cost and increase agility through reduced
complexity.

IDC predicts that by 2018 enterprises

with strategic DX initiatives will expand "We help customers in their modernization
the number of external "data pipelines"
journey: much of today's technical innovation is
feeding intelligence into their organization
by at least three- to five-fold, and will
based on open source, but it needs to be
expand the delivery of their own enterprise-grade."
monetizable data to the marketplace by Dirk Kissinger, Senior Manager, Strategic
100-fold or more. Enterprises' ability to Alliances, Red Hat EMEA
innovate will grow (and shrink) in
proportion to their data supply.

Thus integration is a business-critical capability, linking the "digital core" of the ERP system to both
complementary transactional systems and to external data sources, particularly in the Big Data
context, or to external events and transactions. For instance, core marketing systems may need to link
to social media data, HR systems to partner databases for hiring purposes, or commerce systems to
external catalogs.

Consequently, one of the primary ways that this partnership can be seen to benefit companies tackling
DX is Red Hat's capability to link SAP and non-SAP systems through the Red Hat JBoss
Middleware/connectivity offerings. While comprehensive in their scope, SAP systems (or any ERP
systems) alone are not sufficient for the DX agenda, and they must fit into a wider delivery ecosystem.

A related aspect of Red Hat's offerings which is increasingly relevant in the DX context of mobile-
enabled, cloud-centric business processes is its reputation for strong security.

FIGURE 3

Red Hat and SAP Typical Configuration

Source: Red Hat

2016 IDC #EMEA40942916 7

ESSENTIAL GUIDANCE

IDC believes that the pace of DX change will accelerate, particularly as the Internet of Things becomes
more entrenched in the daily fabric of business and society. The proliferation of devices and the
information that flows between them will require business leaders to increase their awareness of how
their ecosystem is evolving on a continuous basis.

As a result, strategic planning cycles will continue to shorten. Dashboards and other metric-oriented
analytic tools will become the default feedback systems that drive business model transformation "on
the fly," even for well-established industries that today seem relatively impervious to the need for
extreme agility.

At the technology level, there are as many as seven touchpoints with technology suppliers that CIOs
need to consider when deciding if the platform is fit for purpose in the DX context: networks, hardware,
storage, operating system, database, middleware, and of course applications. Thus choosing and
designing the right platform for service delivery involves an entire ecosystem and holistic architectural
approach, not a single supplier.

Some guidance IDC can offer to companies eager to improve digital transformation maturity, pertinent
to the issues discussed in this paper, is that we see that more mature companies which we term
Digital Thrivers behave in the following ways:

Seek to establish processes and systems that continually evaluate, understand, and extend
the value of all ecosystem constituents.
Develop a culture of innovation and a hunger for driving disruptive ecosystem experiences,
and facilitate this by automating and adapting responsively to customer experience needs.
Leverage digital technologies to conceive, create, adapt, and execute on innovative
contextualized instantiations of ecosystem experiences that combine human and machine
intelligence.
Develop and deploy an adaptive architecture and services that fluidly scale and adapt to
business requirements.
Make an organizational commitment to continually amplify engagement of digital and physical
continuous self-assessment and innovation that leverages input that transcends traditional
ecosystem (customers, employees, partners, and things) boundaries.
Adapt to business needs, in alignment with customer, partner, and employee expectations.
Expand market awareness and brand management to leverage an assortment of digital
connections, influences, impressions, and triggers that expand engagement beyond traditional
ecosystem boundaries. Business performance hinges on delivering a compelling experience
long after initial engagement.
Align with personalized and contextualized needs while engaging and listening like never
before to all extended members of the ecosystems.

2016 IDC #EMEA40942916 8

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