Mergers and acquisitions have become a part of the fabric of our industry, occurring at what seems almost breakneck speed. The volume can leave analysts and other industry stakeholders paddling behind as fast as they can, trying to catch up while they attempt to evaluate the impact the transactions will have on customers, competitors and partners. This year has been exceptionally active and Konica Minolta recently announced a transaction that has left quite a few people surprised – the acquisition of the ERP company MWA Intelligence.
MWA has become known in the imaging channel for their FORZA product, which is based on the SAP Business One (B1) ERP platform. Konica Minolta’s purchase creates a new dynamic in the channel, so when we were offered the opportunity to sit down with Luis Murguia, the head of SAP Business One worldwide, there was no turning back. Join me in the SpeakEasy.
You’ve had an opportunity to observe MWA and the imaging channel these past few years due to your ongoing relationship with them. What new opportunities does Konica Minolta’s purchase of MWA present for SAP Business One?
Let’s talk first about the context. The digital economy, with all these new technologies, is disrupting every industry. Customers have experienced this with Uber, Airbnb and so forth. Some industries have been impacted more than others and I believe that the imaging industry is being brutally impacted. There is an enormous amount of change going on.
I think that both Konica Minolta and MWA actually saw this happening not recently, but a long time ago. They went about setting the foundation for a successful path, looking at how to enable the passage for the traditional office equipment dealer into this new era. We believe we can add tremendous talent to their joint success stories. The position of Konica Minolta gives us the opportunity to take what MWA is doing within the focus of North America and enable it to scale globally. The challenges that the industry is facing are global. It happens in Europe, in Latin America and Africa — all around the world.
Konica Minolta US is the division that bought MWA. How do you think that will impact this product going global?
Konica Minolta is a large company. At SAP we have a lot of cases of acquisitions that we started at the local level, and now they’re becoming significant contributors to our global business. The best example is Business One.
Business One was an acquisition from Israel, where it was a Europe-centric data company. Post-acquisition, we immediately focused on getting traction in all of the other regions, and the rest of the world quickly started to demand that they have B1 localized and available in their respective regions. That’s how B1 came to be a global player. I’m sure that a similar story may happen with MWA and Konica Minolta.
I do think the Workplace of the Future model that Konica Minolta has developed plays very nicely into this acquisition, and therefore into SAP Business One. Aside from the MWA acquisition, do you see additional opportunities to innovate with Konica Minolta in other areas, perhaps within this Workplace of the Future constellation, or something else entirely?
Absolutely, but I think it’s still important to keep in mind that Konica Minolta didn’t just make an acquisition. I believe the whole theme is about how to reinvent or to accelerate the reinvention of an industry — eventually at the global level. I think the opportunity for all of the companies involved is huge. I believe it’s going to keep all three of our entities extremely busy for the foreseeable future, just to engineer this reinvention.
Like any other journey, along the way, I’m sure we will discover new areas that present a tactical opportunity that could be very strategic. Our portfolio is very broad on SAP and I think that the vision of reinventing an industry is not just about the platform — there will be other things. An example is machine learning. In the office of the future, there is going to be a lot of automation driven not by processes, but by the smart use of data. SAP is investing heavily in that area, so I’m sure we will find other areas to collaborate on beyond this initial venture.
Can you walk us through what role the cloud can play in this new scenario with MWA and Konica Minolta and then SAP Business One?
I think cloud technology has powered the whole transformation of the digital economy and impacts every single industry, every type of customer. It’s very interesting for people to talk about cloud. The true revolutionary impact that the cloud has is actually very tactical because what cloud does is shift the ownership and accountability and even the hard work of operating and running a data center from the imaging dealer to the vendor.
When we’re talking about doing backups, disaster recovery, uptime of the system, the air conditioning, the cooling, the redundant power sources, all of the things that until now the dealer or MSP has had to deal with and allocate resources to — that whole scenario now goes away because it becomes the responsibility of the cloud vendor. That’s very important because for the services provider, for the owner who is actually managing that information, suddenly the cloud frees a lot of resources that were dedicated for internal operating and technical activities. Now those resources can be directed to investing more into customer service, on customer attention, and also much more into value-added services rather than trying to manage a technology that changes very rapidly and was mostly a source of headaches. It was always a problem and never the source of an opportunity.
Cloud empowers not only the imaging dealer, but it empowers every small and medium sized business owner to shift the resources and attention from low or no-value activities into customer-facing value activities.
One of the concerns that this particular acquisition presented to the imaging channel, which is made up of independent copier dealers, centers around the fact that most of the dealers carry more than one OEM line, and some of the dealers don’t carry Konica Minolta as one of their lines. There’s been some discussion already about whether or not it’s wise to use a platform owned by one of the major OEMs. Some of the dealers are concerned that now that Konica Minolta owns MWA, it is no longer an independent product and they worry about the integrity and privacy of their data. You’re going to have some experience with this type of concern, so that’s why I’m asking you specifically.
It is a fair concern, but it’s also a reflection of the mindset. Let’s call it a reflection of the old economy mindset. Today Business One has more than 60,000 customers around the world. Out of the 60,000, probably 50,000 are running on a Microsoft SQL server.
Our No. 1 competitor is actually Microsoft Dynamics. So the question is, does it make sense for a business like ours to run the most critical piece of technology, which is the database, on a system where the technicians of the database at Microsoft have access to all the data of our customers? I think more and more, we are seeing examples of what is called co-opetition. You cooperate and you compete. More and more, the nature of the business is getting much more complex, because companies both compete and cooperate at the same time. I know that there is a firewall in Microsoft between the database team and the Dynamics team. We have that level of trust.
So it boils down to a matter of trust?
SAP is the largest software company in the world in the analytics area. Ten years ago, we bought a company called BusinessObjects. More than 80 percent of the BusinessObjects customers were not SAP customers. That meant that at SAP, we really had to keep an independent identity for BusinessObjects. Even 10 years later, the analytics team is still being referred to as BusinessObjects. It is up to the acquiring company to show how that data will be protected. And there are legal barriers in any case. The new European GDPR rules have made it illegal for the vendor to violate the data protection rules.
SAP sits right at the top of the business innovation curve, which means you get to see a lot of things. Could you point us to a few trends that the imaging channel specifically should keep an eye on as they navigate the next three to five years?
Most of the innovation we’re going to see in our industry will be around machine learning, and of course IoT – the Internet of Things. There are people predicting that within 20 years, no one in the U.S. will own a car. There will be self-driving cars using machine-learning algorithms that will be paid for like we use Uber today. You pay for the time you ride. A self-driving car is always available. Uber isn’t always available because you need a driver. The concept of owning a car will dramatically change in the next 20 years. It’s a little bit like the evolution of electricity. One hundred years ago, most businesses and individuals had their own generators. That has pretty much gone away now. The utility provider guarantees the availability of supply. Electricity became a service, not an asset.
Machine learning and artificial intelligence are concepts that have been around for at least the last 50 years. In the late 1960s there were people talking about artificial intelligence. What’s changing now are two things. One is the computing capabilities. We have more computing capabilities in our smartphone today than the entire IRS had 30 or 40 years ago. The second one is the availability of this data because of the deployment of ERP in every large company and in the great majority of small and medium-sized businesses. There is an abundant amount of operational data that companies have gathered.
When you combine these machine-learning algorithms that have been developed over the last 40 or 50 years with the computing power now available, and the data that the companies have built over the last 10 or 15 years, all the promises of machine learning and intelligent enterprise can be a reality.
Take a typical imaging dealer customer, for example — the law firm. Once you merge the knowledge the firm has accumulated from reviewing contracts with the proper machine-learning algorithms, the knowledge of not just one or two lawyers in a firm but also of lawyers around the world can be leveraged.
In the future, when the customer of the law firm comes in seeking legal advice (e.g., executing an estate plan, reviewing an employment agreement or a nondisclosure agreement), the review and advice of these routine types of legal documents will be done by an intelligent legal app.
That means for the imaging industry, we’ll see a shift from a focus on data structure and managed documents to knowledge management processes. A very high degree of specialization will also occur. In the past, the focus of an imaging dealer was geographical – a dealer would have the representation for Konica Minolta in Memphis, for example, and they would serve every industry. Knowledge management, however, is highly dependent on the specific industry. The algorithms and machine-learning capabilities are centered around specific industries, so a high degree of verticalization will have to occur.
Let’s talk a little about you, Luis. What is your current state of mind?
The best way to describe it is wired — wired and connected. The reason is that our industry is at the peak in terms of transformation. All these new technologies are coming of age. New business models. New and different value creation models. At the same time, we still need to execute the existing business. We have to deliver the results quarter after quarter. That makes all of us completely wired and engaged, 24/7. I’m sure that is also the same for your business as well. I don’t think I can claim exclusivity for this state of mind.
What do you consider the greatest challenge that you’re facing today?
That’s a big one. Bandwidth. It is about making the right technology bets for the business. We talked earlier about the massive innovation happening these days – we discussed machine learning and IoT. We can explore natural language processing, cloud technologies, cloud foundry or AI. As in the past, there are going to be winners and losers.
So as we reinvent our B1 business, we have to choose for the next generation. We have to select technology partner A, B or C. There are more than 60,000 customers around the world that depend on us making the right choices. It’s an enormous responsibility. We spend millions of dollars and a significant amount of time in determining which are the right bets to make.
What do you see as your biggest opportunity?
It’s the opportunities we talked about earlier. It’s about machine learning and AI. SAP is making a big bet on something called the “intelligent enterprise.” I think that will be a tremendous opportunity. Historically we were a company that automated operating processes — how to enter an order, how to issue an invoice, how to collect an invoice and so forth.
Now we have the opportunity with machine learning to get into the automation of employees’ activities. A simple one is the reconciliation of invoices, which is currently tedious work being done by accounts receivables specialists. I think this is a tremendous opportunity if we manage to execute on a vision where we are not just taking care of the operating processes, but we are helping people to move beyond boring and repetitive activities and allow them to instead progress into performing value-added activities.
Where are you investing most within your company in the next 12 months?
At SAP Business One we are investing in people. Last year, for example, we made it mandatory that every person in the B1 organization has to spend at least 40 hours on training every quarter. Everybody, including myself. It has put a lot of stress on me, because every quarter I need to figure out how we’re going to organize it for the leadership team. It’s quite a challenge to get that amount of time in. Every manager, me included, was accountable that every direct report actually fulfilled their 40 hours. We did it — it went really well. This year, we are certifying every B1 employee to be a design thinking specialist. Design thinking is very important because it is a methodology that allows you to have the ability to connect technology to value to customers. Any corporation thinking about reinventing a business needs to talk about this, before talking technology.
The reality is that we can only be as good and competent to our partners and customers as our people are. So the more we invest in developing our people, the more effective we collectively will be at delivering value for partners and customers.
Do you have a measurable way to gauge the success of this program?
Yes. Every October, the company fields a company-wide employee survey. We measure what we call the “employee engagement.” The employee engagement of the B1 organization is way, way above the average score and it was among the top 5 percent across all the different business units in the company.
I attribute this to the fact that our team recognizes that we’re willing to invest in their careers, in their development, and they responded with a higher degree of engagement. I was very honored when I saw the results.
What is your greatest concern for this industry?
The people in the imaging industry are full of energy and passion. They are hard workers and committed to success. I have been extremely impressed. I would say that the major danger, however, is in being complacent — especially because they have been so successful in the past. Given that technology is driving this brutal transformation impacting the industry, there is a significant risk in continuing to do things the way you have in the past, even if it previously worked very well. Frankly, the options are not easy because the very successful, energetic and competent leaders either have to decide to step to the side and give space to this newer generation that is coming into the business to take a lead, or they need to reinvent themselves as professionals. That requires a lot of soul searching.
If your team were to describe you in three words or phrases, what do you think they would be?
Number one, hard worker. Number two, committed to all of them. Number three, obsessive with time.
Last question — do you have any pets?
I cannot claim that this animal is a pet, but I learned how to live with him. I live in south Florida, the Miami area, and behind my house is a canal. There’s a crocodile living there. In Florida, we have both alligators and crocodiles. Alligators are very abundant but the American Crocodile is a protected species. According to Florida law, if a thief breaks into my house and I feel endangered, I have tthe right to shoot the person and I will not suffer legal consequences. However, if a crocodile gets into my house and endangers any of my family and I shoot the crocodile, I go to jail because it is an endangered species. So my neighbors and I have learned how to coexist with the crocodile. We have named him Pancho.