SAP treads a fine line with restructuring plans amid generative AI push

Software giant SAP has announced plans to invest more than $2 billion as part of a restructuring program aimed at integrating generative AI in key business areas – but it won’t be cutting jobs en masse. 

The corporate restructure will affect around 8,000 roles in total, the company confirmed in a statement on Tuesday. This program aims to drive efficiency through the integration of AI tools and deliver significant revenue boosts.

“In 2024, SAP will further increase its focus on key strategic growth areas, in particular Business AI,” the firm said in its statement. “It also intends to transform its operational setup to capture organizational synergies, AI-driven efficiencies, and to prepare the company for highly scalable future revenue growth.”

The German software firm recorded strong revenue growth in 2023, exceeding expectations. In the year ahead, it also forecasts double-digit growth in revenue from cloud services, begging the question of why it’s embarking on such a comprehensive restructuring initiative.

Much like counterparts in the global tech industry, generative AI has offered an opportunity for the firm to automate roles, cut headcount, and drive profits.

AI-related job cuts were a key concern during the early onset of the generative AI ‘boom’, with warnings of widespread labor market disruption. As of yet, this hasn’t quite panned out, but there have been initial signs that the technology is viewed among business leaders as a means to reduce staff numbers.

PwC’s latest CEO outlook study found that leaders expect to reduce headcount “by at least 5%” in the year ahead due to the integration of generative AI tools.

Tangible examples of this in action last year saw BT announce plans to cut thousands of roles in a bid to automate positions while IBM also said it will replace thousands of back office staff with AI.

In December, reports also emerged that Google was replacing staff in its ad sales division, a key business segment, and replacing them with AI.

SAP eyes staff reskilling and 'voluntary leave programs'

But SAP’s approach here appears measured. The company has been keen to emphasize that it won’t be embarking on a ruthless spree of job cuts, marking a significant change in tone to other industry stakeholders in recent months.

SAP said the majority of affected positions are “expected to be covered by voluntary leave programs”. It has yet to provide additional details on what this will entail, but it suggests the company wants to avoid the negative press of abrupt Zoom meetings and the optics of disgruntled staff leaving offices with boxes.

“Internal re-skilling measures” will be a key focus of this program, SAP said, also suggesting that the software firm intends to train staff in relevant AI skills with an eye for embedding them within different departments.

The rapid adoption of generative AI over the last year has presented significant skills challenges for firms across a range of industries, with research showing that an emerging ‘AI skills gap’ will be a key hurdle for firms in the coming years.

Notably, SAP said that it expects to exit 2024 “at a headcount similar to current levels”. The firm has more than 100,000 employees across global operations.

Revenue boosts as a result of this restructuring won’t be an instant win for SAP, either. All told, the costs of the initiative will be substantial, which it expects to have a negative impact on 2024 earnings.

“Restructuring expenses are preliminarily projected at around €2 billion [($2.18 billion)], the vast majority of which is expected to be recognized in the first half of 2024, impacting IFRS operating profit,” the company said. “Excluding restructuring expenses, the program is expected to provide only a minor cost benefit in 2024.”

With long-term forecasts, however, the benefits do become clearer. SAP said it expects to unlock €500 million ($544 million) in operating profits in 2025 alone due to “efficiency improvements”.