Exclusive: Federal agencies poised for digital revolution, says SAP

Australia's federal agencies are at a pivotal moment in their digital transformation journey – one defined not just by challenges, but by a significant opportunity to strengthen citizen services, improve resilience and unlock long-term value. 

That's the view of Thomas Pfiester, Head of Global Customer Engagement & Services at SAP and member of the company's extended board, following a recent visit to Canberra. His trip coincided with SAP's launch of its Centre of Excellence for the Public Sector, designed to support government agencies as they modernise their core systems with cloud and AI.

Pfiester said Australia is well-placed to accelerate progress by modernising platforms, strengthening data foundations and embracing embedded AI and sovereign cloud. Models that give agencies greater choice and control over how their data and systems are operated. 

Modernisation, shifting from important to essential

Pfiester said discussions with government leaders reflect a growing recognition that modern cloud platforms and trusted data are now prerequisites for delivering the next generation of digital government services.  

"There is a clear need for transformation today, not because legacy systems have failed, but because modern capabilities unlock so much more. Cloud, AI and sovereign services give agencies the ability to design services that are faster, safer and more responsive while operating under clear governance, regulatory alignment and defined decision rights," he said. 

Pfiester framed the moment as one of strategic choice:  agencies can continue to maintain aging systems or use this as an inflection point to embrace modernisation to reduce operational risk and unlock more efficient, secure and future-proofed services for the decades ahead. 

Independent research reinforces transformation potential

Research from global firm, McKinsey, reinforces the opportunity: when organisations tackle accumulated technical debt from decades of custom code, fragmented data and outdated architectures, they free up resources to invest in innovation.

The research shows:

• Technical debt can account for up to 40% of the average IT balance sheet.
• CIOs estimate 20–40% of their technology estate value could be released through transformation.
• Redirecting the 10-20% of product budgets absorbed by tech-debt fixes would accelerate innovation. 
• Sixty percent of CIOs say their tech debt has risen materially in the past three years.
• For large enterprises – including government departments – this can equate to hundreds of millions of dollars in unrealised value and heightened delivery risk.

ERP and data modernisation unlock AI and automation

Pfiester said agencies increasingly recognise that modernising core business systems, including ERP, and data platforms must come before AI and automation can be deployed safely at scale.

"Modernising ERP is the first step. It provides a stable and secure foundation and gives agencies a faster, lower-risk path to the cloud," he said.

He pointed to new SAP tools already helping public sector organisations compress the timelines for large-scale transformation and gain additional value.

"In many large-scale transformations, we're seeing certain activities that previously took around a year being completed in seven to eight months. We're also seeing efficiency gains of 20–30% through improved automation and repeatable processes using these tools," Pfiester added.

Data harmonisation emerges as major enabler

Beyond systems, Pfiester said that the real opportunity lies in agencies strengthening their data foundations by addressing inconsistent, duplicated and legacy-bound data. 

"Organisations around the world are dealing with decades of accumulated data. Harmonising it is essential. When data becomes consistent and trustworthy, AI can deliver real public value, from better forecasting to improved citizen services," he said.

The modernisation journey ahead

While enthusiasm for AI is strong, Pfiester said agencies understand updating core systems is essential to fully realising its benefits. 

"Everybody sees AI's potential to augment business processes and the workforce. The focus now is on modernising in a way that supports – not disrupts – essential obligations."

He added that secure, well-governed AI environments – where data use, access and oversight are clearly defined – are critical to enabling confident government adoption.

SAP increases local sovereign investment

Pfiester re-affirmed SAP's long-term commitment to Australia, particularly in sovereignty and local engineering support.

"We are fully committed to continued investment in sovereign capabilities, including local delivery, security-cleared teams and long-term executive support," he said.

Given SAP underpins systems across most major federal agencies, he said the company views its role as both partner and custodian. 

"We see ourselves not just as a technology provider, but as a long-term partner, with an obligation to stand alongside government on its journey," he said.

From policy intent to practical execution

To help agencies move from intent to action, SAP has established a new Public Sector Centre of Excellence in Canberra. The Centre brings together Australian-citizen specialists in ERP transformation, AI readiness, data quality uplift and cyber-secure architecture.

The aim is to provide hands-on support that helps agencies modernise complex environments, transition safely to cloud platforms and build clear pathways to value – without disrupting critical services.

"Our federal agency partners have told us they need deeper, practical support to navigate this next chapter," Pfiester said. "The Centre of Excellence helps connect the dots, building the foundations for secure cloud, trusted data and AI-enabled services that underpin many of Australia's most critical systems, strengthening productivity and delivering better outcomes for citizens."