How should your SAP strategy evolve in line with SAP’s evolution?

This is a guest blogpost by Luiz Mariotto, group vice president, SAP Product Management, Rimini Street. In it he suggests three questions IT leaders should ask about their SAP roadmaps to help avoid unnecessary disruption.

SAP has become a mainstay of large enterprises around the world, with its ECC platform known for its robustness and reliability. In 2010, SAP introduced Hana, its in-memory database and in 2015 released S/4Hana, the new generation of its ERP software using Hana as the native database to replace Oracle, MS-SQL Server and DB2. S/4Hana is being positioned to SAP customers as an optimized ERP leveraging the Hana in-memory and analytics capabilities. SAP even announced plans to discontinue the support of ECC and other databases by 2027, which may help SAP to capture database revenue from its competitors.

Following the S/4Hana launch, SAP announced in 2016 its first S/4Hana Cloud Public Edition (previously called the Essentials Edition and Multi-Tenant Edition) emphasising its strategy to shift its business to the cloud. While net new customers appear to be adopting the cloud version, many existing users are increasingly questioning whether there is a business case for moving to this version, as underlined by the most recent statement from the German SAP User Group (DSAG).

SAP has had to get creative to convince its installed base to move to the cloud using a variety of subscription models deployed in private cloud options starting with the Hana Enterprise Cloud (HEC) running on SAP datacentres and now called S/4Hana Cloud, Private Edition. SAP is also encouraging (if not pressuring…) as many of its 35,000 ECC customers as possible to move using its “Rise with SAP” offering. In its quarterly earnings call, it doubled down on this strategy, stating users will only have access to innovations with SAP S/4HANA Cloud, public edition or SAP S/4HANA Cloud. Customers will also not have access if they are using an Intrastructure-as-a-Service (IaaS) hosted implementation outside of Rise or on-premise S/4Hana. Additionally, generative AI and sustainability functionality is restricted to public cloud users. As Thomas Henzler, DSAG Board Member, points out: “…if this is the case for AI functionalities, what will existing customers have to reckon with for other innovations?”

Earlier this year, the DSAG asked SAP for binding commitments to make the same level of investment in the on-premise version of S/4Hana as the public cloud one. Understandably, customers are concerned they have made significant investments in existing versions of SAP applications which they are still expecting to deliver a return on investment. If SAP is only prepared to focus innovation on the cloud-version of its applications, not only do customers have to worry about existing investments, but also if these implementations will be valid into the future.

It is time to start asking some hard questions about your future SAP Roadmap strategy. Here are three important questions as customers ponder their evolution with SAP:

  1. If you run ECC, what are the measurable business benefits of migrating to S/4Hana? Does the end of mainstream support for Business Suite and ECC by 2027 justify a costly and risky migration project?

While some SAP licensees have opted for the newer platform, most have been cautious. A Gartner research note that was reported in the Register “estimates that 70% of SAP customers rely on ECC and have yet to upgrade to S/4Hana, even though it was launched seven years ago.”

And the reason for that is very simple: Users may not be able to afford the risk associated with a potential multiyear, multimillion-dollar project that appears to lack a clear business case and may not ensure that it will address a company’s digital transformation requirements. In time of economic uncertainty, every dollar spent in software upgrades must consider the return on investment and risks in first place.

Right now, the main drivers for most organisations are improving profitability and accelerating growth. Therefore, the CIO must redeploy IT resources into higher-value projects that will support these goals. It is also critical to avoid an excessive share of IT resources being devoted to never-ending, expensive and often unneeded ERP release upgrades, migrations and unnecessary IT projects.

  1. What is your S/4Hana migration strategy:  Greenfield or Brownfield?

For most clients, this is the (multi) million dollar question that will drive the business case.

The Greenfield approach generally means a brand-new implementation of the S/4Hana landscape, starting from scratch, which typically costs more because it involves a new installation and a complete review and redesign of business processes. For many organizations, this also represents an opportunity to instigate a fresh implementation, removing old data and customizations to implement the process transformation that will make the business case happen.

In the Brownfield approach you can convert your current SAP applications into S/4Hana on top of existing ECC-based business processes foundation so that you can keep most of the configurations, customisations and data that you have developed over time.  While a brownfield deployment can be faster and less disruptive to users and the business, the challenge is how to achieve the ROI for a project that will not change processes? There is the basic benefit that ‘lift and shift’ strategies enable you to reduce your own datacentre costs, but will this approach enable you to innovate and create business value?

  1. What is the right S/4Hana Cloud version: S/4Hana Cloud Public or the Private Edition on Rise?

Early this year, SAP announced the programme Grow, which appears to reinforce  its strategy to prioritise its Public cloud ERP, announcing that many of its future innovations, like AI, will only be available on the Public Edition.  At Rimini Street we see many midsize companies adopting the S/4Hana Cloud Public Edition, but for thousands of SAP clients depending on customer specific customisations (and for those planning for a brownfield migration from ECC) SAP is offering Rise with SAP – S/4Hana Cloud, Private Edition.

Rise with SAP is an offer that bundles S/4Hana Cloud software with hosting and infrastructure managed services plus additional cloud services (Ariba Networks, Signavio, BTP, etc.) in a single subscription contract delivered and technically operated by SAP. Even though you can select to run the SAP workload on a partner hyperscale infrastructure, you are signing a single contract on SAP paper and you will need to follow its terms and conditions.

The challenge here is that S/4Hana Cloud, private edition is not a SaaS multi-tenant application, but is basically the same code as the S/4Hana on-premise version hosted on SAP partner cloud. This requires upgrades and dedicated infrastructure on a single tenant model.  Therefore, you could have the same S/4Hana product running on any IaaS hyperscale provider of your choice and don`t necessarily need to bundle the software, infrastructure and services into a single locked-in contract with SAP.  For many companies that are moving SAP and non-SAP workloads to the cloud, it could make sense to partner directly with AWS, Azure or GCP and have benefits of more flexibility around your cloud deployment strategy.

Decisions, decisions, decisions

SAP clients have a dilemma when planning their future SAP roadmap, but the logical path is IT optimisation in conjunction with IT innovation. Companies need to reduce the total cost of ownership to run their ERP, maximize value from investments made in SAP applications and at the same time free-up budget and resources to invest in innovation projects that impacts growth and competitive advantage. For many SAP users the core ERP functions are highly reliable, years-old business processes that work. Optimising these applications without being forced to migrate them to their SaaS equivalent reduces disruption. Of course, these applications will need to be supported and if SAP is ending full support for ECC6, then that is where service providers like Rimini Street come in which offers further benefits. Inhouse resources are freed up to focus on IT innovation and the reduction in support maintenance fees can be redirected to innovation. The opportunity then becomes innovating at the edge, which enables organisations to get the capabilities they need without having to upgrade the entire core transactional SAP ERP system.

Wherever you are on your SAP journey and regardless of your ultimate destination, you should evaluate all options available and follow your own business roadmap strategy considering the business priorities and the return on investments, not necessarily relying on vendor-driven roadmap strategy.

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