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SAP’s recent announcement that it will extend support for its Enterprise Core Components (ECC) for a further two years for customers buying standard support, or until 2030 for those purchasing extended support contracts, raises a number of interesting questions that go to the very heart of commercial off-the-shelf enterprise systems.
The ECC support extension represents a recognition by SAP that its customers will inevitably take a lot longer to migrate onto the new S/4 Hana enterprise resource planning (ERP) platform. SAP recently signed up Microsoft as a partner to help enterprises migrate their on-premise SAP systems onto the Azure cloud.
During the earnings call for SAP’s fourth-quarter 2019 results, posted on the Seeking Alpha financial blogging site, co-CEO Jennifer Morgan said: “One of the largest on-premise customers committed to move most of their SAP landscape to SAP Hana Enterprise Cloud on Microsoft Azure over the next three years.”
Asked whether delays in deploying S/4 Hana were due to technical migration challenges, SAP co-CEO Christian Klein said: “We have smoothened that a lot with new tools for the data migration and for the upgrade itself. Oftentimes, it’s really about changing business processes, changing the business model of a company where you can – where you have to get the people with you, where you have to re-adapt and redefine business processes, which were standing there for a very long time.
“That is for sure one of the major reasons why we see a certain delay between the licence customers and the go-live customers.”
SAP has said it will commit to supporting ECC until 2027 under a standard support contract, but customers will be able to extend this up to 2030. Some industry experts believe ECC can remain supported until 2035, a decade beyond SAP’s original stated end-of-support date.
SAP’s decision presents a huge opportunity to third-party support providers. The latest data from Gartner suggests that the third-party software support market will grow from $351m in 2019 to $1.05bn by 2023 – a 200% increase.
Eric Robinson, global vice-president and general manager of SAP Services, Rimini Street, said: “The Business Suite 7 software has a lot of years of life and value remaining and many SAP customers will be far better off maximising the value of their current robust SAP systems with alternatives like third-party support which can offer support through to at least 2035, enabling them to shift funds to innovation initiatives that will more quickly drive competitive advantage and growth at far lower risk.
“Once S/4 Hana and other competing systems are mature, SAP customers can flexibly select the best fit system for their future business platform.”
SAP ECC embedded in business
For the last 25 years, Computer Weekly has tracked the various iterations of ERP systems. In the early 1990s, the Y2K deadline was behind many organisations’ IT strategy to modernise their enterprise software, by moving applications away from older mainframe systems and onto to the new client server architecture running on Unix servers from the likes of HP, Sun and IBM.
After the introduction of its R/3 ERP system, SAP, which had previously offered its ERP software on mainframe systems, was among the software businesses to benefit from this. By the early 2000s, Linux was gaining traction as an alternative to proprietary Unix systems. The availability of Xeon, Intel’s first proper family of server processors, Red Hat Enterprise Linux server SUSE and Windows Server 2000 gave organisations an option to migrate their ERP systems onto lower-cost Intel-based hardware.
ERP systems were also updated. The SAP graphic user interface was updated to take into account browser-based end-user computing, but the core product, ECC, has more or less remained a stable platform.
This stability has given organisations the confidence to entrust business transaction processing to their SAP ERP system. Derek Prior, former Gartner analyst and executive director of SAP consulting firm Resulting IT, said: “When people become SAP customers, they want ERP and it’s a 20-year lifecycle. SAP becomes an essential business asset, which, like other business assets, has to be accounted differently.”
Given the critical role that ERP systems play in running business processes, implementation in large organisations often required building up an internal team of business and technical experts, combined with consulting services from major systems integrators.
After the banking crisis of 2008, and subsequent economic downturn, many organisations chose to cut IT costs by outsourcing application maintenance, which meant they lost the essential SAP skills needed to keep the ERP system running. In Prior’s experience, the most successful SAP users built centres of excellence to hone their in-house SAP expertise. Such skills are essential as organisations start the journey from ECC to S/4 Hana.
In Forrester’s report Look beyond ERP, published in October 2019, analyst Liz Herbert questioned the ability of ERP systems to work effectively as businesses join up business processes and become more digitised.
She wrote: “Our work tracking digital maturity shows that in most organisations, transformation starts with creating new experiences. Thus, some of the most ambitious disruptors left out ERP systems. But digital businesses must also tackle the operational systems and processes that hold them back.
“For example, one utility firm that we spoke with wanted to launch a more engaging customer platform, and its business execs were running full speed ahead until the tech gurus informed them that their vision would not be possible on their legacy core.”
A new research note from Adam Shepherd at Arete Research, looking at the extension of SAP support, suggests that the original end-of-support date of 2025 worked against SAP. Shepherd said many customers took the deadline as an opportunity to look at best-of-breed software-as-a-service (SaaS) products to replace components of their SAP ERP system.
By extending support for ECC, Shepherd believes SAP has reduced the risk that its ECC customers will use alternative SaaS products rather than the ones SAP offers.
However, while any extension to ECC support is good news, the Arete Research report raises the question of maintenance fees. Should organisations on ECC continue to pay 20% of their original SAP software contract value for maintenance if the product being maintained is not being enhanced?
Rimini Street believes this presents “a significant opportunity for third-party support at organisations” to provide the maintenance that ECC customers need at a much lower cost.