*By Luiz Mariotto
SAP has become a mainstay of large companies around the world, with its ECC platform known for its robustness and reliability. In 2010, SAP launched Hana, its in-memory database, and in 2015, it launched S/4Hana, the new generation of its ERP software using Hana as the native database to replace Oracle, MS-SQL Server and DB2. Since then, S/4Hana has been positioned to SAP customers as an optimized ERP, taking advantage of Hana's in-memory and analytical capabilities. SAP has even announced plans to discontinue support of ECC and other databases by 2027, which could help SAP capture database revenue from its competitors.
Following the launch of S/4Hana, SAP in 2016 announced its first public cloud S/4Hana (previously called Essentials Edition and Multi-Tenant Edition), emphasizing its strategy of moving its business to the cloud. While new customers appear to be adopting the cloud version, many existing users are increasingly questioning whether there is a business need to migrate to this version, as highlighted in a recent statement from the German SAP Users Group (DSAG).
SAP has had to get creative to convince its customer base to migrate to the cloud using a variety of subscription models deployed across private cloud options, starting with Hana Enterprise Cloud (HEC) running in SAP data centers and now called S/ 4Hana Cloud, Private Edition. SAP is also encouraging (if not pushing…) as many of its 35,000 ECC customers as possible to migrate using the “Rise with SAP” offering.
In their recent quarterly earnings call, they upped the ante on this strategy, stating that users will only have access to innovations if they use SAP S/4HANA Cloud or the public cloud. Customers will also not have access if they are using a hosted Infrastructure as a Service (IaaS) implementation outside of Rise or on-premise S/4Hana. Additionally, generative AI and sustainability functionality are restricted to public cloud users. As DSAG Board Member Thomas Henzler points out: “…if this is the case for AI functionalities, what can existing customers count on for other innovations?”
Earlier this year, DSAG asked SAP for commitments to ensure the same level of investment in the on-premises version of S/4Hana compared to the public cloud version. Understandably, customers are concerned because they have made significant investments in existing versions of SAP applications and still expect to see a return on their investment. If SAP is only prepared to focus innovation on the cloud version of its applications, customers will not only have to worry about existing investments, but also whether these implementations will be valid in the future.
It's time to start asking some tough questions about SAP's future roadmap. Here are three important questions customers are pondering as they evolve with SAP:
- If you use 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 an expensive and risky migration project?
While some SAP licensees have opted for the latest platform, most companies remain cautious. Gartner estimates that “70% of SAP customers trust ECC and have not yet embraced S/4Hana, despite it being launched seven years ago.” And the reason for this is very simple: users may not be able to bear the risk associated with a potential multi-million dollar, multi-year project that appears to lack a clear business need and which may not meet the digital transformation requirements that the company needs. search. In times of economic uncertainty, every dollar spent on software updates must first consider the return on investment and associated risks.
Right now, the main goals of most organizations are improving profitability and accelerating growth. Therefore, the CIO must redeploy IT resources to higher-value projects that support these objectives. It is also essential to prevent an excessive portion of IT resources from being dedicated to endless, expensive and often unnecessary updates of ERP versions, migrations and IT projects.
- What is your S/4Hana migration strategy: Greenfield or Brownfield?
For most clients, this is the (many) million dollar question that will drive the business need.
The Greenfield approach usually means an entirely 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 presents an opportunity to instigate a new implementation, removing old data and customizations to implement a complete process transformation.
In the Brownfield approach, you can convert your current SAP applications to S/4Hana with the foundation of existing ECC-based business processes, so you can maintain most of the configurations, customizations, and data developed over time. While a brownfield deployment may be faster and less disruptive to users and the business, the challenge is: how do you achieve ROI for a project that, in practice, will not change processes? There is the basic benefit that “lift and shift” strategies allow you to reduce the costs of your own data center, but will this approach allow you to innovate and create value for the business?
- What is the correct version of S/4Hana: public or private cloud on Rise?
Earlier this year, SAP announced the Grow program, which reinforces its strategy of prioritizing public cloud ERP, announcing that many of its future innovations, such as AI, will only be available in the public version. We see many midsize companies adopting S/4Hana on public cloud, but for thousands of SAP customers depending on customizations (and for those planning a brownfield migration from ECC), SAP is offering Rise with SAP – S/4Hana on private cloud.
Rise with SAP is an offering that brings together S/4Hana Cloud software with managed hosting and infrastructure services, as well as additional cloud services (Ariba Networks, Signavio, BTP, etc.) in a single subscription contract, delivered and technically operated by SAP. Although you can choose to run your SAP workload on a partner hyperscale infrastructure, you will be signing a single contract with SAP and will need to follow its terms and conditions.
The challenge here is that the S/4Hana private cloud is not a multi-tenant SaaS application, but is essentially the same code as the on-premise version of S/4Hana hosted in the partner's cloud. This requires updates and dedicated infrastructure in a single-tenant model. Therefore, you can have the same S/4Hana product running on any hyperscale IaaS provider of your choice and do not necessarily need to bundle the software, infrastructure, and services into a single contract with SAP. For many companies moving SAP and non-SAP workloads to the cloud, it may make sense to partner directly with AWS, Azure, or GCP and benefit from more flexibility around your cloud deployment strategy.
Decisions, decisions, decisions
SAP customers face a dilemma when planning their future roadmap with SAP, but the logical path is IT optimization in conjunction with IT innovation. Companies need to reduce the total cost of ownership to manage their ERP, maximize the value of investments made in SAP applications and, at the same time, free up budget and resources to invest in innovation projects that have an impact on growth and competitive advantage. For many SAP users, the core functions of ERP are highly reliable, legacy, and functioning business processes. Optimizing these applications without being forced to migrate them to their SaaS equivalent reduces disruptions.
Of course, these applications will need support, and if SAP ends full support for ECC6, that's where independent service providers come in, offering even more benefits. Internal resources are freed up to focus on IT innovation and the value gained from reducing support maintenance fees can be redirected towards innovation. The opportunity then becomes innovation at the edges, which allows organizations to get the capabilities they need without having to upgrade SAP's entire core transactional ERP system.
No matter where you are on your SAP journey and regardless of your final destination, you should evaluate all available options and follow your own roadmap strategy, considering your business priorities and return on investment, not necessarily depending on the strategy or roadmap provided by the manufacturer.
*Luiz Mariotto, vice president of SAP product management at Rimini Street
Notice: The opinion presented in this article is the responsibility of its author and not of ABES - Brazilian Association of Software Companies
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