SAP's German-speaking heartlands still struggling with ERP vendor's cloud vision
'Customers will not – at least not in the short term – move exclusively to cloud scenarios'
SAP couldn't be clearer with its customers about the challenges they face in application upgrades and cloud migration, but for one reason or another they struggle to get the message. Or perhaps hope it will go away.
A couple of years ago, Oliver Betz, SVP head of product management for SAP S/4HANA, told users moving to the cloud "requires standardization which needs to happen on the customer side." They should be prepared to say goodbye to modifications made to on-premises systems. "That's not how the cloud works," he said.
SAP claims its customers make up 99 of the 100 largest companies in the world – ignoring the fact most large firms use more than one ERP system – but in its German-speaking heartlands at least, the message on standardization is not getting through.
Speaking to The Register during the user group DSAG's annual conference this week, chairman Jens Hungerhausen said the point about standardization was not "fully understood by each and every customer."
At the center of Europe's manufacturing base, German industry more or less runs on SAP. While the cloud is part of their plans for applications, it's not the whole story and there is little sense they are ready to leave on-prem systems behind.
"Standardized processes are the right way to go, but it's a transformation project to get there. It's not easy," Hungerhausen said. "Not many customers are able to go this path right now. That's one of the issues that SAP has to be more clear about. They have to invest a little bit more in education, knowledge transfer to the customer so that everybody sees the benefits of going this way."
For context, it helps to understand that SAP, with its vast entrenched customer base, has more or less bet the farm on getting them to the cloud sooner or later.
Third quarter 2020 results were so bad they prompted a reset in earnings forecasts and a 25 percent crash in company value. CEO Christian Klein followed this by announcing a new strategy to accelerate cloud adoption. It was encapsulated in its RISE with SAP program, which promises to lift-and-shift customers' existing applications to the cloud, and then transform their processes to match the needs of standardized SaaS software. The vendor is fronting the program, with hyperscalers and third-party systems integrators falling in behind.
But research from DSAG this week underscored the scale of the challenge. The survey of 434 members in Germany, Austria, and Switzerland showed that when they considered the future of their SAP landscapes, 85 percent place a high or medium importance on on-premises solutions while 77 percent put the same importance on the cloud.
Hungerhausen warned of the potential for a vacuum between new SAP solutions and approaches integrating both cloud-based and on-premises systems customers want for the foreseeable future.
"Customers have a lot of highly customized and highly individualized ERP systems on-premises and they have put a lot of effort into that customization," he said. "Every customer probably needs a little bit more individual support in moving their very longstanding SAP system or SAP landscape into the cloud. And that is highly individual to each customer, because there is no one size fits all process."
- SAP users see scattered clouds on the horizon
- SAP user group questions value for money amid plans to increase support fees
- SAP to increase support fees in January to offset inflation costs
- SAP picks Airbus finance chief Dominik Asam for next CFO
At the same time, not all customers are planning to move to the cloud, instead preferring to upgrade existing Business Suite systems to S/4HANA – the more recent in-memory iteration of its core ERP application suite – on premises.
"If we are looking for transformation from Business Suite systems to S/4HANA, we are not talking exclusively about going into some cloud or public cloud scenario," Hungerhausen said.
It is not that customers are not interested in the cloud, it is simply not their sole focus when it comes to application strategy, he said.
"Customers will not – at least not in the short term – move exclusively to cloud scenarios. You won't get along without using any cloud scenarios or any cloud solutions because a lot of innovation is happening in the cloud and because of the technology which is available in the cloud. But there are still a lot of different processes where customers rely on the on-premises systems and on-premises landscapes."
To make matters worse for SAP, customers were not convinced of the need to migrate to S/4HANA whether on-prem or in the cloud purely on technical grounds. It requires a wholesale business transformation to get the business case for the upgrade, whereas the cost is difficult to justify on technical grounds alone.
In the broader context, SAP has vendors such as ServiceNow ready to take a slice of its lunch. For example, ServiceNow CEO – and former SAP boss – Bill McDermott has promised users much of what they require in terms of so-called digital transformation without swapping out their core ERP system.
The tension between keeping investors happy with the speed of its cloud transformation and customers satisfied with a more nuanced cloud-and-on-prem approach seems set to vex execs as they head to the SAP TechEd jamboree next month and long afterwards. ®