I am writing here about cloud computing in the complex ERP environment, as represented by the R/3, ECC 6.0 and S/4 applications for many years. This discourse on cloud cuckoo land does not refer to email hosting, Google search, ChatGPT, Amazon Storage or cloud native applications from Salesforce (CRM) and Workday (HCM), but exclusively to a multi-tier, complex SAP architecture. Nor does it take into account the concerns and plans of SAP’s new customers, who are marching blithely and hopefully into the public cloud without any legacy issues.
SAP’s directional battle is about six months old and has been raging between experienced SAP executives and the executive board. The starting point is trivial: the best of all the world’s ERP systems is based on a well-thought-out and complex architecture. Many decades ago, Professor Hasso Plattner and his then Chief Technology Officer Peter Zencke invented the three-tier client-server model. It consisted of a central database server, several application servers, and hundreds to thousands of clients. This architecture was later virtualized, and there is nothing to stop the client-server model from being successfully transformed into a cloud.
The cloud transformation of an operational SAP system is costly and complex to plan, but as an operating model, it is almost trivial—which has ultimately led numerous SAP executives to keep dreaming of “cloud only”. Christian Klein cannot be faulted for thinking the way he does. He’s not a technician.
The SAP CEO sees the supposedly low cloud prices for his customers and the high margins for SAP. But things are not that simple in the SAP universe, which has led to some SAP managers anxiously knocking on Christian Klein’s door, trying to motivate him to adopt hybrid, if not on-prem, operating models.
For a long time, Christian Klein remained stubborn. He insisted on “cloud only”, but then, under pressure from the SAP community, took a first step in the direction of “cloud first”, and finally began speaking about hybrid scenarios in fall of last year.
The latest financial market report now revealed the state of the cloud at SAP: company revenue is expected to increase to more than 37.5 billion EUR by 2025. Previously, the target was 36 billion EUR. The expectations for cloud revenues, SAP’s growth driver and Christian Klein’s favorite topic in recent years, have been reduced to 21.5 billion EUR from the initially planned figure of more than 22 billion EUR. Accordingly, total revenue is expected to rise, while cloud revenue is expected to fall—a radical change of direction, is it not?
An SAP ERP system consists not only of operational parts, which may well be in the cloud, but also of upstream systems such as development, quality assurance, and transportation. Customers don’t pay for licenses for these systems because they serve to support the operational ERP. Perhaps that is why they are not the focus of the SAP board? The fact is that it is essential to maintain an end-to-end overview of ERP Landscape Management (LaMa) and Application Lifecycle Management from the perspective of SolMan (on-prem) and ALM (cloud). The internal dispute at SAP relates almost exclusively to the fact that the server architecture for development, quality assurance, transport and operational ERP is far from cloud-ready. Here is an example: automated testing is an indispensable necessity for the public cloud with its regular and dynamic updates. SAP wants to offer this function in partnership with Tricentis. What may work on a very small scale for an operational public cloud is still far from available for a complex SAP system landscape. Experienced SAP managers are thus urging Christian Klein to pay increased and sustained attention to on-prem operating models, where stable SAP Basis operation is possible with SolMan and many other IT tools. It may be that automated testing will also become possible in a few years.
Danger is not imminent, however. As can be seen from the financial market report quoted, Christian Klein and the SAP Executive Board are beginning to accept reality. The private cloud as an on-prem operating model will remain the only logical ERP architecture for years to come. SAP has already started talks with leading IT server providers to offer corresponding private cloud offerings to existing customers. The battle over which direction to take will continue for a few more months.
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