Is SAP Outdated?

Among countless other events, the start of 2021 means that we are all one year closer to SAP’s 2027 S/4 Hana deadline (unless it gets moved again). Back in February 2020, before normality went sideways, SAP announced an extension of the deadline for SAP customers to move to SAP’s cloud platform, S/4 Hana, from 2025 to 2027. No one, least of all SAP, could have predicted what would happen in the months that followed.

Now a year later, a third of SAP users have already deferred the migration in response to the pandemic and economic disruption. It’s an understandable bid to mitigate risk during these uncertain times, but even without the events of 2020, an organization’s decision should be made on its needs, and not on the technology itself. What SAP customers need right now is some flexibility from their vendor. Unfortunately, SAP has gone in the opposite direction.

Is SAP’s organization outdated?

Back in 2019, Bill McDermott stepped down as SAP’s CEO and was replaced by the two-person team of Christian Klein and Jennifer Morgan. At the time, we questioned whether this would return SAP to its more customer-friendly roots. Six months later, Jennifer Morgan stepped down due to SAP needing “clearer leadership“. Once more, we were curious what impact this would have on SAP’s outlook. Jennifer Morgan had been president of SAP’s cloud business, and it was assumed that a cloud-first attitude would follow her. With her gone, would Klein be the one to usher in a golden age for SAP?

Thus far, SAP seems to be just ticking along rather than surging ahead. In late 2020, we got a glimpse of SAP’s status. The vendor’s Q3 results showed that SAP’s market valuation had plunged by more than £26.6 billion (21%). Naturally, it cannot be assumed that Klein’s leadership is the sole reason behind this decline, given the unprecedented challenges faced in 2020. And in fairness to the CEO, in its Q4 results, SAP demonstrated it has finished 2020 more or less where it expected to be, with forecasts of “flat revenue” as we move into 2021. It isn’t good news, it isn’t bad news – but what’s SAP’s take on it?

SAP’s way, or not at all

With “flat revenue”, SAP came out of 2020 fairly unscathed. However, rather than protecting itself by focusing on its loyal and longstanding customer base and listening to their needs and requirements, SAP continues to follow its own set path. For instance, any SAP customers that decide to move to the cloud will have to adapt to SAP’s own standardized processes and drop customizations.

As Oliver Betz, SVP and Head of Product Management for S/4 Hana explains, “I’m a true believer in the cloud as the future state-of-the-art model. However, that requires standardization which needs to happen on the customer side: They have to agree on standardized processes. You cannot have these modifications that you had in the on-premises world; that’s not how the cloud works. You will go in a direction where you have quarterly or at least twice per year releases, which you have to absorb and agree to.”

It is quite surprising to see this kind of corporate behaviour when current demands and expectations for exceptional customer service are higher than ever. And especially when there are alternative vendors available that are willing to be much more flexible, including Amazon, Microsoft, and Salesforce. These are suppliers that also believe in a cloud-first future, but don’t agree that it “requires standardization”.

Lack of expertise

SAP’s rather strict stance on this will have its effect on organizations’ processes, and in turn, their people. And already, there are growing concerns amongst organizations over an inevitable shortage of SAP skills. In a survey of 180 SAP user organizations in the UK and Ireland, 79 percent were concerned about losing their SAP skills. People who have been working with SAP since the late 1990s are starting to retire, leaving many organizations looking to replace decades’ worth of experience.

However, it’s not so simple as ‘replacing’ experience. Organizations cannot simply replace expertise that they have lost; they also need to bring in more expertise if they are to follow SAP’s diktat of moving to S/4 Hana. As it requires standardization, familiarity with S/4 Hana software naturally becomes a valuable commodity.

However, the next problem is not just acquiring this experience, but finding it in the first place. Experience in S/4 Hana can only come from using the software itself. Some organizations have finished their migrations, and so their tech leaders could move on to another organization. However, a lot of S/4 Hana users are undoubtedly still hard at work, mid-transition to S/4 Hana – it isn’t a straightforward or quick process, after all – and that’s not even counting the ones that fail.

Undertaking S/4 Hana is a significant project. It’s more than just a software upgrade – it’s a full reimplementation (one that also demands standardization in order to finish). This goes beyond ‘business change’ and is leaning more towards ‘business overhaul’. Even at the best of times, that is a huge project to undergo, with a lot of risk and very little reward. Trying to do it amidst a pandemic, lockdown, and global recession would be like trying to move to a new house during an earthquake. 

(Surp)Rise with SAP

We have no greater proof for this being a difficult project, than an admission from SAP itself. The vendor has released a new, subscription-based service called Rise with SAP. The intention of this service is to help customers who are struggling to migrate from on-premises systems to cloud-based S/4 Hana.

It’s the kind of gesture that sounds positive until you take a moment to think about it. Yes, SAP has responded to the market’s hesitation and to the lack-of-expertise issue. But what SAP is (perhaps unintentionally) admitting to here is that the migration to S/4 Hana isn’t easy. In fact, it requires the invention of an all new service just to get customers moving. The underlying point of Rise with SAP is not helping organizations, but it is undoubtedly a strategy to get more customers across the S/4 Hana finish line.

It’s easy to see why SAP has announced this new service. Customers have been hesitant to move, and SAP had very little evidence with which to encourage them. SAP wanted customers to undertake a risky endeavour, with very few case studies or customer testimonials as reassurance. SAP has effectively been asking its customers to drop everything on little more than the vendor’s word. And how can organizations trust a strict vendor, prepared to only do things the vendor’s way?

Well, Rise with SAP is one answer. Customers will still be doing things the SAP way, but SAP is at least prepared to show organizations how it’s done.

Where to go from here?

Interestingly (and quite ironically), SAP customers have acknowledged the vendor’s rather inflexible regime, and it is inspiring them to move. Just probably not in the direction SAP wants. Alan Salton, Director of Innovation at Panorama Consulting Group sums it up nicely, “Because SAP is ending support for its legacy products by 2027 [or 2030 in certain cases] and [wants to] move them onto S/4 Hana, its customers may start to say, ‘If we have to go through this big migration, is it time to start looking at other products?'”

Salton raises an important point. If you are going to undergo a huge transition project and affect business changes either way, are you 100 percent sure that S/4 Hana is worth that effort? Because you could start looking at other products and find ones that don’t carry such a disruptive onboarding.

There’s always another way out

SAP customers may believe that their choices come down to two simplified options:

1. Upgrade to S/4 Hana, if ready to accept the ‘standardization’.
2. Switch to a new ERP and a provider that enables a greater level of flexibility.

These are both potentially strong options. As always, it entirely depends on your organization’s requirements. But even though S/4 Hana need not be a foregone conclusion, it would be wrong if organizations considered changing to another provider simply because they felt they had to, not because they wanted to. There is, however, an alternative option. One that’s been confirmed by the expert insight providers, Gartner. The third choice is to consider third-party support.

Oracle and SAP are long-standing partners of Gartner. But even so, Gartner has recommended third-party support, and justified it as a way of making savings and keeping legacy, on-premises software supported. CIOs are encouraged to explore third-party support as a viable option to upgrade their support policies. If you’d like to read more on what Gartner has to say on the matter, you can download a free copy of Gartner’s 2020 market guide. It explains the causes behind the increase in demand for third-party support, and lists the providers considered to be the best options currently available in the market.

It’s your future – make it the right one

Third-party support may not feature in every organization’s roadmap, but it can certainly be a beneficial asset on the way to the cloud. If nothing else, during these difficult times of severe uncertainty, it offers a chance for a little breathing room. Organizations can give SAP some time to see if it changes its mind about standardizing on customizations (or if it changes the deadline again), and it’s a way of making some savings along the way.

Crucially, it must always come down to your organization, your needs, and your roadmap. And if S/4 Hana doesn’t fit into your future, that’s fine too. Granted, you might still have to deal with SAP’s deadlines, and its (rather inflexible) views on standardization for the time being, but if SAP won’t budge, why should you?