A year ago, SAP still firmly believed in cloud only, or at least cloud first. The company has not yet cancelled the “RISE with SAP” concept. The ERP world market leader staunchly believes in its future success in cloud services. But SAP is an ERP world market leader and not a tech company like Google, AWS, Apple, and Microsoft. SAP’s unique strength is standardized business processes. SAP knows a great deal about end-to-end processes, but very little about IT infrastructure and computer architectures. SAP’s forays into cloud computing remain incomprehensible to most experts, even to this day.
Thus, the failure of a cloud-only approach in Europe, with its long-standing SAP tradition, was predictable. SAP customers with the R/3 legacy system and Business Suite 7 cannot and will not move their intimate business processes into the cloud. To appease its European customers, SAP made a hybrid concept available in fall 2022. But for new S/4 customers, the cloud-only approach would not pose a problem. Code splitting would thus make a great deal of sense.
A company having its own data center is not necessarily better than resorting to cloud computing. Many SAP customers use cloud services from Microsoft, Google, and AWS. But many SAP customers would also prefer SAP focus on business problems. There is concern that SAP is consuming a lot of its resources with its own cloud experiments and is thus neglecting its own strengths. The main topic of discussion in the SAP community is not whether on-prem or cloud is better, but rather concern over what the future of the ERP company holds. Will SAP continue to surprise its customers with innovative processes such as BRIM, Billing and Revenue Innovation Management, and IBP, Integrated Business Planning?
S/4 code splitting
SAP also appears to have some doubts about a hybrid ERP architecture, probably because on-prem and cloud do not harmonize easily. At SAP, the cloud-only faction now seems to be gaining the upper hand and taking on a life of its own with code splitting. One possible scenario would be an S/4 cloud-only that could evolve very quickly and successfully, free of hybrid demands and R/3. This S/4 cloud-only app could even replace the not-so-fresh Abap and become a Java and open-source-based answer to cloud competitors like Workday, ServiceNow, and Salesforce. If SAP were to then break into two factions, each group could be much more focused on its own technology and customers.
Code splitting would result in an on-prem Abap faction and a cloud-only faction. Both factions would probably be very successful, but both would also rapidly move away from each other. Right from the start, SAP would have to bury any hope that orchestration between on-prem and cloud would be possible in the medium term. Experience has already shown that synchronizing on-prem and cloud development is virtually impossible. Code splitting at SAP would therefore not be dissimilar to an equity carve-out. Whether the SAP community would support this experiment remains to be seen. What is certain, however, is that a hybrid ERP does not necessarily guarantee a successful future. Cloud computing or code splitting is thus a decision between a plague and cholera. SAP can thus fall apart in either a positive or negative sense, in either ruin or a carve-out.
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