Looming skills crisis, IR35 and Brexit set to ramp up S/4 Hana rates

A new report on the state of SAP S/4 Hana migrations has identified a skills gap and a lack of understanding about the core benefits of the new enterprise resource planning (ERP) system.

By 2025, all SAP ECC (enterprise core components) ERP customers will need to migrate to the new in-memory S/4 Hana system, which offers an entirely new user interface and a host of features not available in the system it replaces.

A report by SAP specialist Resulting IT, Will you survive the S/4 skills apocalypse?, estimates that 40,000 companies need to move their ECC implementation onto S/4 Hana. If a project takes nine months to complete, 100 million days of consulting would be required to move over all businesses still on ECC, said Resulting IT.

According to the report, just 8% of organisations on ECC have migrated to S/4 Hana. The study, based on a survey of 429 SAP experts, showed that the most experienced in-house staff expect to be paid about £100,000 a year. Of those with the highest salary expectations, 40% said they plan to retire within 10 years, but the report found that many organisations lack sufficient knowledge transfer.

Just 18% of business managers said they would place a strong emphasis on creating an internal SAP capability to reduce their reliance on contractors and external service providers.

The report warned that contractors’ rates will increase as demand for S/4 Hana skills increases. Asked what they expected to charge as their annual day rate for SAP consulting, the majority said between £650 and £749 a day. “Not only will contractors start to charge higher daily rates, but junior in-house SAP consultants will become increasingly hard to retain,” said the report.

The skills shortage in the SAP consulting market is likely to get worse with the arrival of new IR35 tax reforms, said Resulting IT, with consultants possibly demanding higher rates to compensate for the extra tax on their earnings caused by the legislation. The weaker pound, resulting from Brexit, is also causing consultants to seek more lucrative work in Europe, said the report.

Although Resulting IT’s study found that 48% of respondents say they have worked on S/4 projects and implementations, further analysis showed that of this group, 28% are solutions architects. Derek Prior, a former Gartner analyst, and non-executive director at Resulting IT, said: “This shows that a large number of respondents are in the early blueprinting stages of their S/4 programme. There is a dearth of live or nearing go-live examples for people to get real boots-on-the-ground experience.”

Prior said the trend to outsource application management has resulted in many organisations lacking the skills required to deploy S/4 Hana. “Offshoring has meant organisations have gone for cost-cutting and lost control,” he said. “They outsourced too much and did not retain enough in-house skills. This means they will need external help. But there are real skills problems. While service providers are upskilling to take on their customers’ ECC migration, many consultants don’t understand S/4 Hana properly.”

Prior said that, in particular, the user interface is completely different, which requires extensive training for business users.

Stuart Browne, managing director of Resulting IT, said: “The hole that two generations of outsourcing has left on local labour pools, combined with a retiring workforce, overlaid with a goldrush to S/4 Hana, means that SAP skills are close to breaking point.”