Is SAP on the rise?

In a recent forecast of global IT spending growth for 2024 (6.8%), Gartner referred to chief information officers (CIOs) suffering from “change fatigue”, an affliction that manifests in delayed contracts and an unwillingness to commit to any long-term initiatives.

Over the past two years, it’s exactly the sort of malaise SAP has been facing with its strategy of moving customers to the cloud-based version of its flagship S/4HANA offering.

As the German SAP User Group found in September last year, over half of the companies surveyed were “not yet very far along with digital transformation” to S/4HANA. In addition, the user group called out SAP for its decision to make enhancements available to cloud customers only, a move that would have an immediate impact on existing on-premise customers. But that was last year; 2024 is starting with so much more optimism.

For one, it looks as though SAP has listened to its customers, although its announcement of an offer to reduce the cost of migration by up to 50% – with credits to offset the cost of maintenance, cloud services or cloud subscriptions – is not a long-term strategy. And while it’s easy to understand SAP’s motivation, it doesn’t particularly solve the multitude of transformation decisions many organisations are facing.

As Conor Riordan, vice-chair of UKISUG, told Computer Weekly in November last year, historically, SAP gave its customers predictability, but “now, with the new strategy, in terms of innovation, you don’t have predictability anymore”. The fear, of course, is lock-in. For many organisations, enterprise resource planning (ERP) migration is a huge commitment, especially if you have been working with a highly customised on-premise ERP system for a number of years

“SAP customers are increasingly moving to cloud, but we still see significant scrutiny over modernisation projects as these can run into the tens or hundreds of millions of dollars for larger firms,” said Forrester’s vice-president principal analyst, Liz Herbert. “Many deals attributed to RISE are in reality mixed mode underneath.”

Like all legacy ERP suppliers, SAP is having to face up to its own share of resistance and challengers. Herbert said that while customers do see benefits in SAP’s S/4HANA cloud strategy, many are carefully weighing up their future ERP options. “Some are shrinking their core and moving to more multi-vendor scenarios either with two-tier ERP models or multiple SaaS [software as a service] add-ons surrounding an SAP core,” she said. “The largest of the large generally have fewer choices in ERP, but the mid-market remains much more active, with lots of ERP choices available.”

The temperature is rising

For SAP, it has undoubtedly been a challenge convincing on-premise customers to commit to cloud migration, but according to its recent set of results, at least, it appears to be moving in the right direction. Cloud revenue increased 20% last year, with a 25% spurt in Q4.

For SAP UK managing director Ryan Poggi, 2024 is a pivotal year. Poggi, who is coming up to his first anniversary as UK managing director, points to some big names that started their RISE with SAP journeys last year: the likes of Boots, Harrods, British American Tobacco, Marks & Spencer, and Vodafone Group. For Poggi, the list of major firms that have signed up to RISE will help SAP promote the questions of “why cloud?” to the rest of its customer base.

“We’ve kickstarted 2024 with a number of key announcements,” he said, referring to the cloud incentives announced on 30 January, adding that the aim is to encourage those customers running legacy ECC or S/4HANA on-premise systems to consider cloud ERP adoption. He talks about enabling customers to be “innovation-ready” for the challenges ahead.

“Only through consuming cloud applications as a delivered service enables a persistent innovative state that is required to compete effectively,” said Poggi.

Looking at the competition, he said: “Trust is always key, and SAP has been delivering its promise to customers for over 50 years.”

“With a customer base that generates 87% of total global commerce ($46tn), we take that responsibility very seriously, and none of it for granted,” said Poggi. “In a cloud world, we must continue to earn that trust by delivering day in day out. The customer is of course ultimately in the driving seat, but we are confident in our end-to-end portfolio of products.”

No one is doubting SAP’s ability to deliver a good product, but it does feel as though IT leaders are at a crossroads – not just for SAP, but for all traditional ERP suppliers. As Herbert from Forrester points out, organisations are moving to software as a service. She said: “The shift to SaaS is underway” with many older ERP vendors pushing SaaS and cloud options and making it less attractive to buy on-premises options.

“Newer vendors are often SaaS-only,” she added. “Customers shifting to modern SaaS ERP aim to get better user experience, more agility and greater innovation, including AI.”

For many existing users, it’s not a case of whether SAP is a good product or even a cost commitment, it’s more about timing and pressure. SAP has already set its stall out on discontinuing support for various products, and it has been very clear on its deadlines. The problem is that not all businesses can move at the same speed or indeed have the same models as the pre-cloud days. At a time when the words “agility” and “resiliency” have been thrown around, especially during and post-Covid, it’s little surprise that many organisations are playing a wait-and-see game while weighing up options.

Writing in Computer Weekly recently, Jon Gill, head of sales for EMEA at global managed services firm Spinnaker Support, said that “for business leaders who place a high value on maintaining their strategic direction and operational independence, the recent developments within SAP’s ecosystem might be a call to action. The ambiguity in SAP’s messaging and the prioritisation of cloud innovations, often perceived as leaving on-premise customers behind, underscores the importance of autonomy in technological decision-making.”

It also underlines the importance of clarity. SAP has made a bold move in its offer to cut migration costs by up to 50%, but will it have the desired effect? Time will tell. Meanwhile, there are plenty of other cloud-based ERP options watching with interest.