The article below is based on a recent post from Mark Smith, CEO of Support Revolution, who spoke to E-3 Magazine about why customers are worried about SAP S/4HANA.
Why are SAP’s customers hesitant in moving onto S/4HANA? What’s holding them back? What should you, and your organisation, bear in mind before making your mind up?
It recently emerged that SAP has extended its end-of-support deadline for legacy products from 2025 to 2027. There’s a transitionary period of three years, and a final cut-off point of 2030. Customers who aren’t on S/4HANA will be transferred to a “customer specific maintenance model.” Translated, this means your support will become much more expensive.
In the run-up to its deadline(s), SAP has waged a long marketing war in order to move its customers to S/4HANA. It doesn’t just use deadlines as an ultimatum. SAP releases positive survey results and customer numbers, to encourage any who are undecided.
However, we are sceptical of SAP’s methods. Its results and statistics aren’t consistent with what we’re seeing in the wider ERP market.
SAP says ‘everything’s okay, nothing to see here’
In June 2019, SAP released the results of a survey. Analyst firm IDC had surveyed 300 SAP clients to report how many were ‘on the move to S/4HANA’:
“The 300 participants […] spanned 10 countries covering three regions, from organisations with 1,000 – 25,000 employees across a multitude of industries and were either planning to deploy (73%), have in production (9%), or currently deploying (18%) SAP S/4HANA.”Source: IDC Executive Summary
The survey results suggested that, of 300 participants, 100% of them were either deploying S/4HANA in the near future, or were already doing it. It is also worth noting at this point that this survey was funded by, and samples were provided by, SAP.
As you might expect, the figures SAP has given here seem a little far-fetched. Compare this to what other surveys and reports have found, and the general opinion of S/4HANA at the moment.
But how do SAP’s customers really feel?
Nucleus Research suggests that, “9 out of 10 customers indicated they would not consider a future investment in S/4HANA. They appear to be following a slow tapering-off strategy as they evaluate other opportunities in the market.”
These are the sorts of figures we’ve been seeing. Certainly nowhere close to SAP’s claims of 100% customer involvement.
In fact, the popular reaction from SAP’s customers is they’ve been reluctant to move at all.
In 2019, the Register reported on an annual member survey. We learned that of 467 user organisations, 58% of them had no intention of migrating onto S/4HANA in the next two years. 27% of them had no plans to upgrade in the next three.
And these are just the potential customer projection figures. Actual sales figures speak for themselves. Numbers of customers adopting S/4HANA have been fairly unremarkable. Only 173 S/4HANA systems went live in North America in 2019, according to an official SAP FKOM presentation at the beginning of 2020.
Considering that SAP currently serves more than 440,000 customers worldwide, 173 adoptions of S/4HANA in North America represents 0.04% of its overall customer figures.
Is SAP starting to listen to its customers?
SAP announced its original 2025 deadline. In the intervening time between then and now, it doesn’t seem to have had quite the effect that SAP intended. But rather than digging its heels in, SAP seems to be changing its tactics, in the favour of its customers.
SAP extended the deadline
Firstly, there’s the reasoning behind the extension itself. SAP’s 2025 deadline was its way of combining lots of individual product deadlines into one cut-off point. For a while, SAP seemed fairly adamant on this point, until February 2020, when the 2027 deadline extension was announced.
Around the same time, information published online suggested that SAP, or more specifically SAP’s CEO Christian Klein, had noticed that while organisations did want to move to S/4HANA, larger organisations in particular just wouldn’t be ready for 2025.
Now, it may be possible that SAP extended the deadline with more of its own interests at heart rather than its customers’. If an organisation can’t migrate, then it potentially won’t, and SAP loses an upgrade sale. It does demonstrate that SAP is responding to customer feedback.
It seems that it’s willing to be… not flexible, exactly. There is still going to be a deadline, after all, but it’s willing to bend the rules a little in the name of sales.
SAP refocused on on-premise
That said, SAP does seem to be in a process of taking a new path; or more accurately, returning to one it has walked before. In other recent news from SAP, it’s apparently returning to its roots, highlighting the importance of on-premise systems rather than a Cloud-first approach.
SAP’s CEO Christian Klein doesn’t share the same ‘Cloud first’ mentality as his predecessor, Bill McDermott. Instead, he acknowledges the benefits of on-premise systems. He has made it quite clear that he will listen to his customers’ needs and wishes.
Klein’s on-premise friendly announcement is certainly a welcome and refreshing change after SAP’s pre-2020 behaviour. It has had a Cloud fixation, established the 2025 deadline, and remained suspiciously quiet on what would happen to customers who didn’t upgrade.
This may be because he’s realised that this is where the majority of SAP’s customer base (and therefore, revenue) currently is. But regardless, we’re glad to hear SAP talking more about its on-premise customers again.
Too little, too late for SAP?
So far, SAP has surveys that don’t match up with its customers’ sentiments (also funded by the vendor). It has re-extended its deadline for the second time. And finally, now it seems to be backtracking towards its on-premise roots.
This is good news for customers, especially given current world events and market pressures. But is it all too little too late?
The current focus of most organisations right now is not going to be on an ERP upgrade. Even 2027 is looking unlikely, as organisations hunker down and look for savings wherever they can.
We’re advising organisations worldwide to take a long, hard look at their current ERP setup. Ask whether it really needs an upgrade now, or even in the next three to five years. If the answer is no (it probably is, given the lack of new features in S/4HANA), you need to consider how you are going to support your ERP software. SAP steadily increases its support fees.
Why are customers worried about S/4HANA?
We’ve established that SAP’s marketing strategies are inconsistent. Namely, its customer surveys don’t actually line up with its customers’ feedback.
But why are SAP’s customers hesitant in moving onto the newest product? What’s holding them back – and what should you, and your organisation, bear in mind before making your minds up?
SAP’s customers don’t want to play
Customers have understandably been cautious about moving onto S/4HANA. Any organisations moving to the SaaS S/4HANA would not see a typical ‘lift-and-shift’ upgrade. It’s more of a full system reimplementation. Almost like installing a brand new ERP system.
Therefore, any customisations that customers have developed on their systems become very difficult to shift onto the new Cloud platform. The options of customers who want to stay with SAP generally come down to these three choices:
- Deny the S/4HANA upgrade, and in 2030 be put onto the maintenance model
- Accept the upgrade, and make every effort to rework the new S/4HANA software to suit your needs (an expensive and in some cases impossible option)
- Accept the upgrade, and change working processes to suit the new S/4HANA functionality
Overall, the transition process can be complicated, expensive, disruptive, and very time consuming.
SAP has advertised that S/4HANA will help speed up queries and increase the response times of your system. But until your teams become more acquainted with the new setup, you might not see the speed you’ve invested in.
With all that in mind, is it any wonder SAP customers are reluctant to move?
SAP needs time too
While SAP’s customers need more time to prepare themselves, SAP could be developing and enhancing S/4HANA too.
S/4HANA is, by existing ERP standards, an immature system after all. It hasn’t had the years of development and enhancement that legacy products such as ECC6 have had.
It could also, in an ideal world, be further developed to accept customers’ customisations more readily, or at least without the higher price label. SAP’s loyal customers have had years to customise and alter their systems to suit them. They have maintained these systems for extended periods of time. Now, threatening business continuity, S/4HANA either removes that functionality or charges a higher price to use it. There is also still the risk of further complications when it comes to security patches or legislative updates.
We’re not alone in thinking that S/4HANA needs more time to mature. In April 2019, Gartner expressed its opinion that SAP’s S/4HANA still had a significant amount of platform development ahead, over the next three to five years. By the analyst firm’s logic, customers should hold off moving to S/4HANA until 2024.
Putting aside the need to develop infrastructure and applications, evidence suggests that SAP also needs time to consolidate its transition process to move customers onto S/4HANA in the first place.
After all, the 2025 to 2027 deadline shift was due to organisations being unprepared to move in time. But was SAP ready to migrate that many sizeable organisations in such a short deadline?
Don’t join the growing list of S/4HANA failures
Certain stories from the wider ERP market have provided good reason for SAP’s customers to remain where they are. The adoption and transition over to S/4HANA has been, for some, fraught with difficulties and additional, unforeseen costs:
- Lidl lost €500 million on an SAP implementation project
- Miller Coors is facing legal battles, following an SAP ERP system introduction
- Home24 and S Oliver both suffered implementation difficulties
- Nanshan Life Insurance faced numerous incorrect outputs, caused by S/4HANA
- Leaseplan’s €100 million write off was caused by a S/4HANA ERP failure
The trouble here isn’t always a software or technical issue that arises during the transition (though that has happened to some of the above) It’s the matter of necessary time frames to complete the migration.
S/4HANA migration or reimplementation can be incredibly draining on resources. Yet, the entire time the transition is happening, organisations still need to maintain their BAU operations. If key departments are occupied with the transition, and/or something goes wrong, it can massively disrupt business flow, and continues to cause a disruption until the issue has been fixed, and the transition process itself is finished.
And just as organisations have felt unprepared to take on the S/4HANA transition, it’s highly likely that SAP wouldn’t have enough experts and consultants ready to perform a smooth and relatively seamless S/4HANA transition. To that end, SAP is possibly quite lucky that most organisations are holding off, rather than all moving across at once. That would have hit SAP very hard indeed.
(Not that SAP necessarily deserves sympathy on this matter. The deadline was SAP’s idea, so being unprepared to move organisations across before then should be its cross to bear, not its customers’.)
The support revolution of SAP
So, if organisations aren’t ready to move, and if SAP isn’t fully ready to take them on, then it’s a stalemate.
This leaves a lot of customers not going anywhere, not receiving any innovation or added benefit from their existing ERP suite, and yet, they are still expected to pay SAP’s substantial support fees.
High prices, for a service of very limited return. In any other situation – gym membership, insurance, streaming services – you’d consider cancelling your contract and looking elsewhere. This hasn’t really been an option for Oracle and SAP customers – until fairly recently.
A support revolution is quietly taking place for SAP’s customers thanks to third-party support providers. With a third-party support provider, you can:
- Ignore SAP’s deadlines (we support all software versions indefinitely)
- Make savings (over 50% per year) on one of your largest IT costs at a critical time
- Continue getting regular patches, and security & legislative updates
With the money saved on support and maintenance fees, organisations can redistribute savings towards more important development and integration. This is essential given the current global pressures hitting nearly every industry.
Unlike S/4HANA, third-party support has time on its side. It has had the chance to mature, establish itself well among the wider ERP market, and clearly demonstrated that a superior level of service can be provided for a reduced price.
Your priority should always be focused on your organisation, your roadmap, and your own directives. Use third-party support as a way of eliminating the issue of endless ERP changes and price increases – and to stave off the S/4HANA migration a little while longer.
To find out more about S/4HANA, and how to build your SAP strategy, download our guide below.
Original article published by E-3 Magazine on 17 September 2020.