Over many years, SAP has built a reputation as a safe bet among enterprise resource planning (ERP) systems. Today, however, following SAP's roadmap may be riskier than many business and technology leaders appreciate. The potential risks apply to SAP S/4HANA in the data center or in the cloud - and even to organizations that delay moving to S/4HANA.
S/4HANA is a dramatic overhaul, and adopting it is more like undertaking a new ERP implementation, as opposed to an upgrade. The software-as-a-service (SaaS) version, S/4HANA Cloud, is one way SAP is trying to make implementing the re-architected software less daunting.
With customers hesitating, SAP is extensively promoting S/4HANA. High-pressure tactics include declaring a deadline that SAP will end mainstream maintenance for SAP Business Suite 7  , which contains ERP 6.0, the current mainstream implementation. All this leaves customers thinking they have only two choices:
- The slow road to S/4HANA - continue operating Business Suite and continue to pay for maintenance, while preparing for an eventual migration to S/4HANA.
- The fast road to S/4HANA - move now to a new, unproven technology platform, despite potentially huge costs of implementation and risks of disrupting business operations.
These may be the only perceived choices presented by SAP's tactics, but they are not the only choices.
I have been studying the costs and value of ERP systems for more than 37 years, and I have rarely seen such a dramatic mismatch between what a vendor is offering and what its customers want and need. SAP customers rely on Business Suite because it is stable and mature. They have invested many years and millions of dollars in deploying and tuning their SAP solutions. In most cases, they have had to customize the base software to fit their businesses. Now, it seems SAP is insinuating they have to leave all that behind, in favor of a new architecture that will be more like a new ERP implementation than an upgrade.
I want to focus on the two roads SAP would like you to go down and why you should consider a detour. Your eventual destination may well still be S/4HANA, but alternate routes can likely lower your costs and risk along the way.
The Slow Road to S/4HANA
Many Business Suite clients tell us that they want to keep running their proven, customized SAP solutions until they have a reason to change. Either they have no plans to move to S/4HANA, or they want to wait to see how early adopters fare with it. Yet, this "stay and pay" strategy potentially has its own risks.
- Based on client data, Business Suite maintenance fees charged by SAP have increased from an average of 17% per year in 2008 to as much as 22% today.
- Despite the cost, SAP maintenance doesn't cover the majority of customer support issues, which typically involve custom code, integrations or interfaces. Rimini Street receives roughly 30,000 support cases to resolve each year, 65% of which fall into that category.
- SAP has apparently shifted its R&D dollars to HANA, S/4HANA and cloud offerings, limiting Business Suite development to minor updates. If your organization is certain to move to S/4HANA or the SAP cloud, perhaps you can justify maintenance fees as an investment in the future. But what if you're not so sure?
The Fast Road to S/4HANA
First of all, the fast road isn't fast. If your original implementation journey took five years or more, expect more of the same for S/4HANA. Our customer and analyst-vetted cost calculator shows that S/4HANA costs about $35 million USD to fully deploy for every $1 million you pay in annual maintenance.
Nevertheless, each SAP customer has unique goals, objectives and needs. Those privileged few SAP customers who co-innovate with SAP to develop specific requirements may want to start down the road to S/4HANA quickly, perhaps taking advantage of S/4HANA Cloud.
For less enthusiastic customers - which appears to be the majority of them - SAP has apparently developed tactics to accelerate the decision. Customers who had no immediate intention of migrating to S/4HANA may feel compelled to do so as the result of a software license audit.
For those who resist being pressured, and insist on making their own decisions, assessing the move to S/4HANA is no different from any other major software migration or implementation.
- Consider the upside versus the costs and risks.
- Understand S/4HANA is not a one-for-one replacement. Business Suite is one of the richest and most complex software applications ever created, with more than 400 million lines of code developed over 40 years. To date, S/4HANA offers only a subset of the functionality found in Business Suite and related industry solutions.
- It would be very difficult for SAP to completely replicate the deep functionality of ECC and industry solutions on S/4HANA Cloud, and is at odds with the simple "configuration only" approach of the multi-tenant SaaS model.
Why the Rush?
While SAP says it will stop mainstream maintenance for certain SAP Business Suite 7 core application releases, seemingly in favor of S/4HANA, these core releases, unlike milk, don't spoil after the "use by" date. Business Suite will work as well as it always has, as long as it gets the proper care and feeding. Besides, even if they started now, many complex companies wouldn't be able to get S/4HANA deployed by the SAP mainstream maintenance deadline.
Even the SAP user groups, which usually mirror SAP's marketing, have been sounding notes of caution. Diginomica's Jon Reed interviewed several of the leaders of SUGEN, an umbrella organization of user groups, and came back with this quote from chair Gianmaria Perancin: "We have been speaking about this problem with the business case at least for three years now. We still miss a solution. Otherwise we would see I think a much better adoption of S/4HANA."
As for reasons to go to S/4HANA anyway, we hear: "SAP is giving us a really good deal to move to S/4HANA now." Making decisions based on "cheap buy-in cost" is a recipe for disaster, given that software cost has always been the cheapest part of any application implementation. The total cost will likely be much greater, particularly if S/4HANA proves an imperfect match for your needs.
A Better Route
SAP's apparent "all roads lead to S/4HANA" marketing push leaves out options that are better for many enterprises. Consider these alternatives:
- Stick with Business Suite to maximize the value from that asset but stop overpaying for a maintenance contract. Third-party support typically provides more meaningful and complete support - without the agenda of driving you to a new version or a proprietary cloud service.
- Move to the cloud your own way. If your goal is to "get out of the data center business," infrastructure-as-a-service (IaaS) options such as Amazon AWS and Microsoft Azure let you take advantage of cloud efficiencies. Unlike SaaS ERP, these options let you preserve your investment in your existing implementation - customizations and all.
- Don't wait to innovate. In combination with either of the above, you may wish to adopt (or at least pilot) SAP cloud "systems of engagement" products such as Ariba, Concur and Success Factors - along with other best-in-class cloud products. Doubts about wholesale replacement of your ERP with an SaaS product shouldn't prevent you from taking advantage of the real value being created in the cloud.
- Remain alert for other options. By the time S/4HANA matures, other next-generation ERPs may also deserve your consideration.
Draw Your Own Roadmap
If you are on the slow road, use a third-party support provider such as Rimini Street to reduce your SAP operations costs, squeeze more value out of your existing investment, save money and get great support while plotting your next move.
Even if you are ready to make an "all in" decision in favor of S/4HANA, getting it operational will take years. Opting for better support for less money during the time you must keep Business Suite operational can help you free up funds for this likely expensive migration.
If you aren't sure which direction to go in, your best alternative is to look for ways to optimize what you have today and keep your options open. To reach the best destination, take the driver's seat and draw your own roadmap.
This article originally appeared on eWeek.
Lower Cost and Risk for SAP on Your Journey to the Cloud
Staying on SAP's path to the cloud can be riskier than you think, even if you delay the move to SAP S/4HANA.
Pat Phelan, VP, Market Research
Pat Phelan is VP of Market Research at Rimini Street. Prior to Rimini Street, she spent 18 years at Gartner providing CIOs and IT leaders with research and advice on strategies for managing the ERP/business application life cycle.