SAP is in a hurry to get customers to move to its next generation S/4HANA platform. Yet most SAP customers are in no hurry to move — nor should they be, according to SAP watcher Vinnie Mirchandani.
You can hear from Vinnie directly by watching the video clips embedded in this post (or watch them all as a single, seven-minute video). What follows are my notes on what I found most interesting.
Vinnie is the author of two books focused specifically on SAP, SAP Nation and SAP Nation 2.0, and others on broader trends in technology and business, including Silicon Collar and The New Technology Elite. Before founding his own advisory firm, Deal Architect, he was a Gartner analyst. He also spent 14 years as a management consultant for PriceWaterhouse.
He has analyzed SAP from his days at Gartner, and more recently has helped several clients evaluate SAP’s strategy with S/4HANA, a major overhaul of its core technology. Part of SAP’s challenge is compelling customers to migrate away from a technology foundation that is already solid, the Enterprise Core Component (ECC) architecture many SAP customers have spent decades implementing and tuning.
Ready for a Complete Overhaul?
One positive feedback we get from customers all the time is how robust the existing ECC software is,” he says. “The complaint they have is it should be going down in cost.” Rather than continuing to invest large amounts of money in core transactional systems that already work well, business and technology leaders want to aim more of their technology budget at new challenges. S/4 is gradually delivering what ECC supports in accounting, materials management, shop floor and other capabilities. But those process areas have not remained static in the last two decades. To make it attractive, S/4 will have to deliver a significant leap. Also, S/4 is not scheduled to support Industry Extensions any time soon so they will stay in the current client/server architecture, potentially increasing complexity of IT management.
SAP’s strategy these days, as Vinnie told me when I saw him a few weeks ago, can be summed up as, “What’s the question? The answer is HANA.” With S/4, SAP is moving away from decades of commitment to database independence by only offering it on HANA. Besides the additional lock-in it creates, HANA requires investment in new talent and systems management. It also creates more interoperability issues as few non-SAP applications or SAP’s own Industry Extensions will not be on HANA. S/4 also improves the user interface compared to previous SAP products, but with the world moving to digital assistants and natural interfaces it may get you half way there.
At a time when SAP is investing most heavily in HANA rather than its ECC 6 installed base, Vinnie thinks it’s reasonable for those who are in no rush to upgrade to explore ways of lowering their total cost of owning and operating their ERP systems. The analogy he often uses is that getting third party support for your ERP is like buying a high-end sports car but getting your vehicle serviced by a trusted mechanic, rather than paying for overpriced parts and service directly from the dealer.
Massive Migration Costs
Beyond the direct expense of licensing the new software, customers worry about “massive migration costs” associated with moving to HANA, Vinnie says.
He doesn’t necessarily disagree SAP’s core technology was in need of a major refresh. Yet based on the history of the software industry, it’s unlikely S/4HANA will match the breadth, depth, and reliability of ECC 6 and related Industry Solution extensions anytime soon, he says. “I’ve looked at how long Oracle Fusion took to build, I’ve looked at how long Microsoft is trying to rationalize its acquisitions (it had a project called Project Green), JD Edwards when they rolled out OneWorld, and now Infor is trying to roll out their own cloud offerings. They take time to mature, then their customers take decades to migrate.
A Five-to-10-Year Plan
“People ask me about S/4HANA and what do we do? Should we wait? Should we plunge ahead? I tell them wait,” Vinnie says. A brand new SAP customer, especially a smaller one not needing industry specific functionality might be wise to adopt S/4HANA now and avoid the need to migrate later. Even there, he would recommend they consider the multi-tenant, public cloud option.
Meanwhile, the way to innovate as a business is not to adopt a new ERP system. Instead, think in terms of a hybrid IT or postmodern ERP strategy that preserves investments in core transactional systems but supplements it with other software and cloud services, Vinnie says. “You’re innovating around the edges: customer facing, supply chain, shop floor, et cetera. You see that quite often. SAP becomes the transaction processing backbone, but more and more people are saying, away from that core, I’m going to look at much more modern solutions, much more nimble startup solutions. Or I’m going to custom build some of that.”
That does not mean it will never make sense to move to S/4HANA, but Vinnie suggests thinking in terms of a five-to-10-year plan. Take advantage of resources like Rimini Street support to stretch your current investment as long as you possibly can while you wait for S/4HANA to mature.
“You may find — five, seven, 10 years from now — that you don’t want to buy the complete suite from SAP,” Vinnie says. “The world is going to be very different in the next few years. So this buys you the flexibility without having to pay 100 percent of the cost while you wait to see what makes sense to evolve towards.”