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SAP S/4HANA Cloud and indirect access will dominate 2018

Industry experts say SAP S/4HANA Cloud migrations, Leonardo and Cloud Platform are the technology issues for SAP in 2018; on the business side, the top issue is indirect access.

SAP is undoubtedly going through a major transition, as SAP S/4HANA Cloud, SAP Cloud Platform and the SAP Leonardo "system of intelligence" are becoming increasingly prominent. But questions are always there about both the technology and the business model as this digital transformation takes place. Are current SAP customers on board? How can they capture new customers and establish new markets? Is SAP pushing the right technologies to the right people? Will SAP S/4HANA Cloud entice people to adopt the newest generation of the vendor's ERP platform?

A new year holds new promise, new opportunities and new ideas, and SearchSAP asked several prominent industry experts for their opinions on what may be in store for SAP in 2018. We were primarily interested in two questions: What do you expect from SAP in 2018, and what does SAP need to do in 2018?

On the technology side, SAP S/4HANA Cloud, SAP Cloud Platform and SAP Leonardo are expected to dominate the conversation. On the business side, it appears that the SAP indirect access issue is something that the company must deal with in 2018. SAP also needs to clarify the market confusion around its SMB products.

What do you expect to see from SAP in 2018?

Massimo Pezzini, vice president and fellow, Gartner

SAP has made significant investments in machine learning over the past two years, which has begun to manifest in the form of add-ons to their established applications (S/4HANA, SuccessFactors, etc.) in the course of 2017. In 2018, the use of AI and [machine learning] technologies will become more pervasive and more widespread (for example, in the context of the user experience layer), thus moving SAP towards the notion of "intelligent enterprise" that Bernd Leukert (head of SAP's products and innovation) started to depict toward the end of last year.

I also expect a further strong commercial and marketing push for cloud ERP, in particular through SAP S/4HANA Cloud and, to a lesser extent, SAP Business ByDesign. Cloud ERP is one of the hottest battlegrounds in the business applications space, where SAP is facing tough competition from Oracle, Workday, Microsoft and other smaller, aggressive competitors. SAP's chances of maintaining its leadership in ERP depends on how successful it will be in cloud ERP.

Cindy Jutras, president, Mint Jutras LLC

I think we'll see an emphasis on cloud and intelligence. In addition, I'd like to see more emphasis placed on delivering last-mile functionality, in addition to more intelligence, but with less of a custom, tools-oriented approach.

Josh Greenbaum, principal, Enterprise Applications Consulting

There are a lot of gaps to be closed between the forward-looking technology strategy and the reality on the ground for customers, and SAP Leonardo is a good example. The issue of SAP S/4HANA Cloud migration is another. I talked to a customer who was looking at SAP S/4HANA Cloud until they saw how limited the functionality was in a couple of key areas, so they pulled back and are now looking at doing an S/4HANA on-premises or private cloud because they can't get what they want out of public cloud in the time frame that they need it. Also, a lot of companies are looking at SAP Leonardo functionality and are embracing it for a proof of concept. But we are not seeing a lot of real enterprise cloud deployments, and that's going to hurt if SAP can't convert that desire into a lot of serious revenue. And that's a huge chunk of their strategy.

Holger Mueller, vice president and principal analyst, Constellation Research

I expect to see more push on S4/HANA and more push on SAP Cloud Platform, as [platform as a service] is the security blanket for enterprises in the era of business process uncertainty. They want to know what's the PaaS that they can use to build what they need, but what their SaaS does not have or where their SaaS is not yet a fit.

Ray Boggs, vice president of SMB research, IDC

SAP will sharpen its SMB efforts with an updated segment definition and name, the new General Business (GB) segment, which is defined as firms with under $1 billion in annual revenue. This segment will be served by channel partners and already represents 80% of SAP's 365,000 customers worldwide (over 250,000). Of course, that's not the same as share of revenue since large businesses spend much more per company. We expect SAP to refine this definition depending on region, and the company indicates that it will be dividing the group into Upper GB (revenues of $300 million to $1 billion) and Lower GB (revenues under $300 million). As part of its efforts to be more efficient in serving those GB customers, we expect SAP will continue to expand its direct digital efforts through SAP Digital offerings. But this will likely be more a supplement to channel-led deployments rather than a true alternative.

What does SAP need to do in 2018?

Pezzini

SAP needs to focus on making SAP ERP Central Component (ECC) customers' move to S/4HANA as compelling and easy as possible. Paradoxically, we found that it's easier for non-SAP ERP organizations to adopt S/4HANA than for ECC users. Most established SAP ERP clients, especially large and global organizations, are finding it difficult to justify the adoption to S/4 from a business case perspective and are concerned by the cost, complexity and time required by the migration project. SAP must work hard to remove these obstacles to make S/4 the success they want and need it to be.

SAP also needs to improve their relationship with clients. Although most SAP clients are reasonably happy with the products and technologies, they often complain because of obscure pricing, confusing product roadmaps and uneven support quality. In 2016, SAP launched the "Empathy to Action" set of initiatives to address such concerns, and in 2017, they released some initial results, such as SAP Transformation Navigator, to provide product roadmap visibility and a couple of new SAP indirect access policies. However, in 2018, SAP needs to show significant progress across the three areas mentioned above to maintain the loyalty of their clients as they engage in digital transformation initiatives.

Jutras

I think SAP needs to get some clarity on segmentation of their three different ERP solutions. They have now moved all three under one umbrella, supposedly to reduce contention and confusion. It's clear that S/4HANA is the right choice for the large enterprise, and Business One is aimed at small businesses. However, there needs to be more clarity on the positioning of Business ByDesign, or the market will continue to make up its own story. And the fabricated story for years now has been that it's dead. SAP needs to be more vocal about the real intention, because the S/4HANA messaging is adding to the confusion rather than resolving it. More clarity is required around cloud, growth orientation and two-tier ERP for subsidiaries.

In addition, I would like to see the messaging around SAP Leonardo start to be integrated into the ERP story. It can't be effective and impactful if it continues to be separate because then it will only be a message for the IT staff of large enterprises. For SMBs, the technology itself will need to be blended as well. SMBs, who are a large portion of the SAP installed base, don't have deep enough pockets or the technical expertise on staff for innovative, design thinking projects that define the value. The Business One platform approach is right on target and could easily be applied upmarket.

Mueller

SAP needs to develop more [infrastructure-as-a-service] partnerships and potentially formalize with all of the Big Three IaaS vendors: Microsoft Azure, [Amazon Web Services] and Google.

It also needs to solve the Hadoop vs. HANA challenge. SAP must have in-house, native and supported access to big data applications that run not only in memory but also on [hard disk drives], where the bulk of business-relevant data is.

Greenbaum

One of the big issues that SAP has to settle in 2018 and really put to rest is the problem of [SAP indirect access] licensing.
Josh GreenbaumPrincipal, Enterprise Applications Consulting

One of the big issues that SAP has to settle in 2018 and really put to rest is the problem of SAP indirect access licensing. That came up at the end of the year in so many conversations with customers, many of whom were saying that they don't really trust what's in their contracts anymore. They don't know if they can go back to the board for more SAP money considering there's this potential indirect licensing fiasco looming over them. So, that's something that SAP should deal with.

It's a leadership moment for SAP. I think they should also see that this is something that's endemic to the entire industry, so it's happening across the board and is not just an SAP issue. SAP could actually turn this into a real leadership moment if they chose to, and I think they should.

Boggs

The diversity of SAP product offerings makes it hard for customers and channel partners to have a clear idea about the SAP product portfolio. Key ERP products designed for the SMB customer -- SAP Business ByDesign, SAP Business One and S/4HANA for SAP Business All-in-One -- are a natural starting point. But SAP has other resources that have special appeal to firms that have grown to midsize -- Concur, Hybris, BusinessObjects, SuccessFactors, Ariba -- and providing a series of natural deployment paths with a strong vertical orientation is what SMB customers will be looking for.

Duncan Jones, vice president and principal analyst, Forrester Research

SAP's customers need it to put a stop to misselling, which is by no means universal, but is lamentably common. SAP needs to publish clear rules for its new, modern licensing, which is a good starting point but which currently leaves too much latitude for sales to abuse the gray areas. It's no longer acceptable for SAP to claim confidentiality and let salespeople interpret the rules as they see fit. This should include fair discount tables, based on the total [annual recurring revenue] relationship, not on the size of the incremental order.

SAP's customers need some sort of independent ombudsman service, outside the sales channel, so they can report allegedly unfair or dishonest behavior. They need SAP to start publicly firing salespeople who pursue unacceptable tactics, especially those that may be in breach of competition law. They also need SAP to fire the sales managers and territory heads who allow it to go on. Customers can start by refusing to speak with any salesperson they don't trust. SAP has many honest, customer-centric salespeople, so don't assume that all SAP salespeople will be the same. My advice to clients is: If an [area manager] tries to use indirect access or compliance audits to bully you into buying an SaaS product, then have them immediately ejected from the building and don't let them back on site.

This was last published in January 2018

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I am very disappointed there was not more coverage about SAP's "shakedown" of smaller customers with respect to "indirect usage".

About five years ago I witnessed firsthand what clearly feels to me like extortion by SAP using the rarely-enforced, obscure and ill-defined indirect usage clauses in their licenses as the jumping off point. To elaborate on what Josh Greenberg alluded to, "indirect usage" is SAP's assertion that any and all users that may interact with data from a SAP system, regardless of how that interaction occurs, owe license fees. So, for example, if a company invests in building a better solution for getting data into their SAP ERP than using the native interface, SAP says they are entitled to more money.

Rather than challenging the clause, my client's legal teams made the determination that even though it is absurdly broad and poorly defined, it would probably be cheaper just to pay a couple of million dollars additional  than to go to court or risk SAP cancelling their license. From an economic perspective, they were probably correct.

But this does not change the reality: "Extortion, which is not limited to the taking of property, involves the verbal or written instillation of fear that something will happen to the victim if they do not comply with the extortionist's will." from Wikipedia. (https://en.wikipedia.org/wiki/Extortion). Whether the victim agrees to the taking (in this case by signing the license and paying more money) is immaterial. "A rose by any other name ..."

While switching costs from SAP (or any ERP for that matter) are not trivial (especially for smaller enterprises), neither is the ill-will generated by what appeared to be a strategic decision made by the company; this is in contrast to the "few bad apples" picture Duncan Jones describes and SAP uses to rationalize its behavior.  Perhaps SAP will get a karmic spanking for its bad behavior as competition increases and the memory of "indirect usage" shakedowns persist.


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CCasey-

Thanks for reading and responding, your comments are a really valuable addition to the SAP indirect access issue. Stay tuned to SearchSAP because we are planning to publish a few articles on the indirect access controversy soon. 

Jim O'Donnell
News Editor, searchSAP
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