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The first part of our 20-year SAP retrospective examined the company's emerging dominance in the ERP market and its transition to the HANA in-memory database. Part two looks at the release of SAP S/4HANA in February 2015. The "next-generation ERP" was touted by the company as the key to SAP's future, but it ultimately raised questions that in many cases have yet to be answered. The issues surrounding the S/4HANA migration remain the most compelling initiative for the company's future.
Questions about SAP's future have altered in the past year, as the company has undergone an almost complete changeover in its leadership ranks. Most of the SAP executives who drove the strategy around S/4HANA and the intelligent enterprise have left the company, including former CEO Bill McDermott. New co-CEOs Jennifer Morgan and Christian Klein are SAP veterans, and analysts don't think the change in leadership will make for significant changes in the company's technology and business strategy.
But they will take over the most daunting task SAP has faced: convincing customers of the business value of the intelligent enterprise, a data-driven transformation of businesses with S/4HANA serving as the digital core. As part of the transition toward intelligence, SAP is pushing customers to move off of tried and true SAP ECC ERP systems (or the even older SAP R/3), and onto the modern "next-generation ERP" S/4HANA. SAP plans to end support for ECC by 2025.
S/4HANA is all about enabling businesses to make decisions in real time as data becomes available, said Dan Lahl, SAP vice president of product marketing and a 24-year SAP veteran.
"That's really what S/4HANA is about," Lahl said. "You want to analyze the data that's in your system today. Not yesterday's or last week's information and data that leads you to make decisions that don't even matter anymore, because the data's a week out. It's about giving customers the ability to make better decisions at their fingertips."
S/4HANA migration a matter of when, not if
Most SAP customers see the value of an S/4HANA migration, but they are concerned about how to get there, with many citing concerns about the cost and complexity of the move. This is a conundrum that SAP acknowledges.
"We see that our customers aren't grappling with if [they are going to move], but when," said Lloyd Adams, managing director of the East Region at SAP America. "One of our responsibilities, then, is to provide that clarity and demonstrate the value of S/4HANA, but to do so in the context of the customers' business and their industry. Just as important as showing them how to move, we need to do it as simply as possible, which can be a challenge."
S/4HANA is the right platform for the intelligent enterprise because of the way it can handle all the data that the intelligent enterprise requires, said Derek Oats, CEO of Americas at SNP, an SAP partner based in Heidelberg, Germany that provides migration services.
In order to build the intelligent enterprise, customers need to have a platform that can consume data from a variety of systems -- including enterprise applications, IoT sensors and other sources -- and ready it for analytics, AI and machine learning, according to Oats. S/4HANA uses SAP HANA, a columnar, in-memory database, to do that and then presents the data in an easy-to-navigate Fiori user interface, he said.
"If you don't have that ability to push out of the way a lot of the work and the crunching that has often occurred down to the base level, you're kind of at a standstill," he said. "You can only get so much out of a relational database because you have to rely on the CPU at the application layer to do a lot of the crunching."
S/4HANA business case difficult to make
Although many SAP customers understand the benefits of S/4HANA, SAP has had a tough sell in getting its migration message across to its large customer base. The majority of customers plan to remain on SAP ECC and have only vague plans for an S/4HANA migration.
"The potential for S/4HANA hasn't been realized to the degree that SAP would like," said Joshua Greenbaum, principal at Enterprise Applications Consulting. "More companies are really looking at S/4HANA as the driver of genuine business change, and recognize that this is what it's supposed to be for. But when you ask them, 'What's your business case for upgrading to S/4HANA?' The answer is '2025.'"
Joshua GreenbaumPrincipal, Enterprise Applications Consulting
One of the problems that SAP faces when convincing customers of the value of S/4HANA and the intelligent enterprise is that no simple use case drives the point home, Greenbaum said. Twenty years ago, Y2K provided an easy-to-understand reason why companies needed to overhaul their enterprise business systems, and the fear that computers wouldn't adapt to the year 2000 led in large measure to SAP's early growth.
"Digital transformation is a complicated problem and the real issue with S/4HANA is that the concepts behind it are relatively big and very specific to company, line of business and geography," he said. "So the use cases are much harder to justify, or it's much more complicated to justify than, 'Everything is going to blow up on January 1, 2000, so we have to get our software upgraded.'"
Evolving competition faces S/4HANA
Jon Reed, analyst and co-founder of ERP news and analysis firm Diginomica.com, agrees that SAP has successfully embraced the general concept of the intelligent enterprise with S/4HANA, but struggles to present understandable use cases.
"The question of S/4HANA adoption remains central to SAP's future prospects, but SAP customers are still trying to understand the business case," Reed said. "That's because agile, customer-facing projects get the attention these days, not multi-year tech platform modernizations. For those SAP customers that embrace a total transformation -- and want to use SAP tech to do it -- S/4HANA looks like a viable go-to product."
SAP's issues with driving S/4HANA adoption may not come from the traditional enterprise competitors like Oracle, Microsoft and Infor, but from cloud-based business applications like Salesforce and Workday, said Eric Kimberling, president of Third Stage Consulting, a Denver-based firm that provides advice on ERP deployments and implementations.
"They aren't direct competitors with SAP; they don't have the breadth of functionality and the scale that SAP does, but they have really good functionality in their best-of-breed world," Kimberling said. "Companies like Workday and Salesforce make it easier to add a little piece of something without having to worry about a big SAP project, so there's an indirect competition with S/4HANA."
SAP customers are going to have to adapt to evolving enterprise business conditions regardless of whether or when they move to S/4HANA, Greenbaum said.
"Companies have to build business processes to drive the new business models. Whatever platform they settle on, they're going to be unable to stand still," he said. "There's going to have to be this movement in the customer base. The question is will they build primarily on top of S/4HANA? Will they use an Amazon or an Azure hyperscaler as the platform for innovation? Will they go to their CRM or workforce automation tool for that? The 'where' and 'what next' is complicated, but certainly a lot of companies are positioning themselves to use S/4HANA for that."