The pandemic has led to more companies acknowledging the need to be agile, to get new products and services to market rapidly, and to adjust to sudden changes in supply and demand.
This can be particularly challenging for those companies running behemoth enterprise resource planning (ERP) systems like SAP.
When people think of SAP, agility is not the commonly associated term; rather, it is often associated with long and expensive projects, many of which result in overruns and higher than expected costs. Not only that, SAP is exacerbating the financial woes some organisations are already faced with, by trying to push them into migrating to S/4HANA.
But have you sat back and wondered why SAP is pushing this migration?
Around a decade ago, SAP made the move from an application-centric organisation to one that also licenses databases. The SAP Business Suite is database agnostic, where customers have the choice to run their SAP applications on their preferred database, be it Oracle, MS SQL Server, DB/2, and so on. SAP has attempted to displace these existing database suppliers with its new proprietary database, HANA. However, many customers have continued to use their existing databases.
In related news, SAP developed a new ERP platform in S/4HANA, which only operates on the SAP HANA database. One sure-fire way to drive adoption is to remove customer choice.
Soon after the release of S/4HANA in 2015, SAP announced the end of mainstream maintenance support for the SAP Business Suite. The cherry on top is that SAP has put a timeline for migration to S/4HANA to be completed by 2027 (or 2025 for earlier versions of the Business Suite) for licensees to maintain mainstream support.
The bonus prize is that this migration to S/4HANA may come with the privilege of paying extra licence and maintenance fees. According to Invictus Partners, if a customer chooses to convert their Business Suite licences to S/4HANA, they are entitled to the lesser of either a 100% credit for previous spend, or 90% of net new payable, noting that S/4Hana licences have a more expensive unit cost. So, you will likely find yourself paying at least a 10% uplift in licence fees and hence the associated maintenance costs. Then you add the migration costs on top.
You do the maths, but it’s estimated that a typical migration to S/4HANA can cost tens of millions of dollars for the average SAP customer. A Rimini Street assessment, vetted by industry analyst Vinnie Mirchandani, estimates that it can cost customers, paying $1m in annual SAP support and maintenance, an average of $35m to migrate to S/4HANA and operate the system over a seven-year period.
From Rimini Street’s own research, we are seeing limited uptake of the S/4HANA application. For many companies, it appears their current SAP systems have served them well for years and they are still performing the critical functions and running the business smoothly.
Migration struggles continue to attract headlines, such as those by Lidl which cost it €500m, or when Haribo saw a 25% sales decline during its migration to S/4HANA, and also caused a worldwide gummy bear shortage. Not a happy time for people with a sweet tooth like me.
More recently, when issues arose after implementing S4/HANA, Queensland Health in Australia reportedly had to employ 30 extra staff to help the department pay its bills to medical suppliers. And Queensland Health now faces a state audit following this costly A$135m migration to S/4Hana – not to mention the costs of remediation.
You can start to understand why there might be tension within the SAP community on whether a migration to S/4HANA is currently in the best interests of many organisations.
What are your options?
SAP is pushing you to replace your existing SAP ERP, so why not take the opportunity to investigate whether there are better technology options to run your business and meet the demands of your customers and stakeholders?
Almost every major IT project is being scrutinised right now as part of an organisation’s pandemic-led due diligence. Your roadmap for SAP should be no different, particularly as SAP itself has unwittingly presented you with a wonderful opportunity to do so.
To this end, we are seeing a significant shift away from SAP for many key functional areas, as well as for support. Organisations running SAP systems seem to be increasingly leaning on third-party providers which offer full support, long after SAP has decided to end its own support.
So why not pursue a business-driven path for IT investments and projects? There are many viable and low-risk alternatives available in the market, especially if you feel SAP continues to force your hand.
