1. SAP will not change the expiration period of ECC support
Some customers may consider an extension, but fundamentally SAP is unlikely to support maintenance of SAP Business Suite 7 core applications beyond 2027. SAP has already extended the deadline once in 2020, extending the end of the support from 2025 to the end of 2027. SAP is also expected to offer extended maintenance options until 2030, the cost of which will come in the form of an additional 2% demand on basic maintenance services or support from customer-specific maintenance.
Customers are likely to believe that SAP has not presented a strong enough business case for moving to S/4HANA. However, SAP has provided many opportunities to understand the financial implications of postponing the move to S/4HANA. An ECC extension from SAP will not be accepted as a strategy. Customers should consider the currently offered end point as the final duration and begin making arrangements.
2. SAP will roll out RISE aggressively
SAP is not just aiming to migrate ECC customers to S/4HANA. They eventually want to migrate to RISE, a cloud service with a subscription-based model. Ryze is SAP’s revenue cornerstone. SAP wants to secure its revenue by increasing customer renewal over the long term.
According to the 2022 results, SAP predicted 79% of future recurring subscription revenue and expressed aspirations for this number to reach 85% in 2025. SAP’s goals are high and customers should keep in mind that SAP’s sales and trading strategies will reflect this context. At the same time, the following factors should also be considered:
- Support a well-aligned approach to RISE adoption across our partner network, including systems integration (SI) and hyperscaler partners
- Ryze vs. Long term vision, product development and motivation to focus on S/4HANA On-Premise
- Customer assessment team to identify the potential impact of not using Rise and leverage executive-level customer relationships to offset it
- S/4HANA vs. Offer very unfavorable pricing and commercial terms of use related to past SAP practices
If you are an SAP customer, you should prepare your organization to proactively manage relationships at the SAP executive level, as SAP may recommend the adoption of Ryze. Customers are also advised to carefully review SAP’s business plans and warranties before assuming false vigilance as to where to purchase or negotiate additional on-premises licenses.
3. Customers will struggle to rate Ryze
When evaluating Rise, it’s best to refer more to how it rates managed services than pure SaaS solutions. Companies tend to overlook the complexities and impacts associated with existing operations and close partnerships. For example, consider the following part.
- SAP primarily sells software, not managed services. Worst-case scenario SAP will avoid the conversation altogether, but best-case scenario will try to stay high on important topics like environment sizing, roles and responsibilities, and level of service level agreements .
- Most SAP ECC and S/4HANA customers have a third-party support relationship in the form of traditional on-premises infrastructure support, cloud-managed services, and application maintenance and support. An assessment of the current and future state of these relationships should be conducted in conjunction with the Rise assessment.
- SAP offers customers the option to choose a hyperscaler through its Rise model, but many customers already have AWS, GCP, Microsoft Azure, or others, or are considering a larger deployment. These companies have made significant investments in hyperscalers. Customers will have to determine for themselves whether it is cost-effective to scale down hyperscaler services with SAP Rise.
Clients who anticipate the complexity of RYSE reviews and proactively develop integrated buying and review strategies will be able to make more effective decisions.
4. SAP will also focus on small and medium enterprises
Small and medium-sized businesses are more likely to adopt a vertically integrated solution like Rise. Therefore, SAP should invest considerable energy in targeting the business and increasing its share. Unlike large companies, small and medium-sized companies have a faster decision-making process and are more likely to pursue a strategy while considering working with a single partner or multiple partners. These companies are also likely to implement SAP Rise faster than their SAP customer companies. All of these factors present significant opportunities for SAP. Thus, small and medium enterprises should request:
- Does SAP provide a business model that allows organizations to evolve in a fiscally responsible way?
- Does SAP suggest potential implementing partners who can complete the project?
- Are SAP and its implementing partners providing a realistic view of the program’s scope, approach, and requirements for success?
5. Consulting firms will invest in “phase 0” initiatives
Although the economy is tough, it is still too early to give up on growth in 2023. The systems consulting and implementation communities will support growth from 2024 through the continued deployment of Phase 0 initiatives. can be an opportunity for companies that are not currently migrating from SAP ECC to S/4HANA. However, funding to start the journey to S/4HANA is not expected to be secured until late 2023 or early 2024.
That said, with every opportunity comes a price and potential risk, and it’s good for companies to take this into account when embarking on “Phase 0 initiatives” (reviewing goals and applying technology as test concept before large-scale deployment). In particular, let’s look at:
- Are consulting firms in phase 0 more likely to be candidates for the implementation phase? What about the single-source strategy? Is the SI RFP process feasible in terms of time? Is there a possibility that the organization will find itself in an unforeseen sole-source situation and lose its bargaining power?
- What is the scope of phase 0? Does the scope only align with the consulting partner’s methodology or does the company consider the requirements that actually need to be approved in order to move to the next phase of the project?
- Does it require independent review and validation of the business case and strategy by business plans, boards and regulatory committees? So what’s the plan to secure that independent perspective?
- The scope of Phase 0 includes the development of an integrated procurement strategy designed to enable the evaluation, selection and negotiation of multiple workflows (including SAP software, implementation services, hyperscaler, managed cloud services, and application maintenance and support).
End-to-end (E2E) decision-making rather than mindlessly adopting the approaches and strategies presented by partners before customers can take advantage of the “time” to plan for 2023 and the investments that SAP and companies Consulting will do for Phase 0 initiatives. and requirements should be carefully considered.
6. SAP customers will continue to migrate to the cloud
Customers who plan to migrate to SAP S/4HANA while retaining SAP ECC or retaining a perpetual license will continue to migrate aggressively to the cloud. Some companies will prepare, but others will be forced to move to the cloud by the strategy changes of existing managed service providers (Kyndryl and Dell Virtustream).
Additionally, many companies will undertake such migrations in non-SAP environments, including other application workloads through AWS, Google, and Microsoft, and non-SAP transition initiatives. When companies think about their overall cloud strategy, they should consider:
- Evaluate SAP Rise with hyperscaler relationships and cloud managed service relationships for effective decision making and leverage.
- In our experience, many organizations rush into spending at the start of the contract period, so they thoroughly review their existing application and cloud migration roadmaps and future growth prospects.
- Evaluate existing hyperscaler contracts, including spending plans and incentives, to determine if they are competitive in the market and will scale commercially for future growth.
7. Customers will reinvent the managed services relationship
With the migration to the cloud, it is expected that enterprises will continue to reinvent their traditional operating models and managed service relationships. The introduction of SAP Rise, the market disruption caused by hyperscalers and the pressure to continuously reduce operating costs and increase operations will be the main drivers in this area. As organizations recreate the state of the future, they will be forced to ask and answer the following questions:
- Is it more efficient to build a center of excellence in-house or to opt for a managed services model?
- Should you continue with your existing on-premises managed service provider or should you choose a new cloud managed service provider?
- Can you leverage a systems integrator and SAP to deliver a complete managed services solution like Accenture’s SOAR, or go for a multi-vendor approach?
- Can I use selected S/4HANA systems integrators or existing SAP ECC Application Management Service (AMS) providers to provide application management and support?
While SAP can be a major consideration to the overall strategy, many organizations manage service relationships that go far beyond the boundaries of SAP, including security services, non-SAP AMS, customer service, and field services. The renegotiation of these relationships and the possibility of a partial termination of existing services should also be considered as part of a strategic purchasing plan. Many companies struggle to make this decision. However, the installed base of SAP products is now beginning the journey of change. By 2023, strategies to answer these questions will need to be developed and implemented.
ciokr@idg.co.kr