ASUG CEO Geoff Scott and SAP CEO Christian Klein recently held a virtual conversation to discuss common concerns among North American customers, as well as insights into SAP’s strategy and vision. We shared five key takeaways of that conversation, including what the SAP product strategy means for customers, how SAP defines the cloud, where SAP S/4HANA migrations stand today, an update on integration, and how SAP regards its customers.
It was a lively conversation that could have lasted much longer than the hour dedicated to it. There were many questions left on the table and Klein agreed to follow up on many of them. In this two-part series, we share more insight into SAP S/4HANA, integration, strategy, and even about what keeps the SAP CEO up at night.
In the first part of our two-part series, Klein goes in depth about the challenges customers face with SAP S/4HANA and how SAP plans to help, as well as a closer look at product strategy and what is driving it. In part two, we’ll cover cloud strategy, integration, education and training, and much more.
ASUG: ASUG research identified that the SAP S/4HANA value question is a challenge for many customers right now. As you look across the global customer base, what do you see as the biggest value driver for customers that would resonate not only with the IT teams, but their LoB peers, the CEO, and board?
Klein: When it comes to defining a strategy, it is important to keep the requirements of our users in mind. We want to help the top management to adapt new business models end-to-end with our integrated LoB and industry-specific solutions and to reinvent corporate governance. This requires real-time reporting, planning, and a 360-degree view of the company.
We support end users in functions like finance, HR, procurement, and sales to automate transactional processes with the help of AI. We provide intelligent software that gives recommendations for action with a consistent and intuitive user interface, even on mobile devices.
We want to help IT to adapt new business models and requirements quickly and with agility. We also support them in moving away from modified and complex system landscapes toward a modular system landscape that allows for innovations to be consumed more quickly without time-consuming migrations. That said, we see that many customers who already are on SAP S/4HANA have many benefits, including that they can react to changing circumstances faster and with more agility; they can steer their business in real time; and they can even offer flexible payment models and/or introduce new business models.
We see a growing demand for our SAP S/4HANA Cloud Enterprise Management solutions, as they provide much faster time to value, allow for faster roll-outs, and provide the flexibility, scalability, and agility to adopt innovations at a pace that legacy ERP systems could never deliver. This has come to be particularly relevant in times of crisis. In fact, a 2020 survey from ASUG did not show a single customer not planning to migrate to SAP S/4HANA.
ASUG: Speaking of times of crisis, given 2020, what are your thoughts on the maintenance window for SAP ECC?
Klein: We will not leave any customer behind. SAP will provide a mainstream maintenance period for SAP Business Suite 7 core applications until end of 2027, followed by optional extended maintenance until end of 2030.
Following this, customers will be able to choose how they would like to continue with maintenance. Customers needing support for their Business Suite 7 core applications in longer conversion phases to SAP S/4HANA can choose the extended maintenance offering. This comes with a premium of 2 percentage points on the support fees of all support offerings for the scope of SAP Business Suite 7. It will be available for three years, from the beginning of 2028 until end of 2030.
On the other hand, customers who do not opt for extended maintenance will receive customer-specific maintenance for their SAP Business Suite 7 applications. This option includes problem-solving for known issues at unchanged fees. We offer a maintenance commitment for SAP S/4HANA until the end of 2040.
ASUG: We have heard from several customers about the significant expense related to implementing SAP S/4HANA to get their core up to a current state. Additionally, they have indicated that there will then be a need for more investment to start unlocking the innovation. Given the economic climate, that’s going to be a lot of investment to ask for. What do you say to these customers?
Klein: When the pandemic started, we were wondering how our customers would react to it and what it would mean for our projects overall, particularly SAP S/4HANA. But speaking to many CEOs, it became clear that ERP and seamless processes (e.g., in manufacturing, production, and logistics) were more relevant than ever.
We have never seen a stronger adoption with one single product than with SAP S/4HANA. In the third quarter, we added more than 500 SAP S/4HANA customers, and around 45% were net new. This took us to a total of more than 15,100 customers, 20% up over last year, of which more than 8,100 are live.
That said, we certainly see that many customers are showing restraint in their own spending as ROI has taken on considerable urgency. Therefore, we are looking at how we adapt our model to help customers get faster ROI and reduce the upfront investments, which allow them to start smaller and expand with us. Together with our partner ecosystem we have, for example, built more than 42 conversion factories offering attractively and fixed-priced offerings for customers to move to SAP S/4HANA. In addition, SAP has taken a huge effort over that past years to simplify common adoption hurdles (like customer-vendor-master integration) via tools and automated adjustments. The radically improved readiness check does not only show all critical items but gives advice for a resolution. ML and RPA are more often used to automate conversion, testing, and adjustment tasks.
ASUG: For customers who have already moved to SAP S/4HANA, we’re hearing about challenges in the ability to keep up with the pace of change and the lack of insight/knowledge from their systems integrator (SI) partner. What does SAP recommend to avoid these pitfalls? How should organizations stay on top of the evolution of the SAP landscape? How can they ensure their SI partners are able to add business value with the depth and breadth of knowledge they can provide?
Klein: We encourage all SAP S/4HANA customers to combine the move to SAP S/4HANA with a reduction/elimination of modifications by going back to standard. With such a simplified core, the upgrade to the yearly releases we provide and the consumption of the innovation that comes with every release will be a lot simpler than back in SAP ECC times. We see SAP S/4HANA customers who have chosen that way to take advantage of every upgrade we provide on-premise (i.e., one upgrade per year).
We agree that it is, of course, equally important to enable our partner ecosystem on the new features of the release. Therefore, we have workshops for every SAP S/4HANA on-premise release with our large SI partners. In SAP S/4HANA Cloud, we even do the update with every quarterly release. In addition, we offer SAP learning and openSAP courses for the partners to get further details and knowledge.
ASUG: We are hearing from customers that while the concept of intelligent enterprise is a good one, some are having a hard time “making it real” inside their businesses. How do customers start those conversations about RPA, AI, and ML inside their organizations?
Klein: Indeed, our customers question neither the business outcomes nor the need to become an Intelligent Enterprise. But how to transform remains the key challenge.
AI, ML, and RPA are becoming a necessity to future-proof any business. By embedding these intelligent technologies and analytics into processes and systems and harmonizing data models, companies can make more informed decisions and automate operations, leading to intelligent, fully AI-enabled, and autonomous systems.
Companies can approach digital transformation by starting with tools that give them quick wins and transform processes—RPA is a prime example here. Most of these implementations of intelligent technologies need business-led initiatives, and it is key to involve the critical stakeholders from the very beginning. Let’s stay with RPA as an example: It is designed to address the key drivers for digital transformation by automating repetitive tasks, so people can get back to strategic work. Automating business processes with RPA helps companies improve the productivity and save a lot of costs. It can lead to new conversations and business processes, and it is crucial that everyone knows the importance of these new processes. In addition to the CIO, make the stakeholders and the users who would work with RPA tools part of the planning and make sure you incorporate their suggestions.
ASUG: Where is SAP going to invest in products and, just as important, where is it going to de-invest? What impact will this have on customers?
Klein: One thing the pandemic has shown is that our solutions for digital transformation are more relevant than ever, and we will continue to invest strongly in both integration and innovation for the success of our customers.
As it relates to integration, we are making excellent progress to deliver a seamless business process integration, including key elements like harmonization of SAP’s data domain model, user experience, workflow management, and real-time steering. Currently at 57%, we expect to deliver up to 90% of these cloud integration suite qualities to our customers by end of this year.
Regarding innovation, one crucial component is our SAP Business Technology Platform—both for integration and extension. In the future, customers and partners will be able to use the integration services to easily build extensions to our solutions on the platform instead of modifying the ERP. Our app store on the platform offers more than 1,600 partner solutions as an extension of our SAP solution portfolio. And in 2021, we will offer more low-code, no-code capabilities to make it even easier to expand our solutions.
SAP’s industry cloud delivers innovative, vertical solutions from SAP and our partners to transform business and drive sustainable growth. These solutions are built on our Business Technology Platform with an open-API framework, open-process model, open-domain model, and business services. This ensures interoperability, rapid deployment, and integration with SAP’s intelligent suite. AI, IoT, and other advanced technologies from our platform are available to developers to accelerate innovation and deliver greater business value. Our portfolio is coming together with a focus on innovation plus integration plus AI—and all of that with the near-best TCO in the market.
Through our portfolio process we regularly assess which products will get more investments, and which ones less. Some of them, especially older versions, get sunset. This is regular practice, and we always do it while taking care of our customers by setting up a maintenance mode with year-long usage options for customers. Real, hard divestments—including sale of IP, assets, customer relationships, and people—have been and will be the exception. Typically the internal sunset is the better option for SAP and customers. Should such an exception relate to a product area, we will certainly inform our customers.