During the SAP Global Partner Summit in May 2020, SAP unveiled some new initiatives and updates to its partner ecosystem. These changes were focused on how the software company plans to work together with third-party solution providers to build resources and software solutions for SAP customers.
Following the conference, ASUG sat down with one of its key presenters, Claus Gruenewald, global VP of ERP portfolio management at SAP, to talk about how SAP is supporting its partners as they work to migrate customers to SAP S/4HANA. Gruenewald discussed his team’s go-to-market strategy and some new ways SAP is equipping partners to better serve customers.
Jim: Can you tell me a little bit about the SAP S/4HANA Movement initiative and how it helps customers?
Claus: Between direct and indirect customers (those who have purchased SAP solutions directly through SAP versus those who have been sold solutions by SAP partners), we still have a lot of customers using SAP ECC, our enterprise ERP platform from the past based on R/3. It will go out of maintenance within the next 10 years. The SAP S/4HANA Movement program helps customers move from the ERP system of the past into SAP’s current core digital Intelligent Enterprise: SAP S/4HANA Cloud or on-premise.
A full 65% of SAP customers with small and medium-sized businesses have their SAP investment managed by partners. Through the SAP S/4HANA Movement program, we help partners explain the value, benefits, and future of the digital core so that the customer can take steps to move to that platform.
We have individual programs we conduct with partners to explain to the customer what the Intelligent Enterprise and its customer value is. We also help educate customers about the conversion process from SAP ECC to SAP S/4HANA, using either a brownfield or greenfield implementation. Choosing between those two approaches depends on how much the customer has changed in the past.
Not every customer is the same company it was 15 years ago when it probably started with an SAP ERP system. It could have acquired other companies with new product lines, for example. From there, we have adoption starter workshops, where we help the partner move the customer in the implementation scenario they’ve chosen. We look at the detailed steps and begin the project. That is what SAP S/4HANA Movement is all about securing the customer’s future and leveraging previous investments by implementing SAP S/4HANA.
Jim: Can you broadly discuss SAP’s go-to-market strategy for SAP S/4HANA and its partners?
Claus: There are two areas that we are focusing on with the partners. First is partner economics. The partner, of course, only does business with SAP if there’s something in it for them. It’s important to us that partner economics work, especially in the cloud business. With on-premise, our partners have done very good business selling, implementing, and providing additional services. Typically, with on-premise, once the partner’s sales cycle comes to a successful close, the partner’s cost of sales are paid by the perpetual license, which is paid by the customer.
When it comes to the cloud, it’s usually a shorter sales cycle in comparison with on-premise. But software as a service (SaaS) fees are not paid by the customer.
The customer does not pay the whole amount at the close of the deal. Instead, they set up quarterly or monthly payments, which means the return on investment on the cost of sales takes much longer in the cloud compared with on-premise projects. At SAP, we know that partners need to close more cloud deals compared with on-premise deals—depending on the size of the deals and the region where they’re doing business—to generate good cloud business every year. We have either a resell discount model or a cloud choice profit commission model where SAP takes all of the invoices and the partners are paid on a commission basis to implement the cloud.
After the go-live phase, the partner has the chance to upsell or cross-sell, as well as build their own IP. In the vast majority of cases, partners help develop either custom individual applications that can be leveraged in localized or industry verticals and that are based on their expertise in a given industry or country. Because SAP cloud solutions aren’t always hyper-specific, we are coming out with a standard that gives the partners room to complete the solutions based on industry, local, or customer-specific needs.
The second essential part of our partner strategy is customer success. For every customer who goes live and is successful with the ERP cloud, we use a successful strategy called land-and-expand. It's better to win a customer with a small ERP deal featuring a short go-live period because the customer expects a fast return on investment.
Jim: In what ways are SAP partners bringing value to customers as they make the transition to SAP S/4HANA from an SAP ECC ERP system?
Claus: A lot of the partners have now built SAP Partner S/4HANA Conversion Factories. We started that about two years ago when we worked with partners who could build out a standard process to get from SAP ECC 6 to SAP S/4HANA. This process included a data transition and configurations. We immediately increased the service capacity to meet the huge volume of customers who want to move from an SAP ECC system to SAP S/4HANA.
We did not want to get into the situation where we run out of partner services, which would constrain how many customers can move to SAP S/4HANA. We built those conversion factories for two reasons. First of all, partners can easily double or triple the number of projects they can do with a conversion factory because it's a descriptive and standard model. Second, they can offer a fixed price, which gives investment security for the customer. This is especially important during the COVID-19 outbreak. At the moment, cash is king. With conversion factories, customers know what they’re buying and for how much, because the price and services are clearly defined.
Jim: What are some of the common requests and pain points that you hear from SAP partners that you and your team are working to address?
Claus: One thing SAP always hears from its partners is whether they should drive customers to brownfield or greenfield implementation. Currently, we see a split between brownfield and greenfield implementations. We see a trend to more uses of brownfield, which partners like because they can leverage the conversion factors to the max.
If we look at the top services, partners like to sell application management and enhanced managed services to their customers, meaning they either continue or extend their services on a given account. Partners can sell their own IP, further enlarging their service footprint. As COVID-19 has affected the business of our smaller partners and customers, cash has become vital over the last few months. As always, we like to make it easier, simpler, and cheaper for the partners to do business with SAP, which is always a priority through partner economics.
SAP has two methods to help out. First is partner access to demos. Over the last few years, we’ve continually had partner requests for the free SAP S/4HANA cloud partner test and demo system. It's very important that partners understand how our system behaves and the Intelligent Enterprise scenarios SAP is offering. Customers want to see that too. There is usually a point in the sales cycle where the customer begins asking for specific requirements. The partner usually takes them to the SAP S/4HANA showroom and shows them how an SAP S/4HANA cloud system would fulfill their requirements. At the SAP Global Partner Summit, we announced extended access to SAP S/4HANA test and demo systems, which allows partners to show how SAP S/4HANA can meet the customer’s unique challenges. These are helpful for partners as they are closing a deal with a specific customer.
The second thing SAP has done is to introduce SAP Amplify. SAP and its partners selected scenarios that make a difference for customers during black swan events. Many of these scenarios are in the area of supply chain management. At the moment, a lot of small and larger customers are benefiting from and leveraging global supply chains. We sat with the partners and figured out what is relevant for the install base and new customers, and which solutions make a difference and help them conserve cash. Those scenarios are documented together with the partner services, listed in SAP Partner Edge.
Jim: What are some of the new changes to the SAP App Center, and how do these changes help customers and partners?
Claus: This is very important based on what I was sharing about partner economics. A lot of our partners have built tremendously successful on-premise ERP businesses in the past. But, in the last few years, some of our partners have decided to expand their ERP cloud business. Based on sales today, ERP cloud economics usually have smaller margins than on-premise projects. But a big opportunity for partners is building partner applications on either the SAP Cloud Platform or business application factory platform (which we're currently building out for small and medium-sized enterprises). This is part of the SAP Endorsed App initiative, which is a benefit to both partners and customers.
Read about the biggest announcements that came out of the SAP Global Partner Summit.