During SAPPHIRENow 2014, Bill McDermott, CEO SAP made clear the company is 100% committed to the cloud. All products will end up there although the time frame over which this will happen was left open to discussion.
The problem for observers and customers alike is that whatever you thought of the day one and day two keynotes, SAP was feather-light on cloud nitty-gritty. That explains why SAPPHIRENow day two was peppered with back channel debate amongst customers and analysts about what the SAP cloud actually means.
The press conference with Hasso Plattner and Bernd Leukert raised more pesky cloud questions, with Hasso Plattner throwing the occasional curve ball around topics like multi-tenancy, a concept he is far from convinced provides long term customer benefit. However, a late day meeting with Plattner and Leukert who now leads all development advanced the conversation significantly albeit with little clarity on timelines.
Plattner and Leukert confirmed that the freshly-named ‘Simple Finance’ is part of a broader rewrite/re-imagining of SAP ERP, with HANA and cloud as the enablers:
— Jon Reed (@jonerp) June 4, 2014
Referred to as the ‘simple suite’ or the ‘S system,’ Leukert said that the monstrous ordeal of rewriting 400 million lines of business suite code was not necessary, because of a “massive reduction in code” resulting from the simplification HANA allows and in particular, the elimination of bulky aggregates which account for a significant percentage of current code:
Bernd Leukert: We do NOT have to rewrite all millions of line of biz suite code for “simple” cloud version.(no aggregates etc) #sapphirenow
— Jon Reed (@jonerp) June 4, 2014
This simple suite, currently focused on the Simple Finance area also includes an aggressive paring down of software accounting complexities, a now-familiar talking point of Plattner’s.
The simple suite approach will come as a surprise to those who thought SAP squandered its chance to move the Business Suite to the cloud in the wake of ByDesign’s notorous struggles. But Plattner and Leukert are convinced the HANA architecture will enable the performance – and always-current functionality – that customers want from cloud applications.
The S suite is a far more audacious (and compelling) cloud plan than offering a hosted version of the Business Suite as a subscription service – an option that works best for hard core SAP shops looking for immediate relief from on-premise system chores.
But: the confusing cloud answers provided by SAP elsewhere at the conference linger on for many attendees.
SAP brings some of this on itself with an insistence that customers don’t care about multi-tenant purism or how much cloud operations cost SAP on the back end. I got a different picture today, hearing from technical representatives among the SAP customer base who are very articulate about the difference between ‘hosted solutions’ and ‘true cloud.’
Social reaction pointed to new questions. Example: will SuccessFactors be integrated into the ‘simple suite’? The preliminary answer appears to be yes. Leukert confirmed SuccessFactors is also being put on an aggregate diet as SAP moves it to the HANA platform. The SAP Business Suite would be supported on-premise for a long time to come, perhaps forever, and much of this new functionality will have an on-premise option, as Simple Finance appears to.
There’s still a chance all this could get flipped on its head, but it adds meat to the ‘SAP is simple’ bone from the day one keynote. But hold on – is SAP’s drive to simplicity relevant? The answer I got from customers was yes, but with an asterisk: simplicity is not just about software, it’s about the entire experience of implementation, after go-live services, and the dreaded patching cycles. Fiori and Personas are now free, but the work surrounding their implementation most certainly isn’t.
But that’s the Innovator’s Dilemma, SAP style: what constitutes disruption is decided on project sites – not on the keynote stage.
SAP has a unique set of challenges. The public perception is that SAP has 45,000 Business Suite customers but these are often positioned as a homogenous grouping. This is not true. Of that number, approximately 2,000 represent some of the largest and most complex companies and business groups in the world. Many of these companies are (nearly) self sufficient in managing their SAP landscapes and a few likely know more about how SAP works than SAP itself.
These companies will likely be the last ones to go to a broad based cloud technology because unscrambling and refactoring for cloud in certain core operations doesn’t make commercial sense. Even with the S Suite. Nevertheless, this same group will cherry pick which functionality they want to see moving in that direction and in what timelines.
The remaining 43,000 customers are still complex entities but of varying sizes. This group will more likely go to cloud sooner but then comes the question – when and how? Soundings from customer and partners suggest that there are six main issues in play:
- How easy is a technical shift to cloud? So far, S Financials (SFIN) has proven a remarkably easy switch for SAP. A flip to SFIN at SAP was managed over a weekend and almost nobody noticed.
- How easy is dev and test? Much of the testing normally associated with SAP systems is significantly reduced because of the simplified architecture. Managing errors is much easier because fixing SFIN doesn’t have to involve complex aggregate handling. Now it is (more or less) a question of understanding where the computational algorithm went wrong and writing modest amounts of code to fix. How far this extends remains to be seen.
- How will deployment work? Customers unquestionably want regional based deployments and not run out of massively scaled global data centers of the kind Google and Facebook builds. This is an advantage for SAP. Coming late to the game means they haven’t sunk gazillions of dollars into data center build. Competitors have to understand how to play catch up on this point.
- What’s the real acquisition cost and how will SAP’s business model reflect the value delivered? I am firmly of the view that while SFIN and S-Suite provide huge opportunities for standardization on HANA, SAP would do well to learn from the Fiori fury and not overtly charge for the front end. While McDermott remained silent on this topic, Plattner confirmed that while legal constraints require this as a price book item, the reality is there will be compensating bundling options.
- What about the operational economics? Plattner was adamant that it is SAP’s responsibility to manage the cost topic and not one that customers need concern themselves with. He vigorously defends the argument that compute resource should be sized for at least 2x if not 4x expected usage because that provides the correct balance between day-to-day requirements and demand spikes. Customers will be wary of these statements so it is now SAP’s responsibility to communicate the benefits of this approach. Even so, we know of cases where comparisons show that HANA Enterprise Cloud costings are higher than equivalent on premise costs. Plattner finds this shocking as do I.
- What about extensions? SAP expects to work with a limited but growing set of partners. Plattner speculated there could be 250 serious production partners within a year. We have already seen encouraging examples from SuccessFactors but the extent to which this embeds itself into the S-Suite remains to be seen.
We do not believe anything SAP is doing represent insurmountable technical challenges. Both Leukert and Plattner easily swat technical questions, often with puzzled expressions as to why certain questions are being raised.
The multi-tenancy argument will not go away. We are convinced that SAP’s position on this needs to be better articulated. Contrary to the perceived religious views on this topic among some analysts, we share some sympathy with Plattner’s hard standing on this. However, pristine communication is essential.
Overall then, the challenges SAP faces are far less about technology but almost everything to do with aligning business value and technical reality. SAP has consistently managed to do a horrible job on this, often alienating the very people it needs to get on side. Fix that, make that simple and we can spend a lot more time worrying about functional enhancements and far less time in the pesky weeds of technical nuance.
Disclosure: SAP is a premier partner at time of writing.