Solving for S/4 HANA customers

SUMMARY:

Continued confusion among customers about how to get to S/4 HANA needs solving. Here’s the cure.

S4HANA - logoMy attendance at SAPPHIRE Now 2015 has been punctuated by regular conversations among users, analysts, media and partners about the roadmap to S/4 HANA applications. It’s a puzzle that at first seems difficult to unpick until you get the whole picture. I was fortunate enough to meet most of SAP’s executive board members, starting with Luca Mucic, CFO and COO, and rounding out with Bill McDermott, CEO.

As a primer, check out Dick Hirsch’s analysis of the official documents. Despite its official status, the SAP documents don’t really help you. Here’s why.

In my meeting with Mucic I learned that, in common with other services providers, SAP comps its sales people 2.5x ACV based upon a contract period of 3 years. Where customers are parking licenses, the contract period goes up to 5 years.

The crucial part is that this roughly equates to the same compensation if the deal was sold as on premise. Regardless of the SAP blurbs about ways in which SAP will license S/4 HANA, salespeople have no incentive to sell one deployment model over another. They still get comp’d the same amount. That’s problematic for a bunch of reasons.

The drumbeat around cloud has always excluded financials. Yet financials is the core of SAP’s business and likely accounts for most of their sales revenue over the years. It is easy to scare CFOs into believing the cloud is in some way less secure, can’t be governed etc and if that’s in mind then why would any salesperson wish to disabuse a customer about that model?

From the SI’s perspective, keeping the customer in an on premise deployment will likely mean a continuation of the expensive implementation models with which SAP’s history is littered. It also means that S/4 HANA on-premises customers only see one upgrade per year. I’d also venture to suggest that even if customers are willing to make the transition, they are less likely to do what SAP wishes and that is simplify their landscapes.

Public cloud deployments provide customers with four upgrades per annum. So they gain the potential for a competitive advantage with new functionality in advance of those opting for the on-premise and managed providers. But that FUD around financials is a sticking point.

To the side, companies like Virtustream have figured out how to offer Business Suite ECC6 customers a better deal in managed cloud environments. Sean Jennings, co-founder Virtustream told me that their solution offers customers 25-30% saving on existing deployments. That throws an immediate spanner in the S/4 HANA works except in one case – BW on HANA where there are clear benefits in terms of time to value. More to the point, Virtustream can offer clients cost efficiencies based on our MicroVM and the consumption based billing it enables. This is not reflected in the software license but at the underpinning infrastructure layer – an important cost to buyers.

On another side, SAP is encouraging SIs/ISVs to develop and offer public cloud packages that fill white spaces. An example might be an exotic order process for a vertical market that SAP won’t deliver. Another might be a regulation based on boarding process. Each or any of these could be offered in the SAP store. The open question is whether SIs/ISVs will see this as opportunity or a risk to existing models where they continually re-invent the wheel from one customer to the next. Or at least claim to do so. I already know of one large SI where that is creating a significant tension between development and delivery organizations.

And then we have the contrast between the product roadmap and what SAP highlighted at SAPPHIRE Now. Bernd Leukert gave a rough outline of the functional roadmap that covers both functional modules and industry modules. So far so good. But – all the examples brought onto stage during the keynotes and in the analyst briefings had nothing to do with any of that. The examples were all about what happens when HANA is used to re-imagine business.

This was always the dream going back to the days of Vishal Sikka and his vision of an entirely new class of application that was only limited by our imaginations. That’s not where the vast majority of SAP customers are at – not even close.

But – before any of this can happen, peripheral modernization, a re-examination of redundant processes and a slew of things around the landscape has to be undertaken. None of this is trivial and when looked at from the point of view of the customer, it sounds awfully like a re-implementation on a massive scale.

In summary: a combination of a specific business model designed to maintain comp and improve revenue sets up the conditions where customers find it hard to envision going from ‘here to there.’ The hoops they have to jump through in order to get to the new appear to represent an enormous hurdle that reflects the specter of past Oracle technical upgrades.

That was the scenario that I laid out to McDermott and which was added to by Jon Reed who said that getting to the point where customers can have ‘eyes on the prize’ is not easy to understand or envision.

How can this be solved? Here’s my perspective.

Opinions vary among colleagues and there may be no right answer. Customers will need to consult carefully to better understand their options.

My preference is for a public cloud deployment because that provides the most potential for choosing a variety of adds-ons that fit industry specific needs while ensuring that customer have the latest and greatest from SAP.

Others believe that a hybrid approach is the way to go, with public cloud tacked on to managed cloud deployments. That allows for leveraging existing data center commitments without incurring early termination fees and may allow the insertion of Virtustream style cost savings. It also means that if a company has a secret sauce process they can’t give up then they run minimum any risk of exposure.

Some believe that the safe option of remaining on premises works because most deployments are effectively in a private cloud anyway.

The real question comes: what can SAP do to help customers both better understand and make the right choice? I’m not buying the ‘let’s lay the table, they get to choose from the buffet’ answer.

While McDermott might say ‘We’re the cloud company’ that can only be true if sales match the rhetoric. I’d rather see differentiated compensation so that salespeople are incented to get deployments that deliver on the HANA promise by ensuring that larger numbers of user can benefit at the best possible cost. That will inevitably mean price changes but as the SaaS providers have shown – it is do-able.

For practical acceptance, McDermott said:

We take all the different install types, we map them on a by industry basis, we put a simple cookbook together for going from one thing to another and we tell that story in the specific terms of the industry and the buying centers

The question then comes, how does the customer get to that point? McDermott suggested the cookbook should include a means of calculating investment and return. I get all that but SAP has to be careful the changes deliver much more than a technical uplift at a cost the business cannot stomach. In that sense, selling to IT might be needed but it will be a tough sell.

Disclosure: SAP is a premier partner and covered most of my T&E for attending SAPPHIRE Now