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The complexity paradox – can ERP customers modernize despite the economic headwinds?

Joshua Greenbaum Profile picture for user Joshua Greenbaum March 14, 2023
Summary:
ERP customers must face two competing challenges: external pressure and internal modernization. Joshua Greenbaum addresses the ERP complexity paradox, and digs into ASUG 2023 Pulse of the SAP Customer Survey for insights.

  Man standing near to giant impossible circle. paradox © Zhitkov Boris - Shutterstock
(© Zhitkov Boris - Shutterstock)

There’s a “complexity paradox” stalking enterprise software companies. Its impact is complicating crucial decisions about transforming overly-complex, heterogeneous infrastructures to meet the requirements of the post-pandemic economy. The paradox is that many of the initiatives intended to reduce the underlying complexity of IT systems and business processes are almost guaranteed to add a considerable amount of complexity to those systems, at least in the short term.

It’s a dance that companies have been dancing for ages, but recent history has given it a new twist by forcing decision-making to take place against the backdrop of a complicated global economy oscillating between recession and growth, job loss and job creation, supply chain bottlenecks and lower shipping costs, and myriad other, often contradictory, factors.

Meanwhile, customers are under increasing pressure from their tier-one vendors to upgrade to the latest cloud-based ERP systems, standardize business processes, and deploy new innovative technology in domains such as AI and low code/no-code, all while meeting increasingly urgent calls to be compliant with rapidly changing regulatory regimes across the globe. In other words – embrace more complexity on the road to fixing the complexity in the current business and technology climate.

An enterprise software paradox revealed

The America’s SAP User Group (ASUG) annual Pulse of the SAP Customer Survey providesan important lens on these issues, one that, while drawing from the SAP customer base, tells a universal story about the larger market’s innovation challenges. (For more information on the Pulse data, see ASUG's Pulse of the SAP Customer 2023 results).

When asked about their organizations’ 2023 top focus points, ASUG members put “integration between SAP and non-SAP systems” as their number one choice, with “moving to S/4HANA” and “standardizing business processes” tied for second place.

It seems clear that customers are looking at the complexity–or incompleteness–in their business processes as a reason to break down silos in their heterogenous landscapes and standardize processes. The motivations are simple: too many processes are hardwired into expensive, outmoded custom applications and older legacy systems that need to be refreshed or retired in order for the company to transform its business.

To this end they don’t just need to integrate, they need to standardize, and that process standardization–in the form of fit-to-standard industry best practices–is best done within the context of an upgrade or migration to a vendors’ next-generation cloud ERP offering. For the respondents to the ASUG survey, the cloud ERP system in mind is S/4HANA.

Adding complexity in order to reduce it

But a project to move to an S/4HANA or other cloud ERP system typically brings with the need to deploy other, adjacent, technology. For SAP customers, that new technology list includes SAP S/4HANA, SAP BTP and its integration technology, SAP Signavio process mining, and the like.

But only in part.

There’s another side of the complexity challenge for SAP customers – and enterprise software customers across the board – that can also be seen in the ASUG Pulse data. When asked to list the top challenges their organizations face, six issues dominated the responses:

  • Maintaining knowledgeable staff
  • Staying on top of budget-related concerns
  • Bolstering internal skills
  • Keeping up with the pace of technology change
  • Enabling applications and process integration
  • Managing master data maintenance and governance

Taken together, the results show a complex set of barriers to change that must surmounted by all customers on the road to innovation; barriers that further define the parameters of the complexity paradox.

Confront contradictions

Achieving the goals implied in ASUG members’ top areas of focus will require rationalizing what are often contradictory challenges. For example: budget and people constraints make solving any corporate problem a challenge; and integration and master data management problems often run headlong into change management politics. These are independent of the additional challenges – and the related complexity they help create – that come with any transformational project, such as implementation, service, and support.

Despite the daunting nature of this paradox, and the macro-economic headwinds they face, the Pulse statistics indicate ASUG members plan to push hard in 2023 to solve these problems.

How can I make that assertion, when you consider that the percent of respondents whose companies will proceed with current initiatives is largely unchanged from last year? 58% of organizations say they will proceed “normally” this year; it was 57% in 2022. The percent of respondent companies that have delayed planned initiatives was also similar year over year, with 31% of respondents reporting that their organizations expect to delay projects in 2023 vs. 29% in 2022.

Business as usual, complexity or not

But outright cancellations are down by over 50% and the planning or beginning of new initiatives is up by 60%, strong indicators that the SAP customers surveyed are pushing their technology plans forward regardless of the overall economic environment.

Similarly, while the percent of member organizations planning to make more SAP investments dropped from 52% in 2022 to 46% in 2023, the percent maintaining their current levels of SAP spending rose from 39% in 2022 to 43% in 2023. This roughly means that it’s business as usual when it comes to investing in SAP technology for the majority of respondents. 

The 2023 ASUG Pulse of the SAP Customer survey shows a customer base fully aware of the challenges, despite the paradox of having to endure more complexity in order to ultimately reduce it. Investments in SAP technology for 2023 seem solid and are holding steady, despite these challenges.

Importantly, these responses are consistent with anecdotal information from other vendors as well, as seen in positive Q4 sales results from a wide range of companies. Despite the complexity paradox standing in their way, customers are willing to make the technology investments needed to move their companies forward. It’s an important endorsement of the potential for improving business outcomes in the face of an increasingly complicated global economy.

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