I had not planned on writing about the recent survey results on SAP S4/HANA from DSAG, nor the follow on press release that was sent to me by DSAG. On a first pass, I was left confused and that's never a good place to be when attempting to provide analysis. Reading the reports again along with the DSAG Tweet stream provides some clarity. What's happening?
DSAG used its annual get together to launch the results of a survey among its users that covers attitudes to S4/HANA and which also telegraph its likely take up. The results are not encouraging from SAP's perspective but they equally present problems for DSAG. In a nutshell:
ASUG News points out:
These DSAG results somewhat contrast last week’s UK & Ireland (UK&I) SAP User Group survey that had 42 percent of respondents “looking to implement” Simple Finance. Even those UK&I customers who are skeptical had a different top reason for holding back—37 percent couldn’t justify Simple Finance as a business case.
That last assertion appears flawed. My reading is that there is a remarkable degree of correlation between what UK&I SUG and DSAG are saying about the lack of appetite for S/4 HANA adoption. Much more worrying in my view is the following:
In its explanation, DSAG is clear - functionality beats all, regardless of technology choice. In comments provided to CIO.com, Frank Scavo is quoted as saying about SAP customers:
"Although there are certainly innovators among them, most are not early adopters," Scavo explained. "They tend to move slowly and cautiously, waiting until new technologies are proven before adopting them."
That may be the case but that seems horribly backwards looking. Despite Scavo's observations I find it hard to believe that German industrialists would be so naive as to effectively stand still. The only rational explanation is that DSAG members are largely in steady state, something that Scavo alludes to in further comments.
Moving on - DSAG issued a second press release, one that was pushed to Jon Reed, Ray Wang, and myself via Twitter. This is highly unusual. The English language version is not perfect and I am not convinced it fully conveys what DSAG is trying to say. However, the mood is clear, reiterating things that have been said before. Openness is considered key:
“This is why the DSAG is calling for more openness in systems, from a technological standpoint. Alternatives must be allowed without losing the range of functions and performance. This requires standards and the disclosure of specifics, so that other database manufacturers have the opportunity to be applied in the SAP context,” says Hans-Achim Quitmann, head of technology, when asked about the key requirements.
By alternatives, DSAG means Oracle, IBM and Microsoft databases. Unless DSAG is extraordinarily good at negotiation, this isn't going to happen. S4/HANA only works on HANA. I understand the argument where members have negotiated database licenses that are used well beyond SAP's ERP but that should be a minor consideration if the roadmap to S/4 provides good use cases for an S/4 HANA upgrade. In the alternative, SAP could sweeten the pot by doing something on HANA pricing. I am on record as saying that HANA as a database for SAP deployments should be free to the customer. SAP might well baulk at that but there is always room to negotiate in bundled deals.
DSAG recognizes the importance of digital transformation but expects SAP to take the lead in helping its members get 'from here to there:'
...it is important that SAP provides targeted information about the benefits of S/4HANA and closely supports customers in the transformation process.
This is where things get hazy. SAP has issued reams of documentation around S4/HANA. Gregor Wolf pointed to the SAP S/4 HANA cookbook. It would seem that even the prospect of a free trial isn't enough to persuade many DSAG members to dip their toes in the water.
There is another agenda in play here. The clues are in plain sight:
“We need a roadmap for the digital transformation, and not just for the orientation toward S/4HANA. This means that the existing Business Suite also needs to be regularly and comprehensively updated to be on a level playing field with S/4HANA,” says Andreas Oczko, head of Operations/Service & Support. “Even if many SAP customers are affected by the digital transformation, they will not inevitably switch to S/4HANA. They expect that the system will continue to be maintained, as they regularly invest in the maintenance of these systems, and many customers have strategically positioned themselves with SAP by making these investments.” Consequently, Andreas Oczko anticipates a pricing policy that reasonably allows for innovations in the future, and that solutions will be kept up to date, both technically and in terms of content, through maintenance (software maintenance). He sees this as an important task for SAP, so as to live up to its role as a strategic partner for customers.
What does this mean? Simple - DSAG wants a new deal with SAP. Here is the killer Tweet:
— ceedee666 (@ceedee666) September 30, 2015
SAP's maintenance price hikes have been well rehearsed in the past but it would seem that DSAG is using the move to S/4 HANA as a lever with which to re-open this topic. This should be a massive red flag to SAP. The price maintenance issue was bitterly fought over several years. I can only imagine that the outcome has left a long lasting and bitter taste among users. Even so, this demand seems at odds with what we were told in 2013, when it was said that almost all SAP customers were on the more expensive Enterprise Support. In the alternative, SAP said that it would hold pricing for deals negotiated before July 15th, 2013. My guess is that those deals have run out and customers are being asked to pay more.
This is shaping up to be a difficult time for both SAP and its users.
While I have some sympathy with the DSAG point of view, the insistence of parity between the existing Business Suite and S/4 HANA is untenable. What are they going to do? Withhold maintenance payments while demanding more? I suppose that's always possible as we move into the final quarter of the year, a time when negotiations over future commitments move into high gear.
SAP has made clear that the future lies in S/4, not the Business Suite. SAP has already committed to supporting the Suite until 2025, but DSAG wants flexibility on maintenance. That might not be a bad trade for SAP if it can afford to give up what might be €0.2-0.5 billion in maintenance revenue. It is hard to see how that will happen in the current climate.
I believe there is another way.
Let's assume that SAP needs to do a reset on S/4 messaging but let's also augment that with what DSAG is saying about the recognized need for digital transformation.
SAP could point to different entry points to digital transformation. S/4 HANA might serve as the transactional foundation entry point for those companies willing to take the jump and which are several releases behind current Business Suite versions. Counterintuitive? Not really. A jump to S/4 would provide a good opportunity to modernize and simplify the SAP landscape. The only question is the extent to which I, as a customer, am prepared to pay for that privilege. History teaches that customers are not fond of paying for what amount to technical upgrades. Pricing flexibility has to be part of that equation but I would not hold out hope of getting maintenance at anything less than 22 percent.
I prefer a different narrative which takes CEC as the lead. If SAP can articulate that in bright, crystal clear fashion AND offer choice as to S/4 HANA or the Business Suite for the transactional element, then that might work as an interim measure but with a time limited roadmap to S/4. An alternative might be to resolve messaging around HCP, another potential entry point and one that could see preservation of effective on-premises deployments for the time being while delivering value through side cars and experience of SAP's cloud.
One final word: DSAG has a habit of turning up the volume on its demands when they're not met, creating embarrassing noise for SAP to heft. This latest set of communications could be the opportunity SAP has long needed to set the S/4 HANA issue straight but with the kinds of incentive that will unblock the DSAG (and UK&I SUG) arteries. In that sense, this is one scenario where SAP has a lot to lose if it flubs the issues but a heck of a lot to gain if it can get out of its own way.
Two things are certain: SAP won't get many other opportunities like this, but DSAG cannot afford to get itself entrenched in untenable positions. We will be following this closely.
Disclosure: SAP is a premier partner at time of writing
Image credit: DSAG graphics accompanying press release