The five things SAP must do next to find success in the cloud

Phil Wainewright Profile picture for user pwainewright June 18, 2018
SAP is at a pivotal juncture in its cloud journey but it must step up its game in five key areas if it's going to make a success of it

Open door with sunlight in the cloud © Sakura - Fotolia
Over the past 20 years I’ve watched wave after wave of software vendors grapple with their adjustment to the cloud. Earlier this month at its Sapphire Now conference, I caught up with SAP's progress on this score. From what I saw it’s clear that SAP has reached a point where it now sees its destiny as a cloud-first vendor. This is a welcome development, but there's much that could still go awry on that path. I believe SAP must now follow through by going further and faster on five key dimensions.

1. Cloud leadership

There was a very clear message from SAP that cloud is the way to go. In his keynote, co-founder and Chairman of the Supervisory Board Hasso Plattner was emphatic that the accelerating pace of change is no longer compatible with the slow upgrade cycles of on-premise implementations:

This is not sustainable in a time where change is rapidly increasing speed ... Fast deployment. That is the message, and this leads straight to deployment in the cloud. SAP takes over the responsibility to upgrade the system, manage the system in case of technical problems.

So far so good. This is unambiguous. Going cloud means letting SAP run your instance. Trouble is, many customers are not following this path. They are moving to the cloud, but still at the stage of lift-and-shift, moving older versions of SAP applications to HANA on-premise, or to some form of cloud hosting that falls short of what Plattner describes. While the company is reluctant to tell its customers what to do, it has to show leadership.

That means repeating as often as possible that the intelligent enterprise vision set out in Plattner’s keynote means adopting SAP Cloud Platform on public cloud infrastructure, operated by SAP. It means full cloud adoption of S/4 HANA, along with C/4 HANA and the various applications such as SuccessFactors, Fieldglass, Ariba and Concur in SAP's SaaS portfolio. A hybrid strategy may sometimes be a necessary stepping stone, but it only makes sense as part of an accelerated transition to S/4 HANA and an SAP-managed instance. Otherwise, too much time and effort is wasted on steps that don’t get you any closer to the goal. As Executive Board member Bernd Leukert had to tell one manufacturing customer who planned an upgrade from ECC to Business Suite on HANA, "You are decoupling yourself from the innovation train.”

Customer stories are vital here to help reinforce the message. Not merely the technicalities of how they're making the move, but also why it's important to them from a business perspective. Nobody will make this disruptive and difficult transition unless they believe the outcome will be worth it. SAP must inspire and motivate by emphasizing the fresh agility, transformation in operations and new business opportunities that its customers are achieving as they begin to deploy new functionality on the cloud platform.

2. Prescriptive integration

SAP set out a freshly scrubbed integration story at Sapphire Now with some important new ingredients. It’s now clear that a crucial element enabling the cloud-first landscape of the intelligent enterprise is the SAP Cloud Platform, which provides the governance and common standards for sharing data and connecting processes across different applications and services. As Plattner explains:

There’s a reason why the Cloud Platform is in the center. Everything we do now, how we connect applications, how we present applications, how we present services, will go through the SAP Cloud Platform.

I don't believe SAP emphasized strongly enough how much work it has been doing to clean up its internal alignment of master data and processes across its own application portfolio. It’s important to tell this story because customers and partners need to understand the integration model.

There are many different ways of integrating across APIs and the advantages can be lost if participants are not aligned on the same model. There have been intensive discussions internally within SAP to converge on those common standards for master data and shared services. Now it’s incumbent on SAP to convey the same rigor to customers and partners.

The danger is that SAP will give customers too much autonomy. Of course it is the customer’s choice what they do in the end, but SAP must make sure they understand the consequences of diverging from the model. SAP is rightly proud of its commitment to co-innovation with customers, but that doesn’t mean giving unqualified assent to everything customers want to do. If SAP doesn’t give a lead now, it risks leaving customers having to confront serious problems further down the line because they took a different path.

3. Quickstart templates

Cloud implementation follows a very different pattern than traditional on-premise software projects. Rather than starting with a set of existing processes and conventions and then customizing the application to fit, it's a case of starting from the predefined processes that come built into the application and configuring them to your needs, with any custom requirements built as separate extensions.

This dramatically speeds the implementation process and often allows a customer to start to get benefit from the application relatively quickly, by introducing core functionality early and then adding in other capabilities progressively. This in turn makes it possible to achieve 'quick wins' by targeting the first implementation at specific pain points.

SAP has experience of this approach in the HCM field with SuccessFactors, but applying it to ERP is more challenging, because there's a larger variety in functionality and processes across different industries. The success of the approach depends crucially on building different templates by industry that can provide a more accurate match for customer requirements. This has already been proven to work by midmarket cloud ERP vendors such as NetSuite, who have developed a portfolio of quickstart implementation frameworks for multiple industries and microverticals.

It's a big change in approach compared to what SAP and its customers have been used to in the past, and it requires a big investment in building out the functionality and processes for all the various industries. Again, co-innovation must be directed towards speeding the creation of packaged templates that help entire industries, rather than indulging individual customers in pursuing a custom direction of their own. The current project with the energy industry to build a market-standard platform is an indication that many customers are now ready for this kind of thinking. As Frank Westerhof, enterprise platform manager as Shell, explains:

We didn’t want to do it on our own, so we worked with SAP to create a consortium of oil and gas companies to shape the digital core for the sector. We’re creating it together. It’s the corporate equivalent of open source.

4. Migration toolkits

One of the biggest headaches for vendors who are making the transition from an on-premise history to become cloud-first is that the majority of their customers are slow to follow their lead. There are many quite understandable reasons why customers want to postpone the disruption and cost for as long as possible. But it becomes highly frustrating for vendors, who see their customers missing out on modern functionality as they hold back from making the transition. Vendors also know that a customer that hasn't followed them to the cloud remains at risk of going off with a competitor when they do make the move.

It's therefore important as part of a cloud-first strategy to invest in programs that help and encourage customers to make the transition. While the SAP Transformation Navigator is a step in the right direction, the company will probably find that it needs to develop more aggressive programs, alongside a growing portfolio of quickstart templates, to speed the pace of migration.

5. Partner education

All of the above has to be accompanied by a serious effort to ensure partners understand what's needed. As Brian Sommer pointed out after a stroll around the show floor at Sapphire Now, many partners are not yet 'on message':

[M]any firms are really only selling a bunch of lift and shift services. Some want to move your on-premises S/4HANA to a cloud (preferably their own cloud, not necessarily SAP’s public cloud).

Some want to migrate your old ECC instance to S/4HANA. That might only be an on-premises upgrade or it could result in the product going to a hosted world.

These lift and shift projects are NOT transformations.

The experience at SuccessFactors has been that partners who have grown up with the old implementation practices find it hard to change those habits. As the division's then president Mike Ettling once told me, the partner ecosystem splits into the 'haves' and the 'have-nots':

A lot of partners have got there — predefined models, gold templates, predefined processes out of the box. They’ve branded it and they’re marketing it and they can deploy it really fast.

A lot of other partners still start with blueprints. A clean sheet of paper, what do you want, start with a whole new blueprint. We say there shouldn’t be a blueprint in place at the start. The blueprint is the software and you figure out how do you adopt that and how do you modify processes to suit it.

Again, this is something that requires investment, action and leadership by the vendor. It's a matter of providing education and motivation for change, even while the final choice remains in the hands of customers and partners.

My take

This post serves as a bookend to another I wrote on the eve of Sapphire Now, drawing on the past two decades of watching traditional software vendors make the slow and painful adjustment to the as-a-service business model. All invariably underestimate how much of a change it is and how radically they have to overhaul their existing habits and culture.

SAP has reached a key juncture, where it has now committed itself to a cloud-first future. But I don't believe it has yet fully recognized how much its methodologies and mindsets still have to catch up, and the extent of additional investment that's required to help its customers and partner ecosystem transition to this new world. That will happen in due course, but the faster it can happen, the more successful the transition will be.

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