Many SAP customers 'in a bind' says DSAG 2020 investment report but there are reasons to be cheerful

In its latest investment report, DSAG, the German speaking SAP user group mostly represented by customers in Germany, Austria and Switzerland provided evidence that S/4HANA has (finally) overcome the adoption hump from ECC. There is still a long way to go.

Go lives are relatively few and far between. The bigger issue lies in the area of digital transformation where initial enthusiasm has given way to reality, and just how tough it will be for many companies to see a way through. 

Regular readers will find few surprises in the report. More interesting is the trajectory and direction signaled by the findings. For example, the following graph demonstrates a sharp increase in the number of go-lives in 2019 and planned for 2020 but the number who are deferring, making no decision or staying put remains stubbornly stuck at 42% overall. Even so, this is a vast improvement over 2019 when the number was 52%. 
 

Check the numbers

We have urged SAP to release the global go live numbers, something it has been unwilling to provide on the grounds of commercial sensitivity. The logic of that escapes me but it remains an important metric. At FKOM, SAP showed a miserly 173 for North America in 2019. We shall need to wait and see what ASUG and others have to say but the general trend indicated by DSAG is broadly in line with other findings from recent months. Our next solid check in on this topic will likely come in May when iTelligence holds its annual UK event and at SAPPHIRE when, hopefully, ASUG will have something with which to flesh out our understanding. 

The other relevant number in this context is that for 'net-new' deals going live. We would expect the go-live figure in this segment to be much higher than for those customers already invested in SAP ECC-R/3. But again, the data isn't available against which to make any meaningful assessment. 

DSAG is content that 40% plan to migrate over the next three years but rightly points out there will be impacts in the consulting arena. Reports of consulting shortages are already coming through so while plans may be afoot, it remains to be seen just how many of those planned implementations make it across the line by 2023. 

The consulting waters are muddied by the fact that clear use cases need articulating around which of greenfield, brownfield or bluefield are most appropriate. Late last year I said that:

I received unanimous acknowledgment that SAP needs to put a public stake in the ground for my pitch for greenfield, brownfield and bluefield scenarios. Instead, partners are having to make it up as they go along. In a world where customers are resistant to what they see as a poor business model case, that set of clear statements would go a long way towards helping both partners and customers. 

Perhaps that's where SAP's 'together' messaging will help but it is SAP that has to take the lead. DSAG provides helpful numbers and confirms our view when it says:

Companies are switching to S/4HANA in a number of different ways. Overall, 20 percent of companies have completed or plan to execute a new implementation of S/4HANA (Greenfield). Meanwhile, 39 percent favor a gradual implementation approach (Brownfield). Mixed approaches, e.g. hybrid solutions, are the preferred course of action for seven percent of companies, and 34 percent of companies remain undecided. Marco Lenck: "There is an urgent need for adequate decision-making aids here, to help those who haven't yet made a decision or made concrete plans for an S/4HANA project."

I think it's a bit more nuanced than the view expressed by DSAG but regardless, it gives prospective customers some idea about how they can think about the migration. 

The hyperscalers

On the hyperscalers issue, DSAG found what many colleagues intuitively thought - Microsoft is the current go-to PaaS supplier of choice. It's a no brainier for many SAP customers who in 99% of cases will also be Microsoft shops. Even so, the relative low overall numbers reported for this subject suggests that many of the S/4HANA conversions will remain on-premises - possibly as high as 40% as of today. (see image below) My logic goes like this - if only 60% are thinking PaaS then the remaining 40% won't be thinking cloud platforms for anything else either. 

X-O isn't cutting it

Breaking out specifics., DSAG had this to say:

When it comes to SAP Cloud solutions in general, 14 percent of respondents plan "large and medium-sized" investments in SuccessFactors, 13 percent in SAP Analytics Cloud, and 11 percent in C/4HANA. Ariba, Integrated Business Planning, and Concur remain in the single digits. Only SAP Analytics Cloud shows an upward trend. After the number of companies willing to make "large and medium-sized" investments rose six percent to nine percent last year, this year it has again increased four percent to 13 percent. "SAP user companies continue to invest in SAP's cloud solutions, to expand and grow their processes outside the core. This needs to be able to happen as a standardized, uniform process, without modifications.  It's our role as DSAG, in discussion with SAP, to ensure that out-of-the-box integration and harmonized data models continue. This will then facilitate the deployment of a rapid growth product like SAP Analytics Cloud," explains Marco Lenck.

We know there have been many question marks over SAP Analytics and over the year end holiday period, we asked SAP a number of pointed questions on this topic. We will return to this in due course. To the C4/HANA and Concur topics in particular, SAP must be bitterly disappointed how these are playing out as evidenced by this report. Despite the relentless X-O rhetoric and, at the time, promising Concur acquisition, it seems the messaging has fallen on deaf ears. 

We suspect that a combination of problems stands in the way to adoption, not least of which is the acknowledged need to listen more closely to customers rather than trying to ram solutions down their throats. The back to our roots message from FKOM goes some way towards solving that problem but as noted above, there are many moving parts in what are complex technology landscapes.

SAP will be hoping that a balance between ensuring customers are comfortable with those S/4HANA business cases, are convinced about execution methods and costs, and can find partners that offer automation solutions where those are missing from the SAP toolkit will play heavily into getting customers past the S/4HANA winning line and onto more value added products. 

Digitalization enthusiasm dims

But even then there is the whole digital transformation issue to overcome and into which C/4HANA represents a direct play. I was relieved to see that DSAG members enthusiasm for the 'DT' moniker has dimmed. 

Overall, 35 percent of respondents said their projects were "advanced" or "very advanced," an improvement over last year (31 percent), but still way behind the 2018 figure of 45 percent. For Marco Lenck, it's an interesting development: "In the beginning, there was huge enthusiasm for digital transformation, but then it became clear that the work required in some areas is much greater than anticipated. But the turnaround is there." However, right now, digital transformation is still lagging behind general expectations. Among the companies surveyed, 63 percent say they are "not very advanced"—three percent less than last year.

Christian Klein, co-CE SAP is well aware of the integration challenge and has made several public promises in that regard. Get those issues fixed and customer sentiment will change. RPA, once thought of as the automation drug of choice has receded in popularity as customers find that UI consistency is a real problem among third party solutions. SAP could usefully talk up their own offering in an S/4HANA context but so far I've not seen much evidence. 

My take

Overall, DSAG's message is clear, albeit debatable:

Many companies appear to be in a bind at the moment. While the future clearly lies in digitalization, the current economic environment does not seem to be ready for it in many areas. The wheels are in motion, with S/4HANA finally stepping out of the shadow of Business Suite. However, too many companies don't yet have a firm S/4HANA strategy, or there is no clear guidance on which approach they should take for the transition. All this means that SAP and DSAG must step up their work to explain the benefits to users this year. The same goes for cloud projects and for support around SAP projects related to digitalization.

I believe that is a narrow view. The DACH economies have been rough for a while, but that should not prevent firms from considering how to respond to changing conditions.

We have seen enough examples of SAP customers who know that threats are either already on the horizon and/or can predict that threats, even if not clear, will emerge, to know that digitalization offers a pathway to business effectiveness that is vital to offloading manual inefficiencies. S/4HANA is one of many steps in that journey. And despite our criticism of SAP's sprawling solutions portfolio, SAP can field customers who are innovating around their business models to good effect. 

In the meantime, we look forward to seeing further checkpoints from other SAP User Groups and partners.