But the burning questions exceeded my ability to answer them. Then summer got hot (add COVID to my list of summer adventures).
I owed the SAP CX team a full review - that's on the record. Now it's (finally) time for the S/4HANA Cloud. And there are questions-a-plenty:
- How serious is SAP about multi-tenant ERP in the large enterprise?
- Can SAP stand up a viable alternative to competitors in large enterprise cloud ERP - or even edge them out, via extensibility?
- With so much focus on S/4HANA adoption, RISE and hyperscaler management, can SAP establish momentum in "public cloud ERP"?
- What are the S/4HANA Cloud adoption obstacles? Is it the need for deeper industry functionality, or are customers wary of leaving customized systems?
- And what the heck do we call this product? What is SAP calling it now?
Let's do this, eh?
The future of large enterprise ERP - pure cloud, private, or both?
I've been a rock in SAP's shoe on the future of cloud ERP for a long time now. I believe that the future of large enterprise ERP is cloud. And I don't mean private cloud - I mean public cloud, of the multi-tenant variety (when I use the "multi-tenant" word, I don't necessarily mean the architecture, but the "true cloud" characteristics - and economies of scale - we associate with that type of software).
This has led me to a clash in perspectives with SAP. Back in 2016, I wrote:
Even if most SAP customers that move to S/4HANA might be content with the on-premises or private cloud options - at least for now - the cloud FI/HR competition keeps the flame hot underneath SAP's S/4HANA public cloud ambitions. Granted, S/4HANA is broader in scope than HR and finance, but the imperative is clear.
I stand by that - nah, I'll double down. Doubling down is certainly what SAP's most obvious large enterprise cloud ERP competitors have all done - Workday, Oracle, and Infor, to name the obvious.
Does SAP agree with me? I know this: being the leader of SAP's cloud ERP efforts has been one heck of a hot potato. For years, it was a revolving door, then it was folded into other things. But at SAP Sapphire, I had the chance to meet the new cloud ERP owners (more on that in a bit).
One thing that's always bothered me: "vendors can only have one true priority." I'm in the walk-and-chew-gum camp. I believe SAP can push ahead with "public cloud ERP" while also pushing RISE with SAP - a program which SAP sees as a necessary response (and alternative) to what the hyperscalers are pursuing directly with SAP customers.
But hold up: I've already messed up with SAP Chief Marketing and Solutions Officer and Executive Board Member Julia White - due to my use of "public cloud ERP." SAP product naming is an area White told me she wants to simplify - while avoiding the dizzying pace of renaming that SAP has fallen into before her tenure.
Comparing S/4HANA's "private" and "public" cloud offerings
This pre-SAP Sapphire blog post on SAP.com distinguishes between the "S/4HANA private cloud edition" and "S/4HANA public cloud." That distinction makes sense to me, but I understand White's concerns here. SAP customers have several options to host S/4HANA private clouds on public cloud providers, aka "the hyperscalers," including through RISE with SAP. "Public cloud" is confusing in this context. It's a cloud ERP naming dilemma hardly unique to SAP.
SAP is (understandably) focused on helping customers move to S/4HANA. If that means the customer wants to be in the private cloud, and keep their customizations intact, SAP is adamant about providing that choice. Note the juxtapositions from this post: industry and customization. In the product grid for S/4HAHA private cloud edition, we see:
Customers has the ability to customize (including structural changes) and also modify the SAP source code.
Whereas for the public cloud:
Can not modify SAP source code.
It's wrong, however, to characterize this type of "SaaS ERP" as vanilla. S/HANA Cloud's customization alternative is extending via the Business Technology Platform (BTP), and, by extension, the SAP Store. This approach has given SAP SuccessFactors' cloud HCM an edge - no reason it can't do the same for S/4HANA (SAP Sapphire 2022 - How Bristol Myers Squibb uses SAP BTP to evolve their S/4HANA landscape - and their business).
The industry part is harder to nail down. But for the S/4HANA private cloud edition, we see:
This covers all 25 industries like SAP S/4HANA on-premise.
For the public cloud edition:
Highly standardized business processes covering selected LoB and industry scenarios,
and a comprehensive ERP scope. In-depth coverage for professional services and component manufacturing; more industries on road map.
Do we have a chicken-and-egg problem here? Is the slower adoption of SAP public cloud ERP due to the limited industry breadth? It's a question that leads to wonky/fierce barstool debates amidst the industry analyst contingent. One thing we do know: SAP's S/4HANA public cloud originates in the professional services industry. Many of the early partners also implemented it internally. Case in point: Gartner just annointed S/4HANA Cloud as a "leader" in its service-centric cloud ERP category.
SAP S/4HANA Cloud - industry strengths and... scale?
When I spoke with Julia White at SAP Sapphire Orlando, she was finalizing how the naming between these products will work. When you visit S/4HANA Cloud an SAP.com, the "S/4HANA Cloud" featured is what I tend to call the public cloud edition. For the rest of this post, my use of S/4HANA Cloud applies to the public cloud version - and perhaps I have achieved product name compliance.
The other question for the large enterprise is: performance-at-scale. Early S/4HANA Cloud customers weren't exactly huge SIs. But with PwC now a live S/4HANA customer globally, we know there are large service industry customers running on S/4HANA Cloud. I hope to talk with PwC about this at some point, but it seems we can check that particular box.
I also see S/4HANA Cloud as a viable option for SAP customers looking to roll out new divisions or regions quickly. It's also a "net-new" option for fast-growing companies not yet running ERP - likely a big reason for its prominence on the SAP.com web site.
Customer views on S/4HANA Cloud - ASUG weighs in
Without revealing my current views to ASUG CEO Geoff Scott, I asked him what he's hearing from ASUG members:
I think that there's a difference between what's available today, and hopefully, what's available in the future. What I'm hearing from most customers is the idea of a fully-functional SaaS, public cloud solution from SAP would be very much welcomed.
Scott likes the "SaaS" moniker for this:
When you say, "public cloud," I hear "SaaS." I don't think we're there yet. There's enough industry variance flying around that it's going to be highly difficult for customers to accept that.
But Scott doesn't think this is just about industry functionality. There is a customer mindset shift needed - and a big change in partner business models.
I think a couple of things have to happen. One, most organizations have to be willing to live with some better degree of standard, and not customization. Number two, the partner ecosystem has to be willing to give up the age-old model: big fat consulting contracts that required lots of people and hours and rates to accomplish things.
Scott says SAP sales teams must see the compensation "reward" in SaaS-style revenue deals. One end result, as I see it: an SI/partner community that is much more aligned with the project costs (and approach) today's enterprise customers expect. Scott added:
I believe that end state is a worthy end state; we would have a much better ecosystem.
But in the meantime, Scott does see S/4HANA Cloud use cases:
The ability to launch divisions on SAP that you would never be able to launch before is a very viable market. We've got a couple of board members who are doing just that with public cloud. They are using it in their emerging markets; they are using them in geos where the cost of deploying SAP is not going to be portable or economical for them.
Last spring, I made my case for the future of large enterprise ERP with Brian Duffy, President, Cloud - SAP. I told him I didn't view the private cloud as the end point. Duffy responded:
I'm not sure if you've met with him before, but Subhomoy Sengupta, who had run our mid-market business, is now running our public cloud business moving forward. Given his mid-market background, there's a lot of synergy between mid-market and the cloud.
SAP Sapphire Orlando - highlights from the cloud ERP team
So, at SAP Sapphire Orlando, I met up with Sengupta, SVP & Global Head of SAP Cloud ERP Sales, and his colleague, Si-Mohamed Said, SAP Global Vice President, ERP product marketing. After I unfurled another one of my "future of ERP" stump speeches, Sengupta responded:
I'm very happy to hear that you feel public cloud is the future. That's exactly the thinking that we have at SAP as well.
As for my statement that I don't hear much about "true cloud ERP" from SAP, Sengupta says:
I think you will see a change coming up. That is the first demonstration of SAP's focus on public cloud - in this iteration, if I may call it.
Sengupta pointed out that large customers don't have to take the full cloud ERP plunge:
The journey to the full public cloud could be different for different kinds of customers. Not everyone can make that transition overnight, depending on where they are, but that's the end goal.
I'm seeing that more and more, even in larger customers, when they are moving to the cloud, they are keeping an option to move either parts of their business right now, or design it in such a way that this journey can happen, as a planned execution over a period of time.
Sengupta also stressed the demand from high-growth companies - companies that don't want to outgrow their ERP systems in future years. The S/4HANA Cloud team also sees action via the classic "two tier" cloud ERP use case, with divisions running S/4HANA Cloud, feeding into the larger "parent" SAP ERP system. I asked Sengupta that chicken-and-egg industry functionality question. He responded:
When I look at the customers that we have, we definitely have more professional services, or I would actually say, service-oriented industries., That could mean engineering and construction companies as a good potential customer. A distribution company could also be a good customer. At the same time, we also have customers running public cloud for product-centric businesses as well. So, there is a good mix of customers across the board,
"Simple manufacturing" is another emerging S/4HANA Cloud use case:
If you look at some of our customers, who are what I would call "the new world companies," the digital native organizations, say the gigafactories making batteries for electric vehicles - we do simple manufacturing for them very easily.
Si-Mohamed Said cited a customer example outside of the services industry:
BrightDrop is an example of a business venture of General Motors. They see a massive opportunity in goods delivery... They have built this venture to build electric vehicle trucks.
GM is a big SAP customer. They decided to start with a fresh clean core for the public cloud solution, so they can extend,
My take - four factors impact S/4HANA Cloud adoption
With S/4HANA Cloud, I've seen too many leadership changes not to become skeptical. I was truly baffled during the period where SAP didn't have a go-to person dedicated to this; I will definitely pay closer heed now. Sengupta said: "I think you will see a change coming up." I haven't seen that change yet, so I need a benchmark. Where do you want to be in a year's time? Sengupta responded:
From what we are seeing in the market, if we can capture that, this business would possibly be a multiplier rather than a percentage growth. This is potentially an exponential growth market for us, from where we are beginning.
The specifics of S/4HANA "public cloud" numbers aren't shared at this time:
Unfortunately, we don't split out the numbers as much as I would love to. I can't share them with you specifically.
So, in the most recent SAP earnings report, the "S/4HANA cloud" numbers are assumed to be all the S/4HANA cloud numbers, not just public cloud. Welcome back, product naming fun. Sengupta did characterize last year as "very, very strong growth" for S/4HANA public cloud. He added:
When you saw what Christian mentioned yesterday [in his SAP Sapphire keynote], we're talking about 2,000+ RISE with SAP customers, and 60% of those are net-new.
So how many of those net-new are S/4HANA Cloud? Sorry, Sengupta isn't biting - but I had to ask. However, we can surmise that a good chunk of the net-new are either S/4HANA Cloud, mid-market, or both.
[S/4HANA Cloud] is definitely the direction we're going to push, very hard, for all net-new.
S/4HANA Cloud has clearly expanded beyond the realm of their early service industry customers - both in scope and industry type. This strikes me as a product that rounds out SAP's cloud ERP offerings - but doesn't necessarily challenge a large SAP customer to consider the public cloud ERP move yet. For those customers, I still see the common private cloud transition, now featuring a RISE with SAP emphasis. I would have liked to hear about companies (that aren't SAP's own SIs) deciding on a large-scale S/4HANA Cloud migration move, over the private cloud option.
I asked many of the same questions in 2016. To me, that spells a missed opportunity for SAP. But, we should put my own SaaS idealism/advocacy into context:
1. Unlike consumer tech, enterprise software is a very forgiving market. In the enterprise, you don't become Blockbuster or MySpace or Friendster overnight (perhaps soon I'll be replacing Blockbuster with Netflix on that list). Your software can run for decades (50 years in SAP's case). It's about the relevance of your future offerings, not your immediate demise. But if SAP wants a notable seat at its customers' transformation table in the years to come, it needs to get this one right.
2. Despite the competitive chest thumping you sometimes hear on earning calls, I don't believe there's much of an appetite for large-scale ERP rip-and-replace right now. Larger companies want projects closer to the edges, with shorter-term wins. Therefore, moving to your current vendor's multi-tenant ERP is probably in the slow lane, unless there is a major reason for it, e.g. M/A activity, huge technical debt, etc.
3. ASUG's Geoff Scott is right: this isn't just about industry functionality. A shift to the public cloud means a change in SI business models - and customer attitudes about ERP. Sengupta believes his team's timing is right. If so, that means all these factors must now change also.
4. It might seem like I'm negative on SAP's private cloud S/4HANA emphasis to date. That's not necessarily/completely true. I give SAP leadership credit for pounding away at the goal of the "clean core," rather than settling for a lift-and-shift move, with all customizations in place. SAP also emphasizes the extensibility of ERP (via BTP, rather than code customization) as much as any vendor. Whether the SIs are truly on board is the looming question.
I didn't hear anything from the S/4HANA Cloud team about partners building micro-verticals on BTP. To me, that's the real potential of the S/4HANA Cloud future. Not vanilla SaaS ERP, but industry-driven ERP.
With SAP turning in decent earnings reports in a very tough environment, I'd look like a head-in-clouds fool saying their private cloud/customer choice mantra isn't working for them right now (remember that SaaS ERP vendors generally don't give their customers much choice on hosting, code customizations, or absorbing new releases). My contention, however, is that a heavily-customized S/4HANA customer, whether they are running on hyperscalers or not, is not a customer SAP can count on years from now.
There are just too many limitations to that environment, whether you want to talk about AI/machine learning, or interoperability with other cloud solutions and platforms (a big deal in the large enterprise). SAP better make that "clean core evolution" happen for customers - private clouds can become legacy environments pretty fast. Let's see what this new team can do.
End note: updated, 9:30 am US PT, July 26, with a few tweaks for reading clarity - including an additional sentence on the transformation stakes added later July 26.