Two SAP user groups take landmark position on digital transformation - an inside look

Few things surprise me during conference season. I expect flight delays, questionable event food, and long-winded keynotes - and I get 'em. But one thing that genuinely surprised was two of SAP's crucial user groups, ASUG (North America) and DSAG (Germany), taking a joint position on digital transformation (they published a detailed PDF, you can read about it and download it from ASUGnews.com, ASUG and DSAG Present Our View on Digital Transformation for the SAP Community).

ASUG and DSAG have been collaborating more closely for a while, but it's another thing to hammer out a joint position on a topic as volatile as digital. I view this issue as critically important: SAP customers shouldn't take a position on S/4HANA, SAP's go-to solution, without taking a position on digital change first.

Digital transformation and the debate over the "digital core"

Once a customer has decided on a course through digital "disruption," then S/4HANA must be evaluated in the context of SAP's argument that S/4HANA is the ideal "digital core" for modern business. This is far from a no-brainer. There are many competing views of how best to progress on digital - plenty of smart folks will tell you that it's best to treat core ERP systems as "legacy" and focus investments on cloud-based systems of engagement.

Our own Phil Wainewright has articulated this position in his must-read frictionless enterprise series. (I won't speak for Phil's exact views except to say they are clearly different than SAP's "digital ERP core" approach). The analyst firms all have different views on this, with Gartner's bi-modal IT position being another take on how to manage operational IT in the slow lane, and edge IT in the fast lane (see Phil's critique of "bi-modal IT"). For SAP to win the S/4HANA game on the ground, it must succeed in the intellectual task of gaining digital credibility with its customers.

In this context, it's high stakes for SAP: do its major user groups endorse the digital transformation themes SAP is flogging? And how do they evaluate S/4HANA's digital relevance? Though the ASUG/DSAG paper intentionally avoids a deep look at S/4HANA, I got into these exact topics during a lively video interview with ASUG CEO Geoff Scott the day prior to Sapphire Now and ASUG Annual Conference 2016.

Posing a challenge to SAP - and to customers

You might expect a paper like this to pose a challenge to SAP. It does. But is also poses a challenge to SAP's customer base. ASUG and DSAG believe digital change is inevitable; customers in business-as-usual mode need a wake-up call. Scott:

The first thing you'll notice about the digital transformation white paper is we don't specifically talk about SAP technologies. Yes, there's a section that talks about S/4HANA and the broader digital roadmap, [but] what we wanted to do was talk about the broader digital transformation landscape. Why should you care? Why should you be thinking about it? What does it mean to you, as an SAP customer? Why is this important to you? More importantly, what do you do about it, and how do you start to plan your strategies?

Scott said he had already received customer feedback that they needed this content to convince their own leadership of what lies ahead. The ten-page paper doesn't lay out solutions, but it wants to raise the "essential questions":

What you have to do first is get your organization to agree that digital transformation is real. It is happening. There are going to be people out there who will disrupt your industry. Once you start to think along those lines, what do you do about it?

Tracing the origins - a collaborative process

ASUG's leadership sense-tested early drafts with their own customer volunteers:

In January of this past year at our annual volunteer meeting, we brought a whole collection of volunteers together, and we gave them an early draft of the paper. We wanted to test it: does it resonate? Does this make sense? For the volunteers, as a collection of early adopters, do they get it?

SAP has already made their case on why S/4HANA is your digital transformation engine. But ASUG/DSAG wanted to frame it differently:

We did not want to write a technical piece. [Bill McDermott's team] wrote a brilliant piece in the fall of last year on SAP's view of digital transformation. It was spot-on, if you were talking about software and why you should buy SAP... I said, "Now, let's talk about the broader industry implications, the broader ecosystem implications." That's what this was really meant to do.

Like most good collaborations, this one got its launch in a pub:

The roots of the paper were collaborated with DSAG from the very early days. The impetus of this was we had members of the ASUG Board in Heidelberg for a week-long conversation with SAP in Waldorf. We went into the back room of a pub on a fall afternoon and just started talking about digital transformation, through the eyes of five CIOs.

Scott was struck by CIOs airing challenges across industries:

To see people from the chemicals industry, the services industry, the fashion industry start to talk about their views - in many ways, they were the same. In some ways, there were nuances that were radically different.

They soon realized a joint position would carry weight:

I thought, "Let's make this a real game changer, and let's bring DSAG into the mix." They said, "Absolutely." So when we were in Germany, we sat down with some of the DSAG team and said, "Let's contemplate doing this together. If ASUG does it, it's interesting. It's DSAG does it on its own, it's interesting. If we do it together, it's incredibly powerful."

Digital change - for real, or incrementalism?

On the video, I brought up the critique of an ASUG volunteer who had described digital change as "incrementalism." Scott doesn't agree. He's seen constant change the last twenty-five years, but he's adamant that "the disruption that you and I are talking about is radically different."

Why? Reason one is cloud:

Obviously, the ability to deploy large-scale implementations in a scalable cloud infrastructure is a game changer. I don't want to debate cloud versus on-prem. That's not my intention because different people do things for different reasons. The fact that you can instantly scale something up on an AWS or an Azure, or even HANA Enterprise Cloud, is an indicator that you can do things at a speed and velocity that you have never been able to do before.

For my part, culture change is obvious every time I run into a group of teenagers fused to their smart phones. Once culture changes, business must adapt, suffer, or capitalize. Scott agreed, rolling out a slew of examples:

Let's talk about Airbnb... you've got a lot of hotel chains that are potentially big ERP customers and customers of SAP, right? Along comes Airbnb, and you say, "Well, you know, no one's going to disrupt my business." Just because you run SAP doesn't mean your business isn't going to be disrupted or your industry isn't going to be disrupted. It will be, because I don't think the Starwoods and the Marriotts and the Hyatts ever thought that this upstart, Airbnb, which could scale on a public cloud infrastructure, would come along and radically change the idea of what asset management is, and how to get a hotel room or a house or whatever you're going to rent. That has been completely shifted.

Then there is crowdsourcing, contracting, and labor-as-a-service:

By 2030, there will be a three-thousand percent increase in crowdsourcing. The idea that the employment models are shifting, and we see this happening, even within the SAP ecosystem, with a dramatic rise in the number of independent contractors, a dramatic rise in consultants, whether you think offshore or onshore. That work model is changing... people who never would have thought of accessing those types of services are now using something like an Uber or a Lyft to do business, using it to take their kids back and forth to school. This disruption is real.

Taking on position on S/4HANA as digital core

The all-important question for SAP customers: is SAP's S/4HANA-as-digital-core vision in line with what customers need? Scott addressed this in two parts. First, customers need to get a handle on data as an asset. That means stripping and simplifying the SAP ERP core from the over-customized spaghetti many customers are still running today:

The great joy of all of our customers of SAP is they have years and years and years of intelligence about their customers, about their products and what works in their markets. Yes, the markets are shifting, and the needs of today may not be reflective of yesterday. Take that information, and turn it into a huge asset. If you can't turn it into an asset, get rid of it. Get it out of your core because it's just going to bog you down.

So is ASUG endorsing S/4HANA as the digital core? Directly from the video:

Jon Reed: So you're not necessarily selling S/4HANA in all situations, then?

Geoff Scott: No. What I'm selling is: we're going to draw a fine line of distinction. I think that the future digital core has to be fast, has to be configurable, has to be able to run at the speed of the data volumes that are coming at it. At the moment, S/4HANA answers those calls. What I believe is the future business, the business that will be successful in this digitally transformed age, is one that connect the dots the fastest and brings the data in the fastest, looks at it, thinks about what it means inside of their industry, what it means inside of their economic models, and leverages it. The digital core has to be reflective of that.

My take

There is a danger that vendors will seize upon the "fear of being disrupted" to push underperforming or incomplete solutions into customers. I see digital change as real because it's now fueled by culture change and forced upon the business. While it's certainly overhyped, it's more than just "change management" in new lingo.

ASUG and DSAG have provoked their members into thinking harder about digital. They've also shifted a bit of responsibility onto themselves, rather than hoping that software, from SAP or anyone else, provides the magical digital pixie dust.

SAP has to be encouraged by the level of endorsement here. Both user groups have acknowledged digital change is real; Scott's stated need for a real-time digital core match up very well with S/4HANA.

I expected SAP customers to be much more skeptical about the "digital ERP core" view of digital change, as it's a view that is clearly self-serving to generating plenty of upgrade and S/4HANA migration business for SAP. But from Scott, and other customers at the conference, I heard from a surprising who have bought into SAP's basic views on digital change and S/4HANA's integral role.

Not surprisingly, Workday has a different position. And "bi-modal IT," while full of flaws, deserves a thorough review. Phil Wainewright has written about a "two-tier" model where companies gradually add more cloud-based "systems of engagement," which over time assimilates pieces of the legacy/transactional ERP core, which gradually "shrivels" away:

The two-tier model helps us understand how the role of traditional client-server ERP systems will shrivel as the burden of running operations increasingly shifts to more modern systems of engagement. In smaller organizations, the system of record will become just a set of modules within a larger system of engagement. In larger enterprises, it will increasingly withdraw from operational duties within a two-tier division of roles. - Phil Wainewright, from Two tier: systems of record and engagement

My advice to SAP customers is:

• Take a position on digital in your industry
• Evaluate different IT/digital philosophies, not just SAP's digital core approach
• Then evaluate SAP's digital solutions with those two steps in place

Digital isn't one size fits all. But maintaining ERP as legacy is not the right long-term solution. Whether it's in the cloud or on-premise, ERP should be simplified/modernized to enable easy access to ERP data and easy construction of apps leveraging that data.

That plays into SAP/s S/4HANA hands - but not so fast. SAP has a long way to go creating the open APIs and cloud platforms that will truly support that digital ERP plug-and-play. Some progress has been made and much more promised, with SAP spending an uncharacteristic amount of time at Sapphire Now/ASUG talking about integration, migration, and APIs, as well as progress made on the HANA Cloud Platform (HCP). Those challenges must be overcome.

SAP also needs plenty of avenues for quick digital wins, such as SAP Digital Customer Insight. SAP built that promising app/service, but I ran into smaller partners with cool/disruptive ideas that are encountering way too many go-to-market barriers with their HCP-based apps. Another serious issue for SAP to address. I took this directly to SAP leadership and will report back when/if I hear a response.

I know from prior content from ASUG and DSAG that both organizations feel similarly, especially about the need for business cases and S/4HANA roadmaps. Just because S/4HANA resonates with many SAP customers as a viable digital approach for doesn't mean customers are ready to make the move. As Den Howlett recently pointed out, education and available of skilled S/4HANA resources looms as the next pothole - or chasm.

Digital change ain't easy. In the ASUG/DSAG paper, numerous roadblocks are noted, with an ASUG/DSAG response to each, including:

• The legacy challenge
• The global challenge
• The portfolio challenge
• The business model challenge
• The people challenge

The final section takes a stance on SAP HANA, SAP S/4HANA and "business networks" with these digital themes in mind. The digital ERP core is agreed-upon, with these parameters:

Recall that our basic premise is that a “digitally capable” enterprise must have a strong technology core, and that core is the ERP system. In order to constitute a strong core, ERP has to be open (i.e., easy to get information in and out of), fast, responsive and adaptable. Think about the requirements for the human central nervous system. These same requirements are needed for the ERP.

The need to handle huge data volumes, turning data into meaningful outcomes, and providing a superior user experience are all cited as digital keys. Customers are advised to seriously evaluate SAP's HANA, S/4HANA and cloud products with these in mind.

This paper is just one step. DSAG tends to be more publicly vocal, something I believe ASUG will also need to do if it means to carry this through. Give ASUG credit for pushing this out there; Scott's been blogging on these themes for a while now. Backchannel meetings at the SAP mothership have their place, but this dialogue needs to be transparent if the user groups want to reach customers now.

That's not easy for SAP or any vendor, but transparency is an integral part of the transformation digital implies. This paper airs it out, providing a sign post we can look back on to measure either disappointment or progress.

End note: the video gets deeper into these topics, as well as ASUG's acquisition of the U.S. arm of The Eventful Group.