SAP’s Hat Trick: Confusing Cloud and On Premises S/4HANA

Executive Summary

  • SAP has a very deliberate way of confusing people as to which S/4HANA (cloud or on-premises) they are speaking of.
  • This is illustated in this Reuters article.

Introduction

Reuters published the article “SAP Vows to Ease Cloud Transition; German Customers Less Keen.” In this article, we will review the Reuters article for accuracy.

The Article Quotations

We take excerpts of the most important parts of the Reuters article and comment on them below.

ECC to be Phased Out by Middle of 2020?

The article begins by stating the results of a poll of SAP customers but then moves into accepting SAP’s statement about its goal.

“In SAP’s native Germany, which accounts for 14 percent of global sales, only 10 percent of customers are willing to move core processes into the cloud, according to a survey by the DSAG user group that hosted a gathering in Leipzig this week.

SAP, Europe’s most valuable technology company, is trying to accelerate the adoption of its premium S/4HANA cloud suite, which it wants to replace software run on local servers that it plans to phase out by the middle of the next decade.”

That will not happen. And at this point, it’s a ridiculous goal to publish because it has a zero percent chance of occurring.

Companies will be running ECC on premises for quite a few years past 2025.

If you do the math regarding uptake and produce a forecast with an increasing rate of adoption, you still end up with most of SAP’s customers on ECC when the clock ticks to 12 AM on Jan 1st, 2025.

SAP can either deny those customers support and hand the support contacts over to Rimini Street or other, or they can continue to honor the support contract at roughly a 90% margin. And Pablo Escobar will tell you that turning away from a 90% margin is a difficult thing to do as we covered in the article How do SAP and Oracle’s Support Profit Margins Compare to Pablo Escobar?

The Cloud for Increased Margins?

Reuters goes on to say something strange about the interplay between cloud and margins.

“Achieving scale as a platform company is vital for SAP to expand its margins while weaning itself off the juicy up-front license fees earned on its traditional enterprise planning software used to run finance departments and supply chains.”

Cloud will not allow SAP to expand its margins. Cloud will shrink SAP’s margins. This is because cloud reduces the account control a vendor maintains over the account, and SAP’s margins are based on their control over media/consulting/information providing entities and its lock-in. A big part of SAP’s overall margins are found in its support. Normally a cloud subscription is supposed to include support, in fact, I don’t recall running into the opposite of this.

However, SAP is set to challenge this with their “cloud forward thinking” as they are charging support for cloud offerings.

This support model for the cloud is currently being formulated, but notice the following quotation from SAP’s support website.

“SAP Preferred Success is currently available for SAP SuccessFactors, SAP S/4HANA Cloud, SAP Cloud Platform and SAP C/4HANA Suite.”

The SAP Preferred Success support cost is 20%, which is very similar to the 22% (base) support cost for SAP on premises. SAP has a lower support level than this for cloud called SAP Enterprise Support.  

If you read the documentation for SAP Cloud Platform, it states that support is included. But the overall costs of the SAP Cloud Platform or just SAP Cloud have been changing. At one point the SAP Cloud was free. That was to bump up the numbers of people “using it” for Wall Street cloud cred. But now the SAP Cloud has jumped in price for everything except the free developer version which is a trial.

Long story short, SAP is trying to re-create its on-premises support model for its cloud products. And SAP is easing its customers into being used to paying support for cloud.

When SAP does a lot of things related to changes in policy and pricing, particularly if make the scenario worse for the customer, SAP does not announce them. You simply bring up the website at a later date and something dramatic has changed, and that is how you know. And since nearly all the information written about SAP is written by parties with allegiance to SAP, these changes receive very little coverage.

SAP Wants to Reduce their Customer’s Costs?

Reuters gets a very amusing quote from Uwe Grigoleit.

“We want to reduce both the costs for our customers and the time it takes to implement the new software,” Uwe Grigoleit, global vice-president at SAP, told Reuters in an interview on the sidelines of the SAP user conference.”

SAP has never in its history been concerned with the costs incurred by its customers or the implementation speed. If SAP were concerned with implementation speed they would have removed many consulting partners that have very long implementation timelines, but SAP will partner with any consulting company. So why the sudden concern now? That is because there is no concern.

It is just another lie to tell. Did we mention Uwe likes to lie a lot?

How Many Customers will Covert to S/4HANA?

And those surveys are always an overestimate. Similarly, inaccurate survey results can be obtained by asking people how likely it is they will lose 10 pounds in the next year. The actual is always less than the projected with estimates like this.

“Only 41 percent of core SAP customers surveyed expect to complete the transition to S/4HANA by 2025, the year the company plans to stop servicing its workhorse Business Suite enterprise software.”

SAP will extend its support beyond 2025, no if, ands or buts about it.

The Rest Want to Keep Core Processes on Their Own Servers?

Is the term force feed the right term for cloud? The way SAP and Oracle do it, the answer is Y-E—SSSSSSSS!

“The rest want to keep core business processes running on their own servers, DSAG board member Marco Lenck told the conference, cautioning technology providers that they shouldn’t force cloud-only products on the market.”

Perhaps. But something unmentioned in this quotation is that S/4HANA Cloud is still not a viable application. How can S/4HANA still not be a viable application if SAP claims 2,100 customers are live? That is easy, most of those go-lives are not real, which we covered in the only independent study into S/4HANA implementations. DSAG is the most confrontational SAP user group, but they have to censor themselves from pointing out obvious things if it makes SAP look bad.

The entire scenario would not include the use of the term “force feed,” except for the fact that SAP’s cloud applications lag to such a degree that customers feel they are having things jammed down their throats. This has been going on at Oracle for a while also, where licenses for cloud products are forced on companies that eventually become shelfware. This force-feeding is because the sales incentives are completely out of synch with there SAP’s cloud product maturity is.

“Many users are concerned that cloud services won’t cover all their business processes,” he said.”

They should be concerned, S/4HANA Cloud won’t cover all of their business processes. S/4HANA Cloud has a small functionality footprint, this is why most of S/4HANA Cloud’s customers are SAP consulting firms.

What Is Being Discussed: S/4HANA or S/4HANA Cloud?

This next quote is a doozey. Reuters allows SAP to quote a number, without pushing back at all on the number, and it does not seem to realize that the topic was just switched.

“S/4HANA, launched in 2015, typically takes between seven and nine months to get up and running. Some 2,100 customers are running the suite live, but a further 34,000 could potentially make the switch, SAP estimates.”

There are so many inaccuracies in this quote:

  • The 2,100 live customer number is inflated.
  • The 34,000 potential switching customers estimate is inflated and lacks any explanation.
  • S/4HANA takes far longer than seven and nine months to “get up and running.” For current ECC customers, it is the most expensive and time-consuming upgrade since SAP first introduced its ERP system.

But let’s focus on something else. First, S/4HANA is very different from S/4HANA Cloud. All of the numbers in the quote above are for S/4HANA Cloud and S/4HANA combined. But we estimate S/4HANA Cloud has only 150 live customers (that is according to SAP’s bar, which is very low for what constitutes a live customer).

Why is the topic of cloud switched to on-premises without any notification to the reader towards the end of the article?

Illumination on SAP’s Hat Trick

SAP is performing a hat-trick in this article, and most people won’t notice. So here is the behind the curtain view.

  1. The article begins discussing the cloud. The reader’s brain is quite naturally thinking that the article will be about SAP’s cloud products.
  2. SAP then points to SAP S/4HANA Cloud as a priority for SAP. Reuters is careful not to research how many live S/4HANA Cloud implementations there are (we estimate around 150 globally)
  3. Now is the switch. SAP then begins talking about S/4HANA on premises. However, S/4HANA Cloud and S/4HANA on premises are two different products. They have completely different scopes of functionality, customers they are recommended for (even SAP states that S/HANA Cloud cannot be used for current ECC customers but is for greenfield implementations), costs, implementation timelines, etc..

SAP continually does this to confuse customers what is being discussed. When SAP wants to tout some desirable aspect that S/4HANA on premises has, “S/4HANA” becomes S/4HANA on premises. When SAP wants to tout cloud, “S/4HANA” becomes S/4HANA Cloud. You never know what product is being discussed. The entire purpose of this is simple. It is to deceive readers and customers. SAP has a habit of pointing to confusion in the SAP community on a variety of topics. The primary reason for this confusing is caused by SAP itself as it misexplains topics in order to maximize sales advantage rather than communicate truthfully about its offerings.

The problem with this article is that it is undifferentiated from an ad take out by SAP. The whole orientation of the article is curious.

How Accurate is Uwe Grigoleit?

Uwe Grigoleit has been a consistent provider of inaccurate information on S/4HANA. Brightwork covered his quotations noting their inaccuracy in this article, and this article. If the statement is uttered by Uwe Grigoleit it is most likely not true.

Conclusion

This article receives a 3.5 out of 10 for accuracy. The accurate portions are where Reuters explains the position of German SAP customers. The inaccurate portions are where they allow SAP to control the article and do not fact check SAP’s false statements. Reuters then did not observe SAP’s pivot from S/4HANA Cloud to S/4HANA on premises. This allowed SAP to plant inaccurate information in the heads of readers and to use Reuters to do it. Reuters has set up a very easy job for itself. All that it did in this article was record what SAP said to them.

SAP pays most of the IT media entities. This gives these entities less of an incentive to fact check SAP and allows them to be used as a marketing outlet for SAP. We are new to analyzing Reuters and it seems to have one of the cleaner income streams. However, every statement on SAP must be fact-checked and nothing reprinted without the ability to validate the statement. Reuters did not do this in their article.

Financial Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

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References

https://www.reuters.com/article/us-sap-se-conference/sap-vows-to-ease-cloud-transition-german-customers-less-keen-idUSKCN1MR1VP

The Accuracy of TechTarget’s Article on S/4HANA and Indirect Access

Executive Summary

  • TechTarget produced an article with contributors of varying accuracy on S/4HANA and indirect access.
  • This includes Massimo Pezzini at Gartner, Cindy Jutras, President of Mint Jutras LLC, Josh Greenbaum or Enterprise Consulting, Holger Mueller of Constellation Research, Ray Boggs of IDC, and Duncan Jones of Forrester Research

Introduction

In this article, we will review the accuracy of TechTarget from its article SAP S/4HANA Cloud and indirect access will dominate 2018.

Something to remember is that TechTarget is not a real journalistic entity. They are a front end for hundreds of vendors and exist to capture email addresses which are then shared with their marketing automation backend.

Questions to IT Analysts on SAP and S/4HANA and AI for 2018

The question asked of various analysts by TechTarget is the following:

“We asked several prominent industry experts for their opinions on what may be in store for SAP in 2018. We were primarily interested in two questions: What do you expect from SAP in 2018, and what does SAP need to do in 2018?”

Answer from Massimo Pezzini Vice President and Fellow, Gartner

“SAP has made significant investments in machine learning over the past two years, which has begun to manifest in the form of add-ons to their established applications (S/4HANA, SuccessFactors, etc.) in the course of 2017. In 2018, the use of AI and [machine learning] technologies will become more pervasive and more widespread (for example, in the context of the user experience layer), thus moving SAP towards the notion of “intelligent enterprise” that Bernd Leukert (head of SAP’s products and innovation) started to depict toward the end of last year.”

Gartner is, as TechTarget, the recipient of income from SAP, which like TechTarget, they do not disclose.

But if we look at this quotation, it reads like a direct quote from SAP’s marketing department. There are not ML add-ons to the S/4HANA or SuccessFactors. In fact, SAP is little involved in ML or AI of any kind. Massimo refers to Bernd Leukert, who has been profiled in previous Brightwork articles as providing highly inaccurate information to the market about SAP.

Massimo goes on to say.

“I also expect a further strong commercial and marketing push for cloud ERP, in particular through SAP S/4HANA Cloud and, to a lesser extent, SAP Business ByDesign. Cloud ERP is one of the hottest battlegrounds in the business applications space, where SAP is facing tough competition from Oracle, Workday, Microsoft and other smaller, aggressive competitors. SAP’s chances of maintaining its leadership in ERP depends on how successful it will be in cloud ERP.

SAP needs to focus on making SAP ERP Central Component (ECC) customers’ move to S/4HANA as compelling and easy as possible. Paradoxically, we found that it’s easier for non-SAP ERP organizations to adopt S/4HANA than for ECC users. Most established SAP ERP clients, especially large and global organizations, are finding it difficult to justify the adoption to S/4 from a business case perspective and are concerned by the cost, complexity and time required by the migration project. SAP must work hard to remove these obstacles to make S/4 the success they want and need it to be.

SAP also needs to improve their relationship with clients. Although most SAP clients are reasonably happy with the products and technologies, they often complain because of obscure pricing, confusing product roadmaps and uneven support quality. In 2016, SAP launched the “Empathy to Action” set of initiatives to address such concerns, and in 2017, they released some initial results, such as SAP Transformation Navigator, to provide product roadmap visibility and a couple of new SAP indirect access policies. However, in 2018, SAP needs to show significant progress across the three areas mentioned above to maintain the loyalty of their clients as they engage in digital transformation initiatives.”

Can SAP Make the Move to S/4HANA Compelling and Easy?

SAP cannot make the move of SAP ECC move to “S/4HANA as compelling as easy as possible.” First, there is little reason to move to S/4HANA, and it locks customers into the inferior HANA and high maintenance database. Secondly, there are many factors that make the transition to S/4HANA the most trouble-prone migration in the history of SAP’s primary ERP system. It’s not a “paradox” that S/4HANA is easier for non-previous ECC customers. Its a natural outcome of the difficulty in migrating from ECC. Massimo is correct that companies have trouble justifying the move to S/4HANA because there is no value to moving to S/4HANA. The functionality is lower than ECC, Fiori is barely used by anyone, and the implementing company gets stuck with HANA. There is not much that SAP can do on any of these fronts. They can make S/4HANA more implementable, so S/4HANA implementations don’t keep failing. (For more on this topic see our article on S/4HANA’s implementation history.)

As for improving relationships with customers, SAP needs to harvest as much out of customers to meet earnings objectives, but they have very few areas of growth in their applications. Therefore, SAP will need to become even more extractive, which will take a toll on the customer relationships. We predict customer relationships will get worse, not better.

Answer from Cindy Jutras, President, Mint Jutras LLC

“I think we’ll see an emphasis on cloud and intelligence. In addition, I’d like to see more emphasis placed on delivering last-mile functionality, in addition to more intelligence, but with less of a custom, tools-oriented approach.

I think SAP needs to get some clarity on segmentation of their three different ERP solutions. They have now moved all three under one umbrella, supposedly to reduce contention and confusion. It’s clear that S/4HANA is the right choice for the large enterprise, and Business One is aimed at small businesses. However, there needs to be more clarity on the positioning of Business ByDesign, or the market will continue to make up its own story. And the fabricated story for years now has been that it’s dead. SAP needs to be more vocal about the real intention, because the S/4HANA messaging is adding to the confusion rather than resolving it. More clarity is required around cloud, growth orientation and two-tier ERP for subsidiaries.

In addition, I would like to see the messaging around SAP Leonardo start to be integrated into the ERP story. It can’t be effective and impactful if it continues to be separate because then it will only be a message for the IT staff of large enterprises. For SMBs, the technology itself will need to be blended as well. SMBs, who are a large portion of the SAP installed base, don’t have deep enough pockets or the technical expertise on staff for innovative, design thinking projects that define the value. The Business One platform approach is right on target and could easily be applied upmarket.”

Is It True that S/4HANA is the Right Choice for Large Enterprises

It’s not at all clear that S/4HANA is the right choice for large enterprises, for reasons already given. The positioning of ByDesign is that it was supposed to be sunsetted, but was revived. ByDesign has always been a bad application and companies that use it dislike it. Overall, ByDesign is not relevant for SAP’s future. But Cindy is correct that ByDesign is cloud and S/4HANA Cloud’s only customers are small, which would put them into the ByDesign target customer, but SAP’s likes to pretend that S/4HANA Cloud can service larger customers also.

SAP has tried to integrate Leonardo into ERP. This is the only way that SAP can make any headway in IoT as they lack a competitive offering. However, the problem is that IoT has nothing to do with ERP. And trying to force fit IoT into ERP will simply increase the costs and reduce the flexibility of any IoT system.

Answer from Josh Greenbaum, Principal, Enterprise Applications Consulting

“There are a lot of gaps to be closed between the forward-looking technology strategy and the reality on the ground for customers, and SAP Leonardo is a good example. The issue of SAP S/4HANA Cloud migration is another. I talked to a customer who was looking at SAP S/4HANA Cloud until they saw how limited the functionality was in a couple of key areas, so they pulled back and are now looking at doing an S/4HANA on-premises or private cloud because they can’t get what they want out of public cloud in the time frame that they need it. Also, a lot of companies are looking at SAP Leonardo functionality and are embracing it for a proof of concept. But we are not seeing a lot of real enterprise cloud deployments, and that’s going to hurt if SAP can’t convert that desire into a lot of serious revenue. And that’s a huge chunk of their strategy.

One of the big issues that SAP has to settle in 2018 and really put to rest is the problem of SAP indirect access licensing. That came up at the end of the year in so many conversations with customers, many of whom were saying that they don’t really trust what’s in their contracts anymore. They don’t know if they can go back to the board for more SAP money considering there’s this potential indirect licensing fiasco looming over them. So, that’s something that SAP should deal with.

It’s a leadership moment for SAP. I think they should also see that this is something that’s endemic to the entire industry, so it’s happening across the board and is not just an SAP issue. SAP could actually turn this into a real leadership moment if they chose to, and I think they should.”

Combining Good Advice on S/4HANA with Bad Advice on Indirect Access

This is also good and realistic advice on S/4HANA. This acknowledges the limited S/4HANA Cloud functionality. Josh Greenbaum actually answers the question of what SAP needs to do, rather than simply what “we will see from them.”

It would be nice for SAP to shut down indirect access, but how will SAP meet is revenue objectives? SAP is a vendor in decline which has been misrepresenting itself as an innovative vendor for years to Wall Street. (see how SAP misrepresents its business to Wall Street in this article.

Most of SAP’s revenues come from support now.

Indirect access was developed because SAP has not been able to grow through selling software the normal way. The last part of Josh Greenbaum’s statement is either incredibly misinformed or a lie. SAP is the only vendor that employs indirect access. Oracle uses audits in an unethical manner, but not indirect access.

For Josh Greenbaum to say this is an “industrywide problem” is asinine. And the idea that one of the few vendors that employ indirect access (Type 2 indirect access), and the one that employs it in the most extreme manner can show “leadership” in dealing with an issue that it solely created is just upside down.

Josh Greenbaum as a Reliable Source for Misleading Information for SAP and ASUG?

Josh Greenbaum has made SAP friendly and inaccurate statements in favor of SAP before. Here he is explaining the lack of S/4HANA customers to ASUG.

“As independent enterprise software analyst Josh Greenbaum notes, SAP S/4HANA deals are signed in advance, perhaps attached to a product for which a company has a more pressing need. He also points to the dearth of qualified partners, as well as questions around SAP indirect licensing as reasons for the gap between SAP S/4HANA licenses and implementations.”

Interestingly Josh Greenbaum left out that many customers own S/4HANA not because they wanted it, but because they purchased it under coercion in order to satisfy an indirect access claim.

Secondly, nowhere does Josh Greenbaum point to S/4HANA’s maturity problems as a reason for the lack of S/4HANA implementations. Nor does he disclose S/4HANA’s very high numbers of failed implementations.

And, yes a “dearth of qualified partners” is going to occur when software has been lightly implemented. Therefore this answer puts the blame on consulting partners, but without explaining why there are so few of them. Of course, if he had explained any of those things, he would not have been quoted in ASUG’s article.

Josh Greenbaum as an SAP Truthteller?

On the other hand, Josh Greenbaum wrote a quite accurate and quite critical article on the deceptive way that SAP has positioned S/4HANA Cloud for large enterprises.

“The problem is that SAP is trying to get S/4 HANA Cloud to punch above its weight class by claiming it can meet the needs of a large enterprise, and in the process the company is setting the stage for some serious customer confusion about which version of S/4 HANA is the right one for the job. The irony of these efforts is that in sowing this confusion SAP fails to see that the very thing they’re trying to hide by overselling S/4 HANA Cloud is the very thing that actually imbues the overall S/4 HANA product line with the exact attributes that customers need.

Unfortunately, SAP only has itself to blame for the confusion. The official messaging, to be perfectly honest, seems designed to obfuscate rather than enlighten. I had to go three rounds with SAP to get the story straight, and at times it felt like I was deposing a reluctant witness, rather than having a forthright conversation about what will always be a complicated decision for SAP’s customers.

Here’s the gist of the problem. SAP’s official storyline is that S/4 HANA Cloud is as well-suited to run a large, global enterprise as the on-premise and private cloud versions. This is due to the simple fact, SAP officially maintains, that the on-premise and private cloud editions of S/4 HANA are built off the same code line as S/4 HANA Public Cloud, which means that a customer can chose either one for their upgrade or migration because they are functionally equivalent.” 

That is right, SAP is lying on this topic.

Josh Greenbaum is Shocked to Learn About Lying at SAP

Then Josh Greenbaum finishes his article with a strange fantasy land statement.

“Overselling, underdelivering, obfuscation, confusion – these are the paths to customer dissatisfaction and competitive disadvantage. In this case, this functional equivalence concept is made all the more useless by the fact that what SAP is trying to hide – a product line, based on a single code line, as diverse as the customers it’s trying to serve – just happens to be its biggest strength.

Just tell the truth, the whole truth, and nothing but the truth. It’s really that simple.”

This must be some subtle irony. There is no way SAP is going to tell customers the truth Josh. A primary reason why SAP comingles S/4HANA on-premises and S/4HANA Cloud is to cloudwash S/4HANA. It called pretending to Wall Steet.

Answer from Holger Mueller, Vice President and Principal Analyst, Constellation Research

Constellation Research has in the past provided balanced information on SAP. For example, they were one of the only analyst entities to call out SAP on indirect access.

However, this concerning regarding Constellation’s independence.

If an analyst is listed on a vendor’s website as a source, this places the analyst entity in question for bias. Notice that SAP is promoting a Constellation report that praises S/4HANA Cloud. Would SAP also include a link to Constellation and such a prominent showcasing of Constellation if the report was negative? Does this give Constellation an incentive to publish a favorable report? How much traffic is being driven to Constellation though a link to SAP’s website? 

Here is Constellation’s statement on SAP from the article.

“I expect to see more push on S4/HANA and more push on SAP Cloud Platform, as [platform as a service] is the security blanket for enterprises in the era of business process uncertainty. They want to know what’s the PaaS that they can use to build what they need, but what their SaaS does not have or where their SaaS is not yet a fit.

SAP needs to develop more [infrastructure-as-a-service] partnerships and potentially formalize with all of the Big Three IaaS vendors: Microsoft Azure, [Amazon Web Services] and Google.

It also needs to solve the Hadoop vs. HANA challenge. SAP must have in-house, native and supported access to big data applications that run not only in memory but also on [hard disk drives], where the bulk of business-relevant data is.”

That is true.

SAP should not be hosting or be in the IaaS market at all. Their only way forward is through the types of connections to the IaaS vendors listed above.

As for the Hadoop vs. HANA challenge, there is nothing to solve. Hadoop does not need HANA. Hadoop has its own open source analytics and creates a pricing scenario for which SAP cannot compete. SAP is best served to apply its resources elsewhere. Any area of enterprise IT that is dominated by open source means choice and low cost, and this is like alcohol to an amoeba.

Answer from Ray Boggs, Vice President of SMB research, IDC

“SAP will sharpen its SMB efforts with an updated segment definition and name, the new General Business (GB) segment, which is defined as firms with under $1 billion in annual revenue. This segment will be served by channel partners and already represents 80% of SAP’s 365,000 customers worldwide (over 250,000). Of course, that’s not the same as share of revenue since large businesses spend much more per company. We expect SAP to refine this definition depending on region, and the company indicates that it will be dividing the group into Upper GB (revenues of $300 million to $1 billion) and Lower GB (revenues under $300 million). As part of its efforts to be more efficient in serving those GB customers, we expect SAP will continue to expand its direct digital efforts through SAP Digital offerings. But this will likely be more a supplement to channel-led deployments rather than a true alternative.

The diversity of SAP product offerings makes it hard for customers and channel partners to have a clear idea about the SAP product portfolio. Key ERP products designed for the SMB customer — SAP Business ByDesign, SAP Business One and S/4HANA for SAP Business All-in-One — are a natural starting point. But SAP has other resources that have special appeal to firms that have grown to midsize — Concur, Hybris, BusinessObjects, SuccessFactors, Ariba — and providing a series of natural deployment paths with a strong vertical orientation is what SMB customers will be looking for.”

IDC is a major recipient of undisclosed income from SAP through its various advertisements and paid placements into the parent company of IDC, which is IDG. This does not count payments directly to IDC from SAP. And notice how promotional this answer is. It could just as easily have been stated by an SAP spokesman.

Here is IDC prominently showcased on SAP’s website. Does the introduction of IDC disclose that SAP pays large amounts of money to IDC’s parent IDG for SAP adveritzing? No it does not. 

Answer from Duncan Jones, Vice President and Principal Analyst, Forrester Research

“SAP’s customers need it (SAP) to put a stop to misselling, which is by no means universal, but is lamentably common. SAP needs to publish clear rules for its new, modern licensing, which is a good starting point but which currently leaves too much latitude for sales to abuse the gray areas. It’s no longer acceptable for SAP to claim confidentiality and let salespeople interpret the rules as they see fit. This should include fair discount tables, based on the total [annual recurring revenue] relationship, not on the size of the incremental order.

SAP’s customers need some sort of independent ombudsman service, outside the sales channel, so they can report allegedly unfair or dishonest behavior. They need SAP to start publicly firing salespeople who pursue unacceptable tactics, especially those that may be in breach of competition law. They also need SAP to fire the sales managers and territory heads who allow it to go on. Customers can start by refusing to speak with any salesperson they don’t trust. SAP has many honest, customer-centric salespeople, so don’t assume that all SAP salespeople will be the same. My advice to clients is: If an [area manager] tries to use indirect access or compliance audits to bully you into buying an SaaS product, then have them immediately ejected from the building and don’t let them back on site.”

Some Unusual Bravery From Forrester

Forrester is another recipient of undisclosed amounts of income from SAP.

Nice ideas, but SAP has been misselling or should I say overselling for decades. Is that going to change now?

The idea that SAP will create an impartial ombudsman where customers can take complaints is ridiculous and will not happen. SAP will not fire people who pursue unacceptable tactics, because these tactics are considered acceptable at SAP. The lack of ethics comes from the top. Hasso Plattner and Bill McDermott and all of the top executives that we track lie in every public statement that they make. Forrester seems to be confusing SAP with a company that is ethical or cares if their salespeople rip off customers.

This broadside against SAP by a VP of Forrester is quite surprising. Good for Duncan Jones to bring the reality. So, we have them assigned per analyst.

Conclusion

We usually provide an accuracy score for an overall article. But because the bulk of the article is comments from different individuals, we broke the score down per analyst.

  • Massimo Pezzini: Gartner: 2 out of 10
  • Cindy Jutras: Mint Jutras: 8 out of 10
  • Josh Greenbaum: Enterprise Applications Consulting: 5 out of 10 (This is a difficult rating to give. His explanation on S/4HANA was good, but his explanation of indirect access was so inaccurate that it negated the S/4HANA information)
  • Holger Mueller: Constellation Research: 6 out of 10 (Same issue as with Josh Greenbaum. Holger Mueller was correct on IaaS but then missed the boat on HANA to Hadoop.
  • Ray Boggs: IDC: 1 out of 10. Ray Boggs may as well work for SAP with the answer he provided. The gig is up with IDC as we see them as nothing more than an entity with its hand out which will publish anything for money from a vendor.
    Duncan Jones: Forrester Research: 8 out of 10. Bravery showed from an analyst for a company on SAP’s payroll. Duncan Jones loses points for implying that SAP cares if its salespeople are unethical. But he at least brings up the issue of SAP’s sales force misdeeds.

What is clear once again, is virtually every IT analyst kneels to SAP.

Financial Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

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References

https://searchsap.techtarget.com/feature/SAP-S-4HANA-Cloud-and-indirect-access-will-dominate-2018

https://www.asug.com/news/sap-s-4hana-customer-adoption-live-customers-implementations

https://www.linkedin.com/pulse/fog-innovation-marketing-sap-obscures-s4-hanas-true-joshua-greenbaum/

How the Overall SAP S/4 HANA Suite is Not Yet Released

What This Article Covers

  • Widespread Deception on S/4HANA Skills
  • SAP’s Position on S/4 HANA’s Readiness
  • Why Uwe Grigoleit Thinks You Are An Idiot
  • Uwe Grigoleit Continues SAP’s Long History of Executives at SAP Lying
  • S/4HANA Enterprise Management is Ready Now….but Becoming “More Complete” Every 3 Months?
  • Be Careful; We Have Just Entered the Digital Economy
  • Bluefin Solutions as a Primary Source of False Information About HANA and S/4HANA
  • When Reality Sinks In
  • Faux Agile Development
  • Oracle Fusion (Agile) Development Revisited
  • How to Get the Real Story on S/4 HANA
  • Previous Proposals on SAP Application Readiness
  • Allowing SAP to Lie for You as a Business Model

Introduction

There has been and will continue to be a tremendous amount written about S/4 HANA. Interestingly there is lots of confusion as to what parts of S/4 HANA are ready to be implemented. SAP has misrepresented the readiness of S/4 HANA on just about every occasion, and it has an army of SAP partners that do the same.

This army is all about getting S/4 HANA implementation business, so they are actively misleading their prospects about S/4 HANA. Additionally, these partners are also misleading prospects about the consulting experience with S/4 HANA. I know of two consulting companies that have zero experience with S/4 HANA but are confidently pitching S/4 HANA to prospects and are actively deceiving their prospects about their S/4 HANA experience. This is known throughout these companies, and this is considered completely normal. The justification for this is that it is necessary to get S/4 HANA skills and.

“Everyone else is doing it.”

Most consulting companies do not have any significant S/4 HANA implementation experience. Most have none at all. Clients will find out about this after the deals are sold.

Another thing to consider on S/4 HANA is the following:

  • S/4 HANA can only be implemented on top of HANA. (for no valid technological reason except to freeze out other database vendors using faux arguments about HANA’s performance is so unique)
  • These consulting companies I am also referring to have zero experience with HANA (that is the database, not the ERP system).

Widespread Deception on S/4HANA Skills

I believe this deception about the actual S/4 HANA and HANA experience within consulting companies is widespread. I was recently reading a resume of a person who stated they had completed a six-month S/4 HANA implementation. However, their background and skill set is manufacturing in SAP, and the only completed module for S/4 currently is finance. Not manufacturing. I don’t know what this person worked on that could have been S/4 — probably just good old fashioned ECC. But he certainly did not implement S/4 HANA manufacturing. Furthermore, he listed that he had been on the project over six months ago, and he may have finished the project a month or more previous to this (I don’t know). This is even earlier in any of the development of any manufacturing functionality in S/4 HANA.

Both consulting companies and consultants want S/4 HANA on their resume, and one way or another; it will probably get on there. This same thing is happening with the IBP product. Suddenly I see IBP added to huge numbers of LinkedIn profiles, for an application that barely has any go-lives. Recruiters reach out to me, and when I tell them I have only tested IBP and not implemented it, they complain they can’t find IBP resources. Right, I mean that is what happens when an application is new.

The general presentation of this topic is often that people lie on their resumes. Yes, this is true. But consulting companies lie about their resources and alter their resumes. I had my resume altered when I first started working for Accenture. At that point, I had no real work experience, but Accenture took care of that for me. At this point, I don’t have a great feel for which is more prevalent. But I know which is more talked about. We barely discuss how consulting companies “enhance” resumes. This reinforces the overall construct that while individual people may do bad things, companies are respectable entities.

SAP’s Position on S/4 HANA’s Readiness

While researching this topic, I found the following quotation from SAP. This article quote I found is quite amazing. See it below:

“If you look at the S/4HANA system that we released in November of last year that we are calling 1511, we can say that this is already a complete ERP system,” said Uwe Grigoleit, SAP global head of business development for Business Suite on HANA and HANA applications.”

Errrrr…..you could release a complete ERP system without much of the functionality working. That seems to be the line Uwe is walking here. I mean you can release anything, and it is still that thing. A motorcycle with no pistons is still a motorcycle. And you can release it that way. However, when a motorcycle is released that way, it is obvious. With software, it takes much more analysis to verify if the application is ready.

Why Uwe Grigoleit Thinks You Are An Idiot

Let us go on to see more from Uwe.

“Why can we say this? If we are looking at pure modules we are shipping already, S/4HANA spans across financials, material management, inventory management, procurement, distribution, product and planning,” he explained. “It’s going across the vast majority of the ERP system already.”

  • This gets away entirely from the question of the completeness of each of these modules.
  • What Uwe does not state is that 1511 is not a completed ERP suite in that most of the functionality is incomplete. Some of the old functionality works, but it’s just a big mixed bag.
  • S/4 HANA has multiple modules (recently renamed) that are called things like Supply Chain, Sales, Research and Development and Manufacturing, etc.. There is no mention of these names even in SAP’s marketing literature as introduced applications. Why? Why the strange four digit release numbers associated with each version (either on-premises or cloud)?

1511 Beta Release

1511 is a beta release that has some components of functionality changed while many others are not. 1511 comes with a lengthy document called the “Simplification List.” This is a document that describes all the changes to ECC. The term simplification is just a euphemism.

  • Many of the changes are not at all simplifications.
  • Even if we leave out the topic of which areas of functionality are ready unless you are a Greenfield customer that the company relied upon are not part of S/4 HANA. One would need to extensively read the lengthy simplification list, along with all the associated SAP notes that explain what things (fields, transactions, etc..) have been changed.

I am still digesting the simplification list myself. Understanding all the implications is a ton of work. So much so that SAP is primarily focusing on as migration or re-implementation is so difficult with S/4 HANA)

Uwe Grigoleit Continues SAP’s Long History of Executives at SAP Lying

I think Uwe Grigoleit knows that what he is saying is untrue, but as Global Head of Business Development, let’s first acknowledge that he has probably told some whoppers in the past. Considering he may not have ever logged into a SAP system himself, it would be easy for him to hear something second hand, and then to start repeating it. Uwe Grigoleit is in sales, so he wants to sell S/4 HANA and therefore has a strong bias to mislead customers on the status of S/4 HANA.

Let us continue with more from Uwe.

“More recently, SAP released three new SAP S/4HANA “1603” cloud editions that provide industry-focused capabilities for marketing, professional services and more general enterprise ERP needs. In fact, the vendor is producing new updates for both cloud and on-premises SAP S/4HANA editions every quarter — so the answers to the question of functional completeness for S/4HANA are effectively changing every three months.”

As Uwe states, 1603 is the cloud edition of S/4 HANA. So 1603 contains focused industry capabilities for marketing and professional services. So that would seem to imply that 1151 does not have these capabilities. It would make sense that professional services firms would be a better fit for 1603 – although overall S/4 HANA is overkill for a professional services firm. All a professional services firm needs is a finance module with professional services functions, which can be attained far more economically from Intacct of FinancialForce. Most companies that implement S/4 will only implement it so they can resell that experience in consulting. They will say that S/4 HANA turned the moon into green cheese and gave all of their executive’s sex changes if they sell more HANA. Therefore, the information they provide on HANA is utterly unreliable. But this brings up a tangential question as to whether the cloud and on-premises editions are no longer the same set of functionalities.

S/4HANA Enterprise Management is Ready Now….but Becoming “More Complete
“Every 3 Months?

SAP, through Uwe, is telling customers it’s S/4 Enterprise Management, which is the full suite, is ready to go. Notice at the end of the quotation, it contradicts itself, stating that the functional completeness of S/4 changes every three months.

So is S/4 complete? Or on the other hand, is it becoming “more complete” every three months? It cannot be both. Let us see…I now have to check Wikipedia as SAP is using the term in a new and unprecedented way.

At the midpoint of this race, this man would like to say he had completed it already. SAP so powerful, they can claim to have finished a race they are less than 1/2 way done with and the partner community, and large media outlets will reinforce this. 

SAP is primarily using the term “complete” to mean “incomplete.”

S/4 HANA is perfect, but it will become more and more complete every three months.

Did you get that? Ok good, we can move on to more classic Uwe quotes.

Be Careful; We Have Just Entered the Digital Economy

Now this next quote is not related to the readiness of S/4, but it gives some more background as to where Uwe lives. It is from the same article.

“In S/4HANA, we are connecting classical ERP processes with new processes of the digital economy,” Grigoleit said. “For example, if we are talking about asset management as a classical ERP process, then we are making a connection to information networks so that you’re not entering data on your own — you’re getting the data out of the network automatically, connecting it to the asset management and location services.”

Ok, so we can see from this quotation that Uwe likes to spin a good yarn.

You see the issue is that a quotation can be repeated that is taken from a high-level SAP business development resource like Uwe or Bill McDermott, but without the context that these types of spokesmen from SAP live in a permanent fantasy-land, and take huge numbers of meetings, but don’t themselves touch or test software.

With a heavy dose of stock options pushing them towards unprecedented (in fact they do have precedent, but I decided to adopt SAP’s hyperbolic way of making statements for this sentence) levels of optimism, it is understandable that so much unreliable information like this is generated. I would like it if they were more honest and said something like….

“S/4 HANA is going to help me make $5,000,000 in stock options!”

Now that at least would be true.

When Reality Sinks In

So let us take this to the next step. Let us say the customer buys S/4 HANA, and it is only partially ready, and then what?

  • At what point does SAP tell them that it cannot be implemented?
  • Companies that buy S/4 HANA thinking they are getting the complete suite will be in for a rude awakening. And I am not sure which consulting company will tell them the truth on this topic.

I had a representative from Bluefin comment on a previous post of mine. Bluefin is a consulting company that has significantly increased its profile by publishing on HANA. Bluefin tends to release pollyannish information tinged with overwhelming confidence about HANA which while untrue, is expressly designed to get prospects all bubbly. It is Bluefin that stated with high confidence that Oracle is finished as a database for SAP in the future. I want to say with high confidence that SAP will backtrack on this policy and will eventually be forced to certify Oracle for S/4 in the future. Don’t even think of checking Bluefin for long-term accuracy. Bluefin seeks to sell more business through bombastic claims. Forecast accuracy is not a concern.

Bluefin Solutions as a Primary Source of False Information About HANA and S/4HANA

Bluefin Solutions has recently graduated to publishing pollyannish information about S/4 HANA. But of course, it is other consulting companies as well. The rule with many consulting companies is a lie only a lie if it does not help quota attainment. Otherwise, it is categorized under a business development fib, and is “ok.” I recently heard of a conversation between an account executive and the head of a consulting company, with the account executive explaining that S/4 was not ready to be sold/implemented. That the consulting company had not S/4 or HANA resources. The head of the consulting company proposed that SAP would help the consulting company to implement.

This is a common illusion that some consulting companies have, that SAP will do them “favors.” This is an illusion that many people who work in SAP like to engage in. They pretend they are more connected to SAP than they are.

This consulting head thinks that SAP will let his consultants learn from SAP, and then he will be able to book these newly minted S/4 consultants out into the far future. (And even better if these trained consultants are H1-B, so they can’t leave for a while, and the margin is higher! H1-B = Margin, Margin Margin!) The fact that S/4 is not currently implementable has apparently not occurred to him.

That is how these guys think. 100% benefit for themselves. Nevertheless, neither of these consulting companies have gotten any S4 business. There is very little S/4 implementation work currently.

 

A lot of people out there seem to think that SAP is in the business of doing favors. While there are exceptions, this is mostly a delusion. 

Faux Agile Development

SAP has missed its deadline on the rest of the S/4 suite, and it was now scrambling to get functionality released as soon as possible. Now, what do you do when you blow all of your deadlines? That is right, you adopt “Agile” and begin releasing things willy-nilly.

Agile has its benefits, and I use Agile on projects, but I don’t use the term Agile to cover up for lack of planning. What is entirely apparent is that S/4 HANA was announced far too early.

This is not Agile. This is marketing getting too far ahead of development and living too comfortably on Fantasy Island, and then putting development on the grill to deliver too quickly. It has been well known for some time that making the types of changes to S/4 that SAP talked about making would result in many millions of lines of code being rewritten. Now the apparent conclusion is that SAP did not allocate enough time to allow for this to happen, or did not organize their internal teams appropriately to accomplish this task in their predicted timelines.

Oracle Fusion (Agile) Development Revisited

Interestingly what SAP is doing with S/4 has a precedent in the not too distant past and within a company that SAP does not like very much. That is right, what SAP is doing with S/4 is very similar to what was done with Oracle Fusion.

Oracle Fusion development went to Agile development, but the Fusion development just never seemed to end. Fusion was the subject of non-stop marketing on the part of Oracle, and Fusion never seemed to reach a point of finality. By 2016, pretty much everyone was burned out on hearing about Fusion has had very little market acceptance.

There is another similarity between Fusion and S/4 HANA. Like Fusion, the migration effort is enormous. See the following quotation from a comment on a Fusion article:

“Oracle is in a tough spot here because from what I understand, the move from the legacy apps onto Fusion Apps is not a straightforward “upgrade”, like you would expect from IBM, Microsoft or SAP but, rather, a complicated and expensive migration. This means when faced with the decision to move off e.g. PeopleSoft, customers are likely to evaluate Fusion vs Workday vs Successfactors (depending on use case). This is a tremendously dangerous place for Oracle to be in – none of the other ERP vendors have put themselves in this position, and SAP’s ability to upgrade from almost any version of R/3 (back to version 3.1I in 1998) to the latest version.”

This was written without consideration for S/4 HANA however. Mainly S/4 HANA faces the similar migration problems as Fusion as the change from ECC is so significant. This quotation was from John Appleby, the GM of Bluefin. Now while John Appleby notices that Fusion has enormous migration effort involved, he comments on an article. But when S/4 HANA is the same migration issues, he is silent on that topic. Why? Because Bluefin implements SAP.

That is the extent of much of the information available in enterprise software. The algorithm works something like this:

  • If the author can make money on it, then hide the downsides.
  • If one cannot make money on it, then be “objective” and bring up the downsides with competitor products. It’s all very scientific you see.

How to Get the Real Story on S/4 HANA

For the foreseeable future, the only way to know what parts of the rest of the S/4 suite work, is to test them or learn second hand from someone else (who you trust) who has tested it. You can’t ask SAP or ask their consulting partners. In most cases, the answer is that S/4 is ready to be implemented as soon as you can get around to signing a statement of work with them! Beyond this, S/4 is being made to appear far more implemented than it is.

One of the exaggerations that SAP proposes is that S/4 has 3700 customers.

I don’t doubt that 3700 companies somehow ended up with an S/4 license (most of them for free). This is the only definition of a customer — do you own (somehow) an S/4 license. But the actual number of S/4 implementations is probably less than 100, with most of these not live. And none of them live in the whole suite — for reasons that should be obvious at this point in the article. SAP recently reported that they have 170 customers live. SAP has stated that 30% of their clients are referenceable.

  • 30% of 170 is 51 companies, well below my estimate of even less than 100 companies.
  • And live can also mean different things. If S/4 HANA is live, it is live only with Finance, so that means it has to be integrated to ECC to function.

3700 Customers Live on S/4HANA?

The idea that SAP likes to give that 3700 S/4 customers are in some state of using this software is so ridiculous that the industry needs to come up with a more strict measurement of what a customer is. A customer should not be someone who is only sitting on shelfware. If you are a plumber and you give a gift certification for a particular plumbing service, and 80% of the people that have this certificate never use your services, this 80 % are not “customers” of that plumbing service. SAP has given away so many copies of S/4 that they will not release the actual revenues for the application. I suspect they have not only given away copies to existing users (who should get it for free) but for net new deals as well.

By the way, I am not the first to question the 3700 customer number for S/4. Most people who study this topic think this number is highly overstated.

Previous Proposals on SAP Application Readiness

Exaggerating the readiness of applications is nothing new for SAP. So please, if some people are going to comment to the contrary, let’s not pretend to be so shocked. SAP APO was released back in the early 2000s was a barely functional product that only made it through those early days because it was pushed by the major consulting companies.

Another “application” that comes to mind as one that was significantly pre-announced was Netweaver. I take the following quotation from Vinnie Mirchandani’s book SAP Nation 2.0:

“With so many unanswered questions, an emerging viewpoint is that S/4, as initially defined, is just a placeholder. If anything, it will probably evolve in the same manner as another of SAP’s initiatives, NetWeaver, did a decade ago. In their 2004 book on NetWeaver, Dan Woods and Jeff Word said with confidence: 

“All this talk about successive versions and incremental progress and fulfilling visions could easily give you the wrong impression that SAP NetWeaver is still on the drawing board. That’s not at all true. SAP NetWeaver is here now. All the SAP NetWeaver components that we have mentioned are working products and can be purchased and used to make your business run better today.” 

That turned out to be completely untrue. In fact, NetWeaver was never actually released as it never actually existed. NetWeaver was a name appended to other applications. I pointed this out repeatedly and wrote on this, and now all the people who were so high on NetWeaver never emailed me to apologize. On project after project, NetWeaver is nowhere to be found. Where is the World is Carmen San Diego? Where in the World is NetWeaver is a much better game to play.

Allowing SAP to Lie for You as a Business Model

I seem to debate a lot of people who have incredible confidence in their positions, but then appear to disappear when it turns out they were wrong. We call this have to feed one’s goldfish. One excuse they will use is that they could not have known differently because they were told something was true by SAP. Anything to avoid the responsibility of being held accountable for previous statements. By the way, all these items which were so easy to see at the time, just happen to be in line with their financial interests. I can guarantee that those people that may respond to this post and talk about how S/4 is the “next stage,” and how it has an entirely simplified data model, will all have a financial bias for why they want S/4 to be accepted. They won’t discuss this financial bias. They will instead carry forward the conversation as if they are some impartial observer.

However, Brightwork Research & Analysis is impartial, financially at least. I do not financially benefit if customers buy S/4 or do not buy S/4. That is an important consideration. Also, unlike anyone who works for Bluefin, IBM, etc… as an independent, I can write what I believe to be true. I covered the topic of forecast bias in the SCM Focus Press book Supply Chain Forecasting Software and included it again in this LinkedIn postAnd it is amazing to me, knowing what is known about forecast bias that we don’t seem to discuss bias when considering what people and companies propose.

Netweaver as an Example

Now, NetWeaver was something at the beginning related to rewriting parts of SAP in J2EE but later devolved into a marketing construct. S/4, unlike Netweaver, is something. It will not only turn into a marketing construct, but its development has been and will look like it will be fraught with greater confusion and problems than most other SAP applications. But whatever one’s opinions of S/4, and it should be acceptable to be unimpressed with S/4, without being admonished about how S/4 has a new data model that “simplifies everything.”

At least we should be able to agree whether S/4 as a suite, that is what is known as S/4 Enterprise Management is released. And it isn’t yet released. What is currently being re-written was written by thousands of people over decades, so no surprise it is taking longer than projected by SAP.

Conclusion

I have now heard all types of insubstantial reasons given why S/4 should be considered ready to use. Someone might use the Uwe quotes I have listed in this article.

I know from speaking to other senior members of consulting companies that they have bought the SAP hype, and do not know themselves the state of S/4 HANA. The amusing thing is that these are the people advising companies on S/4. Of course, many of the senior people, who will never work on a project don’t much care about whether S/4 is ready or not. They have a quota to reach and will say anything and do anything to meet that quota. If that means implementations fail, well, who knows they may be at another company when that happens. Quarters come every three months, the viewpoint of many is that they will deal with problems as they will cross that bridge when they come to it. Secondly, just getting S/4 deals allows you to put it on the company website, which may lead to more S/4 deals…, actually, etc..

One of the reasons I wrote this article is that I am beginning to wonder myself how many people who have investigated S/4 and know that outside of Finance (which also has rough areas and a big question mark with how may Fiori apps can be used). S/4 as a suite is not ready to be implemented.

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References

http://searchsap.techtarget.com/feature/SAP-S-4HANA-functional-completeness-in-eye-of-the-beholder

Should You Trade In Unused Licenses for S/4HANA and HANA?

Executive Summary

  • Snow Software explained how to trade in unused SAP licenses for S/4 HANA.
  • However, Snow’s article makes a lot of unfounded assumptions regarding the readiness of S/4HANA while approaching the question from the perspective of only the licensing implications.

Introduction

In this article, we will evaluate a strategy that is proposed by Snow Software on their website. Snow Software makes software that is used for auditing SAP software. The article by Snow Software is quite interesting and is very specific in what it proposes, and it provides specific recommendations.

I want to set the table properly before we get into Snow Software’s article. I don’t have anything against Snow Software. I happen to like a lot of the articles on their website, and several weeks ago I read every one of their articles related to SAP and quite a few others not related to SAP. Snow Software has a blog that brings in some authors with different license domain expertise.

I don’t happen to agree with the recommendations in this article, and I invite a representative from Snow Software to comment on this article and to have a collegial discussion. These are involved topics, and even people who are knowledgeable in the area can disagree, and that is quite reasonable.

Understanding Snow Software’s Logic for S/4HANA

The logic for Snow Software’s proposal is laid out in their article Use S/4HANA to Get Rid of your SAP Shelfware?

In that article they layout the following logic for purchasing S/4HANA. Let us get into their quotations.

“SAP Business Suite 4 SAP HANA. S/4HANA, for short, is SAP’s latest technology. But it’s also much more than that. S/4HANA represents a fundamental shift in how the mega vendor will generate long-term revenue streams. What is often less-discussed is what S/4HANA means for you, the customer. Not only in terms of technology; but in terms of an opportunity to reshape your relationship with SAP. Without over-dramatizing things, it’s a once-in-a-lifetime opportunity. Why? Because SAP needs S/4HANA to be a success. It needs to demonstrate to investors that it has a business model that is not stuck in the era of on-premise perpetual software licensing. And because it needs to sell S/4HANA licenses, it is offering excellent deals to existing SAP customers to move fast.”

So, what can be seen as left out is that S/4HANA has not been a success and it has had plenty of time to become one. It has a massive installed base (with ECC/Business All in One).

Now, while it is true that SAP has a strong desire to show that its business model is not suck in an on-premises state, SAP really has Wall Street fooled already on this topic. SAP has successfully adopted cloud speak, and is constantly cloud washing their products. The more you cloud wash, the more Wall Street rewards you. So we have yet another example of an industry that is driven by the opinions of people who don’t have any expertise in the area.

S/4HANA to be Delivered as SaaS?

Secondly, (and don’t tell Wall Street or they will be very very sad) S/4HANA is unlikely to be delivered by SaaS. In research that I am currently performing into S/4HANA to determine what has occurred on S/4HANA implementations, it turns out that very few of the implementations have been in the cloud. And in the few that I can find that are stated to be in the cloud or SaaS, they are not cloud or SaaS at all. Instead, they are non-multi-tenant or simply hosted solutions. Customers can expect none of the traditional benefits of SaaS from S/4HANA when delivered this way.

Finally, S/4HANA has nothing to do with the cloud or SaaS.

The quoted paragraph from Snow Software continues:

“And therein lies a huge opportunity for those existing SAP customers, who have typically seen their investments in SAP license increase year-on-year over quite significant periods of time. This is an opportunity to reverse that trend and focus in driving deals with hungry SAP account managers on the licenses and technologies you really need, not the ones you’ve been force-fed over recent years. To understand the scale and opportunity of this shift, we must first look to the past.”

Customers Need S/4HANA?

It is very difficult to argue that anyone “needs” S/4HANA at this point. S4HANA comes with all types of implementation costs and maintenance costs. These costs are far higher than any potential license cost benefit from moving to S/4HANA. In fact, the majority of costs associated with SAP come in maintaining SAP systems, not purchasing SAP systems. I cover this topic in detail in my book on TCO, Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making.

The quoted paragraph from Snow Software continues:

“The fundamental change is that the open architecture of R/3, with the ability to employ third-party databases within the system, is giving way to a more specific database that you’ll require as part of the platform – SAP’s HANA. This is all being done with the promise of improved performance and scalability through in-memory databases.”

Well, the promise of the performance improvement is not analyzed by Snow Software’s article. But as HANA is an analytics database primarily, there is no evidence that an ERP system will run much faster on HANA due to software. Here it is important to draw a distinction between the software side and the hardware side of HANA.

Hardware Improvement?

HANA combines a changed database with SSD memory (instead of a spinning disk) so the performance will automatically increase because of the hardware change (SSD), but not necessarily due to the software.

The quoted paragraph from Snow Software continues:

“The faster it migrates everyone, the quicker it can stop focusing its investment in resourcing and maintaining R/3. So, in a perfect world, SAP would spend nothing on R/2 today and, 10 years from now, it won’t spend any money on R/3.

Moreover, S/4HANA revenue is heavily scrutinized by investors in SAP. The faster they see adoption of this new platform, the quicker that is reflected in the share price for SAP. SAP as a stock needs a growth leg to the story despite its strong position and cash flow.

The transition to S/4HANA requires the replacement of third-party database systems with HANA and there is a monetary uplift from doing this.”

Ok, so this is a strange way of saying that the cost will be higher. The cost of HANA is quite high, and the expensive software is just the beginning. The following quotation will focus on support costs, but the support costs are based upon the license cost. Let us continue with the quotation to see how this is a problem.

Lower Cost for HANA?

The quoted paragraph from Snow Software continues:

“SAP Enterprise support customers currently pay (by default) 22% of license costs in annual maintenance for the use of third-party databases within the architecture of their systems. SAP has steadily over the past few years increased this amount from the 15% level in advance of its migration mandate. In lieu of paying an annual 22% of license costs for your database (typically Oracle), you will pay 15% of license costs for HANA*. Additionally, as an incentive to move to S/4HANA, SAP’s extension policies may enable you to apply unused SAP licenses against a credit for the new purchase. A reduction in the software application value means reduction in overall maintenance to be paid on HANA. *Note that individual circumstances may vary.”

The problem is that Snow Software is making a case for the lower cost of the annual license cost for HANA. However, HANA is the most expensive database on the market. So if you decline from 22% to 15% maintenance, the maintenance is lower, but the base is much higher than the database that HANA replaces.

Secondly, HANA comes with other liabilities, such as indirect access liability, that impact the costs of other software, which are a whole other can of worms and which I have covered in part in other articles.

Conclusion

I find the strategy presented by Snow Software to be problematic. Here is a synopsis.

  1. Total Cost of Ownership: It is far too focused on the simple license math. It leaves out the all-important aspect of implement ability of S/4HANA. And these issues are far more cost impactful. These costs are far higher than any potential license cost benefit from moving to S/4. In fact, the majority of costs associated with SAP come in maintaining SAP systems, and Snow Software’s article is not observant of this point. This true even if the unused software is traded in for HANA or S/4 HANA and if the maintenance on HANA is reduced to 15%.
  2. S/4HANA Maturity Issues: It is difficult to see how any company could have taken S/4HANA live at this point. That will not be true at some point in the future, but it is true now. I will elaborate on this point in my research which is due out in around five weeks from now. But most of the S/4HANA implementations that have “gone live” at this point are not what we would typically consider real implementations. And below that statement resides quite a lot of very interesting detail.

Therefore, applying the strategy above will simply result in having the license for S/4HANA that cannot be taken live for some time. Snow Software is not taking into account that S/4 HANA will most likely sit unused or in a partial demo state for this time. This would not be a problem as S/4HANA will normally be purchased at a discounted rate. Not HANA, which is required to run S/4HANA will not be purchased at a discount.

Therefore every year maintenance will be required to be paid on a very expensive database, albeit it at a reduced rate. And that is just one of the limitations of the strategy.

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References

[Use S/4HANA to get rid of your SAP shelf ware | Snow Software](https://www.snowsoftware.com/int/blog/2016/09/20/use-s4hana-get-rid-sap-shelfware-pt-1#.WBzBfY_XJ-Y)

TCO Book

TCO3

Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making

Getting to the Detail of TCO

One aspect of making a software purchasing decision is to compare the Total Cost of Ownership, or TCO, of the applications under consideration: what will the software cost you over its lifespan? But most companies don’t understand what dollar amounts to include in the TCO analysis or where to source these figures, or, if using TCO studies produced by consulting and IT analyst firms, how the TCO amounts were calculated and how to compare TCO across applications.

The Mechanics of TCO

Not only will this book help you appreciate the mechanics of TCO, but you will also gain insight as to the importance of TCO and understand how to strip away the biases and outside influences to make a real TCO comparison between applications.
By reading this book you will:
  • Understand why you need to look at TCO and not just ROI when making your purchasing decision.
  • Discover how an application, which at first glance may seem inexpensive when compared to its competition, could end up being more costly in the long run.
  • Gain an in-depth understanding of the cost, categories to include in an accurate and complete TCO analysis.
  • Learn why ERP systems are not a significant investment, based on their TCO.
  • Find out how to recognize and avoid superficial, incomplete or incorrect TCO analyses that could negatively impact your software purchase decision.
  • Appreciate the importance and cost-effectiveness of a TCO audit.
  • Learn how SCM Focus can provide you with unbiased and well-researched TCO analyses to assist you in your software selection.
Chapters
  • Chapter 1:  Introduction
  • Chapter 2:  The Basics of TCO
  • Chapter 3:  The State of Enterprise TCO
  • Chapter 4:  ERP: The Multi-Billion Dollar TCO Analysis Failure
  • Chapter 5:  The TCO Method Used by Software Decisions
  • Chapter 6:  Using TCO for Better Decision Making