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 illustrated 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 the 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 the 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 the 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 the 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 about 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 confusion 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

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

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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

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

https://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.
  • Snow’s article makes 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.

Financial Disclosure

Financial Bias Disclosure

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

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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:
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  • 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