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SAP Nation - an Empire in Disarray

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SAP Nation 2.0 coverAbout every 18 months for years, I have released a new book on technology-enabled innovation. Then last December, I detoured and wrote “SAP Nation” — an exposé on waste in IT. When that book was published, I was all set to resume writing about digital transformations. And yet, after just eight months, I recently released a 150-page book, SAP Nation 2.0 with the subtitle, “an empire in disarray.” 

Why?

In New York in February 2015, SAP announced its next-gen S/4HANA (S/4) product. CEO Bill McDermott called it “our biggest launch in 23 years, if not in the entire history of the company.” In a book released soon after, Dr. Hasso Plattner, the legendary co-founder and still-spiritual leader of the company described the massive effort to rewrite 400 million lines of code in the predecessor R/3 (now called Business Suite) product. 

McDermott described it thus: “We had to reinvent that great core (of the previous R/3 product) … S stands for simple, 4 for fourth generation, HANA stands for in-memory, real-time, where you can run your entire company, radically simplified at a speed never before achieved, in real time, in the cloud … or on-premises. ” Dr. Plattner accented the importance of the new product when he told a journalist after the product launch, “If this doesn’t work, we’re dead. Flat-out dead.” 

Something that momentous deserved an update, and I could have issued a 30-40 page eBook soon after. But the New York launch raised more questions than answers. So, instead I wrote a Forbes guest column with many of the questions. Other analysts added their own questions. When you are dealing with complex enterprise software, a level of ambiguity is not unexpected. Besides, I expected by Sapphire in May (SAP’s annual user conference), SAP would have a much more fleshed-out story to tell about S/4. 

So I used the next couple of months to start researching how other next-gen enterprise software products fared over the last couple of decades. The result is a 25-page chapter in the new book about the JD Edwards OneWorld launch in the 1990s; the Microsoft Green project, which tried to homogenize multiple acquired ERP products around 2005; the Oracle Fusion project over the last decade; and more recently the Infor CloudSuite project. I also looked at SAP’s own projects around NetWeaver and BusinessByDesign. My conclusion: a next-gen product takes years of development and maturation. Migrating a legacy customer base takes even longer. Those are just the laws of physics. SAP may be able to bend these laws slightly with S/4 but will likely not be able to break them.  

At the Orlando event in May, surprisingly, SAP ended up raising even more questions about S/4. McDermott did not even mention S/4 till 20 minutes into his opening keynote. There was confusion about when industry functionality would be delivered. It appeared that SAP had very few customers who had shown interest in the S/4 public cloud. Again, my view was something that complex would need more time for SAP to explain and for customers to understand. So, I continued to research SAP and other materials for additional perspectives on S/4. 

As the weeks passed by, in reaction to the many case studies profiled in “SAP Nation,” I started hearing from/about other SAP users. The common thread was, “I wish you had talked to us when you wrote that book — here is what we [or so-and-so customer] are doing to optimize our SAP environment.” And this is when I became increasingly aware of the sprawl in the SAP economy. 

SAP’s product portfolio has exploded, and in the last decade there have been nearly 50 seemingly disconnected acquisitions. SAP’s organic products continue to proliferate. The wide diversity in SAP’s portfolio is vividly on display in its advertising budget. This runs the gamut, from radio spots promoting the Concur product to small businesses, SuccessFactors billboards at competitor events, corporate branding at hockey stadiums, three-page spreads in The Wall Street Journal and HANA commercials that ask, “Can a business have a mind, a spirit, a soul?” 

Next, there is the sprawl around SAP’s core applications at its customers. According to Panaya, a tool vendor, “More than 50 percent of SAP shops have 40+ satellite applications. Of these, less than 10 are SAP applications.” CAST Research Labs analyzed customizations at several major SAP customers and found most of the customizations were sizable, with many of them high-risk, according to its benchmarks. 

In the book, I identify nine strategies customers are using to diversify their SAP investments including third-party maintenance and two-tier ERP. It’s not just a handful of SAP customers; there are hundreds that are diversifying their portfolios. 

Finally, there is significant growth in the SAP partner ecosystem. At its Global Partner Summit this year, SAP announced it now has 13,000 partners — a five-fold increase in the last decade. Lots of Fiori and HANA consultants, and private cloud infrastructure service providers in the mix these days. 

It hit me that SAP’s runaway success in the 1990s came about because its R/3 product dramatically reduced enterprise sprawl. And just 20 years later, it has become the poster child for enterprise sprawl. Its cloud competitors are using that very argument against it. Dave Duffield, co-founder of Workday likes to describe having customers on a common code base as the “power of one.” Zach Nelson, CEO of NetSuite, touts “one product for many industries.” 

S/4, as initially defined, may only be aimed at less than five percent of SAP’s 300,000 customers. A “next-gen” product should ideally have something for a larger portion of the customer base. Ideally, S/4 should attempt to rationalize the sprawl in the SAP customer base and provide a path forward for a broader base of customers. 

Six months after the New York event, I still have a 30-page chapter in the new book with questions about S/4. I have graded S/4 in the graph below and believe that we are looking at a “rolling launch” where the final shape of S/4 will not be known for months, or even years. 

S4 chart 1_v2

I encourage you to read the book — it is fast paced with several early readers telling me they read it on a three-to-four-hour flight. And then I would like to hear whether you agree or disagree with my conclusion that we are seeing an “an empire in disarray” with the sprawl that has spread across SAP Nation over the last few years and with the confusion that S/4 has caused in SAP’s customer base.  

Click here to purchase “SAP Nation 2.0: an empire in disarray.”  

Vinnie Mirchandani is president of Deal Architect Inc., a technology advisory firm that helps clients take advantage of disruptive trends before they go mainstream. He generally writes books on technology-enabled innovation. The two SAP books are more investigative but continue his research and case-study-heavy writing style. He is a former Gartner analyst and writes two technology blogs, Deal Architect and New Florence. New Renaissance. Email him at vm@dealarchitect.com.

 

 

 

 

 

 

 

 

 

 

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