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There Will Be Churn: SAP Nation

By December 2, 2014Article

‘Tis the season to make forecasts. Like many analysts, I have done my share of top five or ten predictions for the coming year and explained them in a few lines each. This year I have just one prediction, but have a 300-page book to back it up. 

Mirchandani book cover SAP NationMy just-released book, “SAP Nation,” is a result of some puzzling data I compiled earlier in the year. I had a chance to build a detailed model of the economy that surrounds SAP. I had thought its “GDP” would be in the range of $100 billion a year. My analysis showed it was actually running twice as hot. I was puzzled — why have SAP customers spent over a trillion dollars since the recession, when SAP’s sales/deliverables have leveled off? 

When cloud, mobile and other industry trends are leading to nice declines in many IT budgets, have SAP customers been immune? Given that every company is looking at digital transformation and front-office innovation, was this massive back-office cost crowding out needed investment dollars? 

I dug through three decades of archives to understand the root causes of this economy. SAP has been a fixture of SandHill coverage for ages now and many of you will enjoy the time travel I present in the book. 

I polled several market analysts and realized that a trillion dollars may actually be a floor! My model used conservative outsourcing rates. If you have used SAP’s consulting, they are four to five times higher. Gartner estimates there are over 7,000 consulting and staffing firms in the SAP ecosystem. My model has only a sixth of that number. The book’s model does not factor amortization or write-offs. We all know the SAP economy has had overruns and failures in spades. 

A trillion dollars is a throwaway term these days. Consider this, however: the entire Fortune 500 for the first time in 2013 barely edged a trillion dollars in profits. That led me to call several executives at SAP customers to ask them if they were OK with this state of economics. I heard a wide range of customer strategies — 30 of the customers are profiled in the book — to tame their exposure. 

Several of them like HP are “ring-fencing” SAP with cloud solutions like Salesforce and Workday. Some like Embraer are staying with SAP but moving to third-party maintenance from Rimini Street. Still others are turning off SAP. Inteva Systems, a spinoff from Delphi, the tier-1 auto supplier, has gone with PlexSystems. Middlesbrough Council in the UK is moving to Unit4. Some like Delta Airlines are trying “two-tier” strategies — SAP at the head office, Microsoft and others in the air and in the field. Others like AstraZeneca are changing their talent model; they are insourcing a significant chunk of their outsourced SAP and infrastructure resources. NetSuite, Kenandy, Kinaxis and FinancialForce were some of the other solutions customers mentioned. 

Those staying with SAP are shifting investment to HANA. Some SAP customers are consolidating instances — reversing years of code customized to subs in diverse industries and regions. Some are moving to private clouds. Others are trying different outcomes-based systems integration models — what they should have done a long time ago.  

The customers I talked to are the “canaries in the coal mine.” They are the early movers. Many have taken significant risks in making these decisions as the case studies in the book elaborate. Most, however, are reporting excellent payback. I repeatedly heard savings in the 30 to 60 percent range. I heard about agility and speed improvements. 

What was striking was the breadth of solutions I heard mentioned. Many of the solutions have matured even more in the few years since these early adopters first tried them. They are the “new mainstream.” Several of these customers told me they wished they had made the move earlier. One told me their new definition of IT risk is “missing out on the opportunity to work smarter with younger, more responsive vendors.” 

SAP itself is embracing cloud deployments around HANA. Its acquisitions in the last couple of years have accelerated the cloud focus. Hopefully it will bring cloud efficiencies to its “old economy” — its BusinessSuite, Business Objects, Business One and other on-premises customers. 

While my book focuses on the SAP economy as it is by far the biggest ERP marketplace (by a very wide margin), other IT sectors are seeing a similar changing of the guard. 

Which explains my prediction. 

Expect the “fast follower” set of SAP customers to follow in 2015 the lead of the pioneers I have cataloged. 

Just don’t ask me to predict which solution will emerge as a dominant destination. I expect a continued fragmented landscape. But, there will be churn. As in the Daniel Day-Lewis classic, get ready for a new oil rush. Gartner probability of 1.0. 

Click here to purchase the book, “SAP Nation: a runaway software economy.” 

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 SAP book is more investigative but continues his 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







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