Cloud Computing

Innovating with SAP: The magic happens at the edge not in the digital core

This is a contributed piece by Hari Candadai, Group Vice President of Product Marketing and Strategy at Rimini Street

It would be clear to those of you following the enterprise software market, that SAP’s obsession with moving everyone to S4/HANA is forcing customers into difficult decisions. SAP claims S4/HANA (billed as its “next-generation business suite”) is integral to customers wanting to transform their businesses for the digital era. They are being told this will create the “digital core” they need to succeed, but this feels like a very stark black and white choice – one with poorly defined returns and benefits. Indeed, many customers have complained the S4/HANA roadmap is not clear enough to commit the investment required. It is no surprise a recent study by Nucleus Research found nine out of 10 SAP customers had no interest in moving to S4/HANA.

So what is the alternative for SAP customers, who need to drive digital transformation to sustain their competitive advantage?

The answer is to adopt a hybrid model, which blends on premise and cloud applications into an integrated, interoperable infrastructure. The feedback we have suggests SAP customers would prefer to leave their robust, stable on-premise ERP in place while they continue building out hybrid IT with cloud applications. This could involve cloud technologies SAP has acquired, such as Concur, SuccessFactors and Ariba, but many see this as an opportunity to diversify their application environment, looking beyond SAP for best-of-breed cloud technologies.

SAP customers are not alone in thinking this is the best approach. A study by the IT software management vendor SolarWinds quantified what has been widely recognised across the IT industry: Hybrid IT has become the de facto computing model to drive innovation in the digital business era.  The SolarWinds survey found that more than 80% of organisations run both core on-premise systems of record in tandem with cloud platforms and applications. The remaining 20% is split almost evenly between all-cloud organisations and those that continue to run only on premise systems.

By moving functions like sales force automation, HR, customer service, and more, to the cloud, SAP licensees are innovating around the edges and forging new systems of engagement. This paves the way for digital transformation with faster processes, greater productivity and lower costs, while opening up opportunities to take advantage of platforms such as the Internet of Things.

Achieving this hybrid model is not straight forward. The Solar Winds study found that continued support for core applications and budget limitations were hindering the adoption of the model. The two issues are intertwined, because licensees spend more than $300 billion to support SAP ecosystems, according to research by SAP Nation author Vinnie Mirchandani. All told, SAP licensing, support and third-party consultants consume an inordinate share of the IT expenditure. That imposes budget limitations that throttle innovation in hybrid IT.

SAP ERP is a foundational element of hybrid IT, but its substantial support price tag is at odds with infrastructure cost reduction - the #1 objective for hybrid IT identified in the SolarWinds study. The cost is higher still when SAP customers devote internal resources to troubleshooting customisations and optimising performance, not covered in an SAP support contract.


Funding hybrid IT innovation

What options do SAP customers have to make the most of hybrid IT? One answer may be to gamble on S4/HANA, but as discussed earlier many SAP customers are dismissing the false premise of a “digital core.” Instead they want to maintain their existing ERP while they innovate around the edges using the hybrid IT approach.

For hybrid IT to live up to its potential SAP customers need to find a way to reduce costs and channel those savings into the more cost-effective cloud, as well as modern mobile, social and big data technologies. The obvious answer is addressing costly SAP maintenance contracts and finding ways to dramatically reduce its impact on the bottom line.

One key justification for this approach is that SAP support is no longer delivering the value it once did. A decade ago, for instance, licensees looked forward to new functionality in an upgrade. But innovation in the established ERP platform has dwindled in comparison to the big bet SAP is making in S4/HANA.

A second reason is sheer cost savings and value. SAP customers can save up to 90% on their total maintenance costs, while benefiting from support for customisations, direct access to senior support engineers, and tax, legal and regulatory updates.

Fundamentally this boils down to how organisations decide their long-term enterprise software strategies. There are some who are so dependent on SAP, with their entire operations built on its software, that moving to S4/HANA will be the only option. However, for the vast majority of SAP customers, who want to break the cycle of keeping the lights on at the expense of innovation, turning to a Hybrid IT model is a much more sensible approach. It gives CIOs more choice and greater flexibility, and a stronger negotiating position with SAP. Done well it strips out costs, especially around maintenance, that can be re-directed to innovation that will help the bottom line.  Hybrid IT is the enabler for redressing the balance between operational IT on and digital transformation. Instead of 70 – 80% of budgets being spent on day-to-day operations a hybrid IT approach should enable SAP customers to aim for a 50-50 split between operational and innovation focused IT strategies.

SAP licensees really can have the best of both worlds.


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