Enterprises using SAP ERP Central Component as their core ERP system in Australia and APAC are facing a looming deadline to migrate to SAP’s new cloud ERP S/4HANA Cloud by 2027, when SAP plans to end mainstream support. Before then, SAP is asking customers to undertake a migration using its own ‘Rise with SAP’ migration and modernisation offering.
Organisations in the region, like other global markets, have not been fast to commit to the move to SAP S/4HANA Cloud. Reasons include the time to commit to such a strategic decision, competing business priorities in a competitive market, the cost of what could be a very complex migration and unpopular past changes to SAP’s roadmap for on-premise license holders.
With a potential crunch coming up for companies wishing to migrate by the deadline — or even by an extended support deadline set for 2030 — Luiz Mariotto, global vice president of SAP Support at Rimini Street, told TechRepublic many organisations are considering alternatives, which can include looking at competing ERP products or seeking third-party support options.
What migration deadline has SAP set for its ERP customers?
SAP announced it will end mainstream support for its SAP ERP Central Component product on December 31, 2027, with the firm originally hoping customers would be migrated to SAP S/4HANA Cloud by then. SAP previously set a migration deadline for 2025 but pushed this out to 2027 in 2020 due to concerns from customers about meeting the 2025 deadline.
Ending mainstream SAP ECC support in 2027 means SAP customers have no choice but to begin a migration to SAP’s cloud product if they wish to follow SAP’s roadmap. However, customers unable to finalise the migration will be able to access an optional support extension program at a premium for SAP ECC 6.0 Enhancement Pack 8, out until a final date of 2030.
SEE: Is SAP or Oracle the best ERP solution for you in 2024?
An additional factor organisations are considering is SAP’s decision to restrict a number of product innovations, including AI, to the SAP S/4HANA Cloud product. This means that, although some on-premise customers have invested in migrating to the S/4HANA database — which underpins the cloud product — those customers may not get promising future innovations.
Are businesses migrating to the S/4HANA Cloud ERP?
In 2024, Big Four accounting firm PwC noted in an update on the SAP migration that it had seen “very few Australian and New Zealand customers migrate so far” to S/4HANA, even though “three years is not a long time to successfully execute a migration.” This sentiment parallels a reluctance from global SAP customers to enthusiastically embrace the upgrade early.
“The sentiment we are feeling in the market currently, is that there is very little appetite for large scale transformation programs,” PwC went on to write. “It can be hard to justify spending (AUD) $50-100+m and disrupting your business for multiple years to put in a new ERP — and certainly while there are so many competing priorities,” the firm said.
PwC did note “a high level of market activity” in the six months to May 2024, which it put down to businesses starting their migration planning. “With SAP’s 2027 deadline unlikely to be extended, we are expecting to see a significant number of companies across ANZ start their S/4HANA programs in 2025 and into 2026,” the firm wrote.
Gartner finds SAP is not upgrading customers at a fast rate
Gartner noted similar results from global markets in research that it published in October 2023. It found that only 33% of SAP users relying on SAP’s legacy ECC system had bought or subscribed to licenses to allow them to begin moving to S/4HANA, according to data available at the end of the second quarter of 2023.
SEE: How does Sage compare with SAP in 2024?
At the time, Gartner found only a fifth of ECC users had gone live with at least one component of the ERP platform’s latest version. “Gartner still sees little evidence migrations to SAP S/4HANA are taking place at the rate needed to meet SAP’s target to terminate mainstream maintenance support for ECC in 2027,” Gartner’s research stated.
Asia-Pacific markets differ in their approach to the coming upgrade
Rimini Street, which offers extended third-party support for products including SAP’s ERP, noted different reactions to SAP’s roadmap in different markets. Mariotto said user groups in Europe had shown more willingness to push back against elements of SAP’s plan, particularly around the decision not to deliver core innovations like AI to those with on-premise S/4HANA licences.
Mariotto said SAP’s Australian customers have traditionally had strong loyalty to the brand and product, but this had been tested by the on-premise licence change. He said IT leaders who had obliged SAP by winning business investment for the upgrade to the S/4HANA database now needed to build another business case internally for another migration to the cloud product.
Meanwhile, in broader APAC, Rimini Street is finding the Japanese market particularly receptive to its extended third-party support offering. Mariotto said the country has a large number of SAP customers, but these customers were also more willing to “wait and see” rather than rush to move forward on SAP’s timetable for migration, which could incline them towards other options.
Some customers in the APAC region are choosing to go with SAP
Despite some customers baulking at an urgent SAP upgrade, many customers will choose to migrate to SAP’s cloud product. Some customers in APAC are starting to move. SAP’s Q4 2023 results announced new brands that had chosen Rise with SAP included Airservices Australia, Christchurch City Council, Chandra Asri Pacific and Coles Group. In June 2024, the Australian Federal Government’s Digital Transformation Agency renegotiated an AUD $152 million three-year whole of government deal to support agencies as they uplifted their ERPs.
What is behind the reluctance to migrate to SAP’s cloud product?
In PwC’s update, it noted economic conditions, margin pressures, evolving business models and disruptive technologies as some of the pressures facing businesses that may delay them from deciding to move forward with the transition to SAP’s cloud product.
Other reasons why SAP customers may choose to delay the cloud migration are given below.
Migration cost and business value: The migration will require investment across a multi-year timeframe, into the tens or even hundreds of millions when factoring in subscription and implementation. Companies also need to estimate the expected value for their businesses.
Timing and priorities: The timing, which has been decided by SAP, may not suit all businesses in all industries, some of whom may be struggling with tough market conditions or seeking to invest funds in other forms of innovation, outside of an ERP upgrade.
SEE: We compare Workday and SAP’s HR capabilities in this review.
Complexity: PwC noted multiple pathways to migration, including “greenfield,” “brownfield” or “mix and match” approaches. The bottom line is the migration will be very complex for large organisations, as many have developed many customisations to the on-premise product.
Vendor relationship: SAP customers, particularly those who invested in an on-premise license, may be concerned about the vendor roadmap after SAP indicated future innovations like AI, generative AI and sustainability features will only be available as part of the cloud product.
What SAP migration choices do customers have ahead of 2027?
The 2027 deadline is looking problematic for some SAP customers, with expectations that many will need to extend support to 2030 in order to complete their migration project. Customers will be considering a wide variety of options ahead of their migration deadline.
Follow the SAP roadmap
Many existing customers are preparing to follow the SAP roadmap. Though it will require customers to invest in migration and implementation, as well as SaaS subscription costs, it could also deliver value to customers through providing a modern ERP in the cloud, with SAP particularly focusing on advantages like the ability to leverage artificial intelligence.
SEE: SAP SuccessFactors Review: Pricing, Features, Pros & Cons
Continue to “wait and see”
Gartner’s advice in 2023 was for organisations to take their time, even though time was running out to plan the move to SAP S/4HANA. Many organisations may still be following its advice, which was to “resist the temptation to cut the planning process short” and “consider the wider implications of moving forward to stay in step with the end-of-life target dates.”
Choose alternatives
The necessity of a wholesale upgrade to SAP’s cloud product is pushing some customers to consider their alternatives. This includes competing ERPs from Microsoft, Workday, Oracle and others or extended third-party support services like Rimini Street, which can help customers extend the life of their on-premise software while they invest in other strategic priorities.
Source link
lol
