In the spring of 2018 enterprise resource planning (ERP) software giant SAP announced that from 2025 its ERP software will be built to operate with just one database platform, its own SAP HANA database.
Between now and 2025 SAP will continue to support ERPs using Oracle, SQL, IBM or a myriad of other database formats, but beyond 2025 it will no longer support ERP applications not using the HANA database. Discussion on CIO forums that the Horizon CIO Podcast is a member of displayed a fear amongst business technology leaders that SAP is imposing a restriction on agility and technology spend on CIOs. This restriction comes at a time when CIOs must display an increased focus on the needs of the customer and business agility.
CIO Mark Lockton-Goddard and Bryan Oak, COO of Searchlight Consulting agree with this sentiment and debate the issue on the Horizon CIO Podcast.
“HANA is still a very nascent product, it is increasing in adoption and the product set is maturing, but at the same time we have a lot of existing SAP customers who have invested a lot of their time and are struggling to see the business case for moving from their existing platforms to HANA,” Oak says analysing the current database market.
Analyst houses believe there are over 36,000 instances of the SAP ERP platform in place globally and although 2025 may sound some way off, it is less than seven years away.
“Often in our businesses we have customised them and that may not be a good thing, but it is often right for our business. That doesn’t really leave a lot of time, as a complex implementation means there is not a lot time,” Fidessa financial services business CIO Lockton-Goddard says. “Upgrading therefore is often an expensive process and it is time consuming and the business benefits may not be seen.
“So to have a conversation with the board about doing an upgrade that will cost a bunch of money, and you are not going to get the business benefits is not a great conversation to have right now.”
Oak agrees with the CIO, but believes the industry must not look at SAP’s plans as an “upgrade”. “The architecture is such that for most people it is a re-implementation. The customisations you have will have to be considered. If it is a reimplementation and a significant investment, you don’t want to start those conversations with ‘we have got to do this because the database technology is forcing us to do it’. That is the tail wagging the dog. It should be a conversation about what are the business drivers and what are the capabilities we want,” Oak says.
“Having already a lot of investment on the balance sheet around SAP, you cannot just wipe that off and say let’s start again,” Lockton-Goddard adds.
“By 2025 normal support for the existing versions of SAP running on other database platforms will be reduced,” he says, though Oak believes it is highly likely that SAP will offer an extension.
SAP in danger
“It is a challenging conversation for SAP. If you are saying the right thing is to revisit our business plans and processes, I am not sure how many businesses would say SAP is the answer,” CIO Lockton-Goddard says of how organisations are constantly revisiting their strategies and business processes and as a result drop application suites as part of this review. The CIO adds that organisations are beginning to question the reasons for having an ERP platform.
“Maybe an ERP solution is not a great answer for a dynamic, customer focused very agile business, so it is very risky for SAP to force people down a route where SAP will not be the answer.
“The nearer you are to the customer, the more you need to be agile, the more likely you are to be digital and therefore the more that will impact the systems on a regular basis. So these large complicated systems don’t have the agility that we need. So again we end up pulling the ERP back into itself and it becomes a system of record and you deploy more agile tools around that,” Lockton-Goddard says.
Oak (left) agrees and Searchlight Consulting see an increasing number of organisations assessing a component view of the applications they need and selecting applications depending on their “business landscape..and the capabilities needed”.
“Some of this is also a bit old school, we talk of a replacement journey of three to five years, I can’t operate in three to five year cycles, I am lucky if I can operate in three to five months. So the concept of something that is complicated and deploying in that old waterfall style of way is just a non-starter. I don’t think it works for a lot of businesses now, we need to be pacy, agile and able to flip systems based on what is going on in the market right now. It feels like SAP are being product focused and not customer focused,” Lockton-Goddard says.
Oak adds that this old school thinking, as CIO Lockton-Goddard dubs it, suggest SAP do not understand the needs of their CIO customers. “You still have got to have a core set of transactions that are stable, and you don’t want to be told that if you want to open a new channel or a new supply to market, you have got to go and rip out all the finance, supply chain and HR.”
Another threat to SAP is the rising adoption by CIOs and organisations of SaaS tools such as Salesforce and Workday, to name just two. Both tool sets are expanding beyond their traditional sales management and HR into business processes such as procurement and payroll.
“When you integrate all of these systems together and a transaction takes place in a third party application, which accesses the SAP business logic, that is an indirect user,” Oak says of the increasingly common application landscape CIOs operate. But it is this complex architecture which led to the court case back in February 2017 ruled in favour of SAP against FTSE listed beverages firm Diageo and others for infringement of the software licence. “They settled for huge amounts of money where they are deemed to be outside of their licence agreements,” Oak says.
“You are in an environment with other products and that is where the existing SAP customers will be well aware of the well documented legal cases of indirect access.
“SAP has tried to remedy that and they have got some bad press about how they were using that case as a stick for the way they worked with clients. They remedied that a bit with talk of outcome based license payments,” Oak says. “That is going to be really confusing for the CIOs and how do we factor that in so that we have predictable costs. With user based pricing it is fairly easy to factor. When you look a business transaction volumes it becomes a very difficult business to model.”
“Pricing is not overly simple now. These organisation are not known for having clear and simple pricing now,” Lockton-Goddard adds.
“I think the desire to get more revenue from existing clients was a period of time where the licence audit was being used as a bit of a stick. It shows you must understand your license agreements and the chances are you don’t have one agreement, and understanding the lay of the land and getting good legal council is essential,” Oak adds.
Does the database matter?
“To some extent it should be irrelevant and it should be based on outcomes. I don’t want to give that decision away, because I know that data, how we look at data and use it, that is increasingly a strategic question for us,” CIO Lockton-Goddard (left) says. “I worry when a service provider starts to regiment and restrict what you can do as a business.”
Oaks argues: “As long as you can get to the data, and it performs and this is where SAP is going with the HANA cloud offering.” He and Searchlight believe the real concern for CIOs is “whether all of these software providers are geared up to be a support partner. The management, support, responsiveness and the service levels that the users are used to,” the COO says.
Lockton-Goddard says: “I totally understand why SAP want to go down this route, what is concerning is the cost of the upgrade is so high for a lot of people that it might have a negative effect on their business”.