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SAP Announces New S/4HANA Deadline, But What Does It Mean to Customers?

SAP extends the S/4HANA migration deadline

While the announcement on the new S/4HANA deadline was not a huge surprise to most people, SAP have nonetheless raised some questions regarding their S/4HANA strategy and the maintenance of older R/3 ECC systems.  But what exactly does this announcement mean?

To understand that first let’s look at some of the possible reasons why the announcement was made:

  1. Slow adoption: Many have immediately jumped to the conclusion that SAP had to extend the maintenance because adoption of S/4HANA is so far behind forecasts that they had no other choice.  SAP indicate that current adoption of S/4HANA is just shy of 14,000 (end of 2019) – well below 20% of the customer base (at the time of writing InfoClutch showed 106,526 SAP ERP installed customers however other analysis has indicated the number of potential S/4HANA customers to be more like 35,000 – 40,000) and with only 5 years left of the previous maintenance period (2025), that does not leave a lot of time to achieve the remaining 80%!  However, looking at a graph of the S/4HANA implementations to date and applying a simple linear forecast shows us that even extending the maintenance to 2030 will not help to achieve the target.  If an exponential growth was to be expected, then the 100,000 adoption mark would be reached by mid-2022, making the extension of the maintenance date redundant.To draw a parallel to another massive upgrade story, Microsoft ended mainstream support for Windows 7 in 2015 and extended support at the beginning of 2020 however at the time of writing it is estimated that 25% of all Microsoft based PCs are still running Windows 7.  So, extending the maintenance period is not going to help with adoption alone.

    s4hana adoption forecast

    Linear growth at the current rate would indicate a total adoption of S/4HANA by the end of the new maintenance period of only 40,000 customers which is still far off the estimated total of over 100,000 SAP ERP customers while an exponential growth would reach the total user base by mid-2022.

  2. Listening to customers: It’s been no secret that SAP customers have been annoyed at feeling pressured into moving to S/4HANA. The DSAG (German speaking SAP user group) made it the main part of their keynote message in 2019 and there have been many companies who have vocally expressed their irritation.  Nonetheless, recent polls of companies running SAP indicate that the vast majority, if not all, have started to look at plans to move to S/4HANA already – so was the announcement necessary at this point after the damage had already been done?
  3. Marketing strategy: The adage goes that ‘there’s no such thing as bad publicity’. Well this announcement has certainly made the press and resulting in media reports regarding S/4HANA migrations as well as a deluge of blog posts (ahem) on the topic.  Coming, as it does, just after FY2019 results were disclosed prompting many analysts to question the S/4HANA adoption figures could be seen as coincidence, or perhaps good timing to help those companies not yet starting their journey, or worse yet considering other options, to realise that SAP do listen to their customers!

Companies should not postpone their transformation projects

So much for why the announcement might have been made, but what exactly does it mean to customers?  Do customers now have 5 more years to postpone their projects?  In a word, no. Here are the reasons why not:

  1. Maintenance costs: Much is being made of the extension of maintenance for 5 years, but many are overlooking the clear statement that maintenance beyond 2027 (an extension of only two years) is going to come at an additional cost. Admittedly only a 2% increase on current maintenance costs but given the levels to which SAP maintenance can get, 2% is not insignificant.  If customers wish to avoid these additional charges, they will need to complete migration by 2027 – so only two years longer than they previously had.
  2. Delaying projects: With an extension (even if only two years) then why not delay the migration project? As I have mentioned in a previous blog post, there are significant concerns that the market for SAP consultants trained and available to migrate large and complex environments to S/4HANA is finite, and there are significant concerns that it will not have sufficient capacity to handle all the migrations that will need to take place.  Market forces will result in the cost of these resources increasing as time goes on and resources become scarcer, so it is a far better option to start the migration project sooner rather than later to avoid this having a negative impact on overall project costs and success.
  3. More risk buffer: A definite positive from the maintenance extension announcement is that companies who were already facing a challenge in getting their projects completed in time now have a buffer in case the project hits any complication that might cause delays. Additionally, it means that more care and attention can be taken to the projects rather than rushing them through in order to hit the 2025 deadline.
  4. AnyDB or Java stack implementations: Many shrewd analysts noticed the announcement was very specific to HANA and ABAP based implementations which caused consternation that other types of installation might not be included in the maintenance extension. SAP were quick (notes 1648480 and 2881788) to quash concerns in this area, indicating that they’re already in negotiations with the likes of Microsoft and Oracle to extend their agreements as well.  While there is no reason to doubt this will be possible to do, you would not want to be in the position of having delayed your migration only to find that due to your configuration you are actually not going to be supported!

 

To summarize:

  • Yes, it is a good message that SAP has brought to the market, giving a bit more breathing room for companies not yet as far down their migration path as they might like.
  • No, you should not take this as an opportunity to deprioritize your migration and you should still look to start as soon as possible.

 

 

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