SAP's challenge ahead is making a case for cloud migrations

Customers weigh in on cloud, AI

Members of the U.K. and Ireland SAP User Group (UKISUG) are on board with the move to S/4HANA, but are also looking for more clarity on the risks and benefits of a cloud move. Recent member research showed that one-third of organizations have already migrated to S/4HANA and almost two-thirds are in the planning stage.

"With S/4HANA, it's no longer a question of 'if' but 'when' for most organizations," said Conor Riordan, chair of UKISUG. "A key consideration for many organizations is building a solid business case to move from [SAP ERP Central Component] ECC to the cloud."

Making the transition poses significant risks and challenges for large and complex organizations, according to Riordan. This usually results in a business case involving at least three or four steps, starting with a move from on-premises ECC to on-premises S/4HANA.

That first step is the costliest, he added. This can make it difficult to secure funding, as ECC remains supported until 2027 and other business-critical projects are likely to take priority.

"The advice is start planning now and aim to complete the transition by 2026," Riordan said. "Secure a reliable partner, carefully develop the right strategy, build a robust end-state business case and manage business expectations throughout the process."

The question of how organizations will access SAP's future innovations including AI remains a main topic of discussion for UKISUG members. Migrating to the cloud through Rise with SAP offers the most straightforward path, according to Riordan, although this is typically a multiphase, multiyear process.

"For organizations with complex and critical on-premises implementations, the key consideration is how essential SAP's AI offerings are to their operations," he said. "If these capabilities are critical, another important question is whether there will be alternative ways to access them, such as through the SAP Business Technology Platform."

Most customers are interested in the opportunities that rapid advancements in AI present to get greater value from their data and whether SAP is well positioned to support them on their enterprise AI journey, he said.

This includes access to Joule, SAP's generative AI copilot. However, while more than half of UKISUG members believe that Joule could improve their organization's overall use of SAP, the communication and education around the offering need improvement, Riordan said.

"For example, Joule is often closely associated with SAP's Rise messaging, even though its capabilities are also accessible through many of SAP's SaaS products, such as SuccessFactors," he said.

Year of the business case for cloud

In the year ahead, SAP customers are looking to build the business case for S/4HANA Cloud migrations, and SAP needs to help with this, according to industry analysts.

One complicating factor is that the end-of-support deadline for ECC is becoming a real problem for both SAP and its customers, according to Joshua Greenbaum, principal at Enterprise Applications Consulting. It's putting unnecessary pressure on all parties because there's generally no disagreement about the need to move, but it's a question of when and on whose schedule.

SAP and its customers are equally guilty of failing to do the hard work of making strong business cases for migrating to the cloud, he said. But the business cases are there to be found if the customers look for them and then do the hard work internally to build them.

"I [walked] away from 2024 saying that there's got to be much more done about that business case problem," Greenbaum said. "If that's done, there's a lot that can be said about moving everyone closer to reconciling the need for customers to be on the cloud and the need for SAP to get customers in the cloud."

SAP is at a juncture, as it has a large base of customers that depend on its legacy systems, yet it also needs to prove its relevance as a tech leader, according to Jon Reed, co-founder of Diginomica, an enterprise industry analysis firm.

"Companies are going to be running SAP ERP systems for a long time, but that's different than being perceived as deeply relevant," Reed said. "Ultimately, when SAP launched Rise with SAP, they called it transformation as a service, and they wanted to be their customers' go-to transformation partners."

AI is one of the technologies that can help SAP make the case for relevance, as SAP ERP systems hold much of the data that can be used to generate useful business results for companies, he said.

"If you're just going to chat with AI about random stuff as a consumer, that's one thing, but if you want strong business-caliber interactions, you need the data," Reed said. "I want to see true customer success around the adoption of SAP's software and treatment of the customer as their transformation partner of choice."

The risk that SAP runs now is that it will be seen as a data repository that other vendors can draw on, he said. If SAP started to give customers advanced functionality now, it could make the case as an innovation partner, regardless of the ERP release its customers are running.

Rise with SAP must evolve

SAP will also need to clarify the stance around Rise with SAP as the vehicle to both migrate customers to the cloud and provide access to innovative features, analysts said.

Rise continues to evolve, but the company's primary focus has been on what's good for SAP and not what's good for the customer, according to Greenbaum. That needs to change in 2025, he added.

Linking AI and innovation to Rise with SAP is one of the strategic blunders of the year. It drove a lot of customers into the arms of competitors or other ecosystem partners. It confused everybody, and the irony was that it wasn't even true.

"Linking AI and innovation to Rise with SAP is one of the strategic blunders of the year," he said. "It drove a lot of customers into the arms of competitors or other ecosystem partners. It confused everybody, and the irony was that it wasn't even true."

SAP customers can implement AI and other cutting-edge features without a Rise with SAP contract, Greenbaum said. For example, some large customers are standing up a sidecar of S/4HANA Cloud Public Edition to deploy features such as Joule while still running older ECC or S/4HANA systems.

"That's a smart strategy that solves a lot of customer problems, but it has to be done outside of Rise with SAP as it's currently constituted," he said.

Reed agreed that SAP should emphasize the S/4HANA Public Cloud Edition via Grow with SAP as the way to deliver new technologies. Indeed, SAP is increasingly moving in this direction by stressing the importance of customers moving to what it calls a "clean core," which enables a standardized environment needed for the public cloud.

"They're emphasizing the public cloud more because they've realized that the more they can get companies to standardize, the more they can deliver differentiating AI capabilities," Reed said. "It's a lot easier to manage these landscapes and keep customers up to date so that they don't run into the problem they have with older S/4HANA customers that haven't upgraded and are now also facing end of maintenance."

The year ahead will be critical for SAP to prove that it can deliver a trusted AI platform for business outcomes or if it will cede this role to the cloud vendors, said Holger Mueller, an analyst at Constellation Research.

"The speed at which SAP can make available its newly announced [Datasphere] capabilities will be critical to determine the outcome of that decision," Mueller said. "SAP still holds the key to the kingdom here, as it has the transactional side of the enterprise, and the closer it gets to real time in [the] searching of these transactions in the data lake will be critical."

SAP's challenge will be getting its customers that remain with on-premises systems this type of capability, he said.

"SAP must soften this stance because the pressure to use AI will be ubiquitous in 2025," Mueller said.

SAP confirmed that the cloud is a "prerequisite for business success today" and that it wants to help customers get there.

"Cloud enables access to the latest technology from AI to sustainability, provides visibility into real-time data and supports scalability. SAP is committed to supporting customers as they transition to the cloud, including providing incentives and migration programs in addition to direct support from SAP experts," an SAP spokesperson said in a statement to Informa TechTarget.

Jim O'Donnell is a senior news writer for Informa TechTarget who covers ERP and other enterprise applications.