The COVID-19 pandemic has made it imperative for businesses to become more resilient and flexible.
It has also accelerated the pace of digital transformation, as businesses are moving systems to the cloud and changing business processes to meet new requirements, according to SAP executives DJ Paoni and Julia White during a “fireside chat” with journalists and analysts Tuesday at the SAP Sapphire Now 2021 virtual conference.
“Overall, we have the best cloud booking quarter in Q1 history for North America, so we’ve also seen an uptick in large-scale digital transformations,” Paoni said. “There may be some projects that have been on hold last year ramping up, and we’re seeing customers spend on business transformation again.”
Paoni and White bring contrasting experiences in their time with SAP. Paoni, president of SAP North America, is a 25-year SAP veteran, while White joined the company in March as chief marketing and solutions officer and executive board member after a 20-year career at Microsoft.
The two executives argued that the move toward flexibility and resilience includes cloud-based initiatives such as Rise with SAP for Industries, an extension of Rise with SAP initially designed for five specific verticals, and the SAP Business Network, a social-type network to help businesses quickly connect with new partners. Both product offerings are being pitched by SAP as keys to digital transformation and were unveiled during the Sapphire Now 2021 event.
But, while many SAP customers may see the need to modernize their systems with S/4HANA on the cloud, the majority have not yet made the move. SAP’s biggest challenge continues to be convincing the holdouts to migrate, said Paul Saunders, vice president and analyst at Gartner.
“I don’t understand the logic behind thinking that those companies that weren’t convinced to move with the 2025 deadline will now be convinced to move to S/4HANA cloud,” Saunders said. “I don’t think that Rise will be of interest to the existing ECC [ERP Central Component] and R/3 base, but it could be of interest to net new customers.”
Modernizing core ERP provides advantage
Companies that deployed more sophisticated digital technologies were better positioned to understand their customers and pivot faster to new business models as the coronavirus pandemic hit, particularly for areas like customer experience and e-commerce, according to Paoni.
“We’ve also seen an increase in digital supply chain as COVID certainly highlighted some of the inefficiencies that companies had experienced managing things through spreadsheets,” he said.
However, White added, for businesses that adopted technology to manage the challenges brought on by COVID-19, they will need to undergo true transformation, rather than just implementing a Band-Aid approach of just moving systems like ECC to the cloud without adapting business processes or no-code tools to quickly automate processes or create new workflows.
Now that the economy is starting to turn in North America, White said companies are beginning to work on modernizing core ERP systems and digitizing the business process layer.
Paoni echoed the point, adding that SAP customers emerging from COVID-19 are showing interest in business transformation centered on the S/4HANA core, rather than just a technical upgrade.
“Many companies who understand that the way that they’ve operated in the past needs to change are utilizing S/4HANA as that business transformation tool,” he said. “Certainly, some customers are staying on ECC for the time being, but we’re seeing the majority of our customers that want to move to S/4HANA from that perspective.”
Customer data, however, doesn’t show as clear cut of a picture as what Paoni inferred. The vast majority of SAP’s customer base is still on ECC or previous systems, including SAP R/3, and research from SAP user groups indicates S/4HANA momentum remains a mixed bag.
For example, a survey from November 2020 of the U.K. and Ireland SAP Users Group showed that 42% of its members have no plans to move to S/4HANA, while the rest plan to make the move in the next one to three years.
Separately, a combined survey of Americas’ SAP Users’ Group and the German-speaking SAP User Group released in July 2020 indicated a large majority from each group is planning an S/4HANA move (55% of ASUG members; 70% of DSAG members), but few have made the move (16% of ASUG members; 12% of DSAG members).
Business process analysis key to transformation
SAP customers are getting more comfortable with moving mission-critical applications to the cloud, Paoni said.
“That’s the crux of Rise with SAP,” he said. “It’s about making our products easier to use, easier to implement and integrated right away. And they don’t want to pay for things upfront, so there’s a subscription aspect to it.”
Part of the Rise with SAP package is the capability to conduct business process analyses, provided by Signavio, which SAP acquired in January.
“Often, people who are on SAP ECC say, ‘If it’s not broken, don’t fix it,’ but then they look at their business processes and find that they’re multiple deviations off the norm for their industry and what the best practice benchmarks look like,” White said. “Then they see that maybe it’s not sufficient and they’re not competitive, but [the issues] may be hidden within their business norms.”
Last week, during the start of Sapphire Now 2021, SAP unveiled Rise with SAP for Industries, an extension of the original offering that launched in January. The product line is designed to help five industries — automotive, consumer products, industrial machinery and components, retail, and utilities — through the digital transformation process.
SAP plans to add to Rise with SAP’s vertical offerings but started with these five because of its deep involvement in those industries, White said.
Time is right for SAP Business Network
SAP is pushing the new SAP Business Network as another critical aspect of digital transformation.
The SAP Business Network isn’t a newly built product offering. Instead, it combines three existing products — the Ariba Network for procurement, the SAP Logistics Business Network for supply chain management and the SAP Asset Intelligence Network for asset performance management and equipment tracking — under a unified user portal and common data model.
“We’ve had these different networks serving different needs: asset intelligence, logistics and indirect procurement,” White said. “So, pulling those together as a member of this community, you can get multifaceted parts of your business needs met, and [it] brings a broader ecosystem into it versus thinking about doing point-to-point integrations.”
The one data domain model is designed to foster an open network — akin to LinkedIn for B2B supply chain — but acceptance of the network won’t happen overnight, White noted.
B2B networks aren’t a new idea, but she said the customer urgency to digitally transform supply chain processes and the technical ability of the SAP Business Technology platform to make the connections has become a catalyst for adoption.
“It will be a journey, because this is not easy to do. If it was easy, it would have been done by now,” White said. “It’s tricky; each industry has different needs — there are different supplier and buyer dynamics — but these are all solvable if all parties are willing to engage.”
Jim O’Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.