SAP Upgrade Costs & Concerns: Why Businesses Are Rethinking S/4HANA and Embracing Composable ERP
Published: October 26, 2023 (Updated: October 27, 2023)
For decades, SAP has been a cornerstone of enterprise resource planning (ERP) for businesses worldwide.However, a growing wave of discontent is brewing amongst SAP customers facing the complex and costly transition to S/4HANA. A recent study, conducted by Freeform Dynamics for Rimini Street, reveals a significant struggle to justify the investment, leading many organizations to explore alternative, more flexible ERP strategies. This article delves into the core issues driving this unrest, the rise of composable ERP, and how businesses are navigating this critical juncture.
The S/4HANA ROI Challenge: A Widespread concern
The pressure to upgrade from the legacy SAP ECC system is mounting, with official support from SAP slated to continue only until 2033 – but only for those committing to the SAP Rise offering.Though, the financial justification for S/4HANA is proving elusive for a vast majority. The Freeform Dynamics study, surveying 455 IT and business leaders, found that almost a third (31%) are finding it tough to build a positive return on investment (ROI) case for the upgrade. This isn’t a niche concern; it’s a widespread challenge impacting organizations of all sizes.
Furthermore, 64% of respondents admitted that creating a business case for upgrading from ECC requires significant effort. This highlights a fundamental disconnect: while the need for modernization is acknowledged,the value proposition of S/4HANA,especially through SAP’s prescribed pathways,isn’t resonating with businesses.
Why the Hesitation? Understanding the Root Causes
Several factors contribute to this growing skepticism. A key issue is the shift to subscription-based licensing with S/4HANA. A staggering 92% of those surveyed cited escalating and unpredictable subscription costs as a major operational concern. This contrasts sharply with the customary perpetual licensing model many organizations are accustomed to, creating budget uncertainty and hindering long-term financial planning.
Adding to the confusion, SAP’s constantly evolving migration policies, product packaging, and even renaming conventions are creating a climate of uncertainty. 84% of respondents expressed concern about SAP’s messaging and its potential impact on their operations. This lack of clarity makes strategic planning incredibly difficult, forcing businesses to re-evaluate their options.
The Rise of Composable ERP: A Flexible Alternative
As the challenges with S/4HANA become more apparent, a compelling alternative is gaining traction: composable ERP. This approach eschews the monolithic, all-in-one nature of traditional ERP systems in favor of a more modular architecture. It involves integrating best-of-breed solutions from multiple providers, allowing businesses to cherry-pick the functionalities they need and adapt quickly to changing market demands.
The study reveals a strong appetite for this approach. 29% of organizations still running ECC are actively looking beyond SAP for innovation. They are prioritizing flexibility,cost control,and the ability to rapidly integrate emerging technologies.
Key benefits driving the adoption of composable ERP include:
* Faster Access to Innovation: 83% see composable approaches as crucial for quickly leveraging technologies like Artificial intelligence (AI).
* Best-Fit Applications: 94% value the freedom to choose applications tailored to their specific business needs.
* Roadmap Control: Businesses regain control over their technology roadmap, rather than being dictated to by a single vendor.
* Cost Optimization: Composable ERP allows organizations to avoid unnecessary features and optimize spending.
“It’s good to see so many SAP customers now fully embracing the idea of open composable architecture and the use of loosely coupled third-party solutions to meet ERP needs,” says Dale Vile, Distinguished Analyst at Freeform Dynamics. “This business-led, rather than supplier-led, approach has been commonplace in other areas of IT for a while as it pays dividends in terms of flexibility, control and access to new innovations.”
Extending the Life of ECC: A Viable Strategy
For many organizations, a complete and immediate migration to S/4HANA isn’t feasible or desirable. Extending the life of their existing SAP ECC systems,while strategically adopting new technologies,is becoming a popular strategy.
Rimini Street is actively supporting this approach,recently announcing extended support for SAP ECC 6.0 and S/4HANA for up to 15 years. This allows
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