A major global research study by the Enterprise Applications Services (EAS) division of HCL Technologies (HCL) has revealed some interesting insights into the evolution of the SAP landscapes of the vendor’s large enterprise customers, and how the major disruptive technology trends will play out in this group. Freya Purnell reports.

Earlier this year, HCL conducted a research study, ‘Examining the Future Role of SAP’, authored by president Steve Cardell and head of innovation James Riley, which saw executives from 225 of SAP’s large enterprise client base (organizations with a minimum of $1 billion global turnover), across North America, Europe and Australasia interviewed about the profile, priorities and strategic intent for their use of SAP products.

The companies came from across the life sciences, consumer services, public services, financial services and manufacturing sectors, with 40 per cent of respondents from Europe, 47 per cent from North America, and 13 per cent from Asia Pacific and the rest of the world.

Fragmented SAP instances

The study revealed a high level of fragmentation of the SAP landscape in many organisations, with the average respondent running more than five different SAP instances. Though many companies were once committed to pursuing the goal of operating from a single global instance of SAP, only 6.2 per cent of respondents have actually achieved this.

Two approaches to achieving the ‘holy grail’ of a single global instance emerged in the research – on the one hand, some companies exhibit an aggressive drive to consolidate regardless of the barriers, while on the other, organizations admit that not only is it a goal that can never be achieved, but it is actually a battle not worth fighting, with competitive advantage able to be gained through being outcome focused instead, rather than slavishly pursuing infrastructure
simplification.

Scott Davidson, general manager – Australia, HCL Enterprise Application Services, says for the organisations which are successful in moving to a single instance, it is a move driven from the highest leadership level, with the aim of moving to common processes across the business.

“The fundamental reason is to bring about consistency globally, so large organisations can actually act on a global level, rather than have to piecemeal it together. There are significant business benefits for doing that, and the CEO has an extraordinary role to play in driving those,” he says.

And in many of these cases, to fulfil their strategic objectives, they must achieve some level of global standardisation.

“For many global organisations, strategy involves growth through acquisition. If you want to bring other organizations into your business, but just accept that you’re going to run differently, you never get the associated synergies and benefits such as cost reduction through shared service or commercial synergies such as cross-selling or entry into new markets,” Davidson says.

“Similarly, a lot of organisations are moving to a more real-time view of the world. If organisations have different systems and processes, they can’t really on a daily basis look at the global working cap and make decisions on that – they can do it once a month at best. Ten years ago, you didn’t hear your CEO or CFO talk about the fact that they need common master data, but you hear that more and more now, and that’s where some of the big problems lie.”

Without the political will to consolidate, however, organisations are unlikely to achieve this. For others, a very diverse business will mean that consolidation doesn’t make sense.

In the Australian market, Davidson sees the local arms of global organisations being the recipients of these attempts to implement global templates.

“Generally speaking, my view is that companies are fairly resistant or they are not entirely happy with what they have been given, and so fitting it into the local context has always had its challenges,” he says. “However those that have managed to implement global templates successfully have clearly shown that it is possible to drive the standardisation benefits whilst also taking into account important and material differences at a local level.

“Certainly in the Australian context, for a lot of SAP-centric organisations, their view isn’t one about driving to a single consolidated global template. It’s more about actually driving it through the divisional context. I don’t see any reason why they shouldn’t be able to do that as long as businesses are aligned.”

Diverse module adoption

The research exposed a very diverse set of solution landscapes within these large organisations. Many participants spoke of an ‘ERP first’ strategy, and at 61 per cent, SAP ERP has the highest module penetration rate. But there was substantial variation across other types of solutions.

For example, even if BusinessObjects and SAP BI penetration were combined, almost half of SAP large enterprise clients are using BI products from other providers within their application landscape.

Other interesting findings included that more respondents who have implemented SAP HCM do not have ERP than do, and almost 20 per cent of participants who have implemented SAP CRM also do not have ERP.

The value of upgrading

There are plenty of old versions of SAP still being used as core operating systems in large enterprises, with 88 per cent of respondents running at least one instance of version 4.7 or older, and 22 per cent still running on R/3.

By not upgrading, organisations may be missing out on having a simplified and potentially more up-to-date landscape.

“There is an IT business case on its own that’s probably not necessarily being taken advantage of,” he says.

However, upgrading doesn’t necessarily decrease the average cost per user, which has remained quite stable even through the introduction of different versions of SAP – only marginally varying from the average cost of $1518 per user.

“In terms of the cost analysis, if you were on the older version, it left you definitely paying more, which could be as simple as the fact that you’re paying higher maintenance if you’re using versions that aren’t properly supported anymore,” Davidson says. “Oddly, the lowest cost per user came from 4.7. It might be that ECC 6.0 has a slightly higher cost per user to a certain extent because organisations are still bedding that down at the moment.”

The fact that the cost has remained so stable is also surprising, Davidson says, given that organisations would surely have generated some cost reductions.

“You would have to think there is some potential benefit in efficiency that could be driven further. A lost of the cost per user was in network and infrastructure, service packs, and application support – they are internal costs, not SAP costs, and it’s surprising that that’s not being driven down.”

While within organisations, the cost per user varies little due to company size, module breadth, industry and version release, what does make a difference to this cost is how many different versions of SAP are being run.

The average cost per core user for companies operating off a single global instance is $1135. For the average company in the survey, the direct IT savings from single instance consolidation would be around $2 million and the total expected company savings – represented by working capital reduction, headcount savings, facility rationalisation, consolidated procurement leverage, transaction volume reduction and so on – would be around $8 million.

“With the release and availability of cloud options, we are now getting many customers who are actually starting to consider that instead of upgrading, should they actually think about going with cloud solutions? I think here the answer most definitely has to be yes, and in terms of more recent developments, this consideration should extend to considering Suite on HANA in the cloud,” Davidson says.

Disrupting the status quo

If you have been following SAP’s progress of late, it will be no surprise that the research identified five disruptive technology trends which are reshaping SAP:
1. Mobility
2. Social media
3. Analytics and big data
4. Cloud
5. In-memory

Of these trends, in-memory is expected to be considered most influential in shaping SAP’s future, driven by HANA – regarded by the study’s authors as a “significant development” for SAP.

Davidson believes this is because it has the greatest potential to fundamentally change how companies do business. While cloud may make IT services cheaper and more flexible, and mobility makes things easier, the speed and capabilities of in-memory has transformational potential.

“It can change the business model of the organization from operating on a daily basis to a real-time basis. If the promises of HANA deliver in that space, then that will be quite groundbreaking. It actually unlocks a capability for SAP to not just focus on the traditional processes that it has covered, but actually start being a platform for extended business processes that have typically been outside. Examples would be orchestrating real-time supply chain optimisation at a global level, or ‘segment of one’ marketing,” he says.

Interestingly, the research showed that the expected penetration of HANA by geography would be over 80 per cent in Australasia, almost as high as anticipated in North America, and well above the almost 60 per cent expected in Europe.

By sector, customer services, financial services and manufacturing are expected to be the most common adopters.

“Certainly in Australia the feeling I get from our customers is HANA is more a question of when, rather than if,” Davidson says. “We are seeing traction in the US, Europe and the Asia Pacific, certainly with BW and as a pure database and analytical play, but not so much on the Business Suite side. I think customers are waiting to better understand the significant benefits to be gained before they buy into it.”

Mobile is the fastest growing of any of the major technology areas, with a predicted annual growth rate of 52.3 per cent for the period 2011-2015, compared with 16.1 per cent for cloud, 10.3 per cent for analytics, and just 3.9 per cent for applications.

When it comes to SAP’s predicted mobile penetration by geography, Australasia, at less than 20 per cent, is much lower than in Europe and North America, which are expected to see penetration of 50 to 60 per cent.

This was also perhaps a surprising finding, given that mobility for SAP is gaining most traction globally in enterprise asset management, and Australia’s dominant industry sectors tend to be in this area.

“I think one of the areas where Australia is actually a little behind is in customer service-related activities. Certainly if I compare globally within our own organisation, CRM-based mobility initiatives are significant in North America and Europe, whereas Australia is on a curve that hasn’t quite hit yet,” Davidson says.

Similarly, SAP’s penetration of cloud in Australia is expected to be around 55 per cent, compared with close to 90 per cent in North America, but it is early days yet.

“Compared to the US, our adoption of cloud is embryonic, but there is an inevitable move towards it,” Davidson says.
“We have literally in the last six months seen a huge shift in the conversations we’re having with organisations about cloud options, whereas 12 months ago, they didn’t necessarily even entertain the idea.”

The challenge for SAP with cloud, according to the report, is whether the right balance can be struck between enhancing its own cloud offerings and protecting its existing on-premise revenue.

In the analytics area, SAP will need to rely to a significant degree on the ecosystem to improve its penetration of this market. “The challenge SAP faces, along with all its competitors, is that even though it has the technology stack to win in this market, the relevance which will cause a client to buy primarily sits in its consulting partner ecosystem,” the report says.

“It’s about how the business benefits can be achieved. Typically a partner is probably more involved with how that happens, and they are looking for partners to come up with ideas and solutions around it,” Davidson says.

“Certainly we see that and our long-term customers have questions not so much about using the technology, but about the benefits it brings. A lot of times they don’t care which tool they are using, they just want the outcome, and that’s a discussion they are often having with the partner if the relationship exists on providing value and transformational change.”

Towards coexistence

Overall, SAP’s market trajectory is being influenced by a trend whereby multiple software offerings from the technology stable of a single large ERP vendor can ‘coexist’ alongside each other – a shift hastened by better integration tools and middleware.

Also accelerating this trend are two important drivers:
1. That a greater percentage of application spend is going to front office or operational systems, which require more niche and specialised products; and
2. Cloud becoming increasingly pervasive in large enterprises, including in core ERP territory such as finance, procurement and supply chain.

“In a coexistent world, where does that leave SAP in mobility, cloud, social media, analytics and so on. The simple answer is: it’s all about execution. Unlike the ERP wave of the past 15 years, these are all coexistent areas, and so the ‘buy it all from one vendor’ rationale disappears,” the report says.

SAP has a number of factors working in its favour for success in this market – including being savvy with its acquisitions, having a huge installed customer base, and creating the right financial deals to motivate customers to buy from it – but the question, according to the report, is whether SAP will be able to integrate “the cultural change necessary to win in this more nimble, more customer-centric and more solution-driven world”.

To request a free copy of the executive briefing document or join the conversation, visit www.thefutureofsap.com.

This article was originally published in Inside SAP Winter 2013.