Published on the 16/07/2024 | Written by Heather Wright
![The S/4Hana migration challenge](https://istart.co.nz/wp-content/uploads//2024/07/migration-challenge.jpeg)
More than half at risk of maintenance loss…
More than half of ERP giant SAP’s ECC customers, including those who have already completed the move to S/4Hana, are at risk of running out of maintenance by 2027.
That’s according to an analysis of data by Basis Technologies. It looked at SAP, Gartner and its own data to create an adoption model, which it says has been ‘extensively peer reviewed by leading SAP experts’.
“It becomes a really complicated equation about TCO.”
The data shows only 57 percent of enterprises using SAP’s on-prem ERP Central Component (ECC) are on track to have completed their migration to S/4Hana by the 2027 deadline for end of mainstream maintenance.
By 2030, the number could have reached 80 percent, but it will take until the mid-2030s for all customers to complete the journey, Basis Technology chief technology officer David Lees says.
But that stat is only one small part of the story, with Lees noting that customers who have already completed the move to S/4Hana run the risk of running out of maintenance on initial S/4 support packages, while those customers running ECC enhancement Pack 5 or below have an even shorter runway until end of 2025, with no option for extended maintenance.
SAP, with its extensive legacy, on-prem reputation, has been ramping up its efforts to transition customers to cloud, with CFO Dominik Asam noting during a Q4 2023 earnings call earlier this year that the cloud ERP suite is the giant’s ‘growth engine’, representing 82 percent of the company’s combined SaaS and PaaS revenues, and growing 33 percent in fiscal 2023, up from 32 percent a year earlier.
“We expect cloud ERP suite to sustain very high growth rates and therefore to represent a growing share of our cloud business going forward,” Asam said.
“We had promised to quickly turn SAP into a cloud company, and company with double-digit profit growth, and we can comfortably say we delivered,” Christian Klein, SAP CEO, said during the earnings call.
The company didn’t reveal how many of its ECC customers it is managing to convert. It has upped on-prem software support fees and announced some features and updates won’t be available other than in the SaaS offering in an attempt to speed migrations.
But despite those incentives, and the Rise with SAP program, that migration is proving something of an elephant in the room for many customers, many of whom have been slow to start what is a time-consuming and complex project.
Last year Gartner warned that it was seeing little evidence of the acceleration in migrations needed to meet SAP’s 20267 target to terminate mainstream maintenance support for ECC.
In December, it estimated that 23,000 SAP ECC customers had not licensed S/4, despite it being on the market for seven years. Extended maintenance is available until end of 2030 – but comes at a cost, with a two percent premium for software support fees.
Case in point: The New Zealand Transport Agency Waka Kotahi, which has recently confirmed it is investigating upgrading its ECC6 to S/4Hana. In Australia, the Australian Federal Police and the Australian Nuclear Science and Technology Organisation are among those embarking on migration of their aging ECC offerings to S/4 Hana.
Local industry sources have told iStart the Australian and New Zealand markets have been resisting moves to S/4Hana a little more than those in North America and Europe, with reservations over the strength of the use case to make the move.
But one source noted reservations over longer term impacts for organisations who don’t make the move, warning that the financial penalties – already indicated by the vendor – are expected to be ‘extraordinary’.
“The use case to move to S/4 is sometimes not very strong for each individual organisation, without it being a really expensive proposition, and then it becomes a conversation of are they just saying it is going to cost that much because they want you to move early?
“It becomes a really complicated equation about TCO.”
Basis Technologies says based on historic SAP and Gartner data, of the original 35,000 ECC customers, less than a third (28 percent) of customers were live on S/4 at the end of 2023.
“There is an industry expectation that adoption rates will increase, and that SAP will make progress on supporting smaller customers with their migrations to Rise and Grow,” Lees says.
He notes the challenge of resources, saying the deadline is ‘shaping up to become a smaller scale Y2K event’.
“There are a significant number of projects already in-flight, and the amount of resource forecasted to be consumed by the S/4Hana transformations, the ECC upgrades and the likely S/4-to-S/4 upgrades is high. In fact, resource peak could be another three to four years away, with more than 75 percent additional resources involved compared with today.”
Back in 2020 SAP extended the 2025 support deadline for Business Suite 7, which includes ECC, to 2027. That’s something Lee says he expects the vendor will be forced to do again. However, he expects the company to wait ‘as long as possible’ in an effort to put pressure on customers to begin upgrades.
SAP reported a 2.6 percent increase in revenue, to $192.3 million, in New Zealand in the year to 31 December 2023, with cloud sales jumping from $67.6 million to $86.9 million.