SAP faces breakdown in trust over innovation plans

Ever since SAP CEO Christian Klein (pictured) told financial analysts in July that the company would only offer its latest AI and “green ledger” innovations to customers running its flagship S/4HANA ERP platform through its subscription-only, cloud-based Rise with SAP offering, the company has been on the back foot.

The move may have played well with shareholders, as Klein led them to believe it would drive a shift to Rise, increasing revenue and cutting SAP’s development costs. But for the majority of SAP’s customers, who still run older versions of its software, or run S/4HANA on premises or in hosted environments, it’s a slap in the face.

At its annual meeting in September, the German-speaking SAP User Group, DSAG, called on SAP to make green ledger carbon accounting tools a feature of all SAP environments, not just S/4HANA in the cloud, and pay more attention to customers running its software on premises.

And last week, Paul Cooper, chair of the UK and Ireland SAP User Group (UKISUG), made the focus of his opening keynote speech at the organization’s Connect conference about what he called the “breakdown in trust” resulting from SAP’s treatment of customers.

“Through our subscriptions, licenses, and maintenance payments, we’ve clearly continued to invest in SAP,” he said. “However, that investment has to yield a fair return for customers as well as shareholders.”

SAP should’ve realized that affected customers wouldn’t presume they were a minority and keep quiet. Although the company doesn’t publish details of what proportion of its customers have moved to S/4HANA in the cloud, user organizations do, and their member surveys reveal little appetite for Rise.

Cloud users still in the minority

UKISUG members running S/4HANA overwhelmingly do so on premises or in hosted environments (running the on-premises version in someone else’s infrastructure), with only 21% of S/4HANA users running the private or public-cloud edition, Cooper revealed at Connect. Among those still planning their move to S/4HANA, cloud adoption will be a little higher, with 30% planning to run their ERP system there.

A DSAG survey published in September also revealed that 79% of respondents still used SAP’s legacy ERP systems, ECC and Business Suite, with 41% using S/4HANA on premises, 8% using it in private clouds, and 3% using it in public clouds. The proportion of S/4HANA users running it on premises matches that of the UKISUG survey.

That’s a large proportion of SAP’s user base to upset, and something that will surely come back to bite it when contracts are renegotiated.

At least one enterprise running the on premises version of S/4HAHA has already asked for a price cut, but so far, SAP has resisted, Cooper told CIO.com on the second day of the conference.

He expects such demands to increase over the coming months, though, as CIOs have difficult conversations with CEOs or CFOs wanting to know why they’re paying for something they’re not getting.

CIOs in that position need to tell SAP, “We invested in this willingly with the understanding that we would be fully supported, and innovation would be frictionless for us, and that’s not now the case,” he said.

It can take a couple of years from RFP to running S/4HANA, so companies going live now would have had no idea when they signed up of Klein’s plan to restrict innovations to a happy few. It’s causing them to question plans for future projects with SAP, Cooper added.

A change of leadership

This is Cooper’s last conference as chair of UKISUG. Next year, he’s handing over to Conor Riordan, currently the organization’s vice-chair.

Speaking with CIO.com, Riordan also called on SAP to look beyond what’s most profitable, and to deliver innovation wherever it’s technically possible, even to non-Rise customers.

There are certain innovations that SAP can only deliver to customers running under Rise, where it has access to their production environment and data, “but the majority of innovations can be delivered to anyone,” he said.

When SAP’s Klein spoke at DSAG’s conference in September, he repeated the mantra “We leave no one behind” several times.

In reality, though, enterprises are being left behind, Cooper said, adding that he knew of SAP customers who were told that Rise with SAP isn’t appropriate for them because of their scale or the way they’re using S/4HANA. That means SAP’s current cloud-only strategy for innovation is indeed leaving some customers behind.

Legal recourse

With both sides holding firm, UKISUG is still looking for a diplomatic way out of the impasse. Asked whether customers have grounds to take SAP to court, Cooper said some CFOs could be looking at their contracts and at emails exchanged during the RFP and purchasing process.

A legal battle could be bad for SAP and its customers — although not everyone. “We know who’ll get richer on that sort of challenge,” he said. “The lawyers.”