Understanding SAP’s Cloud First Strategy

In June 2020, amidst the global turmoil caused by the COVID-19 pandemic, SAP CEO Christian Klein announced the company’s strategic shift to becoming cloud first. For SAP, a “cloud first” strategy prioritizes developing, delivering, and enhancing products and services via cloud-based platforms over traditional on-premises or hosted solutions. In alignment with this strategy, SAP’s cloud portfolio has grown significantly, with strategic partnerships with major cloud providers like Microsoft Azure, Amazon Web Services (AWS), and Google Cloud Platform (GCP). These partnerships offer customers flexibility in choosing the cloud environment that best suits their needs, easing the transition to the cloud.

Key initiatives: RISE with SAP and GROW with SAP

At the core of SAP’s cloud strategy are the RISE with SAP (launched in 2021) and GROW with SAP (launched in 2023) initiatives. These bundled offerings provide customers with essential elements like SAP S/4HANA Cloud, Business Process Intelligence tools, and access to the SAP Business Network. RISE is tailored for larger enterprises, while GROW targets small and mid-sized businesses. Industry analysts predict these offerings will dominate SAP ERP by 2026, with Gartner forecasting that 90% of proposals will involve one of these offerings.

In July 2023, Christian Klein reaffirmed SAP’s commitment to the cloud, emphasising that only customers using the cloud-based S/4HANA would receive the latest AI (SAP Joule), carbon-accounting innovations (SAP Greenledger) and major extensions of the PaaS environment, Business Technology Platform (BTP). This focus on the cloud has raised concerns among existing SAP ERP customers, particularly those using on-premise solutions. While on-premise solutions will continue to receive updates, these will likely be less frequent, potentially excluding customers from SAP’s latest advancements.

Addressing Customer Concerns

Paul Cooper, chair of the UK and Ireland SAP User Group (UKISUG), highlighted concerns during a keynote speech at the UKISUG Connect conference emphasising a “breakdown in trust” between customers and SAP. This sentiment was exacerbated by SAP’s announcement of a 5% increase in support fees for on-premise customers starting Q1 2024. From the customer’s viewpoint, this may be seen as a tactic to push customers towards cloud adoption.

Despite the criticisms, SAP’s financial performance indicates the shift to a cloud-first company has been progressing well. In Q4 2023, the company’s cloud revenue grew by 33%, accounting for 40% of SAP’s total revenue. The S/4HANA Cloud offering alone saw a 55% revenue increase, hitting €1.03 billion. SAP seems to have no intention of shifting away from this strategy as the company is aiming for cloud revenue of between €17.0 and €17.3 billion by the end of 2024, representing a 24% to 27% increase compared to 2023.

To further bolster the cloud-first strategy through the adoption of RISE/GROW with SAP, the company announced the RISE with SAP Migration and Modernization program in January 2024. This initiative provides targeted support for customers transitioning to SAP S/4HANA Cloud, offering incentives such as a reduction of migration costs by up to 50% and shortening the time to value during the transition. Along with existing incentives, customers gain from utilising the RISE/GROW offerings such as SAP’s latest AI innovation SAP Joule, carbon accounting innovations with SAP Greenledger, continuous updates, higher availability, increased security and optimised compliance. Additionally, SAP introduced the SAP S/4HANA Cloud Safekeeper service for customers who require more time to complete their migration. This initiative supports customers adopting RISE/GROW by offering upgrades and infrastructure optimisation to ensure business continuity.

The German SAP User Group (DSAG) welcomed the introduction of the RISE with SAP Migration and Modernization program and SAP S/4HANA Cloud Safekeeper service, particularly appreciating the financial incentives that acknowledge previous customer investments in existing systems.

Customer Guidance Based on SAP’s Cloud First Strategy

For customers planning to move to S/4HANA, it is important to note future innovations will be primarily available for cloud-based S/HANA. The move may involve significant initial investment but could result in cost savings and increased efficiencies in the long term, especially with incentives provided under the RISE with SAP Migration and Modernization program. Leveraging the RISE with SAP offering can simplify the transition, reduce costs, and accelerate migration. Additionally, consulting services can be invaluable for navigating cost modelling and negotiations to secure the best possible S/4HANA Cloud deal.
Customers already using S/4HANA On-Premise should evaluate the benefits of transitioning to the cloud to access the latest innovations and receive more frequent updates against their business needs. If the benefits are worth the move, customers should consider utilising the SAP S/4HANA Cloud Safekeeper service which can optimise current infrastructure and ensure business continuity during the transitions. Furthermore, taking advantage of financial incentives under the RISE and SAP Migration and Modernization programs can help offset migration costs and acknowledge previous investments.
For customers uncertain about their plans, it is crucial to stay informed about SAP’s strategic direction and continuously evaluate how it aligns with their business objectives. Exploring the flexibility offered by cloud solutions and considering a phased transition can minimize disruptions to business. Additionally, a detailed cost-benefit analysis of remaining on-premise versus moving to the cloud, incorporating long-term benefits and operational efficiencies, will be essential in making an informed decision.

Conclusion

SAP’s cloud-first strategy marks a significant shift in delivering value to its customers. Navigating the migration to S/4HANA can be resource-intensive. JNC Consultants offer expert guidance at every stage, from cost modeling to negotiating with SAP for the best deal. With extensive SAP licensing experience, JNC helps you understand options, costs, and migration pathways for S/4HANA. We assess your Effective Licence Position (ELP), develop a detailed roadmap, forecast usage, and prepare a new license model ensuring a commercially advantageous transition. If you are considering third-party support, JNC consultants can guide you through evaluating this option and its implications, ensuring a smooth transition.

While the migration to SAP S/4HANA can be complex, with JNC this process is made easier, whether you are moving to SAP S/4HANA Private or Public Cloud. We review your contract entitlement, align it with actual usage, and offer tailored advice on renegotiation or updates, securing optimal cloud licenses at competitive prices. Contact us today to support your journey to the cloud.