SAP’s Support Extension – How will it impact your S/4 HANA Strategy?

On February 4th 2020 SAP announced a maintenance commitment for SAP S/4HANA until the end of 2040. As part of that announcement SAP committed to the provision of mainstream maintenance for core applications of SAP Business Suite 7 software* until the end of 2027 followed by optional extended maintenance until the end of 2030.

*Core applications of SAP Business Suite 7 software include SAP ERP 6.0, SAP Customer Relationship Management 7.0, SAP Supply Chain Management 7.0, and SAP Supplier Relationship Management 7.0 applications and SAP Business Suite powered by SAP S/4HANA.

The big question is how will this impact on your S/4 HANA Strategy? This announcement is a big change in tack from the previous withdrawal of support in 2025. This came in light of the launch of S/4 HANA and the drive for early adoption. Despite the positive messages distributed by SAP, HANA adoption has not been as expected and this is most certainly reflected in the announcement. SAP’s FY19 results indicate there are now 13,800 S/4 HANA customers of which 40% were net new meaning only 8,200 existing customers having adopted the platform.

So, what are the 6 things SAP customers should think about?

• Take your time to assess any S/4 HANA deal that SAP put on the table. Not doing so can lead to unforeseen cost issues or an agreement that isn’t fit for purpose. Take your time to translate your S/4 HANA roadmap into a negotiations strategy that helps you modernize your agreements, get rid of dead wood and maximize value. Define your target outcomes clearly. Performing cost modelling for different SAP licensing scenarios will put you in a much stronger position when you start negotiations with SAP.  Remember that SAP will also need to make their next quarter so good deals can always be done.
• With S/4 HANA adoption not being as strong as expected SAP will be re-doubling their effort to sell the platform in 2020 to drive revenues. Given that in parallel customers actually have more time to plan their S/4 HANA migration strategy they consequently have more negotiations leverage in order to strike a better deal with SAP. Especially if a customer has a valid S/4 HANA business case in which case SAP will be very motivated to make the transaction financially attractive.
• Consider alternative ways to derive value from S/4 HANA negotiations. SAP may hold firm on their S/4 HANA pricing models however SAP customers should take the opportunity to look at what software products they have already invested in and what will be made redundant by purchasing similar S/4 HANA solutions. Customers should look to trade in as much surplus, unused and redundant software as possible and negotiate tactically on the level of credit offered by SAP. This will have a clear CAPEX benefit but more notably an OPEX benefit by optimizing your maintenance base.
• Always be prepared for a SAP license audit. Over and above the SAP annual license measurement processes SAP run Enhanced License Audits as standard which are far more in-depth than an annual measurement. You are more susceptible to a SAP license audit if your investment in new SAP software has plateaued. If you are found to be out of compliance, there is certainly going to be resulting negotiations only SAP will be in control
• If you are concerned about SAP indirect access risk then negotiating your S/4 HANA agreement is the perfect opportunity to mitigate risk and negotiate a licensing solution. Consider converting to SAP’s digital access licensing model simultaneously as part of the deal and purchase the necessary levels of digital document coverage required to ensure future compliance.
• If you don’t see yourself migrating to S/4 HANA in the immediate future, then take a serious look at third-party support and maintenance providers. It’s clear that there will be very little new investment and development for Business Suite 7. As a result, can customers really expect to derive much value from their 22% annual support and maintenance contract? Customers could run on a stable ECC6.0 ERP system on third-party support for 3-5 years before finally migrating to S/4 HANA. The cost saving made could also part-fund the initiative.