The DSAG Investment Report for 2021 has been released and while S/4HANA uptake has slowed, the results of this SAP user group survey covering companies in German-speaking countries show encouraging results for the year ahead.
The three key observations heading the report are that;
- IT investments continue to rise during the pandemic
- S/4HANA projects are being impacted by Covid-19
- There is further progress in digitisation.
The survey, which we will unpack in this article consisted of questions in five key areas: IT investment budgets and SAP investment budgets, Usage of SAP Business Suite and S/4HANA, adoption of S/4HANA, respondents’ licensing strategies, and digital transformation. The number of respondents is sufficient as a statistical sample to make an assessment of the market for SAP implementations and maintenance. While it is not comprehensive as not every company using, or contracted to implement and maintain SAP is part of this user group, the survey can be considered representative and so percentage information from this study can be extrapolated and applied to the market as a whole in this area with some degree of approximation.
We can see from responses to the first question in the survey that 39% of participants in the survey stated that IT investment budgets in their company were increasing and 43% were increasing their budget for SAP investment. In both cases a much smaller proportion of 18% indicated that these budgets were decreasing.
IgniteSAP has explained elsewhere why investment in SAP solutions and IT more generally would not decrease in line with other areas in the economy such as manufacturing and retail (such as increased need for transparency in business processes) but this shows that on balance there is more investment in recovery than one might initially expect. Elsewhere in the report DSAG said that those budgets were increasing between 10% and 20%. This shows a comparatively strong turnaround in confidence in this group as a survey at DSAGLIVE during last summer showed that 22% of respondents expected a decrease in these budgets of more than 20%. Jens Hungerhausen, DSAG Chairman commented: “The numbers show that the pessimistic mood of last summer has since given way to more cautious optimism. While budgets are climbing by less than the previous year, expectations of decreasing budgets have recovered slightly over the last few months. This gives us some hope for the future”.
The infographic showing responses to the next question regarding investments in Business Suite and S/4HANA shows that year-on year there is a trend of decreasing investment in Business Suite but an increase in “large or medium-sized” investment in S/4HANA on-premise. Of this figure of 56%, S/4HANA Cloud made up a proportion of 12%. Jens Hungerhausen attributed this smaller number adopting the Cloud version of S/4HANA as related to concerns over the need to comply with the strict EU regulations of the General Data Protection Act.
The SAP Executive Board has indicated that it intends to encourage adoption of cloud provision over on-premise, and while the fact that just under half of participants in this survey have said they intend to adopt S/4HANA demonstrates that they have had some success so far in their campaign to bring their user-base up to date in one respect, it also outlines a specific challenge they need to address, namely ensuring S/4HANA Cloud user’s compliance with EU data law and promoting the understanding that this is achievable. Of the 244 participants in this year’s survey 39% said that their company was planning migration to S/4HANA in the next three years with the next largest group indicating they would do so after three years. We can see that the variance between the number shown in the previous infographic and this one is due to the phrasing of the question: a larger number of 56% said that S/4HANA was “relevant to” [their] “plans for 2021 investments” and this is reduced to 39% when a more specific question is asked (“Is your company planning to migrate to S/4HANA?”). Even this is really a question that is somewhat open-ended as it is concerned with future intentions rather than a closed question such as “Will your company migrate to S/4HANA in 2021?”. We should assume that the actual number of migrations to S/4HANA among this cohort of 244 participants in the survey will be less than 39%.
Jens Hungerhausen points out that this is in part due to Covid-19: “Companies are moving forward with the transition, but it requires a lot of good planning. So some reluctance in these uncertain times is understandable”.
The survey also asked participants about their licensing strategy in the switch to S/4HANA, and the majority of respondents (39%) indicated that they had not made a decision yet about that aspect of migration. This makes sense: given the uncertainty around the question of migration it follows that companies would not necessarily have considered questions regarding licensing S/4HANA. However of those who had considered this 22% were opting to keep their current licensing model “i.e. product conversion” and 12% said they would keep their current licensing model for now and “switch to the S/4HANA licensing model via contract conversion at a later time”. A final group of 13% said they would switch directly.
In a message to SAP the DSAG Chairman’s comment on this aspect of the survey was: “Switching to S/4HANA involves changes in both the product and licensing metrics. A license conversion also brings with it multiple challenges for customers, so more flexibility in licensing would be desirable.”
Turning to SAP Cloud solutions (other than S/4HANA Cloud), we see in the report that the products (and the percentage of the sample group) in which these companies plan to make “large or medium-sized investments” in 2021 are;
- SuccessFactors (15%)
- SAP Analytics Cloud (14%)
- SAP Customer Experience (8%)
- Ariba (8%)
- SAP Integrated Business Planning (8%)
- Concur (6%)
- SAP Industry Cloud (2%)
- Qualtrics (2%)
- Fieldglass (1%)
Here is Jens Hungerhausen’s assessment of these figures: “Analytics capabilities that allow companies to quickly undertake meaningful analyses in all relevant areas are a valuable asset in times when flexibility is needed in processes and decision-making… The fact that 15 percent of respondents are planning large or medium-sized investments in SuccessFactors suggests that some companies are still waiting to make the switch. Starting in 2022, businesses will be able to operate the HR solution SAP Human Capital Management (SAP HCM) integrated in S/4HANA, and this is definitely playing a huge role for some firms that don’t want to switch directly to a cloud solution”.
Following his reasoning we might also have expected that the other products which provide analysis capabilities and flexibility such as SAP CX, SAP Integrated Business Planning and Ariba would also have had a similar level of expected investment by companies in 2021, but the muted 6% growth in expected investment in Concur by these companies is more understandable under conditions of lockdown and travel disruption given this product’s focus on travel and expenses management.
The survey also compared expected company IT spend (i.e. “large or medium-sized investments”) among participants expected in 2021 on Platform-as-a-service products. Microsoft Azure (27%) was cited more often than SAP Business Technology Platform (17%), and a group of other PaaS providers followed at 7% and Amazon Web Services at 6%.
This comparatively substantial degree of differentiation between competitors’ market share (of these companies) in this area is unusual. SAP appears to be addressing this discrepancy in the wider PaaS market by arranging closer strategic alignments between themselves and Microsoft Azure (which IgniteSAP will be discussing in another article appearing shortly). Rather than indulging in direct competition they are also appointing ex-Azure executives to their own executive board, notably Sabine Bendiek last September and more recently Julia White. This will presumably have some beneficial effect on these figures for SAP over the course of 2021.
Under the more general category of digital transformation 41% of these companies saw themselves as “far” or “very far” along in their journey toward full digitalisation of business operations. The report on the survey suggested that this indicated that efforts toward digitalisation among these companies was picking up speed. In the DSAGLIVE survey during the summer 34% of participants expressed a need to invest in developing new digital business models and services. Jens Hungerhausen pointed out in this report that:
“This clearly shows that, for two-thirds of the companies, optimising what they have right now takes priority over always trying to innovate or anticipate new scenarios. It therefore comes as no surprise that Big Data/data intelligence and cloud computing remain companies’ top two priorities when it comes to innovation. Robotic process automation (RPA) has replaced artificial intelligence in third place.”
The report concluded that: “cautious optimism is taking hold” and this is in evidence from rising IT investments and investments in SAP. The report reiterated here that digitalisation continues and also the slow but steady trend of moving to S/4HANA. In its role as representative of a user group the DSAG highlighted that (for the benefit of users and SAP themselves) clarification and more information was required around the issue of licensing strategy. The group also used the opportunity to emphasise that there was “room for growth” in the acceptance of cloud solutions, and that platform strategies and other digital business models and services were being overlooked (by users) in favour of increases in efficiency in existing processes.
While we can see that the cautious optimism asserted by the DSAG Investment Report is in evidence in the findings of the survey, the overall impression is one of caution over optimism. This may be due to the period of the survey extending between November last year to January this year, during which period vaccine roll-out programs had yet to begin, or only just begun, and that being the case the respondents themselves did not have sufficient information available to make informed decisions about SAP and other IT investments and consequently caution would have been the correct strategy under the circumstances. Their responses to the survey reflected these circumstances. Now national vaccination programs in Europe are at least up and running the circumstances are changing and if the DSAG carried out the same survey with the same questions now then the responses may reflect further slightly increased optimism and slightly reduced caution now that we have evidence of actual change in the circumstances of the economic environment.
The report is specifically for the period of the year 2021, in which SAP themselves have predicted slow growth prospects, with growth occurring primarily in the second two quarters of the year, and responsible business planners such as those surveyed in this report are obliged to wait for as much information as possible before committing themselves and their companies to a course of action. However, investment in technology under such circumstances could be considered as insurance: protecting potential sources of efficiencies and diversifying revenue streams in order to compensate for the hard times, and the cost to these companies could be significantly less than the advantages gained if they were to lean more toward optimism.
One could say that this report reflects a current European economy that is in some sectors in a state of partial hibernation: not static but conserving resources while circumstances improve, but hibernation is an opportunity for healing and renewal. While there is a small amount of risk involved in further investment in digitalisation, there will be rich rewards to those who use this time effectively and set out ahead of the competition to pick the first fruits in the spring.