aheadCRM - Blog #S/4HANA

Is SAP on a steamroll?

Wed, 24 Jul 2024 17:30:02 -0400

The news

On Monday, July 22, 2024, SAP presented its numbers for Q2 and H1, 2024.

The highlights include:

Cloud backlog up by 28% (27% in Q1)
Total revenue up 10% (8% in Q1)
Cloud and software revenue up 10% (9% in Q1)
Cloud revenue up 25% (24% in Q1)
Cloud ERP suite revenue up 33% (31% in Q1)

This in combination with an increasing margin. The total revenue growth and high profitability needs to be seen in the context of the company's still ongoing cloud transformation, with continuously decreasing software license and support revenues.

Obviously, the financial community liked these numbers, as can be seen by the jump of SAP’s share price by more than 5 per cent from about $200 to $212 after releasing the earnings numbers.

According to CEO Christian Klein, a lot of this success can be attributed to SAP’s AI strategy. Klein stated that almost a fifth of all closed deals included premium AI use cases.

A grain of salt in the soup is the employee engagement index that is part of the non-financial outlook. SAP reduced the 2024 target from 76 – 80 per cent in Q1 to 70 – 74 per cent.

The bigger picture

To put this in perspective with cloud juggernaut Salesforce, the total revenue growth is comparable with the Salesforce Q1, 2025 statement. Salesforce’s revenue grew by 11 per cent and the current performance obligation by 10 per cent. Also, in contrast to Salesforce, SAP reiterated and strengthened its outlook instead of painting a more muted picture.

The main competition in the next months and years will happen in the area of AI infused services. There is an increasing skepticism of the cost-value equation offered by generative AI. There is also an increasing awareness of a continuing need for specialized models. In fact, there is a report commissioned by vultr that shows that advanced businesses run on average 175 models and do not rely on a one model fits all strategy. At the same time, investment bank Goldman Sachs asks whether generative AI delivers enough return for its cost.

Consequently, there need to be – and will be – serious efforts in showcasing the value that is offered by AI instead of continuing to build on the continuation of the current generative AI hype. Vendors will increasingly look at delivering high value use cases that actually solve business challenges beyond making this or that more efficient (often on cost of the employee) and/or close capability gaps.

My analysis and point of view

SAP’s revenue numbers basically tell that the company increasingly and profitably transforms itself into a cloud company with a focus on cloud ERP. The cloud ERP revenue growth continues to outpace the overall cloud revenue growth. In fact, cloud ERP makes up 82.2 per cent of the cloud revenue in Q2, 2024, up from 80.6 per cent in Q1. Depending on how the exact – and undisclosed – revenue distribution and allocation is, this means that SAP’s CX business is not big and not a focus. This is something that the SAP CX line of business shares with Microsoft Dynamics CRM. Still, albeit on a lower base, it’s growth should outpace Salesforce’s growth, which is mostly driven by integration and analytics services, plus Slack.

The continuous strength of SAP’s cloud ERP growth is also a sign that the two-pronged strategy of favoring cloud delivery when it comes to innovation and SAP RISE seems to work out.

That customers are willing to buy the company’s “premium AI services” shows that SAP is able to convince its customers that these services offer appropriate value. Apparently, SAP is communicating that it is addressing the right problems. However, not all of these AI solutions will be underpinned by sufficient data that is available to customers to prove this proposition, yet. So, it will remain crucial for SAP to deliver the hard data that shows it. Yes, this challenge is mitigated by SAP’s approach of looking at telemetry data to identify usage patterns and therefore use cases to address. This is one of the core values of SAP’s AI hub. Still, it will remain important to maintain the right balance between services that are part of the core subscription and those ones that warrant an additional fee. Not every customer will appreciate or understand a vendor’s desire to charge a premium for functionality that gets increasingly commoditized. After all, the subscription fee for a solution does also cover its ongoing development and not only the fixing of defects. And these days, many features that make a vendor’s solution attractive, are at least AI infused. Also, many of these features did exist before the current hype, just that they were implemented differently – with differently not necessarily meaning in an inferior way.

The other part that I miss is a stronger emphasis on the support of customer facing processes. SAP has competitive sales and service solutions, with Emarsys, it has a very interesting marketing solution, commerce is on the verge of recovering. Even, probably especially following a strategy that combines industry and customer facing processes, it is time to increase the visible profile of SAP’s CX solution set. After all, to quote Milton Friedman the business of SAP’s customers is business. And to make business, it needs customers. These are engaged using a CX solution set.

Which should make CX quite an important line of business for SAP.

Having said all this, yes, it appears that SAP is indeed on a steamroll and the company is not unlikely to become the biggest business software vendor worldwide once more – major acquisitions of Salesforce pending.

SAP reports its Q2 2022 - A snap Analysis

Mon, 25 Jul 2022 17:29:13 -0400

The News

On July 21, 2022, SAP reported its numbers for the second quarter 2022 and the first half of the business year 2022. In contrast to the last times, I’d like to cover this in written form, as this one is quite interesting and probably takes a bit longer than 5 to 10 minutes.

SAP changed the report structure to reflect the common cloud service terminology. It is reporting IaaS, PaaS and SaaS now.

The overall cloud revenues increased by 34 percent, with some tailwind by the current weakness of the Euro. The cloud backlog surpassed € 10 bn for the first time, growing at the same pace. S/4HANA Cloud revenue is up by 84 percent, with the backlog even growing at 100 percent.

This revenue growth is consistent across the reporting regions.

For the first time, SAP broke out PaaS revenues, which came in at € 389 million, up 49 percent yea over year.

Not surprisingly, the profitability went down, which is attributable to loss of business due to the war in Ukraine and unfavorable conditions for SAP Ventures.

The bigger Picture

The enterprise cloud market is extremely contested. It is a saturated market that is dominated by few vendors that are able to support important parts of or even the complete business value chain. The challenge facing all these vendors is the necessity to scale down into the mid and lower mid-market. This, however, is a region that is covered by smaller vendors with similar aspirations, e.g., Creatio, Freshworks, Hubspot, Odoo, Pega, ServiceNow, SugarCRM, Zendesk or Zoho, to name but a few.

The big vendors in this Clash of Titans follow different strategies and have different strengths. Oracle, SAP, and within limits Microsoft are full suite vendors, while Salesforce focuses on customer facing processes. Microsoft and Oracle have a considerable infrastructure business, something that Salesforce does not have and SAP to a limited extent (€ 257 million in Q2 2022). Oracle’s core domain is its database business, while SAP is strong in the ERP and supply chain areas. Microsoft has best access to consumers and data, thanks to LinkedIn and Bing.

All of them have strong ecosystems, with Microsoft and Salesforce likely having the leading ones. Having said that, all ecosystems leave room for improvement in a sense that they are geared towards value generation at the hub.

Decisive in this game will be the ability to offer strong, well-integrated solutions that offer easy adaptability and extensibility with a fast time to value for the customers.

My Analysis and Point of View

The first reaction to the numbers reported by SAP should be that congratulations are in order although the falling Euro certainly helped. Still, the overall growth rate in all likelihood surpassed the growth rate of the main competitors. Their numbers will be interesting to see. The accelerating traction of S/4HANA Cloud shows that SAP certainly hit a nerve here, supported by the implementation program RISE, which, interestingly enough, seems not yet have to be copied by any competitor. I will not discuss the strengths and weaknesses of RISE here. This has been done by other analysts; I recommend reading Josh Greenbaum’s recent assessment.

It is also amazing to see, how a huge vendor like SAP can achieve a triple: A complete transition of its portfolio from on premise to the cloud, maintaining growth while staying highly profitable. This achievement is largely undervalued by the (finance) analyst community. There are other vendors that buy growth on cost of profitability. But then, I am an industry analyst and not a finance analyst and look a bit more geeky at things.

What makes the SAP numbers interesting, is that the usual vendor obfuscation changed somewhat. Cloud revenue is now split into the industry standards IaaS, PaaS and SaaS, which is laudable. This makes it also more obvious that SAP wants to be seen more as the platform vendor that the company is – and has been for quite some time. What it also enables, is a better guesstimate at SAP’s CX numbers, considering that the main revenue drivers of the SaaS portfolio are S/4HANA Cloud, Business Network, HCM, the industry clouds and the CX portfolio. Given this portfolio and the fact that its size – minus S/4HANA Cloud is at around € 1.9 billion, it is reasonable to assume that SAP’s CX business size is well below € 1 billion, probably at around € 600 – 800 million (per quarter). This would still not be a number to sneeze at, but clearly shows that there is some potential, also given the number of net new names in the S/4HANA business.

What is obvious by the lack of mention is that the CX portfolio is not one of the revenue drivers – means that its growth rate is below the 35 percent growth of the SaaS business, nor does it seem to be at the core of SAP’s strategy, which is unfortunate, as SAP is certainly competitive in the league for the tier one vendors.

Still, what needs to be said, is that its growth rate seems to be at least comparable to the numbers that were reported by Salesforce and Oracle for their last quarters (or Zendesk or Freshworks, for that matter). Again, the upcoming numbers of especially Salesforce and Microsoft will be worthwhile a deeper look.

SAP certainly tells a strong story along not only corporate, but also whole industry value chains and underpins it with its Business Network and initiatives like Catena-X. Industry cloud narratives gain traction as well, albeit as a company that does industry processes for several decades now, this narrative came interestingly late.

The CX organization within SAP tells a good story as well. Refer to Jon Reed’s recent interview with SAP CX Chief Revenue Officer Jen Bailin for more details. Still, being a CRM/CX guy, I wished that this story would be told more prominently on the board level, i.e., outside the CX organization. That way, SAP would become far more visible in the CX market and could strengthen its position. It certainly has what it takes on the product side, especially considering the Commerce Cloud, Emarsys, and the Customer Data Cloud Solutions portfolio.

The future can be very bright for SAP.

And the company is in a position that enables it to shape its own fate.

S/4 vs. C/4 - Is SAP finally getting CRM right?

Sun, 13 Oct 2019 00:04:24 -0400

It has been a while since I last mused about things S/4HANA and C/4HANA (or Customer Experience Suite) at SAP. So, it is time to have a look at what happened since. Last year I concluded that “the differentiation between the old world transactional systems and the systems of engagement is more and more being sorted out” and that the “modularization of the various clouds into ‘Micro’-Services would allow for a seamless recombination of systems that allow for the definition of functional scope according to customer needs as opposed to only offering pre-packaged systems”. Has there been any change, since? Let’s go along the questions that I asked in my previous post.

How reliable is the roadmap, or rather, are the roadmaps? At the end of the day there is the eternal dilemma between flexibility and stability.
How to go ahead with multiple back end systems?
How are engines and industry solutions dealt with?
How is the differentiation between S4 including customer management and the C4 offerings?

All these questions continue to be relevant, as they are touching the core of SAP’s strategy. What is the current answer to them? Let me give my take on them, as I see it evolving. Just to be sure, this is my observation and me listening to customers, not an official word of SAP. Just my interpretation. After all I am not on the distribution list of SAP’s internal strategy discussions. Being a CRM guy and a suite guy, for me the last question is the elephant in the room. The answer to where SAP sees the boundary between S4 and C4 is absolutely crucial to customers and partners alike. There simply should not be too much grey space here. Lets tackle this one last … as the sequence of bullets suggests. So, let’s start from the beginning. Some answers, and well, some recommendations.

Roadmaps …

… are just that, roadmaps: Plans that are based on information available and priorities at a certain point in time. They exist to provide guidance to customers. Of course, priorities can change and customers with enough negotiation power can ask for an adaptation. As a consequence, what has been too rigid in the good ole times of on premise software with release cycles of 12 months or more, has become very flexible. This basically means that customers will not receive any strongly worded answer – let alone a promise – about high level functionality that extends the current release in work. Even that one has a big disclaimer. On one hand, this approach appropriately answers customer demand for flexibility and being able to influence releases with a near term impact. On the other hand, this flexibility deprives SAP and its customers of longer term stability in the roadmap. Having said that, and considering the roadmaps that I mainly look at, SAP is quite consistent. Of course the longer the outlook is the more the variance is, but in general the next two releases seem to be pretty steady – although sources tell me that detailed planning is done only for the next upcoming release. I am sure that SAP is fixing a good part of the development portfolio of upcoming releases. If not, the recommendation would be to do, to balance out strategic and customer necessities. Of course, if roadmap promises are given to customers, these need to be honoured, too. And if promises are given, priorities are changed, then the published roadmap should be adapted – as it it needs to be after each release, when a promise has become reality. I know that this is a hard balancing act, but it is one that a world class portfolio management of a world class company can shine with.

Multiple Back Ends

This is the same as before. CRM Middleware is still a part of the package. Different systems can communicate via it. And then there is the SCP. I still need to validate it, but connecting via CRM Middleware seems to be a good way to keep customer data in synch while offering wide ranging sales and service functionalities. All in all there is not much change since last year. There needs to be a leading system for each real world entity, and landscape complexity needs to stay in check doing so. Multiple back end stays complex. Especially so, when order taking and/quotation management via C4 comes into the picture. Especially more complex scenarios like support of variant configuration are difficult. Variant configuration in particular, an SAP strength, needs the Configuration and Pricing Service – CPS – that resides in the SCP. Now, this service can connect to only one ERP, and there is no infrastructure yet to support multiple back ends, even if data and number ranges are harmonized between them. So, again, while things are improving there is still some way to go. And in this particular example I do know two things: It is necessary as many customers are having a multiple backend scenario and second, SAP is very interested in and actively working on improving the situation here. There is a technical and a commercial challenge here: Technically CPS is single tenant, i.e. can support only one single backend. Which is a good start and SAP is thinking of how to feasibly improve this. And there are some very smart people who know their stuff working on it. So, check here! Then there is a commercial challenge. SAP customers pay for CPQ. This tool is powerful, offers a lot of value, especially integrated into a landscape. So, given its value, customers will arrive at a fair price. Customers also pay for variant configuration in ERP. The same argument as before applies. But then they also need to pay (handsomely) for the CPS, which resides in the SAP Cloud Platform, SCP – another entity that is paid for. I acknowledge that CPS has been a piece of work but I think it is worthwhile considering to deliver it free of charge as part of the solution. This would appear so much better.

Engines and Industry solutions

Another sore point. Well, actually two of them. But points that I will treat only shortly. Industry solutions can only be appropriately addressed after enough of the horizonal functionality is available. Now, this seems to be largely the case in both, S4 as well as C4. This is indicated by SAP showing an increasing focus on industry solutions, especially in the S4 area. Is SAP there yet? Not by a wide margin, compared to ECC 6. But then ECC 6 has a few years of advantage. Engines are a similar topic. Many of them have been coded into existing applications. Those, that have been made part of CRM like e.g. TPM or loyalty management are a challenge that needs to get addressed (TPM) or already are in process of being addressed (loyalty management). Others are too deeply ingrained into the ERP system (solution configuration? Condition technique?) and too heavily used to be morphed into standalone engines. Existing customers create a factual basis here. All in all, I do see work in progress, but work that might need to be sped up in order to fend off the competition.

S4 vs. C4

Where does S4 end and C4 start? This is the 1,000 dollar question. The official SAP answer is that whatever is transactional is in S4 and whatever is customer facing is in C4. If it is customer experience, then it is C4 (which is likely not a perfect decision criteria). Marketing is completely in C4. This answer still leaves a lot of grey space as there is considerable overlap between ‘transactional’ and ‘customer facing’. Order taking can happen in both systems. S/4 has the original CIC and now the SAP Contact Center 365 that runs on top of it; C/4 has a service center. Even worse, if you ask S4 guys or C4 guys, you still get non matching answers. On one hand, C4 is strategic. This is also evidenced by the fact that for the first time ever these days SAP shows CRM – or rather customer experience – related software revenues. On the other hand S/4 is strategic. And there are plenty of SAP CRM customers who are deeply invested into this software. And reputation or no, SAP CRM is a good and powerful solution. So, although SAP investment into the CM part of SAP is significantly lower than the investment into C/4, it is a straightforward and very good idea to deliver Customer Management (CM, formerly known as CRM Add On) as part of the S/4 license. For more than one reason Which is exactly what SAP has just done. You are asking what other reasons are? Well, how about these two:

SAP has plenty of ERP and CRM customers who need some kind of sales and service solution and who do not need as much as C/4 offers. Still, they do want to (or need to) migrate to S/4. With CM as part of S/4 these customers get a powerful sales and service solution without the immediate need of buying another solution. These existing customers can take advantage of the package while having the additional benefit of not needing to maintain a middleware as CM is an integral part of S/4. According to SAP the investments into customizing and custom code can be reused to an extent of more than 90 per cent. This is real value.

All that at no additional cost and probably even at a lower license fee as customers do not need SAP CRM anymore. On top of this, the necessary knowledge is already available.

There are also many new customers with either another CRM product or none at all (yeah, these still exist). Both groups can benefit from using the CRM that is built in to S/4; for similar reasons as the first group: There is a good CRM and integrated solution available ‘for free’ that just needs to get used.

In conclusion

SAP works hard to improve on these topics. Let me try to formulate three praises and three recommendations for further improvement. As it is no good style to end with criticism, even constructive one, I start with some recommendations.

It should be interesting to improve on the solution thought again. Take the example of variant configuration. There are too many pricing entities and, well, too many product groups that one needs to talk to, if things are getting serious. Customers do variant configuration. They do it in a sales system. Try to harmonize responsibilities around this, using a one face to the customer approach. This could facilitate things for you and your customers.
The boundary between S4 and C4 needs to be clarified. Currently it is not and there is a lot of confusion in the market. Customers need more guidance. They are first looking at their implementation partners – who need guidance, too – and then at SAP. So, please sharpen the picture, that is pretty blurred here.
SAP has a lot of engines. That is great. Somehow many of them are built into applications, which is not so great. Think TPM. Think loyatlty management. Think configuration. There are many more examples of functionalities that can be better exposed as engines, offering advantages for customers and hence for SAP

Now, let me finish with some great points that I see

It is a fantastic move to offer CM as part of S4. This offers lots of benefit to existing as well as new customers – and therefore to SAP.
SAP shows quite some customer orientation when it comes to improving the C4 suite. I have only limited examples but these are very laudable and encouraging. More of this can change images
I think that SAP does a good job at communicating roadmaps. Yes, it can get improved, but overall, continue on this path

Overall SAP is on a good way, perhaps not the one that is perfect for every customer, but it is. Final recommendation: Show it. Learn some lessons from the competition, adopt them to match them also in the impressions department.

SAPPHIRE 2018 - The Return of the Suite

Thu, 07 Jun 2018 12:34:21 -0400

SAPPHIRE 2018. In an Orlando convention center, far away from Walldorf SAP holds its annual conference, boldly going where no one has gone before. But enough of this poor allegation to Star Trek although it reasonably sets the tone. The first two days gave a deep view into the company strategy. Condensed into two press releases the company laid out its vision of the future of CRM and intelligent enterprises. And, doing so, shot a few broadsides at the competition, especially Salesforce.

The News

“The legacy CRM systems are all about sales; SAP C/4HANA is all about the consumer … when you connect all SAP applications together in an intelligent cloud suite, the demand chain directly fuels the behaviors of the supply chain” said SAP CEO Bill McDermott. SAP intends to achieve this link of front- and back office by fully integrating an augmented suite of solutions that base on the SAP Hybris Cloud solutions into the digital core, the transactional back end. This integration is done via the SAP Cloud Platform. Additionally, it is fusing the new high profile acquisitions Gigya and CallidusCloud into the solution. C/4HANA C/4HANA; source SAP The Customer Data Cloud is what has been Gigya. This model, as well as S/4HANA, will be supported by the SAP HANA Data Management Suite, which is essentially a beefed up Master Data Management Solution around the SAP Data Hub. The second press release is about AI, IaaS, and more AI. SAP starts to talk more about conversational AI and Leonardo, as well as blockchain get more to the forefront. Mostly on the back end.

The bigger Picture

The CRM suite is back! This is an inevitable consequence of the ongoing Clash of the Titans, aka platform war and the realization that customer experience is actually a platform play. Just that the suite now looks different from how it looked like say, 15 years ago, when we saw huge monolithic applications like the venerable SAP CRM, or Siebel CRM. What stays is where at least Salesforce struggles – a common data model underneath the suite. I am, frankly, not so sure about Oracle and Microsoft here, but think that they are following a route similar to SAP. And then there is Adobe, which takes the way from marketing into commerce in a pretty strong move. The acquisition of Magento might be game changing, also considering the strong relationship to Microsoft. Especially Salesforce is forging ahead establishing new abilities for their customers to build new business models by helping their customers and improving internal efficiencies. Being the undisputed number one in the CRM market, Salesforce is the natural target of the other tier one companies. And as I (e.g. here), as well as others, have written: Salesforce is vulnerable. AI and conversational user interfaces cannot be done without. Conversational user interfaces are what will change our way of using computers as helpers. They are what makes computing ambient computing. So there needs to be significant investment in this area. There are lots of specialists around, of which SAP acquired one. Blockchain needs to be covered, anyways. In my eyes, blockchain is still a topic for the back end. Ledgers, tracking and tracing, and so on. Identity seems to be on the verge, and then there are a number of marketing related ideas that I personally still do not regard as proven enough to be viable. Time will tell. Being a big vendor means that one needs to have a foot in that game.

My PoV and Advice

For the keen observer it was all in the coming. SAP always was a suite company. Even R/2 and R/3 already were suites right from the beginning. While some part of the announcement is achieved by a rebranding the overall picture is strong. It plays to SAP’s strengths of being able to deliver end-to-end. A caveat is that SAP is still suffering from a loss of mindshare when it comes to CRM. The company is addressing this for several years now, but it is still not where it needs to be. But the picture is improving as the solution suite is strong. Maybe not everywhere as strong as the competition, but the promise of integration and the sheer power behind a determined SAP is certainly convincing. I know of Marketing Cloud wins against Adobe although some, for marketers, important functionality is stronger in Adobe. Similarly are there (pre acquisition) wins of Cloud for Sales/Callidus against Salesforce Sales Cloud and their CPQ. A common denominator here is that customers did not know how easy to use and powerful the SAP software is. Lacking mindshare, wrong perception. But, what this says is that CallidusCloud, along with Gigya, have been some of the best acquisitions that could have been made (well, include Hybris here). Putting the front office applications under the Hybris brand back the day certainly helped, too. After creating momentum there is brand harmonization now, which is a good thing. Still, my recommendation to SAP is to look for low hanging fruits that are of benefit to the users. It is not all about the consumer. It is also not all about the best possible behind-the-scenes functionality, unless it is of clear benefit to a significant user group. Win the hearts of the users, too! They are the ones who are craving for having their job made simpler. Helping them might be less headline-worthy, but it will pay off in spades. This is where the intelligent enterprise, machine learning, and especially conversational user interfaces, come into picture. The announcement about this is relating to the back office but then there are use cases for the front office, too. Build them, talk about them. Some of them are even already there. But when it e.g. comes to AI based opportunity scoring even I think of Clari, not SAP – which is a shame. Conversational AIs and machine learning have become table stakes. It is good to see SAP productizing SAP Leonardo more and more. So far it looked more like a consulting solution, but this seems to change to the better now. Offering blockchain services seems to be a must these days. It is refreshing that SAP focuses on the back end side here. I am sure there will be some viable customer facing use cases but these still need to mature. Till then it is good to improve existing grounds instead of trying to disrupt. As a little side note, and also looking into Gartners 2018 Magic Quadrant of IaaS solutions, SAP is betting on the right horses. IBM shows up for the private cloud solutions only and is partnered for private cloud deployments. Google, AWS, and Azure are available for public cloud deployments. The next IaaS infrastructure to be partnered with for public cloud deployments should be Alibaba Cloud. All in all, SAP seems on a roll.

SAP CRM Into S/4HANA - Did SAP Hit Bulls Eye?

Mon, 12 Jun 2017 06:28:52 -0400

After having talked with Volker Hildebrand about the future of SAP CRM and whether or not there will be a CRM component in S/4HANA at CRM evolution 2017 I now had the chance to follow up with some folks back at SAP in Walldorf.

A little Recap

Volker told me that, unsurprisingly, SAP is working actively on adding CRM functionality into S/4HANA. In fact, they are merging SAP CRM into it. This is in my eyes meanwhile also the preferred of the two possible options; the other one would be marrying SAP Hybris C4C into S/4HANA. This is the approach which I originally preferred as it would lead to a cleaner code base. I changed my mind, putting customer friendliness reasons over technological cleanliness. The main advantages of merging SAP CRM into S4/HANA over SAP Hybris C4C are that this approach

Opens a future roadmap for current SAP CRM customers that stretches beyond 2025. These customers else are at risk of defecting.
Provides the continued chance for customers to run their SAP instance on-premise. According to Volker there are still a good number of customers that do not want to run their instance in the cloud. The key word here is choice.
It simplifies the system landscape and its operation

And this approach works, in spite of SAP seemingly having numerous studies that lay out in detail that SAP CRM could never work as part of an ERP.

Now What is Going On?

As said, SAP is merging SAP CRM into S/4HANA. This will not be a simple merge but CRM will become and Add On to S/HANA. This in itself is an interesting move, because this way it is not possible to continue using an existing SAP CRM in a standalone fashion. And there are some customers running SAP CRM without an ERP integration. I am still curious about the licensing impacts of this move. Some customers might not even have an SAP ERP, others might be too conservative to move on from SAP ERP to S/4HANA.

2017 – The Year of Service Functionality

The roadmap shows that SAP will start with delivering service functionality as part of this CRM add on, which makes sense as S/4HANA is sorely missing customer service as of now. This functionality shall have an RTC early 2018 based upon the S/4HANA 1709 release. While mainly relying on S/4HANA master data objects, as part of this S/4HANA will also benefit from the much stronger business partner that SAP CRM has, compared to ERP and the current S/4HANA. There is some reluctance to commit to a precise scope at this time, just that it will be core service functionality mainly targeting shared services and utilities industries. As it seems there will not be major migration tools with this first release.

2018 will be the Year of Sales Functionality

2018 then is dedicated to delivering core sales functionality. Here we will again see a strong use of S/4HANA objects, with the exception of the flexible organizational model that CRM brings with it and a good number of CRM related objects that S/4HANA just doesn’t have, like leads, opportunities, territory, loyalty, to name but a few. Order, configuration, pricing, and billing will be delivered by the S/4HANA core in a move that, at the outset, makes sense. This year will also see the development of migration tools.

Is 2019 the Year of Marketing?

In brief: No. After the release of the sales core 2019 will see a focus on rounding off the sales and service functionality and the addition of loyalty management. And with SAP Hybris Marketing SAP already has a marketing solution that can be used on premise and on demand.

How is SAP Doing It?

SAP is looking at the individual business objects and deciding individually which object to use, and how. Objects will get harmonized in order to avoid costly redundancies and to avoid CRM Middleware – which will remain, by the way. Especially the highly normalized one-order model will get denormalized, using the existing index tables that got introduced to get some performance into the CRM Order model. This will also benefit the HANA DB which strongly prefers wide tables over joins. I am not fully clear about what that means when putting the S/4HANA order into the mix, though.

But What about the UI?

S/4HANA uses a Fiori UI. SAP CRM doesn’t. However, it is possible to make the CRM Web UI look similar to a Fiori UI. This will be augmented by delivering Fiori apps for overview pages and some selected native Fiori apps along with Fiori Launch Pad integration. I imagine this being similar to the current UI on SAP Hybris Marketing.

My Take

As said before I think that it is a good move to merge SAP CRM into S/4HANA. The sequence of objects for this mere also makes perfect sense although some customers would likely prefer a wider footprint right from the beginning. On the other hand there is no real pressure for them to migrate now. SAP continues support through 2025 and it is a good idea to continue benefitting from the stabilizing effect that the customer driven innovation strategy has and to wait until migration tools are there and working. And companies that are contemplating to move to S/4HANA need to complete this migration first, anyways. Harmonizing the data models obviously means that a migration from SAP CRM to ‘S/4CRM’ is a migration project, for which a stable S/4HANA is a precondition. What stays a concern for me is the positioning of ‘S/4CRM’ versus the SAP Hybris set of cloud solutions. There is a significant overlap in functionality. The messaging of when SAP recommends which solution really needs to be worked upon in order to avoid confusion. Grey zones must become minimal. The answer seems to be there for Marketing, where there is only one solution going forward. But how about loyalty management (exists in CRM and as a cloud version), trade promotion management (exists only in CRM), retail execution (is mainly a cloud solution), or configuration and pricing? S/4HANA has the latter two and with the SAP Hybris Revenue Cloud there is another entry (although belated) into the CPQ (Configure, Price, Quote) market. An approach for solving this lies in distinguishing between systems of record and systems of engagement where slow-changing, mature functionality is concentrated in the S/4 world and faster moving engagement functionality is encapsulated in engines that could get deployed on site and on premise – or only be used on demand. Coupling systems of record and systems of engagement then could happen via micro services, but should happen on a platform- rather than application level to accommodate for machine learning abilities.