The demand for SAP resources in the run up to 2025

Are we ready for the S4 Demand

I have been working in the world of SAP since the early 90’s. It has been an interesting ride, and during that time the capacity of the market has grown and contracted as the demand has increased rapidly and then in the past 10 years or so declined. I thought it would be worthwhile to reflect on the journey which in my opinion can be characterised in several stages, with some enormous generalisations thrown in.

Up until 1994, SAP was a reasonably small community with a number of large clients delivering projects on R2 with onshore teams supported by teams provided by the big management consultancies of the time, Andersons, Coopers and Lybrand etc. Towards the end of this period the arrival of R3 meant some cross training and a pick-up in demand as the product became more accessible on client server. The application consulting community tended to be real fans of the software and had pretty deep product knowledge built up over several years.

From 1994 to 1999, there was a massive ramp up in the number of projects and therefore the teams needed to support them. Experience was at a premium and many application consultants had little training and experience, so rates went up massively. The resources were still all on shore and the market was dominated by the big partners and a group of fast growing SAP specialists, many of whom were paying high salaries and utilisation bonuses to keep their staff. The two drivers of the move to ERP and fears of Y2K meant everyone was busy. The lack of experience often meant projects were troublesome and solutions were usually very bespoke.

From 2000 to 2008ish, the SAP market continued to grow but the type of work was changing. Many projects had grown in size to be global monoliths reflecting globalisation and tax efficient supply chains, but also multi-currency, multi-language, multi-time zone capability of new releases of SAP. This was a boom time in SAP services, some of the applications consultants and end users had become contractors, and competition for resources had calmed down. However, this was probably the high water mark for the volume of available work with some projects costing hundreds of millions of pounds. This was also a time that saw the emergence of Indian Pure Plays and development of offshore capability by the Big Si’s and consultancies. This is only a guesstimate but at this time we believe the SAP services market ran steadily at over ￡4bn per year.

From 2008ish to the 2017, the market changed. The pure plays have driven down price and the buyers of SAP services have become more experienced, tying down contracts to fixed prices and seeking better value. Most of the “mega projects” have been delivered and the number of new clients has declined as the market in the large enterprise space has become saturated. Projects are more about roll-out , upgrades and enhancements. On average blended rates for delivery are less than 50% what they were in 2004 and probably 33% of what they were in 1998. People are getting more for less and are doing less. We estimate that the SAP services market has shrunk to between ￡1.5 and ￡2bn per year.

There have been some other notable changes, the age of SAP consultants had increased, the young bucks of 1995 are now planning for retirement and the enthusiasm of large enterprises to embark on massive SAP projects has declined as their spend shifts towards digital transformations.

So looking forward, what is happening? Well S4 is happening!. in the UK market there are about 400 large SAP clients all of which need a plan for SAP in the run up to the end of maintenance of the old products in 2025. Not all clients will move to S4, some may well choose to move away from SAP or choose to have an unsupported version, maybe SAP will blink and offer a longer support window, who knows?

All we can be certain of is that nearly all clients will be needing a plan.

If 2/3 of them decide to move to S4, I wonder whether there is enough capacity and energy left in the SAP services market to react. I estimate that the cost of moving those clients to S4 will be ￡20-30bn, and this assumes little new business or enhancement work on the existing pre S4 base. There are not masses of large enterprise S4 projects and that isn’t expected to change in the next 6 months or so, that means that spend on SAP projects will need to ramp up to ￡4-5bn a year by 2021.

I will not go into how I have estimated the size of the market, but have done it bottom up. Many clients will choose to transform their businesses when they go to S4 and most will choose to implement components ie success factors, Ariba, IP or finish of the projects half completed form the noughties. They will also remove the over complex and bespoke solutions they have. This is not to say that S4 is harder to implement – in fact, buyers and SAP services companies are better, we have offshore solutions, and the SAP tools such as activate will accelerate the projects, but the scope will be large and include more mobile and UI components.

In essence, all of the SAP projects that took place from 1994 to 2017 and probably cost in total ￡100bn, will need to be completed in 6 years for ￡20-￡30bn. 100% offshore leverage will be hard to achieve as this will be transformation and the new ‘cloud and activate’ type methodologies will need more face to face time.  So what do we conclude?

1)     Unless SAP changes the 2025 date there will be a lot of new S4 projects

2)     The SAP services capability is probably 40-50% of what is required

3)     Clients will not accept inexperienced staff as they did in the 90’s as they now know what they are doing

4)     Will the exiting SAP professionals really be up for the hard yards to come, are they up for the late nights, the travel and endless debates

We are already seeing some price inflation and turnover of staff in certain sectors where there has been an early adoption of S4 and we expect this will spread, especially when the S4 projects start to appear in the SAP heartland of CPG and manufacturing.

A large transformation and roll out based on S4 in the largest clients may take 4 or 5 years. Adding in planning and mobilisation, this will bring us close to 2025 even if we start now. So, what can we recommend, and what are we doing?

1)     Start to plan the route to S4 now, work out the business case and the roll out plan,

2)     Get your target/and state architecture agreed

3)     Work out the new licencing and transformation implications

4)     Recruit and train a new generation of SAP experts with S4 and transformation skills both in UK can offshore

5)     Make sure you can secure your key resources for the next 7 years or until your transformation if complete

Your next step should be to have a chat to someone who is already living this. With more S4 projects than anyone else in the UK, Capgemini is working all of this out already.