SAP in 2022. A time-lined year in review

Let's review how things came at SAPan during 2022, a 25% stock price drop, War on Ukraine impact, the 50th anniversary, many User Group polls, Sapphire, and TechEd low profile announcements. Much has happened; let me summarize 2022 year for the ecosystem.

January

SAP showed a 2021 Strong cloud growth for SAP and announced fintech Taulia and Icertis acquisitions

January started with SAP’s 2021 financial 5% increase in revenue and cloud revenue raising 19%, while operating profit dropped by 30%, driven down in part by higher compensation expenses related to the divestiture of Qualtrics, in part by Cloud investments.

CEO Christian Klein showed satisfaction with S/4HANA Cloud's double-digit growth and RISE with SAP adoption.

Taulia expected to add benefits to its Business Network and Procurement Portfolio, while Icertis?brought contract management software infused by AI.?

Also in January, Mucic announced the year expected to transition into an inflection point, with 2023 double-digit growth for Operating Profit. SAP 2025 ambition, untouched, wants €22bn in cloud revenues, but shifting on-prem customers leaves behind lucrative software license and support deals.

SAP held its SKO, where insiders mentioned in forums that the SAP sales team would not be recognized for on-prem license sales; in case of veracity, this will affect how SAP develops and markets its software. Starting 2022, it’s all about the cloud at SAP, €500m cloud investments dragged on profit, but the question remained for the Analysts "Despite the growth, would SAP move customers from on-prem to cloud fast enough to make investors happier."

February

War On Ukraine.

Last week of February, we got shocked by the large-scale brutal Russian invasion of Ukraine.

SAP initially took its time to announce its plans in the Russian market; However, initially, SAP announced continued support to Russian businesses and contracts “ as far as sanctions and export control restrictions permit”, the evolution of the conflict and social media pressure made SAP to rethink the strategy in March, accepting a 300m€ business loss. At the time, the Russia invasion of Ukraine was difficult to foresee whether was going to be a week's event or a multi-year war. Many businesses, especially the ones like SAP, which had employees on the ground, took time, assessment, and money to stop the operations on a continent, Europe, heavily dependent on Russian natural resources.

March

"RISE with SAP struggles to gain purchases with German-speaking users"

According to a survey from?DSAG, a User group with customers from Germany, Austria, and Switzerland, the proportion of organizations planning to switch to S/4HANA fell for the first time. Also, the survey (198 companies) found that 57% of participants with "extremely unlikely" to consider RISE with SAP. Only 2% of German-speaking SAP customers are running the S/4HANA cloud, 6% host S/4HANA in a private cloud, 32% run S/4HANA on-premise (including hyperscalers), while the rest remain on ECC. The reality appeared.

In a similar poll, the UK user group UKISUG announced that SAP customers (61%) were struggling with data management during their S/4HANA migration, affecting the speed of migrations from ECC to S/4HANA.

"Clearly, when you move to S/4HANA, that data structure table changes a lot. The more data you've got in your current system, the longer and harder that upgrade will be, and potentially the more downtime while you convert that data into the new formats," UKISUG noted that customers are demanding more automation in S/4HANA transformations.

April

SAP hits 50 in good shape, some signs of mid-life crisis.

Celebrating its 50th birthday in good form, the German company is still the most significant European business technology firm and a business standard, dominant position ERP globally. Whether moving away from SAP is very difficult or because rivals find it difficult to steal the market, there still needs to be strong competition in business software at scale to cause a shock in Walldorf.

One of the uniqueness of SAP is its collaboration with user groups. In these big lobbies, customers, partners, and SAP find a valuable forum for honest business discussion, contrary to Software Vendor large-scale meetings like Ignite, Openworld, or reInvent, where the vendor itself drives the agenda. For this reason, SAP has a reputation for moving forward by consensus, but at the same time, you will always find constructive criticism, making these meetings enjoyable to attend and listen to.

During its 50th anniversary, there were many events, especially during the summer, interviews, and history lessons from SAP. It has been a good year of memories.

I recommend this interview by the newspaper Handelsblatt to Hasso Plattner?link to interview, describing his views, something too infrequent.

April Q1 financial results presentation, SAP's most important news was a 31% cloud revenue growth and the announcement that CFO Luka Mucic will depart the company on March 31, 2023; after 23 years at SAP, a company saw 3 CFOs. Mucic notification to be replaced by Dominik Asam happened a few months later, in August. Not much has been told about the reasons for Mucic departure.

May

the Sapphire

The biggest SAP event, where we didn’t see impressive highlights.

Sapphire was about RISE and cloud business processes. Mucic and Russell Scott spent their time explaining why customers should benefit from running SAP business processes in cloud solutions that were released in the past.

Forrester Research said: "Most of the big themes this year build on prior announcements: sustainability, cloud, S/4HANA, and RISE. While it is good to see alignment and continuity in the messaging, they missed some opportunities to go bigger, showcasing innovative customer stories and proof points on these."

Check the best Sapphire summary on this Diginomica’s post

https://diginomica.com/sap-sapphire-2022-opinionated-news-review-orlando

July

During SAP's Q2 earnings report, CEO Christian Klein said there was an increase in customers queuing up for the transition to S/4HANA in the cloud. 60% of these customers were net new, and for Forrester, the progress in S/4HANA adoption is still slow “A customer can be listed as a S/4HANA win but only partly deployed or still planning deployment”. Something remains unexplained about how loyal SAP customers are following SAP cloud plans.

Also, according to Gartner, in July, most customers are unlikely to be moving from ECC before support ends, while those who show a plan in S/4HANA upgrade might see existing ERP support extended. This is interesting. Gartner told Register that 70% of SAP customers are still on ECC and have yet to upgrade to S/4HANA.

"There is little evidence of the acceleration of migrations needed to meet SAP's 2027 target to terminate mainstream maintenance for ECC." After 2027, SAP will offer extended maintenance until the end of 2030, at a premium. "Also, RISE has created confusion over the commercial models available," the note said.

In July, SAP Chief of Engineering Thomas Saueressig described in a brilliant interview with TechTarget how S/4HANA Cloud could help customers, pointing to the actual direction from SAP is the SaaS ERP.

https://www.techtarget.com/searchsap/news/252522807/SAP-exec-talks-new-opportunities-S-4HANA-Cloud-provides

https://www.techtarget.com/searchsap/news/252523236/Saueressig-SAPs-future-is-multi-tenant-SaaS-ERP

Saueressig, who has been particularly active this year, also released a new book called "Business as Unusual" with Peter Maier and Vinnie Mirchandani, exploring how 8 megatrends influence industry trends, his vision of Industry Networks like Catena-X, Digital Twins or "Everything as a Service". I am 1/3 of the book, and I absolutely recommend it.

August

SAP picks Airbus finance chief Dominik Asam for next CFO

Mucic, after his contract resignation (expected to end March 2026), will trespass responsibility to Asam, who will continue SAP's transformation into a cloud services company.

During his last appearances, Mucic showed some difficulties in explaining how SAP balances customers from lucrative on-prem licenses into cloud long-term subscription models from the cloud. In his own words, the move "had very material negative revenue mix effects on margins, simply because the profitability of those cloud businesses was lower than that of our on-premises business,". Still, SAP had a bad year in the stock market, but similar, even better, than the rest of the IT ecosystem. In other words, investors see good progress in this transition.

September

SAP to increase support fees in January 2023

Like other software vendors' price increases in 2022 (Microsoft, Oracle, or Google), SAP announced a 3.3% (max) increase on its Standard Support, SAP Enterprise Support, and SAP Product Support fees.

The announcement was criticized in user group meetings DSAG and UKISUG. Not only that, DSAG also pointed the way SAP packages its products has changed "We are seeing an increased modularization of the core ERP product (S/4HANA), which means that solutions that were previously still part of the ERP are now increasingly being marketed individually and the customer, paying for them additionally,"?SAP needs to explain better how its software is being served, how BTP enables the extensibility and how customers can transform the business processes from a holistic view. We, the community, are still used to seeing SAP releasing products, whereas the reality is more close to seeing SAP releasing services that are aimed to help in a particular step of a more extensive product. Being a product an End-to-End business process.

October

SAP posted mixed Q3 results; revenue was up 15% YoY, cloud revenue was 38% up, but an Operating Profit decline of 8 % conveys that the company is in a difficult position to meet its double-digit operating profit target during 2023.?

Also, in October, the SAP user group DSAG held its annual meeting; this is historically an important one with the historical presence of SAP board members. One of its announcements was that?'Customers will not – at least not in the short term – move exclusively to cloud scenarios' and a petition to SAP not to leave?on-prem products behind.

"Standardized processes are the right way to go, but it's a transformation project to get there. It's not easy," DSAG said. "Not many customers can go this path right now. That's one of the issues that SAP has to be more clear about. They have to invest a little bit more in education, knowledge transfer to the customer so that everybody sees the benefits of going this way."

Still, an 85 % of SAP german-speaking customers place high or medium importance on on-premises solutions. That's the reality of that market, far away from SAP software plans. I think it would be a great read of the summary of the event.

https://dsag.de/presse/keeping-pace-with-change/

November

New research shows that S/4HANA cloud migration is more complex than customers initially estimated.

Philip Dawson, from Gartner, indicated that "Most S/4HANA systems that had moved to the cloud were pre-production systems still in the test or planning phase". This complexity resulted in a difficult TCO, where "RISE has yet to bring a significant benefit". Still, at the same time, SAP showed some interest to continue bundling RISE to help customers understand the actual business benefits that SAP S/4HANA Cloud could bring them.

Also, in November, SAP held its annual technical congress, TechEd, in Las Vegas. The most significant SAP announcement during the congress was a no-Code tool, SAP Build. Old name and old products revamped from SAP but aimed to simplify existing no-code or low-code offerings available. SAP could have been more stylish in releasing such a solution during its technology event in front of the developer community. Still, at least they mentioned that low code is no replacement for software development (it never was).

SAP Build combines Appgyver, and Ruum, both discontinued since the release, along with new functionalities.

After many years in the market, Low-Code and No-Code still need to show business benefits. These kinds of tools are not new; the false assumption behind "low code" is to simplify that the hard thing in software development is about writing text. Thus low-code tools attempt to resolve the difficulty of software development by taking away that writing-of-text part. Although this is a fallacy, creating workflows is a clear benefit, this is not a silver bullet.

Also, during TechEd, CTO Mueller announced a replacement for Embedded Steampunk with ABAP cloud, bundling S/4HANA Cloud and S/4HANA on-premises into a unified extensibility.

"ABAP cloud is designed directly within the stack for cloud-ready ABAP extensions for S/4HANA. It means using public SAP APIs to access S/4HANA data and functionalities, whether S/4HANA is cloud or on-prem".

While developers could continue to use the ABAP RESTful Application Programming Model, support for Dynpro or Web Dynpro ends.?

SAP also launched a new Cloud Application Programming (CAP) model for Java and JavaScript developers, aiming to get recognition outside the SAP languages world, truly appreciated.

December

During the UKISUG meeting, the feeling was that SAP would likely hold the 2027 support deadline.

“Legacy ECC and Business Suite 7 users need to find a way forward before support is cut off” said Paul Cooper, chairman UK & Ireland SAP User Group. Much exciting news came from the user group, brilliantly summarized by Diginomica.

https://diginomica.com/sustainability-s4hana-adoption-and-low-code-hitting-hot-topics-ukisug-uk-ireland-sap-user-group

UKISUG poll showed that 89 % of organizations are using or planning to use SAP S/4HANA, compared with 74 percent in 2021, but 70 % say they will move in the next 36 months. Something we have been reading since S/4HANA was introduced, there are always plans to transition, but the clock is ticking. The biggest reasons for the migration would be the end of ECC support, then the requirement for new functionalities. Transform to S/4HANA to redesign the business process is a good reason to migrate, but the end of the ECC support is not a good one. Many migrations to S/4HANA, and the most complicated ones, still need to happen. For this, SAP announced that the next release, 2023 in October of 2023, will change to a two-year release cycle, a long seven years of mainstream maintenance per release, and more easily adaptable feature packs.

The year ended by announcing the discontinuation of Business ByDesign, the ERP for small and medium-sized companies, which have been in the market for 15 years, reducing the ERP offering to Business One and S/4HANA, leaving the lessons learned from BByD yet to be explained.