SAP’s 2022 Strategy Focuses on Cloud ERP and RISE with SAP

⇨ SAP's mid-term strategy is about driving cloud revenue

⇨ The current path to achieving that strategy is via cloud ERP

⇨ RISE with SAP is the cornerstone to that cloud ERP strategy

The mid-term ambition that SAP continues to work towards targets more than €22 billion in cloud revenue by 2025. This goal was initially announced during their Q3 earnings presentation in 2020, and it was reiterated by SAP during their recent Q1 2022 earnings call. The fact that, in this most current quarter, SAP recorded strong cloud performance in all regions and reported €2.8 billion in cloud revenue and €9.7 billion in current cloud backlog does much to explain the confidence behind this statement. But what is behind this target? And how does SAP plan on getting there?

SAP S/4HANA Adoption

For several years, SAP has encouraged its enterprise ERP customers to move from their existing systems to SAP S/4HANA. SAP does not publish detailed numbers, but it is estimated that there were around forty-five thousand customers running either SAP R/3, SAP ECC or SAP Business Suite around the time that SAP S/4HANA was released in 2015.

SAP currently reports that there are more than 19,300 customers who have licensed SAP S/4HANA, of which more than 13,900 are live. However, of the approximately 500 customers who chose SAP S/4HANA during the most recent quarter, SAP indicated that more than 60% of these customers were net new to SAP. While that proportion is one of the highest they have reported to date, it is likely that approximately 50% of those 19,300 SAP S/4HANA are net new to enterprise ERP. This means that probably no more than ten thousand of SAP’s original forty-five thousand enterprise ERP customers have moved to SAP S/4HANA.

Cloud ERP and RISE with SAP

During the Q1 earnings call, SAP CEO Christian Klein stated that of the 19,300 SAP S/4HANA customers that SAP reported at the end of Q1, more than 5,300 of these customers were SAP S/4HANA Cloud customers. SAP S/4HANA Cloud is the software-as-a-service version of SAP S/4HANA, where SAP manages the system infrastructure, maintenance, and software updates while the pricing is subscription-based. Klein also said that over 4,700 of these customers were already live, a much higher proportion than with the traditionally licensed SAP S/4HANA on-premise edition.

But while SAP is switching their focus on SAP S/4HANA to SAP S/4HANA Cloud, and their SAP S/4HANA marketing is almost exclusively focused on SAP S/4HANA Cloud, the most important part of that is RISE with SAP. Announced in January 2021, RISE with SAP is what SAP regards as the key to accelerating their move of ERP to the cloud. Positioned as a Business-Transformation-as-a-Service offering, RISE with SAP has gained over 1300 customers since it was first launched. The offering is made up of multiple components including SAP S/4HANA Cloud, SAP Business Technology Platform (SAP BTP), SAP Business Process Intelligence (SAP BPI), and hosting and infrastructure options. RISE with SAP is where SAP appears to be placing their primary focus over the coming years and is crucial to the success of their cloud ERP plans.

What SAP does not discuss publicly is how many of the customers who have adopted RISE with SAP are deploying SAP S/4HANA Cloud or any of the other components of the offering. While customers licensing RISE with SAP are required to make a commitment to moving to SAP S/4HANA, the adoption does not need to be immediate. What Klein did mention during the earnings call was that a significant number of customers adopting RISE with SAP were doing so with SAP BTP. In addition, Klein mentioned that RISE with SAP has driven upsell opportunities, with a conversion ratio above 2.5 after a customer has adopted RISE with SAP. It is thus no surprise that SAP is focused on RISE with SAP as key to their overall cloud success.

Other Cloud Offerings

While SAP’s major focus is on cloud ERP, and RISE with SAP in particular, their other cloud solutions include the Intelligent Spend Group (SAP Concur, SAP Ariba, and SAP Fieldglass), and SAP SuccessFactors. All these areas also saw growth in the first quarter of 2022 and are an important part of SAP’s cloud success. This is especially true of SAP Concur which, with many organizations starting to travel again for the first time in two years, saw a return to revenue growth in Q1.

SAP still also has many customers using the SAP HANA Enterprise Cloud (SAP HEC) infrastructure-as-a-service offering. SAP HEC is an SAP-managed private managed cloud solution which is run either in SAP or hyperscaler’s data centers. Many customers are using SAP HEC as the infrastructure for their SAP solutions, and it continues to contribute to SAP’s overall cloud revenue.

What Does This Mean for SAPinsiders?

For SAP customers who are looking for an understanding of SAP’s strategy, or who are trying to formulate their own strategy for their SAP solutions, what does SAP’s focus on cloud ERP mean? And what impact should RISE with SAP have on organization’s plans for the cloud? And for ERP?

• Focus on understanding your systems so that you can be prepared for a future ERP change. Unless you’ve already moved to SAP S/4HANA, mainstream maintenance for your current SAP ERP system will come to an end in 2027. At that point you can pay for premium maintenance for three additional years, but at some point there will be a need to either move to SAP S/4HANA or some other ERP solution. To ensure that you are ready no matter what choice you make, start evaluating your ERP system now. Try and reduce or eliminate customizations or code that are no longer in use. Determine whether your system is even ready to move to SAP S/4HANA using the free, to customers with an active maintenance agreement, SAP Readiness Check tool. But spend the time while you have it to ensure that you know as much as possible about your system so you can make the best choice when that needs to happen.
• Determine whether a cloud ERP system is right for you. Even though SAP talks about cloud ERP, there are options like SAP S/4HANA Cloud, private edition, customer data center option which runs on hardware in your own data center that is provided on a subscription basis by either Lenovo or HPE using the Lenovo TruScale and HPE GreenLake offerings. But with SAP pushing to have customers adopt an ERP system in the cloud, it is important to understand what options are truly viable for your organization. SAP wants new customers moving to SAP S/4HANA to use SAP S/4HANA Cloud. You must understand what your answer to that question will be before you start down the road to SAP S/4HANA.
• Explore RISE with SAP so that you are knowledgeable about the offering. SAPinsider research in 2021 showed that, while most SAP customers had heard about RISE with SAP, there was often a lot that they did not understand about the offering. SAP is enthusiastic about RISE with SAP because of the high conversion ratio that it is seeing—customers spending more than two and a half times their initial RISE with SAP investment on additional cloud solutions. But understanding what the offering includes, from SAP S/4HANA Cloud to SAP BPI and SAP BTP, what the commitment of moving to RISE with SAP involves, and whether a subscription pricing model is an option for your organization. The more you learn ahead of time, the better the decision you can make about how it will impact the plans for your SAP systems.