June 25, 2012
SAP’s Cloud Computing May Not Be Profitable by 2013, Welt Says
SAP Customer Upgrades to ECC 6.0: To Upgrade or Not to Upgrade
March 2013 might seem like a long way off. But for those SAP ERP customers not current on SAP's ECC 6.0 version, March 2013 is a date with significance: That's when extended maintenance on pre-ECC 6.0 ends.
For those companies still running 5.0, 4.7, 4.6 or earlier versions, the loss of extended maintenance means that they will have to move to "customer-specific maintenance." Though the cost is not at a higher price than what they were paying for extended maintenance (which, by contrast, costs a couple percentage points more than mainstream maintenance), the customer-specific plan offers much lower levels of service, many support restrictions and potential compliance headaches.
What it also signifies is that those companies are resistant to SAP's impressive marketing machine. Let us be perfectly clear here: SAP expends a lot of marketing dollars imploring its customer base to upgrade to ECC 6.0.
On one hand, there's the significant customer value that SAP points to. That value, according to SAP's Eric Van Rossum, head of the global upgrade office, is to: attain new functionalities from the latest code; remain in compliance and satisfy other legal requirements; reduce operating costs; and prepare for SAP's next generation of software enhancements. "It is about protecting your investment," Van Rossum adds, "but the real opportunity lies not only in cost savings from removing custom code but also from strategically benefiting from all our new innovations."
On the other hand, there is stark business reality: Of the €14.2 billion in revenues SAP earned in 2011, nearly half (€7 billion) came from the "Support Revenues" line item. Margins on "Software and Software-related Services": an eye-popping 81 percent.
SAP's ECC 6.0 upgrade program has enticed a majority of its customers: Globally, 80 percent of SAP customers are running at least one SAP ECC 6 system, meaning that four out of five customers have moved completely or part of their installations to 6.0, according to Van Rossum. (That percentage is higher in North America.)
And yet there's more work to be done—that 20 percent or so of SAP's ERP customers who haven't yet, plan to later or won't ever.
"We Needed to Be on ECC 6"
There are three main elements to a traditional SAP upgrade: the project management piece, the business-side change-management, and the underlying technical aspects (including loads of testing). None is more critical than any other—fail at one and your chances of success (by whatever metric you choose) decrease.
The larger the number of SAP users, the more resource-intensive the project: The median effort for companies with 500 or fewer users is 150 person days, more than 12 weeks totaling $125,000 in expenses, according to Panaya's January 2012 "SAP Upgrade Benchmark" survey report. If you've got more than 2,500 users, those numbers jump to 3,350 person hours, more than 31 weeks at a cost of $1.4 million.
Mike Ayars, director of IT at Powell Electronics, says that his company's upgrade to ECC 6 from 4.7 was "rigorous, but not difficult." Powell Electronics operates in 11 U.S. locations and has more than 200 employees.
The upgrade project took 11 weeks, and Ayars says that besides the maintenance aspect, the company wanted to be able to implement some of the new features and enhancements in the Enhancement Packages. "We needed to be on ECC 6," he says.
SAP customers going through an upgrade typically try really hard to lessen the time and money required, and also mitigate the risks to business operations. Ayars says his team did a couple of things: they spent time with the business folks mapping out how the business processes and the SAP software synched; they loaded the business processes into Solution Manager, using the Test Workbench to create multiple testing plans. "I used the workbench to track how the users were progressing with testing and to quickly identify and remedy errors," Ayars says; and lastly, Powell Electronics used Panaya to test the custom code and find out "what will break, why and how to fix it" during the upgrade, he says, estimating that it alone saved his team six weeks.
Of the technical snafus that can bog down an SAP ERP upgrade, customization is at the top of the list. Those companies that installed a more vanilla SAP system will likely endure fewer trials and tribulation during an upgrade, says Bill Wood, president of R3Now Consulting. "If a company has created a lot of custom code or system modifications, then their upgrade is going to be more challenging."
March 2013 might seem like a long way off. But for those SAP ERP customers not current on SAP's ECC 6.0 version, March 2013 is a date with significance: That's when extended maintenance on pre-ECC 6.0 ends.
For those companies still running 5.0, 4.7, 4.6 or earlier versions, the loss of extended maintenance means that they will have to move to "customer-specific maintenance." Though the cost is not at a higher price than what they were paying for extended maintenance (which, by contrast, costs a couple percentage points more than mainstream maintenance), the customer-specific plan offers much lower levels of service, many support restrictions and potential compliance headaches.
What it also signifies is that those companies are resistant to SAP's impressive marketing machine. Let us be perfectly clear here: SAP expends a lot of marketing dollars imploring its customer base to upgrade to ECC 6.0.
On one hand, there's the significant customer value that SAP points to. That value, according to SAP's Eric Van Rossum, head of the global upgrade office, is to: attain new functionalities from the latest code; remain in compliance and satisfy other legal requirements; reduce operating costs; and prepare for SAP's next generation of software enhancements. "It is about protecting your investment," Van Rossum adds, "but the real opportunity lies not only in cost savings from removing custom code but also from strategically benefiting from all our new innovations."
On the other hand, there is stark business reality: Of the €14.2 billion in revenues SAP earned in 2011, nearly half (€7 billion) came from the "Support Revenues" line item. Margins on "Software and Software-related Services": an eye-popping 81 percent.
SAP's ECC 6.0 upgrade program has enticed a majority of its customers: Globally, 80 percent of SAP customers are running at least one SAP ECC 6 system, meaning that four out of five customers have moved completely or part of their installations to 6.0, according to Van Rossum. (That percentage is higher in North America.)
And yet there's more work to be done—that 20 percent or so of SAP's ERP customers who haven't yet, plan to later or won't ever.
"We Needed to Be on ECC 6"
There are three main elements to a traditional SAP upgrade: the project management piece, the business-side change-management, and the underlying technical aspects (including loads of testing). None is more critical than any other—fail at one and your chances of success (by whatever metric you choose) decrease.
The larger the number of SAP users, the more resource-intensive the project: The median effort for companies with 500 or fewer users is 150 person days, more than 12 weeks totaling $125,000 in expenses, according to Panaya's January 2012 "SAP Upgrade Benchmark" survey report. If you've got more than 2,500 users, those numbers jump to 3,350 person hours, more than 31 weeks at a cost of $1.4 million.
Mike Ayars, director of IT at Powell Electronics, says that his company's upgrade to ECC 6 from 4.7 was "rigorous, but not difficult." Powell Electronics operates in 11 U.S. locations and has more than 200 employees.
The upgrade project took 11 weeks, and Ayars says that besides the maintenance aspect, the company wanted to be able to implement some of the new features and enhancements in the Enhancement Packages. "We needed to be on ECC 6," he says.
SAP customers going through an upgrade typically try really hard to lessen the time and money required, and also mitigate the risks to business operations. Ayars says his team did a couple of things: they spent time with the business folks mapping out how the business processes and the SAP software synched; they loaded the business processes into Solution Manager, using the Test Workbench to create multiple testing plans. "I used the workbench to track how the users were progressing with testing and to quickly identify and remedy errors," Ayars says; and lastly, Powell Electronics used Panaya to test the custom code and find out "what will break, why and how to fix it" during the upgrade, he says, estimating that it alone saved his team six weeks.
Of the technical snafus that can bog down an SAP ERP upgrade, customization is at the top of the list. Those companies that installed a more vanilla SAP system will likely endure fewer trials and tribulation during an upgrade, says Bill Wood, president of R3Now Consulting. "If a company has created a lot of custom code or system modifications, then their upgrade is going to be more challenging."