In the past year, we have seen how SAP RISE has played out in the market and how RISE has evolved to better fit customer’s needs. We have also seen where RISE implementations have provided opportunities and challenges for customers which put into question how efficient RISE can be in certain environments.
Now that RISE has been on the market for a year, we can better understand where RISE is a good match for customers and where it is not. We also have insight into what customers need to know when SAP positions RISE at the negotiation table. Here, I will discuss customer scenarios where RISE has and has not been a viable solution and how RISE customers can better understand SAP’s objectives to get the best deal possible.
Many companies with antiquated technology platforms who are looking to bring their technology into the present see an opportunity to do so by deploying RISE in a greenfield environment. Deploying RISE allows them to make this leap in one big step, eliminating the complexity of moving their technology forward several years.
Likewise, even if an organization is an existing SAP ECC customer with disparate systems, some don’t want to make two jumps to bring their systems together – it is less efficient to consolidate their systems in an on-premise model and then make another leap from ECC to S/4HANA to move to the cloud. Leveraging RISE allows these customers to consolidate and move to the cloud in one big step with one end-state platform.
Additionally, customers who have either low or no legacy stranded costs, meaning they just purchased a set amount of net licensing software that may be in year two of depreciation, see an opportunity when leveraging RISE. For these customers to move to the cloud, they must either do a big write down or they must buy a lot of technology just to drop it in their own private data center or a third party’s data center. The latter leads to a lot of capital investment tied up in the platform, but RISE will give these customers more flexibility when moving to the cloud.
Next, RISE raises opportunities for those who are already in the cloud. These customers have been through the cloud journey, and they know what it takes. If it’s just a scenario of moving to S/4HANA in the cloud, RISE is a good option to help these companies do some data migration or move to a different hyperscaler with little complexity.
Finally, for clients who have outsourced key roles, the SAP BASIS support, and the infrastructure support, RISE is an appealing option. RISE would allow customers who do not want to invest in “people costs” for S/4 to efficiently move forward in their transformational journey.
Customers with a highly customized ECC or S/4 environment and complex integrations face significant challenges implementing RISE. They don’t have the luxury of deploying out of the box in S/4HANA which can be further complicated by the requirement to maintain either their own custom-made products or third-party products. The reason RISE is a poor fit in this instance is simple: RISE doesn’t support customizations and integrations, making it an inefficient option for these highly customized environments.
Additionally, customers who already have their own Infrastructure as a Service (IaaS) strategy find it challenging to implement RISE, since RISE is not a simple add on to their IaaS strategy. SAP may only be 25% of what their future-state cloud requirements are going to be. RISE would create an island around their cloud strategy, which is unappealing to customers who already have their strategy in place and do not want to isolate it.
It is also critical to think about how RISE could impact existing vendor relationships. If you already have a third-party offshore provider doing all your BASIS support and application maintenance, carving out your SAP load and giving it to RISE may not be efficient. In fact, it will likely add complexity and impact the commercial relationships you’ve made with these other vendors that negatively impact your operating model.
Next, customers who are looking to simply make an upgrade rather than launch a full transformation may find RISE is not the best fit. We’ve seen several instances where companies are struggling to justify using RISE for an upgrade from a cost perspective, especially when going from a traditional CapEx model to an all OpEx model.
Finally, many companies who are more risk-adverse, especially if they have been down the HEC journey, are hesitant to move forward with RISE. HEC left a bad taste in customers’ mouths, and there is a level of concern as to what this means for SAP going forward. Given the fact that RISE is still relatively new, and it seems a lot like HEC, most customers do not want to put their organization at risk.
Both RISE opportunities and challenges need to be fully vetted from a commercial and financial perspective. Giving yourself the opportunity, with the assistance of a trusted advisor, to weigh the financial and commercial opportunities or challenges for RISE allows you to understand whether you’ll be a RISE customer that is happy with the platform or a customer who sees better efficiencies outside of RISE.
SAP RISE’s Levers
Knowing that some customers see RISE as a viable platform and others as a possible deviation from their technology roadmap, SAP has several levers to entice customers into adopting RISE for their transformations. These levers include:
- Internal Motivators
RISE is driving SAP internally to overcome where they are viewed in the market as a true cloud provider. Currently, SAP is not perceived as a true cloud platform provider in the market. Instead, they are viewed as a monolithic ERP platform that acquired cloud solutions SuccessFactors and Ariba, rather than a true, organically developed cloud platform.
One of SAP’s top priorities right now is to change this perception in order to ‘rise’ in the cloud market. In conjunction with that, SAP has said that they are purposely going to decrease their perpetual license model and revenue. Decreasing perpetual licenses has always been important to them and their maintenance stream, but SAP is absolutely tailing that off currently to drive cloud increase.
We are also seeing a shift in SAP’s sales team compensations. For a customer to sign a big perpetual deal now, it’s not really a “win” for the salespeople because it doesn’t fulfill the other objectives that SAP has from a corporate perspective. The salespeople aren’t personally motivated because their comp is not structured around these deals anymore. While they’ll still close the deal, it’s not meaningful when talking about their current company culture, objectives, and the representations SAP has made to Wall Street about shifting focus to the cloud.
- Customer Carrots
Over the past year, we’ve been engaged with several customers and observed how SAP is positioning certain aspects of RISE. These act as carrots to draw the customer into their RISE offering. One of these carrots is providing financial and commercial incentives to early adopters of RISE.
Additionally, SAP was not overtly flexible regarding customers’ use of the hyperscalers. Now, SAP is providing much more flexibility for customers to pick whichever hyperscaler will work best for them. They’re also driving forward industry-specific capabilities to enable customers in those verticals to accelerate value delivery. Lastly, SAP has stood by their SI collaborations for certain capabilities that may not be inherent with some of the RISE offerings to further broaden RISE’s appeal. Overall, SAP is working to create a more flexible and more collaborative image to draw more customers in.
- Customer Sticks
Regardless of the incentives SAP is dangling in front of customers to promote RISE, we absolutely anticipate SAP to take measures to force this issue, which may include limiting customers’ flexibility to purchase or exchange on-prem SKUs. Again, SAP is focused on investing in the cloud, so they are going to turn their time and energy over to their cloud solutions.
We’ve also seen SAP position audits, mergers, or acquisitions as a lever in exchange for a certain level of flexibility or forgiveness. They position RISE as an opportunity to overcome those hurdles, and they know customers may want to take advantage of that in the name of efficiency.
Key Commercial Elements to Include in Your RISE Contracts
If you believe RISE is the right fit for your organization but you do not want to get caught up in SAP’s incentives and sales gimmicks, there are several key commercial elements to bring to the negotiation table.
In the year since RISE came out, we’ve helped clients push SAP along from a cost and commercial perspective to where they are today. SAP is all about volume, even to this day – how much money you bring to the table drives price considerations.
However, the fact of the matter is the RISE offering has and will continue to evolve. Those proposals are structured, especially when compared to perpetual licenses, in order to present RISE in a more favorable light.
Transparency is huge with RISE. RISE is a fully bundled offering, so being able to unpack and understand the drivers behind the infrastructure and support elements and align it to your requirements is key.
With our clients, we’ve been successful in aligning customer requirements with a RISE proposal to determine the true TCO of a market competitive deal. Given RISE is a combination of subscriptions, support, and infrastructure, many clients try to push SAP to provide greater insight into how they manage these aspects.
Unfortunately, it will be a struggle to obtain that level of granularity. Therefore, it’s important to do a detailed analysis of your functional requirements, future state environment requirements and operating model to understand how all those elements pull together and determine if they are met by RISE.
On the predictability side, it’s important to obtain predictability for SAP’s current pricing as well as their future pricing. It’s hard to justify moving to a new model unless you have the right amount of cost certainty from both a pricing perspective and a commercial perspective. We’ve seen just in the past year that SAP has changed their pricing and commercial methodology in response to the market, so it is important to lock down key cost elements now to act as an insurance policy moving forward.
Flexibility also folds into these key terms. At the end of the day, you’re going to sign these deals with RISE for five years or more, and things will change over the years. It is important to have some flexibility as your implementation schedules change and as your business priorities change. You need the ability to move those assets around in a way that’s most advantageous to you and your program.
Accountability is also key, and it is still evolving with SAP. Their standard SLAs may not be aligned to those currently provided for your Tier 1 applications. It can be a challenge to obtain this accountability because unless you’re able to negotiate best-in-class SLA credits, there is not a lot of financial incentive to get SAP to perform any differently when you have your ERP platform being managed by SAP and RISE.
It’s also important to understand how your future state platform is integrated and standardized from an operations perspective so there’s no “white space” between SAP, your internal team, and any other third parties. At the end of the day, customers don’t want a credit from SAP, they just want the system to perform. This is especially true if you’re moving from a private data center or a private cloud to SAP.
There can be material gaps in SAP’s accountability which may not be readily apparent. Having disparate terms and conditions can be a huge challenge. We’ve seen situations where SAP has fallen short on the level of support they committed to, so it is important to fill these gaps at the outset to prevent future frustration in your transformation.
The Bottom Line – There are Keys to Success
When implementing an integrated sourcing strategy with RISE, there are three keys to success. The most important key to success is to develop a comprehensive sourcing strategy and recognize that the process is much broader than just making a software selection. Making a software selection in the context of RISE has a lot of potentially unintended consequences down the road on where you’ll land from a platform perspective, a solution perspective, an operating model, and how all those different elements may or may not be completely understood at that point in the process.
The second key is understanding how RISE fits into your digital transformation and future operating model. There are elements of RISE that you will need to break down to understand how those RISE capabilities fit your future digital platform as there may be elements of the RISE solution that exist on the S/4HANA perpetual model, but don’t yet exist in the cloud version.
There may also be unknown gaps that need to be addressed in the context of finalizing your technical platform and operating strategy. If you have prior vendor relationships and support for your ECC environment which may be replaced or modified by RISE, that will absolutely impact those relationships from both a commercial and efficiencies standpoint.
Finally, SAP’s negotiation posture in terms of conditions, pricing, and discounting is changing. Since SAP first launched RISE, there has been evolution in their coming to market strategy. SAP is reacting to the pressure they’re getting from clients who can’t make this work from a cost perspective. Customers need to be informed from a market standpoint to ensure they can leverage a dynamic commercial environment and can negotiate based on the most current market conditions.
If RISE is the best fit for your digital transformation, it is imperative that you fully understand the breadth and depth of decisions to be made as well as the commercial, financial and contractual implications of choosing that path. Leveraging a strategic advisor will be key to dissect all of these matters and be informed as to the most advantageous, market competitive transaction with SAP.