Cloud Between Euphoria and Crash

00:00:01: The podcast accompanying the E-three cover story is a critical and constructive discussion for the SAP community from the perspective of the E-three editorial team.

00:00:09: Two AI avatars are equipped with all the sources from the E-three editorial team and explain the challenges, tasks, and pitfalls to existing SAP customers.

00:00:18: The respective topics are discussed critically but constructively, with lots of tips and tricks.

00:00:25: Cloud computing is a key strategy for SAP for the current ERP generation.

00:00:30: Rise with SAP is intended to be the path to the cloud, but there are many organizational and licensing challenges involved.

00:00:36: This episode of the E Three Cover Story podcast provides an overview and highlights the advantages and disadvantages of the cloud.

00:00:43: Event note, cloud computing, Rise, and a particular SAP CCOE, the Customer Center of Expertise, are also key topics at the SAP Community Competence Center Summit on June tenth and eleventh, twenty twenty six in Salzburg, Austria.

00:00:58: important for all existing SAP customers.

00:01:00: Rise with SAP requires SAP CCOE.

00:01:04: But now to the E-three episode, Cloud between Euphoria and Crash.

00:01:09: Okay, let's dive in.

00:01:11: We're here to unpack this absolutely monumental shift that's happening in the enterprise world.

00:01:17: It really is.

00:01:18: Specifically, we're focusing on the SAP ecosystem.

00:01:22: And this isn't just some dry technical subject.

00:01:25: Not at all.

00:01:25: This is a strategic ultimatum, really.

00:01:28: and it's facing nearly every major corporation on the planet.

00:01:30: It

00:01:31: is.

00:01:31: We're talking about the unavoidable, and I have to say, incredibly complex transformation for, what, tens of thousands of existing SAP customers?

00:01:39: Right,

00:01:40: those companies still running on the old warhorses, you know, ECC, the business suite.

00:01:44: Exactly, and they have to migrate into this mandated S-IV on a cloud world.

00:01:49: And let's be clear, this transition is not a simple IT upgrade.

00:01:52: No, absolutely not.

00:01:53: It's a fundamental, sometimes messy, and almost always costly strategic overhaul.

00:01:59: It forces you to rethink everything from the ground up from your data management all the way to your organizational design.

00:02:04: And that's precisely where we're doing this deep dive.

00:02:07: Our mission today is to give you a really critical and hopefully constructive analysis of the core architecture that's underpinning this colossal shift.

00:02:16: Right.

00:02:16: We need to dissect SAP solution architecture.

00:02:19: I'm talking about the Rise with SAP package, the absolutely strategic role of the SAP Business Technology Platform or BTP.

00:02:27: BTP, yeah.

00:02:28: We'll be hearing that acronym a lot.

00:02:30: A lot.

00:02:30: And then there's the complex, you know, sometimes tense relationship SEP has with the big hyperscalers.

00:02:36: So the real value for you listening isn't just hearing the marketing pitch.

00:02:40: No.

00:02:41: It's about uncovering why so many of these large established customers are frankly struggling with adoption.

00:02:48: It's about what the actual cost dynamics are and what viable strategic alternatives they really have, you know, based on the reality of enterprise operations today.

00:02:57: And the pressure driving all of this is just immense.

00:02:59: I mean, the legacy clock is absolutely ticking.

00:03:01: That deadline is looming large.

00:03:03: It is.

00:03:03: Our sources say we're dealing with a population of approximately fifty thousand SAP ECC six point zero and older systems.

00:03:10: Fifty

00:03:10: thousand.

00:03:11: Fifty

00:03:11: thousand active production systems that are facing this migration.

00:03:15: The scale is, well, it's difficult to even get your head around.

00:03:17: That number really underscores the institutional inertia that SAP is trying to overcome, doesn't it?

00:03:23: It does.

00:03:24: The primary hard deadline, the thing that's acting as the real gravitational pull for what, nearly sixty percent of these customers, is the end of standard maintenance for ECC six point zero.

00:03:35: Which is slated for twenty twenty seven.

00:03:37: Currently

00:03:37: twenty twenty seven.

00:03:39: Now it's important to clarify the fine print here.

00:03:41: while customers can potentially extend their S-IV on-premises updates all the way to twenty forty.

00:03:47: There's

00:03:47: always a catch.

00:03:48: There's always a catch.

00:03:50: That extended maintenance, it comes at a significantly higher premium.

00:03:54: It likely involves annual surcharges that, frankly, many companies are desperate to avoid.

00:03:59: So while twenty forty might feel like a safety net.

00:04:02: Twenty twenty

00:04:03: seven is the immediate costly inflection point.

00:04:06: It's forcing boards and IT leaders to make these irreversible, strategic decisions right now.

00:04:11: That distinction is vital.

00:04:12: It's not just an expiration date.

00:04:13: It's a financial trigger.

00:04:15: So let's start this deep dive with the operational complexity that comes before you even think about migrating.

00:04:20: Because you can't build a new enterprise on top of a mountain of old, irrelevant data.

00:04:24: You really can't.

00:04:25: So the first operational headache that all our sources point to is this universal challenge.

00:04:30: It's like pure physics in the enterprise world.

00:04:33: Data inertia.

00:04:34: The accumulated history, this vast digital attic of decades of business operations, it's often the single biggest thing holding back a smooth transition.

00:04:43: Data inertia is a huge, and I'd say often criminally underestimated hurdle.

00:04:48: Really?

00:04:49: Oh, yeah.

00:04:49: It impacts project timelines, the overall complexity, and fundamentally the cost.

00:04:54: And it exists no matter which migration path you choose.

00:04:56: Oh, it doesn't matter if you go Brownfield-Greenfield.

00:04:58: Doesn't matter.

00:04:59: Brownfield conversion, a clean slate, Greenfield implementation, or even the surgical precision of a selective data transition.

00:05:06: The sheer volume of age data just impacts everything.

00:05:10: Think about it, many legacy ECC systems hold fifteen, maybe twenty years of transaction data.

00:05:15: that simply has no place in a clean Agile S-Forehand Accord.

00:05:19: And this is where the operational experience, the empirical evidence, it provides this shocking level of potential efficiency.

00:05:24: Our sources call it the nine on ninety-five percent rule.

00:05:27: That sounds like a massive simplification.

00:05:29: How does that work in practice?

00:05:30: It sounds extreme, but this rule is based on the reality of how enterprise resource planning data is actually used.

00:05:37: Experience shows that movement data, so transactional records like invoices, goods movements, production orders, if it's older than say one to three years, it's frequently unnecessary for the actual operational migration into the new S for HANA core.

00:05:53: So you only need the active stuff.

00:05:55: You only need the essential active data and open items.

00:05:57: So think about a company that's been running their SAP system for a decade.

00:06:02: If they strategically transfer only the required active and master data, that can mean a staggering ninety percent reduction of the original data volume.

00:06:11: Ninety percent.

00:06:11: And for those truly historic systems, the ones that have been operating for twenty years or more, That data reduction can jump to an astounding ninety-five percent.

00:06:20: Ninety to ninety-five percent.

00:06:21: I mean, that's not just cleaning house.

00:06:23: That's strategically demolishing the old data center and just keeping the few critical foundation stones for the new building.

00:06:29: That's a great analogy.

00:06:30: So

00:06:31: what's the process for deciding what to keep and what to get rid of?

00:06:34: It's a multi-step process.

00:06:36: It's really driven by two things.

00:06:37: Legal compliance and operational necessity.

00:06:40: First, you have to identify all your legally mandated retention periods for different types of data.

00:06:45: Tax,

00:06:46: HR, that kind of thing.

00:06:47: Exactly.

00:06:47: Tax, HR, supply chain.

00:06:49: Then you distinguish between the data that's required for operational continuity in S-IV, like your master data and current open transactions, and what is purely historical data.

00:07:01: And that leads to archiving.

00:07:02: It leads directly to the strategic importance of archiving and, crucially, system decommissioning.

00:07:08: The ultimate goal is to completely shut down those old legacy ECC systems entirely.

00:07:13: And the benefits of decommissioning, I imagine, go beyond just simplifying the IT landscape.

00:07:18: Oh, the financial benefits are profound.

00:07:20: Simply retiring old legacy ECC systems can cut your annual operational costs.

00:07:25: We're talking hardware, licenses, staff, maintenance by around eighty percent.

00:07:29: Eighty percent.

00:07:30: Compared to running them in parallel or keeping them on expensive legacy hardware.

00:07:34: But... and this is the key to do this correctly, that historical data, the documents, and their crucial business context, they all have to be legally and securely extracted and preserved in a much, much cheaper, non-SOP environment.

00:07:48: Okay, that sounds highly specialized.

00:07:50: Can you give us a concrete example of the kinds of tools used for that complex extraction and preservation?

00:07:55: Absolutely.

00:07:56: One example cited in our materials is JIVS-IMP, the Information Management Platform.

00:08:02: These are solutions designed specifically to handle that secure, legally compliant extraction of historical data from the old ECC system.

00:08:09: They preserve it in a low-cost, compliant repository.

00:08:12: And it keeps the context so the data is still usable later.

00:08:15: Exactly.

00:08:15: It maintains the business context.

00:08:18: That means the data is still understandable and auditable years down the line, while allowing the operational SAP system to be shut off for good.

00:08:27: If you do this process of selective data transition correctly, maybe using automated transformation software, what seems like extra effort of data reduction can actually turn into a net cost saving.

00:08:39: It can potentially reduce the overall data migration effort in timescale by up to half.

00:08:44: So the goal isn't just to move data.

00:08:46: It's to strategically curate which five or ten percent of data is actually active and essential for the future S-Force system and then securely park the rest.

00:08:55: for legal or historical reference.

00:08:56: You're managing the complexity of the past so it doesn't hamstring the agility of your future core.

00:09:02: That's it in a nutshell.

00:09:03: Okay, let's move from data management to the actual migration paths.

00:09:06: We have Brownfield versus Greenfield.

00:09:08: This is the classic initial decision point, but the consensus on which path is best often seems a little counterintuitive.

00:09:15: Why is that?

00:09:16: It feels counterintuitive because Greenfield, you know, the fresh start, it just sounds strategically superior.

00:09:20: Who doesn't want a clean slate?

00:09:22: Right.

00:09:22: But the reality is that a brownfield conversion is often the recommended path for the vast majority of established existing customers.

00:09:29: And

00:09:29: why is that?

00:09:29: Efficiency, risk.

00:09:31: Both.

00:09:32: It's efficiency and risk mitigation.

00:09:34: For most large established companies, their existing ERP solution, their ECC system, it already covers their central mission-critical business processes really well.

00:09:44: Things like financial closing, order to cash.

00:09:47: These are documented, optimized processes that, while maybe technologically a bit dated, are fundamentally sound.

00:09:54: So Brownfield is basically a technical lift and shift.

00:09:56: Yes,

00:09:56: that's a good way to put it.

00:09:58: A Brownfield approach transitions the existing SAP ERP system, almost like a standard version or release change.

00:10:05: It minimizes disruption to your organizational processes and, critically, it minimizes the need for massive disruptive process, re-documentation and retraining.

00:10:14: So you're saying a full green field might be overkill?

00:10:16: For many, yes.

00:10:18: a full Greenfield implementation, starting from scratch, re-implementing everything, it might overshoot the goal.

00:10:24: It consumes massive amounts of time and budget without delivering substantial improvements to those core processes, and it typically costs several times more than a Brownfield project.

00:10:33: Greenfield is really only warranted if the existing ECC system is completely broken, or if the organization is undergoing a parallel, fundamental global business redesign.

00:10:43: But

00:10:43: waiting for a pure brownfield or committing to a full greenfield?

00:10:47: That feels a bit too rigid and binary for today's complex global companies.

00:10:51: Most want to keep their history, but still embrace innovation.

00:10:54: Which brings us to the more sophisticated modern option.

00:10:57: Bluefield.

00:10:58: Bluefield is absolutely the strategic middle ground.

00:11:01: It's gaining immense popularity because it addresses that exact hybrid need.

00:11:05: It represents these hybrid migration forms that are achieved by elegantly separating the process and the data layers during the transition.

00:11:12: Separating

00:11:12: process and data.

00:11:13: Yes.

00:11:14: And this separation allows customers to combine the best aspects of both approaches.

00:11:19: They can innovate on processes in specific areas, like implementing new modules or redesigning certain business flows, like a greenfield approach, while simultaneously retaining their historical data and minimizing organizational disruption on the financial and core master data side, just like a brownfield.

00:11:37: Can you elaborate on the technology that even enables Bluefield?

00:11:40: It must require some highly specialized software to perform that kind of surgical separation.

00:11:46: It does.

00:11:47: Bluefield requires intelligent, automated data transformation software.

00:11:51: This software allows for that selective data migration, letting customers choose which parts of the old system's configuration and data they want to keep and which they want to redesign.

00:12:00: Are there examples of this in the wild?

00:12:02: Oh yes.

00:12:02: For instance, SNP and IBM Consulting have formed a global center of excellence that specifically uses the Crystal Bridge platform.

00:12:10: Crystal Bridge is a sophisticated platform designed for these hybrid S-IV and M-migrations.

00:12:15: It allows for the rapid and secure transformation of SAP landscapes, facilitating that selective movement of data and configuration while the business continues to run.

00:12:25: For most large SAP customers, this approach is often the ideal path.

00:12:29: It offers controlled flexibility and targeted innovation.

00:12:32: So regardless of the chosen path, brownfield, greenfield, or the hybrid bluefield, there's this critical component of minimizing operational risk.

00:12:40: For any global enterprise, I mean, system downtime is simply the enemy.

00:12:44: Down time during a migration is an unavoidable reality, but the length of that downtime has to be surgically managed.

00:12:50: This is particularly true for global, customer-oriented companies that operate twenty-four-seven across multiple time zones.

00:12:56: E-commerce, global supply chains.

00:12:58: Exactly.

00:12:58: If you have an e-commerce platform or a global supply chain running on SAP, you cannot afford to be offline for days or even multiple weekends.

00:13:06: It's just not an option.

00:13:07: So what's the standard procedure and why isn't it good enough today?

00:13:10: Well, traditionally migrations required system freezes and lengthy data loads.

00:13:15: This is why the use of automated transformation software for near-zero downtime procedures is absolutely crucial today.

00:13:22: Near-zero downtime.

00:13:23: Without this automation, the data transfer and technical conversion needed during, say, a brownfield migration could take significantly longer than a single weekend.

00:13:32: And that downtime extending into the business week, that results in extensive, costly, and frankly, reputation damaging business interruptions.

00:13:41: The sophisticated automated tools, they manage the data synchronization and the cutover with minimal disruption to ongoing business.

00:13:48: The speed, the repeatability, and the security they provide are just non-negotiable for any mission-critical SAP system.

00:13:56: So if the technology exists to manage the legacy complexity through things like Bleefield and near-zero downtime, then the next big question has to be the new architecture itself, the cloud ecosystem that SAP is so aggressively promoting.

00:14:08: Yes, that's the next chapter.

00:14:09: Let's start with the central sales proposition.

00:14:12: Rise with SAP.

00:14:14: When it launched, it generated a lot of marketing noise.

00:14:17: What exactly is Rise and why is SAP framing it as the essential unavoidable path forward?

00:14:24: So Rise of SAP is essentially a comprehensive business transformation subscription package.

00:14:31: A package, not a product.

00:14:32: Exactly.

00:14:33: It's less a piece of software and more a bundled managed service delivered under a single contract.

00:14:39: Its stated purpose is twofold.

00:14:41: One, to simplify the migration process, and two, to dramatically accelerate the customer's digital transformation journey toward what SAP calls an intelligent enterprise.

00:14:50: So SAP is basically framing it as the easy button for Sforchana Cloud.

00:14:54: That's the pitch.

00:14:55: Wrapping everything software, cloud infrastructure, maintenance and process tools into one monthly fee.

00:15:00: What are the key elements bundled in this package?

00:15:03: We hear about the five pillars.

00:15:04: Yes, the five core components are designed to cover the transition and the ongoing operation.

00:15:09: So first you have the foundational software SAP Sforchana Cloud.

00:15:13: It's generally the private edition, though public is an option.

00:15:15: Okay, that's pillar one.

00:15:17: Second is a crucial strategic component.

00:15:19: Business Process Intelligence, or BPI.

00:15:22: This uses tools like Signavio to analyze your existing processes and identify optimization opportunities before or during the migration.

00:15:30: SAP's CEO, Christian Klein, constantly emphasizes BPI.

00:15:35: Right, so you're not just moving your old messy processes to the cloud.

00:15:38: The idea is you're not just moving technical debt, you're truly optimizing.

00:15:42: Third, we have the linchpin of the whole modern architecture, the SAP Business Technology Platform, BTP.

00:15:48: Fourth is access to the broader SAP business network, so Ariba, Concur, Field Glass.

00:15:55: And finally, you get various integrated tools, services, and cloud credits to help with the shift itself.

00:16:00: It sounds convenient, but convenience often comes at the expense of control.

00:16:04: And that brings us to the crucial contractual shift inherent in Rise, the move from owning an asset to a subscription model.

00:16:11: What are the major specific pain points for customers with this contract conversion?

00:16:15: This is perhaps the biggest source of contention and strategic risk for established customers.

00:16:19: I've heard this.

00:16:20: The contract conversion with RISE mandates that customers forfeit their old perpetual license rights and switch entirely to a subscription.

00:16:28: This introduces several pressures.

00:16:31: First, customers lose ultimate control over update cycles.

00:16:34: They become Obligate followers of SAP's mandatory update schedule.

00:16:39: That's a major stability concern for highly customized systems.

00:16:42: Second, they become exposed to the risk of potential future price increases when they have to renew, since they no longer own the underlying asset.

00:16:50: And third, and this is critical, the value of the new rise contract is often dictated by SAP to be at least two percent higher than the list price of the old licenses.

00:16:59: Regardless of whether the customer needs all the new stuff.

00:17:02: Regardless

00:17:02: of whether they actually require all the additional bundled licenses.

00:17:05: or cloud services, to many it feels coercive.

00:17:08: And that price floor directly impacts how customers are actually licensed for their users.

00:17:13: The shift from consumption metrics to this role-based usage measurement is a major change in how you account for things.

00:17:19: That's where the licensing pain points really sharpen.

00:17:22: It leads to those widely reported cost increases.

00:17:25: The shift is to a role-based User Vermisung, that's the German term for user measurement, which uses full usage equivalents or FUEs.

00:17:35: FUEs.

00:17:36: This FUE model, based on predefined roles and expected usage, is reported by user groups to be anywhere from fifty to one hundred fifty percent more expensive than the previous consumption-based or named user licensing customers were used to in ECC.

00:17:49: Why such a massive cost jump, and what makes calculating these new FUEs so challenging for the customer?

00:17:55: Well, the jump happens because the FUE model assumes a higher, more consistent level of system use and privilege based on a standardized role, rather than tracking actual low-level usage.

00:18:05: And the enormous challenge, both technically and for resources, is that customers are compelled to define these new expensive roles themselves.

00:18:12: They have to map their complex legacy authorization objects and usage patterns onto this new S-IV role matrix.

00:18:18: And they're doing this on their own.

00:18:19: Often, yes, without mandatory in-depth SAP support or consultation.

00:18:25: It leaves internal teams struggling to reconcile decades of ECC customizations with these new standardized cloud roles.

00:18:32: Customers really need intelligent third-party license analysis to retain control over their budget and prevent the vendor from just steering them into high-cost FUE allocations they don't actually need.

00:18:43: The complexity of this licensing conversion alone is a significant project bottleneck.

00:18:48: Okay, let's pivot to the technical core.

00:18:50: The glue holding this entire new architecture together is BTP, the business technology platform.

00:18:56: SAP has made it abundantly clear this is not optional.

00:19:00: It's the centerpiece.

00:19:01: BTP is not just important.

00:19:02: It's non-negotiable.

00:19:03: It's positioned as the defining ERP strategy for both H&NS-IV.

00:19:07: Think of it as the ultimate operating system for the intelligent enterprise landscape.

00:19:11: The

00:19:11: operating system.

00:19:12: Its function is absolutely crucial.

00:19:14: It manages application integration.

00:19:16: It serves as the essential middleware to fill end-to-end process gaps, the missing pieces between your core functions.

00:19:23: And it is the sanctioned way to integrate even non-SAP third-party products seamlessly.

00:19:28: It's the platform layer that modernizes, connects, and future-proofs the entire landscape.

00:19:34: And the strategic positioning.

00:19:36: It feeds directly into what SAP calls the clean core strategy.

00:19:40: What is the clean core and how does BTP enforce the structural integrity of Sforana?

00:19:46: The strategic goal of the clean core is simple but profound.

00:19:49: Keep the central SAP system, as for Anna, as close to standard untouched functions as humanly possible.

00:19:55: Unlike the old ECC days.

00:19:57: Exactly.

00:19:57: ECC implementations over decades became what we call spaghetti code riddled with core modifications that made upgrades impossible.

00:20:04: The clean core reverses this.

00:20:05: Any needed individual developments, customizations, or unique business logic must now be done using BTP as the designated instrument for side-by-side extensions.

00:20:13: So BTP is kind of the safe house for customization.

00:20:16: It's the perfect way to describe it.

00:20:17: It externalizes the customization.

00:20:19: By keeping that unique logic on BTP adjacent to the core, it ensures that when SAP pushes mandatory updates, which they will, especially in the cloud, the core remains stable.

00:20:31: This lets the customer leverage new innovations and security patches without breaking their unique differentiating business logic.

00:20:38: If you modify the core S-IV system, you forfeit that upgrade stability.

00:20:43: ETP guarantees it through strict separation.

00:20:45: But if we're in the cloud era, does the classic SAP programming language, ABA, just become obsolete?

00:20:51: I mean, a lot of developers have built entire careers on it.

00:20:53: Not at all, which is a key point of reassurance for that community.

00:20:57: ABA remains highly relevant and it's undergoing its own evolution.

00:21:00: SAP offers the ABA Cloud development model specifically built on BTP.

00:21:05: This model adheres to the clean core principles by providing standardized interfaces.

00:21:09: And crucially, this ABA Cloud model is available across all S-IV ANA editions, public cloud, private cloud, and even on-premises.

00:21:16: Can you

00:21:16: break down the variations of this new ABA P?

00:21:18: I know the naming conventions, steampunk, embedded steampunk can get a little confusing.

00:21:22: It

00:21:22: is complex, but it's vital for developers.

00:21:25: So ABA Cloud is the future standard.

00:21:28: when you build the cloud capable upgrade stable solutions directly on the S-Force stack using the same technical stack as the core.

00:21:34: that's often referred to as embedded steampunk.

00:21:36: Okay, embedded.

00:21:37: When you build new services or applications side by side on a dedicated BT key environment connected via APIs, that is simply called steampunk.

00:21:46: Both enable you to build cloud capable solutions, but the BTP steampunk option offers greater decoupling from the S-Force system itself, which just reinforces the clean core.

00:21:55: For developers who spent their careers in ABAP, mastering the ABAP Cloud model is their required path forward.

00:22:02: Let's move beyond development.

00:22:03: How does BTP handle the massive data requirements and the increasing market demand for native intelligence and AI?

00:22:11: Right.

00:22:12: So first, on the data front, we have SAP DataSphere.

00:22:14: This is not just a data warehouse.

00:22:16: It's a BTP-based solution that is really the next generation of SAP DataWarehouse Cloud.

00:22:21: It's explicitly designed to solve the problem of fragmented business data silos.

00:22:25: A single source of truth.

00:22:26: The goal is a single source of truth for analytics.

00:22:30: DataSphere offers services for data integration, semantic modeling, and data federation.

00:22:36: And the critical part is that it retains the full business context and logic, the meaning of the data, when it distributes information across the enterprise landscape.

00:22:44: It provides scalable access without physically copying everything.

00:22:48: And that feeds into the intelligence layer.

00:22:50: Precisely.

00:22:51: And feeding into that is the intelligence layer.

00:22:53: Every enterprise buyer today expects AI to be natively embedded in their applications.

00:22:59: So SAP delivers ready-made AI services directly on BTP for quick integration.

00:23:04: This allows customers to get business value rapidly for highly standardized use cases without needing a huge internal team of AI experts.

00:23:11: What are some examples?

00:23:12: Things

00:23:13: like Document AI, which uses machine learning to accurately extract complex information from unstructured documents like invoices or shipping manifests, and the personalized recommendation service, which can optimize internal workflows or external customer interactions.

00:23:26: These are pre-built, continually improved modules provided as services.

00:23:30: And the generative AI component, Juul, that's the headline news right now.

00:23:35: How does that fit into the BTP NS-IV landscape?

00:23:38: Jule is SAP's generative AI co-pilot, and it's a central differentiating component of their overall business AI strategy.

00:23:46: It's built using large language models, LLMs, and it's designed to enable intuitive natural language interaction directly within SAP applications.

00:23:55: Instead of clicking through menus.

00:23:56: Right, instead of navigating complex screens, a user can just ask Jule to perform a multi-step transaction or generate an executive summary.

00:24:04: It moves AI from being a specialized analytical tool to an integrated conversational collaborator right inside the business process itself, all accessible through the BTP framework.

00:24:15: When we use the term the cloud in the SAP context, we are certainly not talking about a single destination.

00:24:20: It's a complex spectrum of options, private, public.

00:24:24: hybrid, and even multi-cloud.

00:24:26: Absolutely.

00:24:26: The discussion has moved way past the simplistic black-and-white choice of cloud or on-premise.

00:24:31: It is now a complex gradient of gray.

00:24:34: The undeniable trend across the industry is toward highly optimized hybrid and multiple cloud environments.

00:24:39: And the data backs this up.

00:24:41: It does.

00:24:41: Our study data supports this.

00:24:43: A huge, sixty-nine percent of participants already use hybrid or multi-cloud setups, and another twenty-four percent are actively planning to build them.

00:24:51: This strategy is driven by sophisticated needs, avoiding single-vendor lock-in latency requirements for different geographies, and meeting stringent regulatory mandates.

00:25:01: But looking at the actual adoption data from influential user groups, like the German-speaking DS ag members, where our customers actually placing their bets for S-IV, given all these options?

00:25:11: The survey data reveals a strong, persistent conservatism.

00:25:15: Diaz Ag members show a decided preference for S-IV on-premises operation, holding steady at fifty-seven percent.

00:25:21: Well, that's still a majority.

00:25:22: It

00:25:22: is.

00:25:23: It speaks volumes about the value customers place on control and their existing investments.

00:25:28: Private cloud adoption is a bit behind, adopted almost equally across different user groups, sitting at around twenty three to twenty four percent.

00:25:36: And critically, S for adoption in the public cloud.

00:25:39: that remains subordinate.

00:25:41: It's often only suitable for brand new companies or highly standardized processes with zero legacy customization.

00:25:47: For those fifty thousand legacy systems we talked about, public cloud is still future music.

00:25:53: And that preference for multiple environments inevitably creates the multi-cloud challenge.

00:25:57: If you use several cloud providers, say AWS for production and Azure for development, alongside an on-prem core integration becomes the new massive complexity bottleneck.

00:26:07: It absolutely does.

00:26:08: Using a multi-cloud architecture requires effortless integration via common standards and APIs, often governed by BTP.

00:26:15: But that necessity becomes an extremely complex orchestration process that actively deters many companies who just lack the internal architecture expertise.

00:26:23: This

00:26:23: is a whole new skill set.

00:26:24: A whole new skill set.

00:26:25: Orchestrating these diverse environments, defining proper cloud governance, ensuring consistent security policies across all providers, that's a significant challenge for over ninety percent of organizations.

00:26:37: They basically trade the risk of vendor lock-in for the complexity of integration.

00:26:42: Let's discuss the enormous strategic weight of the hyperscalers AWS, Microsoft Azure, and Google Cloud Platform.

00:26:50: These companies are offering much more than just space on a server.

00:26:53: They're offering competing ecosystems.

00:26:56: That's the core of the competitive dynamic.

00:26:58: The public cloud providers are acutely interested in attracting SAP customers, not just for AS infrastructure as a service, which is just hosting the core SAP system.

00:27:08: But strategically, they want to upsell their own lucrative pass and sauce services.

00:27:12: Platform as a service and software as a service.

00:27:14: Give us some examples of those adjacent services.

00:27:17: Certainly, think of AWS Aurora for high-performance databases, or Google Analytics Solutions for Business Intelligence, or Microsoft's comprehensive AI services and Dynamics.

00:27:28: Their

00:27:31: strategy is predatory in a competitive sense.

00:27:34: They leverage their immense economy of scale and deep technical integration to gain an advantage by offering superior adjacent services right alongside the core SAP infrastructure.

00:27:44: They create a sticky ecosystem that reduces SAP's overall footprint.

00:27:49: The fight isn't just over who hosts S-IV, it's over who provides the data warehouse, the analytics, and the application integration.

00:27:57: This

00:27:58: heavy reliance on global providers, especially for critical data and AI, it raises massive concerns around data control and jurisdiction, especially outside the US.

00:28:08: This is driving the growing global need for what they call sovereign cloud solutions.

00:28:12: Security, regulatory compliance, and sovereignty are paramount concerns, particularly for European customers in those in highly regulated industries.

00:28:21: Organizations are worried about extraterritorial data requests, the possibility that foreign governments could compel data disclosure if the physical hardware sits outside their direct legal jurisdiction.

00:28:30: And technical dependency.

00:28:31: And technical dependency on just a few monolithic global providers.

00:28:36: Sovereign Cloud addresses this by ensuring greater control and jurisdiction over data and infrastructure, often through partnerships with local providers.

00:28:44: And our data shows this isn't a theoretical worry.

00:28:46: A combined, forty-seven percent of organizations globally are already using or planning to use Sovereign Cloud solutions specifically to build AI capabilities.

00:28:55: The need for trusted control is real.

00:28:58: Can you illustrate with a collaboration example how a partner addresses this sovereignty need within the RISE model?

00:29:03: Yes.

00:29:03: Take T systems, for instance.

00:29:05: They explicitly provide a delivery model on a multi- and hybrid cloud platform.

00:29:10: T-System stresses the absolute necessity of a sovereign cloud infrastructure for their European customers, especially when implementing Rise with SAP, to ensure data and infrastructure control remains localized and compliant.

00:29:23: Separately, you see partnerships addressing the need for flexible transformation tools.

00:29:27: S&P and IBM Consulting establish a global center of excellence focused on hybrid S-IV Hannah migrations using the Crystal Bridge platform to facilitate complex moves across different cloud environments or to and from on-prem systems.

00:29:40: Speaking of infrastructure, a consistent often overlooked backbone across all these environments, from on-prem to sovereign cloud, is open source technology.

00:29:49: Linux is the undisputed foundational backbone of the modern SAP world.

00:29:53: It's been the stable platform for R three up to ECC six point oh for years, and it is the exclusive operating system mandated for the Hessana database.

00:30:01: You can't run hand on anything else.

00:30:03: Yeah,

00:30:03: that's right.

00:30:03: And when you discuss reliability and enterprise grade support, Sue's Linux Enterprise Server for SAP applications or SLES for SAP is the recommended and leading open source provider.

00:30:15: It holds an estimated eighty-five to ninety percent market share for HANA Linux deployments.

00:30:20: Its reliability and security are considered essential, particularly in the complex and demanding public-loud environment where stability is everything.

00:30:28: And for managing these increasingly complex hybrid environments, which are fragmented by definition, you need extremely sophisticated automation to prevent human error and keep costs down.

00:30:38: Absolutely.

00:30:39: The increasing operational complexity of a hybrid cloud setup requires automation to remain manageable, secure, and stable.

00:30:46: Manual administration across disparate systems, ECC, S-IV, BTP, three different hyperscalers, it's a recipe for instability and security gaps.

00:30:54: So tools like Ansible.

00:30:55: Exactly.

00:30:56: Tools like the Red Hat Ansible Automation Platform allow companies to automate their entire IT landscapes, specifically targeting SAP workloads, from initial deployment to patching and ongoing maintenance.

00:31:08: This dramatically reduces administration effort, eliminates potential manual errors that cause downtime, and it's a necessity for realizing a consistent, stable infrastructure in any complex hybrid setting.

00:31:21: Automation is the operational requirement that makes the strategic ambition of multi-cloud even possible.

00:31:26: Despite the intense strategic and financial pressure from SAP to move to the cloud, on-premises operation persists, and our sources suggest it does so for very solid strategic reasons.

00:31:37: What's the core non-negotiable argument for staying on-prem managed internally?

00:31:42: The core argument is sovereignty hoheit, the German term, which translates to complete and independent control over your entire IT infrastructure.

00:31:49: Total control.

00:31:49: Total control.

00:31:51: Hardware, network perimeter, and the data stored within.

00:31:54: This model is necessary for companies needing to comply with the most stringent national security requirements or those managing particularly sensitive high-value data.

00:32:04: Think defense contractors or critical national infrastructure operators.

00:32:08: This is data that legally or strategically must never be externalized to a third-party cloud provider.

00:32:14: The security architecture, the audit trails, the physical access, it must all be built and managed entirely internally.

00:32:21: And what is maintaining that level of control demand from the organization?

00:32:24: in terms of resources.

00:32:25: It demands an exceptional level of commitment and specialized talent.

00:32:29: On-Prim systems require highly trained staff with deep, specialized, HNIS knowledge covering everything from the database to the S-IV application layer to manage the entire spectrum of operations.

00:32:40: Security maintenance.

00:32:41: Security hardening, kernel maintenance, audit tasks, disaster recovery.

00:32:46: And if you lack those resources internally, outtasking to external specialists becomes the necessary solution.

00:32:51: Furthermore, on-premises operation offers the flexibility to continue using older, non-cloud-capable components, like certain deeply integrated ABIP-based add-ons, or existing third-party monitoring and backup tools that were licensed and optimized for the ECC landscape.

00:33:08: The cloud simply doesn't support a lot of these legacy dependencies.

00:33:11: Now let's address the strategic challenges and the palpable skepticism among established customers.

00:33:17: Our sources reveal the significant documented divergence between what SAP wants, the standardized clean core cloud model, and the complex individualized reality that customers expect and require.

00:33:28: That divergence is very stark.

00:33:30: SAP's strategy is heavily focused on promoting the public cloud and imposing strict BTP rules to limit core modification.

00:33:37: And this strategy is viewed by some in the community, particularly in user groups, not primarily as a technological move for customer innovation, but rather as a highly aggressive commercial effort to increase SAP's gross margin.

00:33:48: By selling a standardized service.

00:33:50: By selling a standardized high-margin service.

00:33:53: This feels like a strategic move away from supporting the necessary customer individuality and process flexibility that really define the success of the R-III and ECC era.

00:34:04: customers feel pushed toward a model that sacrifices their unique differentiation.

00:34:08: The frustration seems compounded by SAP's unique position in the market.

00:34:13: It leads to what our source is called distrust and speechlessness among long-term partners and customers.

00:34:18: How does SAP's monopolistic position factor into this strategic tension?

00:34:23: It's crucial.

00:34:24: SAP as the dominant monopolistic ERP provider for core business processes, especially in Europe, is perceived to take more liberties and impose conditions like mandatory rise conversions and strict licensing changes that the hyperscalers simply cannot afford to do.

00:34:38: Because the hyperscalers are competing with each other.

00:34:40: Exactly.

00:34:41: AWS.

00:34:42: Azure, GCP, they are in constant and fierce competition, which forces them to remain flexible, cost-conscious, and customer-centric.

00:34:50: SAP doesn't face that same level of core ERP competition.

00:34:54: This monopolistic power has led to a perceived lack of flexibility for existing customers over the past decade.

00:35:01: And it causes significant skepticism and distrust when new mandatory commercial models like RISE are introduced.

00:35:07: Let's drill down into a specific widespread cost pain point.

00:35:11: that exemplifies this tension, the mandatory move to the HANA database.

00:35:15: The forced move to the HANA database, which is required to run Sforana, is a major financial hurdle.

00:35:20: It's often perceived as a cost trap.

00:35:22: First, it mandates the purchase and licensing of a new, highly optimized in-memory database, which typically increases overall database costs by around fifteen percent immediately, and of course increases dependence on SAP as the sole provider.

00:35:34: And then there's the transition period.

00:35:36: Second, And this is crucially painful during the migration.

00:35:39: Customers often face dual maintenance fees.

00:35:42: They're forced to pay ongoing maintenance for both their old non-SAP database like Oracle, DB-II, or SQL Server, and the new HANA database during that lengthy transition period.

00:35:53: The residual value of the old non-SAP licenses is just not credited or carried over by SAP.

00:35:59: So you're paying double just to keep the lights on during the transition.

00:36:02: Exactly.

00:36:03: Furthermore, while the in-memory architecture of HANA sensationally accelerates analytical queries and reporting, many core ERP transactional functions.

00:36:12: Simple things like posting invoices or managing master data are not database speed dependent.

00:36:18: Interesting.

00:36:18: This means customers are paying a very high premium licensing cost for expensive in-memory day storage that doesn't provide a recognizable, measurable counter value or speed gain for many of their standard ERP transactions.

00:36:31: This just fuels the frustration about the mandatory cost increase.

00:36:34: So if the old monolithic system is too rigid and the new cloud path is perceived as too expensive and restrictive, where is the broader enterprise industry heading?

00:36:42: It seems to be breaking up that old R-III black box.

00:36:44: That's the strategic shift driving the market.

00:36:47: Modern ERP thinking is moving decisively away from the R-III black box monolith toward a best-of-breed approach using what are called composable enterprise architectures.

00:36:57: Fosable.

00:36:58: This model views the ERP system not as a single all-encompassing suite, but as a collection of specialized interchangeable services.

00:37:06: And cloud computing and AI are the fundamental enablers for this modularity.

00:37:10: They provide the APIs and integration layers necessary to swap components in and out.

00:37:15: Which means SAP has to share its turf in its budget.

00:37:18: The core functions might be safe, but everything else is now a competitive battleground.

00:37:22: Precisely.

00:37:23: On the application level, SAP is increasingly forced to compete for IT budget with powerful cloud native rivals.

00:37:29: Workday, for instance, is a major competitor for finance and HCM modules.

00:37:34: Salesforce and ServiceNow are dominating customer engagement and workflow automation.

00:37:39: The move toward open interfaces, which is primarily facilitated by BTP and the SAP world, is enabling seamless cooperation among these disparate systems.

00:37:49: It fundamentally drives the best of breed selection process.

00:37:53: Customers no longer have to accept SAP's application for every single niche need.

00:37:57: But

00:37:57: doesn't SAP Cloud ERP still cover those core business processes exceptionally well?

00:38:02: Isn't that a crucial advantage?

00:38:03: It does, and that's SAP's enduring strength.

00:38:06: SAP's traditional coverage, particularly in core financial processes like general ledger, asset management, and controlling FI, AMCO, is exceptionally high and industry tested.

00:38:15: However, the transformation itself allows companies to adopt new strategic focuses.

00:38:20: Like the CFO role.

00:38:21: For instance, the CFO role is evolving into a strategic navigator and asset manager.

00:38:26: That requires far more sophisticated forecasting, regulatory compliance, and simulation instruments.

00:38:32: Fulfilling these advanced modern roles often requires specialized NUSH instruments, often sourced externally through a modular, composable architecture, even if the core general ledger remains S-IV.

00:38:44: the market demands specialization and flexibility.

00:38:48: This deep dive is revealed at the SAP Cloud Transformation is, well, it's less a technical upgrade and far more a fundamental and often painful business re-engineering process.

00:38:58: It is forcing organizations, especially those with decades of legacy, to make incredibly complex strategic tradeoffs every single day.

00:39:05: It is.

00:39:06: A tradeoff between the speed of innovation SAP is pushing, the strict cost control required by the CFO, the operational flexibility the business demands, and that critical need for data sovereignty and control.

00:39:17: So what's the big insight?

00:39:18: The big insight here, synthesizing all these options from Brownfield to Bluefield to the different cloud models, is that the successful future ERP landscape is undeniably hybrid and modular.

00:39:29: There is no single cloud destination for the majority of the world's largest SAP user.

00:39:34: Hybrid

00:39:35: and modular.

00:39:35: And its future landscape is fundamentally centered around BTP for governance, security, and external extensions, that mandated clean core strategy, regardless of whether the S-IV core system is ultimately deployed in the public.

00:39:47: cloud, the private cloud, or even retain on-premises.

00:39:50: Modularity and separation are the keys to long-term survival and upgrade stability.

00:39:55: Given that AI and advanced analytics are now natively expected in every enterprise application, and BTP is the strategic key to delivering this intelligence and managing the clean core, let's leave you with this provocative thought to consider within your own organization.

00:40:10: What specific complex business process in your company?

00:40:13: Perhaps a process currently hindered by siloed data?

00:40:16: massive technical debt from old modifications, or agonizingly slow reporting performance stands to gain the most immediate, measurable competitive advantage by fully committing to a clean core strategy and leveraging the new BTP-based services like DataSphere and Juul.

00:40:31: The core challenge for everyone remains.

00:40:34: Achieving this digital future requires both superior data management and optimized business processes all governed by a strategic vision, not just a technical system migration.

00:40:44: This was an episode on the cover story from the November, twenty twenty-five issue of E three magazine with the topic cloud between euphoria and crash with rise.

00:40:55: with SAP existing SAP customers are moving to the cloud but without the customer center of expertise SAP CCOE it won't

00:41:04: work.

00:41:05: The topics of cloud, rise, and SAP CCOE will also be covered at the SAP Community Summit on June tenth and eleventh, twenty-twenty-six, in Salzburg, Austria.

00:41:16: We look forward to welcoming you in person to this SAP Community Competence Center Summit.

00:41:22: Secure your ticket now on the E-three magazine website, e-threemag.com.

00:41:28: Thank you for your interest.

00:41:30: Best wishes from the E-three magazine editorial team.

00:41:33: See you in the next episode of the E Three Cover Story podcast.