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In Australia and Asia Pacific, businesses using SAP ERP Central Component as their core ERP system face a looming deadline to migrate to SAP’s new cloud ERP, S/4HANA Cloud, by 2027, when SAP plans to end mainstream support. Until then, SAP is asking customers to migrate using its own “Rise with SAP” migration and modernization offering.
As in other global markets, organizations in the region have not been quick to commit to migrating to SAP S/4HANA Cloud. Reasons include the time required to make such a strategic decision, business priorities in a highly competitive market, the cost of a potentially complex migration, and SAP’s past unpopular changes to the roadmap for on-premises licensees.
There could be significant pressure on companies hoping to complete their migration by the deadline, or even before the extended support deadline in 2030. Luiz Mariotto, global vice president of SAP support at Rimini Street, told TechRepublic that many organizations are considering other alternatives, including researching competing ERP products or Explore third-party support options.
What are the migration deadlines that SAP sets for its ERP customers?
SAP announced that it will end mainstream support for its SAP ERP Central Component product on December 31, 2027, and the company initially hoped that customers would be able to migrate to SAP S/4HANA Cloud by then. SAP had previously set a migration deadline of 2025, but due to customer concerns about not being able to meet the 2025 deadline, SAP postponed it to 2027 in 2020.
The end of mainstream SAP ECC support in 2027 means that SAP customers have no choice but to start migrating to SAP’s cloud offerings if they want to follow SAP’s roadmap. However, customers who are unable to complete the migration will be able to access an optional support extension plan for SAP ECC 6.0 Enhancement Pack 8 at a discounted price, valid until 2030.
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Another factor organizations are considering is SAP’s decision to limit several product innovations, including AI, to the SAP S/4HANA Cloud offering. This means that while some on-premises customers have invested in migrating to the S/4HANA database (which underpins the cloud offering), those customers may not be able to access promising future innovations.
Are enterprises migrating to S/4HANA Cloud ERP?
In 2024, the Big Four accounting firms PwC states in SAP Migration Update Although “three years is not a long time to successfully complete a migration,” “very few Australian and New Zealand customers have migrated to” S/4HANA to date. This sentiment echoes the reluctance of SAP customers around the world to embrace early upgrades.
“The sentiment we are sensing in the market right now is that there is very little appetite for large-scale transformation projects,” PwC went on to write. “It is difficult to justify spending A$50-100 million and disrupting the business for years to install a new ERP – certainly not when there are so many competing priorities,” the firm said.
PwC did note that there was “high activity levels in the market” in the six months to May 2024, which it attributed to businesses starting migration planning. “With SAP’s 2027 deadline unlikely to be extended, we expect a significant number of companies in ANZ to begin S/4HANA initiatives in 2025 and 2026,” the firm wrote.
Gartner finds SAP not upgrading customers fast enough
Gartner Similar results have been noted in global markets In research published in October 2023. based on data from the end of the second quarter of 2023, the study found that only 33% of SAP users relying on SAP’s legacy ECC systems had purchased or subscribed to a license to allow them to begin migrating to S/4HANA.
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At the time, Gartner found that only one in five ECC users were using the latest version of at least one component of the ERP platform. Gartner’s research noted: “Gartner continues to find no evidence that migration to SAP S/4HANA is occurring at a pace sufficient to meet SAP’s target of ending mainstream maintenance support for ECC in 2027.”
Asia-Pacific markets have mixed views on upcoming upgrades
Rimini Street, which provides extended third-party support for products including SAP ERP, noted that different markets have reacted differently to SAP’s roadmap. Mariotto said European user groups have been more willing to push back against some parts of SAP’s plans, particularly around the decision not to offer core innovations like AI to users with on-premises S/4HANA licenses.
Mariotto said SAP’s Australian customers traditionally had strong loyalty to the brand and products, but that had been tested by the local licence changes. He said IT leaders had satisfied SAP by winning business investment to upgrade to the S/4HANA database and now needed to build another business case internally to move again to the cloud product.
Meanwhile, in the broader Asia Pacific region, Rimini Street is seeing particular interest in its expanded third-party support services in Japan. Mariotto said the country has a large number of SAP customers, but those customers are also more willing to “wait and see” rather than rush SAP migration timelines, which could lead them to favor other options.
Some customers in the Asia Pacific region choose to work with SAP
Although some customers are reluctant to urgently upgrade SAP, many will choose to migrate to SAP’s cloud products. Some customers in the Asia-Pacific region have already started to move. SAP 2023 Q4 results announced, new brands have chosen Rise with SAP Including Airservices Australia, Christchurch City Council, Chandra Asri Pacific and Coles Group. In June 2024, the Australian federal government’s digital transformation agency Renegotiated a three-year, $152 million whole-of-government agreement Support organizations to upgrade their ERP.
What is the reason behind the reluctance to migrate to SAP cloud products?
Economic conditions, margin pressures, evolving business models and disruptive technologies are some of the pressures facing enterprises that may delay their decision to proceed with the transition to SAP cloud products, PwC noted in its latest report.
Here are other reasons why SAP customers might choose to postpone cloud migration.
Migration costs and business value: Migration requires a multi-year investment, tens or even hundreds of millions of dollars if subscriptions and implementation are included. Companies also need to estimate the expected value to their business.
Timing and Priorities: The timing determined by SAP may not be right for all businesses in all industries, some of which may be struggling in difficult market conditions or looking to invest in other forms of innovation beyond ERP upgrades.
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Complexity: PwC notes that there are a variety of migration paths, including “greenfield,” “brownfield,” or “mix and match” approaches. Most importantly, for large organizations, migration will be very complex because many organizations have made many customizations to on-premises products.
Vendor relationships: SAP customers, especially those who have invested in on-premises licenses, may be concerned about the vendor roadmap after SAP said future innovations, such as AI, generative AI, and sustainability capabilities, will only be available as part of cloud offerings.
What SAP migration options do customers have until 2027?
The 2027 deadline appears to be problematic for some SAP customers, and it is expected that many customers will need to extend support until 2030 to complete migration projects. Customers will consider various options in the lead-up to the migration deadline.
Follow the SAP roadmap
Many existing customers are preparing to follow the SAP roadmap. While this requires customers to invest in migration and implementation, as well as pay for SaaS subscriptions, it can also bring value to customers by providing modern ERP in the cloud, with SAP particularly focusing on leveraging advantages such as artificial intelligence.
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Continue to “wait and see”
Gartner’s advice for 2023 is that organizations take their time, even though time is running out to plan their migration to SAP S/4HANA. Many organizations may still be following its advice to “resist the temptation to cut short the planning process” and “consider the broader impact of moving forward to keep up with the end-of-life target date.”
Choose an alternative
The need for a comprehensive upgrade of SAP’s cloud products has prompted some customers to consider other alternatives. This includes competing ERPs from Microsoft, Workday, Oracle, or extended third-party support services such as Rimini Street, which can help customers extend the life of their on-premises software while investing in other strategic priorities.
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