Executive Summary: ISG Provider Lens™ SAP Ecosystem - U.S. 2022
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S/4HANA Transformation continues to be the major priority
SAP has a strong focus on the intelligent enterprise, providing enterprise clients with modern and flexible solutions to support their transformations to the cloud from legacy or monolithic ERPs. With the ongoing recovery from the pandemic, enterprises have been investing in digital technologies to digitize operations or become more digital-native businesses. Many enterprises in the U.S. have made significant investments in SAP solutions and are now accelerating their digital transformations. These clients want to increase the use of SAP applications, primarily around the cloud.
According to the ISG analysis and data received from providers, the U.S. market has been observing stable revenue growth. SAP revenue in the U.S. grew on an average of 9 percent to 11 percent in 2021. This moderate growth shows that clients are concerned about transformation costs, ROI, customization and data security, plus a shortage of SAP certified practitioners. The analysis also shows that SAP S/4HANA services are expected to witness higher growth over the next 18 to 24 months, given that most legacy (SAP ECC 6.0) clients are concerned about the 2027 deadline, when SAP will stop supporting it. As per the ISG Star of Excellence 2021 program, SAP providers were rated below industry standards across all six categories. They were also rated low for their innovative capabilities to offer more industry specific innovative solutions and thought leadership on market dynamics. As per client feedback, they should increase their understanding on industry nuances in line with the pandemic-related changes while supporting change management and ensuring project delivery.
Providers continue to invest in enhancing their portfolios by integrating more digital technologies to accelerate digital transformation and enhance the customer experience. ISG has observed that most service providers have expanded their alliances or partnerships with leading hyperscaler cloud providers to offer platform application services. With SAP for RISE, providers bring in a focused strategy of innovating with SAP solutions. The Innovation Studio and a dedicated center of excellence for SAP services have taken center stage, and most large providers are striving to become a global strategic partner of SAP to bring in a rich heritage of SAP software-enabled and industry centric innovations, tools and accelerators. Continuous efforts are made to integrate agile and DevOps processes into SAP services across development, implementation and managed services. Providers are not only leveraging their proprietary tools and accelerators to deliver S/4HANA services but are also integrating agile and DevOps methodologies with frameworks to increase efficiencies and reduce delivery time cycles. From a marketing strategy perspective, providers have innovation hubs to establish connections with their customers and undertake innovation-led ideation initiatives in the U.S.
Major observations in the U.S.
Higher focus on sustainability solutions
Providers and enterprises have prioritized their investments in sustainability offerings and operations. In addition to offering a comprehensive set of sustainability offerings spanning from strategy to operations, providers have expanded their collaboration with SAP to heavily invest in creating specific sustainability solutions such as carbon footprint analytics, track and trace applications, and AI and IoT integrated solutions that enable sustainable business decisions for driving organizations goals and ensuring environment compliance. In the future, environmental, social and governance (ESG) goals will require companies to extend their IoT platforms for capturing and processing ESG data insights, making it the next ERP innovation to drive the SAP market.
Talent as key for both providers and enterprises
Many providers have either implemented or plan to implement large-scale training and certification programs by the end of 2022. They intend to leverage the global contracts on SAP Learning Hub and Certification and provide the tools to learn new skills not just on SAP products but also on the cloud, DevOps, automation and open source, among other tools. The presence of local S/4HANA certified professionals acts as a differentiator for providers. This also indicates their expertise in managing complexity, delivering services and maintaining client proximity.
Industry specific solutions as a continuing trend
Service providers have increased their focus on creating ready-to-run templates, industry specific solutions and preconfigured offerings for S/4HANA and the SAP Business Technology Platform (SAP BTP) to help customers with integration and business agility. Enterprises seek such solutions as a differentiator for faster time-to-market and to become intelligent enterprises. Several providers have also established innovation centers, labs and other facilities to showcase their solutions and provide a platform for enterprises to experience them before deployment.
For SAP S/4HANA transformation, providers have built new tools, accelerators and industry-specific cloud solutions. There has been an increase in the adoption of SAP S/4HANA compared to last year in both the large account and midmarket segments. RISE with SAP has been an important focus area, and providers have been capitalizing on opportunities arising from this proposition. With the increase in cloud adoption, midmarket enterprises have been adopting SAP solutions to realize business benefits. Large accounts also have a focus on the cloud, but the adoption rate is not significant.
Providers of managed application service for ERP have observed a steady rise in the use of bots for automation to improve user self-service and user experience. They are integrating AIOps platforms for infrastructure management, operations management and applications management. Machine learning is used to track application incidents and service requests, predict incidents and suggest resolution. Providers that excel in automation are using resources for application coding, delivering functional improvements and bug fixing, and improving the application quality overall. AI and machine learning do not replace coding but can be used to assess custom developed code, Advanced Business Application Programming (ABAP), to improve documentation and perform code inspection to identify security and quality improvements.
For managed platform cloud services, providers are continuing to work with SAP to help enterprises adopt RISE with SAP and hosting solutions. They have made focused investments and strategic initiatives for an SAP roadmap on cloud and intellectual property development in collaboration with SAP. They also enable continuous improvement and development of PaaS offerings to meet requirements such as reduction in infrastructure TCO, more scalability options, provision of DevOps platforms and enhanced security. Another trend is the increased usage of AI in operation automations (AIOps), with SAP offering more functions for automation. Service providers can automate even further in the cloud by using serverless computing and other cloud-based services.
Many enterprises are adopting SAP Business Technology Platform (BTP) for accelerating their digital journeys, integrating applications, adopting cloud solutions and building SAP applications on the cloud. Providers have built industry-specific solutions to help clients develop solutions with a faster time to market. Providers offering SAP-recognized expertise and solutions have been able to expand their client base in specific industries. Given the increased traction of SAP BTP over the past year, providers are expected to develop more industry-specific solutions.
Service providers are approaching the market with a focus on delivering a suite of SAP solutions along with sustainability solutions, SAP S/4HANA, managed solutions and SAP BTP, among others. This trend is expected to continue along with the increased adoption of cloud-based solutions for SAP.
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