ISG Provider Lens™ SAP Ecosystem - SAP Application Managed Services - U.K. 2024

Cloud transformations (especially through RISE with SAP) and technical migrations (with continued SAP support) are expected to increase in 2024

For SAP applications, to move to the cloud or not has been a major decision point for enterprises in the U.K. They must also consider SAP’s end-of-support timeline for ECC. Enterprises are grappling with the indecisiveness around SAP applications, complicated by the demanding complexity of their digital transformation initiatives. In this scenario, the demand side (enterprise) market is looking for guidance and direction from the supply side (service providers and vendors) to help them navigate through the challenges and make a decision that helps the business’ long-term growth.

In the U.K. enterprise landscape, several imperatives and challenges intersect, shaping strategic decisions and operational frameworks.

Firstly, enterprises are grappling with shifting economic conditions, navigating uncertainties and adapting to evolving market dynamics. This necessitates a proactive approach to stay competitive and resilient amidst fluctuations in demand, supply chains and consumer behaviour. Secondly, many enterprises contend with legacy backend systems entrenched with SAP modules or dependencies, compelling them to consider SAP migration or adoption to modernise operations and optimise efficiency. However, this transition is not without hurdles, as it requires significant investments in resources, time and expertise. Thirdly, amidst cost  constraints, enterprises are increasingly inclined towards SaaS-based solutions, seeking cheaper alternatives to traditional software models. This inclination towards SaaS is bolstered by the allure of plug-and-play functionalities, offering flexibility and scalability across the supply chain. Concurrently, offshoring emerges as a viable strategy to access cheaper labour rates, albeit with considerations for data security, regulatory 
compliance and operational transparency.

Fourthly, SAP incentivises enterprises with the Realize, Innovate, Sustain and Enhance (RISE) with SAP  proposition, presenting a compelling case to manage cost expectations and enhance value propositions. However, despite the incentives, reluctance from enterprise CFOs to invest in SAP initiatives can lead to a conundrum wherein systems become unsupported, resulting in exorbitant maintenance costs and operational
inefficiencies. Consequently, U.K. enterprises are compelled to navigate a complex landscape, balancing imperatives for innovation, cost optimisation and sustainability while addressing challenges inherent in legacy
systems, economic uncertainties and evolving market dynamics.

In response to the looming deadline for ECC support and the imperative to modernise their IT infrastructure, enterprises are adopting various strategies to navigate this critical transition period. One prevalent approach
involves technical migration aimed at meeting the end-of-support 2030 timeline while keeping costs  manageable. Typically, this entails a brownfield approach, wherein existing systems are incrementally  upgraded and optimised to align with evolving business requirements. Conversely, enterprises with a strategic focus on digital transformation opt for a greenfield approach, leveraging this migration opportunity to realign with their digital imperatives and transition to the more advanced S/4HANA platform. Concurrently,
customers are increasingly recognising the long-term benefits of the SAP Business Technology Platform (BTP), viewing it as a strategic investment to future-proof their operations and enhance scalability, agility and
innovation capabilities. Moreover, enterprises are actively considering SAP’s RISE proposition, which offers a comprehensive suite of solutions to optimise both technical migration and cost management aspects. By embracing these strategies, enterprises aim to not only meet immediate compliance requirements but also position themselves for sustained growth, resilience and competitiveness in an increasingly digital-centric business landscape.

As providers navigate the evolving landscape of enterprise IT transformation, their strategies and offerings are tailored to meet their clients’ diverse needs and aspirations. Firstly, providers play a pivotal role in helping clients strategise their journey, offering guidance on whether to pursue technical migration or
transition to cloud-based solutions, aligning these decisions with clients’ overarching business objectives and constraints. Providers also collaborate closely with customers to develop robust business cases for S/4HANA
adoption, emphasising value realisation and tangible benefits. Recognising the importance of industry-specific solutions, providers are launching tailored industry solutions that extend beyond mere transformation,  catering to the unique requirements and nuances of different sectors. Moreover, providers offer guidance and support to midsize enterprises embarking on their S/4HANA adoption journey, leveraging initiatives like RISE with SAP or GROW with SAP to facilitate seamless transitions.

A key differentiator for providers lies in their comprehensive partner ecosystem and resource pool, enabling differentiated delivery and ensuring access to specialised expertise throughout the transformation process.

Furthermore, providers demonstrate a steadfast commitment to continuous innovation and talent
development, investing heavily in intellectual property and fostering a culture of learning and growth among their workforces. This commitment is underscored by continuous training initiatives, with providers  prioritising SAP certifications and offering employees a diverse array of learning activities to enhance their skills and capabilities. As artificial intelligence use gains traction, providers are leveraging advanced  technologies such as GenAI and large language models (LLMs) to optimise application maintenance and drive
efficiency in service delivery, reflecting a proactive approach to leveraging emerging trends for the benefit of their clients. Overall, providers are positioned as trusted partners, offering holistic support and innovative solutions to empower enterprises in their digital transformation journey.

Now, we look at the trends across each of the quadrants.

SAP S/4HANA System Transformation: Transitioning to S/4HANA, whether via the private or public edition, represents a unique opportunity for enterprises to integrate cloud transformation seamlessly with business transformation.

This shift enables enterprises to harness the advantages of cloud archetypes, embracing a composable architecture and facilitating agile, continuous development. Clients are eager to leverage these benefits to optimise operational efficiency, scalability and innovation potential. For providers, the initial engagement with a client focuses on understanding existing technical challenges, assessing their impact on business processes and determining the client’s readiness for transformation to gain a competitive edge. Solutions like RISE with SAP serve as catalysts in this transformation, offering access to cuttingedge business processes while  delivering a secure, future-proof, cloud-based platform. This approach ensures that enterprises not only embrace cloud value elements but also capitalise on the flexibility and agility inherent in a composable architecture, paving the way for sustained technical growth and resilience in a rapidly evolving technological landscape.

SAP Application Managed Services: Providers are harnessing the power of generative AI (GenAI) across various facets of SAP application managed services. These advancements encompass several key  functionalities, including test case generation from requirements, automating test script generation,  optimising and de-duplicating test cases and sentiment analysis to augment test coverage using existing
defects or test cases. Collaborating with leading players such as Microsoft, Google Cloud and Amazon, providers are integrating generative AI solutions into their ecosystems, facilitating the definition and  execution of strategies to drive enterprise success. Additionally, GenAI has use cases in ticket triaging, SLA adherence and audit automation, enabling the analysis and categorisation of incoming tickets based on their
content within ITSM tools, thereby streamlining ticket resolution, ensuring SLA adherence and enhancing customer communication. Some providers have initiated the adoption of GenAI on knowledge management powered, which has led to a substantial improvement in searches and investigations. As these application
management service (AMS) partnerships progress, providers are concurrently offering the platformisation of GenAI capabilities, providing enterprises with enhanced flexibility and efficiency in leveraging Generative AI for their business needs.

Managed Cloud Services for SAP ERP: The advent of cloud computing has ushered in a paradigm shift in contemporary business operations within today’s experience-centric landscape. For enterprises striving to thrive, continuous modernisation has evolved into a standard practice. The future path of SAP managed cloud services will be centred around SAP’s cloud-based solutions, offering enterprises enhanced agility and  seamless scalability. In terms of preference for adoption, Azure maintains its dominance in the hyperscaler domain, closely trailed by AWS, RISE with SAP and Google Cloud. Notably, there has been an uptick in the adoption of SAP Business Technology Platform (BTP) for SAP S/4HANA transformations, underpinning the adoption of composable architecture and the integration of cloud platforms like SAP BTP with API  functionality. With an emphasis on cloud, there is a growing demand for proficiently managing cloud-based applications and platforms that seamlessly integrate SAP applications. While the adoption of managed cloud services in the U.K. has remained relatively stagnant over the past year, SAP’s intensified focus on cloud solutions and its role as a catalyst for enterprise growth has prompted providers to diligently enhance their
service delivery capabilities in preparation to meet the evolving needs of clients.

SAP SuccessFactors HXM Partner Services: Within this segment, some specific areas have more traction than others. Firstly, payroll transformation services have been a primary focus, driven by the imperative for
modern payroll systems capable of offering streamlined processes, heightened accuracy and compliance with regulatory standards. Additionally, there is a growing emphasis on enhancing the employee experience,
recognising it as a critical differentiator for attracting and retaining skilled professionals.  SAP SuccessFactors provides a comprehensive onboarding solution augmented by automation to streamline document processing and ensure seamless integration into the workforce. Furthermore, there is increasing demand for cloud advisory, deployment and optimisation services, fuelled by the transition from on-premises to cloud-based infrastructure.

There is an increased focus on new-age data distribution services, leveraging an intelligent enterprise context characterised by micro-service-based event-driven architecture. Finally, the next generation of Talent 
Management is being shaped by intelligent and AI technologies, reflecting the evolving landscape of HR solutions towards more intuitive and data-driven approaches to talent acquisition and management.

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