ISG Provider Lens™ SAP Ecosystem - SAP S/4HANA System Transformation for Large Accounts - U.S. 2024

U.S. clients are taking a very cautious approach toward SAP S/4HANA transformation and demanding quicker ROI.

This year’s study finds enterprise clients in the U.S. continue to cautiously access the SAP S/4HANA transformation plan despite the buzz around RISE with SAP. Current macroeconomic headwinds have made this transition even more complex as customers reassess their SAP S/4HANA implementation strategies that
are now focused on seeking quick ROI and developing a cost-optimal roadmap for their IT investments. Clients in the U.S. want to assess all risks and implications of accepting SAP’s subscription terms and the future expansion of their ERP systems. To address these challenges, service providers continue to remain focused on enhancing their industry-specific solutions with preconfigured process workflow best practices, automating data migration and offering value-added services such as cloud readiness checks, assessment services, developing business use cases and consulting clients on a complete transition roadmap for reducing time to market and simplifying the entire transition journey. They have also significantly increased their investments and efforts in generative AI (GenAI) solutions to strengthen horizontal capabilities. The focus has shifted from testing and documentation to advancing the system’s capacity to predict the most suitable implementation approach and assess success probability. GenAI use cases in HR, finance, sales and supply chain are already helping clients in reducing the implementation period.

The SAP S/4HANA transformation initiatives grew moderately in 2023 between 10 percent and 12 percent, slightly less than last year’s forecast. This moderate growth is largely attributed to large accounts’ wait-and-watch approach and the complex negotiation process. Due to uncertain ROI, longer implementation periods and the complexity involved, large enterprises are also evaluating other cloud ERP systems to support their transformation objectives. Providers report that most projects are greenfield, which has 58 percent share.

However, the bluefield approach has seen exponential growth in the last 12 months with nearly 12 percent share in total projects.

Bluefield implementation has seen more acceptance in large accounts and has delivered greater business value. Most SAP S/4HANA projects target public or private cloud and not RISE with SAP. Rise with SAP accounted for only 13 percent of the total projects delivered, compared to 17 percent last year, with most greenfield SAP RISE projects aimed at midmarket clients. Also, SAP RISE does not work for highly regulated industries. Most providers have enhanced the use of automation-focused tools, AIOps and industry accelerators to reduce implementation time. Compared to last year, the average implementation time for the SAP S/4HANA private cloud edition takes 38 to 42 weeks; SAP S/4HANA public cloud takes between 24  weeks to 26 weeks and SAP RISE takes between 30 weeks to 35 weeks. As per ISG’s observation, the average implementation duration decreased by four to five weeks compared to the previous year. The increased use of industryspecific solutions and automation tools has reduced implementation duration and has significantly improved productivity and revenue (revenue growth has outpaced FTE growth).

In this year’s assessment, ISG observes that providers in the U.S., similar to the previous year, remain highly focused on offering end-to-end SAP services, building specialized frameworks and approaches, developing
intuitive and automated industry solutions for resilient value chains and data-driven transformation, developing industry cloud innovations and solutions and accelerating data migration. They also aim to cocreate a future digital platform for a highly interconnected enterprise led by SAP S/4HANA. However,
enhancing client proximity is now deeply rooted in providers’ go-to-market (GTM) and regional focus. Providers have enhanced their competitiveness by going to market with a consulting-led approach, offering numerous value-added services such as organizational change management (OCM), assessment tools, design thinking for creating co-innovative solutions with clients that match their business objectives and providing a practical roadmap of the entire transition journey.

There are enhanced investments and efforts going into developing their GenAI capabilities and integrating those with SAP offerings. Some leading providers already offer comprehensive services that encompass GenAI strategy, GenAI custom for enterprise, GenAI for CX, GenAI for business functions and GenAI for digital transformation. Providers such as Capgemini, Wipro, HCLTech and Tech Mahindra are outperforming in these areas and have demonstrated strong innovation roadmaps for the next 12 to 18 months. Driving the
transition experience, building trust, increasing productivity, achieving quicker ROI and reducing implementation duration will help providers in winning more net new deals. 

Providers continue to invest in intelligent technologies to address industry and CXO challenges. They are focusing these technology efforts on building business-oriented use cases and data-driven capabilities for driving digital transformation. This includes enhancing global migration factories with accelerators and GenAI
tools to industrialize the S/4HANA migration and S/4HANA upgrades for clients globally. Some leading providers have built SAP innovation labs and centers of excellence to drive SAP Business Technology Platform
(BTP) adoption for process optimization using a range of frameworks, including intelligent process  engineering. Investment in AI, ML and GenAI solutions as part of building innovation labs aims at assisting clients in building future-ready intelligent enterprises.

In this year’s assessment, ISG observes, there has been a continuous focus on integrating automation and AI into SAP transformation and managed services tools and accelerators. These capabilities are the starting  points of discussion to begin the transformation journey. In addition to endto-end transformation journey roadmaps, leading managed services providers have used process mining tools such as Celonis and SAP Signavio to adapt and optimize customer processes during implementation, which continues post-implementation with SAP application management services (AMS). Syniti and CBS Consulting have fostered a strong partnership to deliver on increasing requests for selective data transition, largely applicable to the requirements of large accounts.

NTT DATA showed a market-leading focus on catering to this requirement by acquiring Natuvion in August 2022.

There has been a significant rise in efforts among providers to build solid and longstanding partnerships with SAP and hyperscalers. Most providers have strategically enhanced their partnerships with SAP, offered GTM
approaches in line with SAP’s product strategy and collaborated on numerous fronts, including the RISE with SAP program for implementation. These efforts aim to secure mega deals and position providers among SAP’s top three partners in terms of the volume of SAP-related services offered and the level of SAP license
revenues influenced. Providers have also extended their partnerships with hyperscalers (notably AWS, Azure and Google Cloud) and work together with them to deliver SAP services for clients. Providers are also expanding their partnerships with third parties such as SNP Group, Syniti, Tricentis, Celonis, CBS Consulting
and regional providers. This enhanced partnership approach helps providers to offer composable services, where enterprise clients can leverage use cases to compose best-of-breed vendor solutions that integrate
with SAP services. Providers offer many partner innovations for data analytics, workload migrations and security and compliance.

Similar to the previous year, Accenture, Capgemini and Infosys are among the players that dominate the SAP ecosystem in the U.S. Wipro, HCLTech and LTIMindtree have shown strong revenue, client and FTE growth
rates and have strong customer-centric approaches, encouraging them to challenge the top three providers in the next 12 to 18 months. They continue to adopt innovationfocused approaches to enhance their service
capabilities. Other providers, notably Cognizant, Tech Mahindra, EY and TCS, are working toward further strengthening their leadership positions. Birlasoft, Hexaware, Navisite, NTT Data, UST and Hitachi Digital Services are among the companies that are improving their portfolio attractiveness and are focused on further increasing their cloud engagement projects. Many regional providers, including Resolve Tech  Solutions, Kellton, Alight and Kaar Tech have a strong understanding of the SAP service landscape. They are focused on further enhancing their capabilities to move further up in this competitive market.

In this year’s assessment, manufacturing, healthcare, pharma and CPG industry clients continue to drive the adoption demand for SAP S/4HANA transformation and other services. They are motivated to streamline
production, optimize processes, enable the digital transformation of processes such as sales and customer services and enhance CX. These industries reported more than 65 percent of SAP S/4AHANA services adoption in the U.S. However, financial services, retail, telecom and public sector clients are still skeptical.
As per ISG analysis and in-depth interviews with service providers, providers’ SAP FTE count has grown by 15 percent compared to last year. Certified SAP consultants now account for nearly 40 percent of the total SAP FTEs similar to the previous year. Client growth has been strong, with a growth rate higher than 25 percent. In transformation services for large accounts, leading providers, on an average, won between 25 to 30 new deals, signifying their strong resource pool to handle large and complex projects. The average  number of new deals won in the midmarket is eight to 10. In AMS, net new deals increased by 32 percent
compared to the previous year.

The ISG Star of Excellence™ (SOE) 2023 program found SAP service providers more focused on offering customer-centric services and approaches and providing more valueadded services, superior consulting capabilities, flexible SLAs and a customer-friendly pricing model. Providers’ business continuity and flexibility and execution and delivery capabilities were rated as most important by enterprise clients in the U.S. Their ability to maintain effective cybersecurity measures, be open to constructive criticism or suggestions for improvement and adapt delivery to meet business objectives, and ensure limited downtime in any systems or services provided received the highest customer satisfaction scores, higher than the average benchmark
score of 78. Providers need to focus more on innovation and thought leadership capabilities, especially in adapting emerging technologies and their widespread use, and demonstrating new work methods, techniques and tools. Providers such as Infosys, Hexaware, Wipro, Cognizant, Tech Mahindra, HCLTech and EY have shown superior focus on improving client proximity, with their regional strategies largely focused on co-innovation, consultingled approach, industry-specific tools and automation for reducing implementation time and offering flexible pricing model to win more deals.

To conclude, service providers are approaching the market by reducing overall implementation duration for quicker ROI, building consulting capabilities, differentiating by offering value-added services and focusing on automation and GenAI for quicker implementation and better margins. This focused approach to client  proximity and delivering better business outcomes is expected to continue with the increased adoption of the outcome-based pricing model.

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