SAP IT Consulting – Trends 2019

2019: The Changing SAP IT Consulting Market

Why traditional SAP Consulting Companies will get under Pressure

According to recent studies, the German market for SAP consulting services is still significantly growing by 10% per year. Companies like Atos, DXC Technology, T-Systems, Accenture, IBM and SAP itself are each generating between 500 and 650 mn EUR revenue within this market. The current trend is underpinned by the introduction of a whole new SAP product suite with S4/HANA and C4/HANA as well as the integration of the cloud SaaS offerings like Success Factors and the like. With the announcement to cease maintenance support for the current SAP R/3 system end of 2025, many companies are currently setting up their roadmap toward a technological renewal of their SAP IT landscape or are already in an implementation mode.

Nevertheless, it is interesting to see how different market players participate differently from the current boom. To understand those differences in the SAP consulting market we need to look into history how SAP consultancy has developed and specialized during the last years. Traditionally the SAP IT landscape was characterized by a big monolithic and integrated system, either operated on premise or in an outsourcing mode. The systems are bought through a traditional software license model (creating assets) plus an on-going maintenance fee. Besides license and maintenance fees, the major cost component for running an SAP system were IT operations and IT development costs to adapt the standard software to the individual needs of the customers. Often more than half of the total costs of running the systems originate from software development and IT operations.


Changing SAP Strategy neccesitates Change of SAP Consulting Industry

In this environment, classical SAP IT consulting firms specialized themselves to either operating or developing and customizing SAP systems on behalf of their customers. Over time this model lead to highly customized installations, ‘running out of control’ from a CFO perspective in terms of complexity and costs. Roll-out of upgrades and new features became increasingly time consuming, risky and expensive and did not fit to the aspiration of faster innovation cycles, time-to-market and agility.

As a response, SAP re-shaped its business model of license based software distribution and turned it into a cloud-focused service offering during the last years.

  • SAP R/3 will be substituted by a range of new cloud-based offerings based on HANA technology
  • The SAP Cloud Platform is at the core of SAP’s “intelligent enterprise”, surrounded by the new ERP solution S/4 HANA and the new CRM solution C/4 HANA
  • Auxiliary standard processes (e.g. HR, Purchasing) are decoupled and offered purely as SaaS solution in the cloud – therefore individualization of the SAP software is focused on processes which represent a competitive differentiator and not on auxiliary standard processes like HR or purchasing
  • SAP services are purchased on a pay-per-use or subscription fee bases

The changing SAP product strategy has some attractive promises

  • Lower total cost of ownership as IT operations and software development costs for SaaS solutions can be dramatically reduced
  • Increased subscription fees / pay per use and reduced license costs lead to a reduction of assets on the balance sheet and therefore to a better equity ratio
  • Real-time participation from innovations within the cloud services – no own software development and deployment processes necessary
  • Individual software development can be focused on core processes (ERP, CRM which contribute to competitive differentiation) – auxiliary processes to be standardized along the SaaS offering
  • Supports organizational transformation towards networked/ agile organizational principles as enterprise data can be made available throughout the organization in real-time (e.g. big data platforms, analytics and BI)
  • Software development costs can be reduced by leveraging the cloud platform’s DevOps framework (PaaS)


Specialization on Outsourcing and Software Development becomes a Disadvantage

For the classical SAP consultancies, the changing environment has although some challenging implications. The operations outsourcing and software development business will come under pressure with the increased usage of SaaS solutions. The standardization of business processes is a paradigm shift for many customers as they need to change their business processes to fit to the SaaS solution and not vice versa. SAP IT consulting firms need to address the increasing need for business process re-engineering, technology integration and change management to support customers on this journey.

Therefore a combination of technological SAP IT skills paired with business process know-how and change management expertise will create the successful consulting offering. On the technology side, integration know-how becomes key as SaaS, PaaS, IaaS, and on premise solutions will co-exist in a hybrid IT landscape which needs to be integrated in a smart way.

For the classic SAP outsourcing and consulting service companies this means a tremendous shift and a need to adapt their business model. Outsourcing and off-shore / near-shore development centers will become less relevant, whereas understanding the business processes, integration and organizational change capabilities will become key. Services will be increasingly delivered on-site in co-operation with the local business and IT teams to enable organizational and process change on the customer side.

It will be interesting to see how the consulting industry will master the strategic shift. Nevertheless I am sure, that the trend will open up the doors for smaller consulting boutiques which are often better in understanding customer needs, are more agile and innovative and can provide independent advise without the need to sell big operations and developer teams.