As SAP pushes its clean core methodology for S/4HANA Cloud environments, the partners who customized legacy SAP systems will need to evolve their business models.
One of the defining characteristics of the move from legacy on-premises SAP systems to S/4HANA Cloud is the concept of the clean core, which is having a significant effect on SAP's extensive network of systems integrators.
From its earliest days, SAP ERP was known for its core functionality in areas like finance and for the ability of customers to develop customizations for their requirements. However, as these customers contemplate a move from legacy to modern S/4HANA Cloud environments, they are being asked to rethink customizations in favor of what SAP calls a clean core, which is centered around standard processes.
Using the clean core approach, companies can continue to customize the S/4HANA Cloud system to their needs, but they do it in a way that ensures they remain ready for upgrades, said Juergen Mueller, SAP CTO. This requires non-standard extensions to be developed through publicly available APIs on SAP Business Technology Platform.
However, central to the customization-heavy legacy environments are SAP's network of systems integrator partners (SIs), who turned the requirements of SAP customers into lucrative businesses. These SIs might need to change well-established business models and practices for the SAP clean core concept to work, according to industry observers.
SAP partners will need to keep up with evolving technologies and resources such as the SAP Activate methodology for migrations to continue on as "good partners" for customers and SAP, Mueller said.
SAP has been open with its partners on what they need to do to keep up with the clean core so they can best serve their customers, he said. One new requirement is SAP's learning and certification program where partners can validate methodologies and applications against SAP's clean core criteria.
"There's so much happening and so much innovation [at SAP] that we want and need the partner ecosystem to keep up," he said. "That's why we changed the learning and certification program so that when you do a certification you refresh your knowledge, which is something that we didn't do in the past."
Diminishing opportunities for customization model
Changes like these aren't new to IT or its ERP subset, and SIs will need to evolve to keep up, according to analysts.
Since the advent of the cloud about 20 years ago, large global SIs have already existed in a world of diminishing opportunity for their "time and materials" business model, said Joshua Greenbaum, principal at Enterprise Applications Consulting.
"To a certain extent the 'body shop' model for SIs has been dying a well-deserved death, and clean core is merely the latest expression of why we need to get rid of that," he said.
Larger SIs have acted as "frenemies" that SAP customers needed to accommodate because of their size and market power, he said. But ultimately they are responsible for a huge amount of dysfunction at the customer level because of the disconnect between business requirements and technological implementation.
"Clean core is one of the ways in which the large SIs can no longer create those problems, because it employs a more cookie cutter, standardized approach, and that's good for the customers," Greenbaum said. "It's not good for those SIs, but they were not necessarily always a force for good anyway."
However, what might be a stumbling block for the large SIs might be good for smaller and more specialized partners, he said.
"They often can better respond with the kinds of tools and capabilities they offer to be much more strategic around the clean core concepts," Greenbaum said. "That's a real boon for customers and for these smaller partners."
Customization incurs technical debt
The traditional role of the large SAP SI partners was to customize anything the customer wanted, even if proved to be detrimental in the end, said Jon Reed, co-founder of Diginomica, an enterprise industry analysis firm.
To a certain extent, the 'body shop' model for SIs has been dying a well-deserved death, and clean core is merely the latest expression of why we need to get rid of that.
Joshua GreenbaumPrincipal, Enterprise Applications Consulting
Heavy customization of systems was not always the best model because of the technical debt it created, Reed said. There are exceptions, but ultimately SIs need partners that can advise customers on what they should customize and what they should not.
"[The large SI partners] have been confronted with the fact that the gravy days of old school SAP revenues and massive multi-year projects are going extinct," he said. "The writing has been on the wall for that long before the clean core concept ever came to be as the methodology."
There are dynamics at play in the current shift to the clean core methodology, but the SIs will need to construct different kinds of business models if they want continued long-term success, Reed said.
"A lot of it comes down to having a different way of thinking about customers and moving away from these big bang implementations, where [the SI] would get to the go-live, then shake hands, load up the consulting wagon and move on to the next project," he said.
However, SAP partners of all sizes and scopes are interested in pushing the new frontiers of generative AI (GenAI) technology, Reed said, making it more imperative to help customers move to the clean core model.
"When you have this messy customized data set, you're not in a good position to take advantage of GenAI," he said. "A lot of these services firms are really bullish right now on what GenAI could do for them, both in terms of making implementation delivery more efficient, but also picking up a bunch of new projects for customers."
Even without the incentive of GenAI, the partners are on board with the notion of paying more attention to their customers' data quality because they know that's what customers demand, Reed said.
"In general, making better decisions with data and being more transparent with customers about their data is not going away, so there's a lot more incentives now for the SIs to take this clean core concept seriously," he said.
Partners on board with SAP clean core
Some large SAP partners such as PwC and EY contend that they have not been part of the customization explosion and have adopted business models and practices that fully support SAP's clean core approach.
PwC made a conscious decision to deviate from this business model and avoided building an Application Management Service (AMS) business predicated on managing customizations, according to Rich Sernyak, partner and SAP Practice Leader at PwC U.S.
PwC has "purposefully invested" in training for its partners and staff to prepare them to deliver the clean core methodology, Sernyak said.
"While we do have an AMS business, it is geared more toward delivering business value rather than depending on insignificant customizations," he said.
The global consulting firm EY is also not in the business of mass customizations of SAP environments, according to Michael Casey, global SAP CTO at EY.
"We are all on board with helping to disrupt that model and get to a transformative and a flexible technology and business model together, whether it's called a clean core or composable architecture," Casey said.
One way to help customers get to the clean core concept is to use certification tests and passing criteria to ensure that customers are following the right path, he said. SAP's GenAI technology can be a part of this.
"Wouldn't it be great if you generate code using Joule ABAP and it automatically applies clean core principles and makes sure that you stay compliant?" Casey said. "That would be a great way to do it: drive in the right direction and actually enable our customers to do so. We're adopters of that methodology, and that's a great way to talk the talk and then also walk the walk."
Jim O'Donnell is a senior news writer for TechTarget Editorial who covers ERP and other enterprise applications.
