SAP dominates the IT systems of many companies. The software company is currently forcing its customers to update it, which costs millions – and does not bring any real added value for many. But the dependence on SAP is so great that most companies swallow the expensive toad.
Migros calls its largest IT project in company history “Eiger”. The name was probably not chosen by chance: switching to the new SAP version, called S/4 Hana, is like climbing the summit of an unathletic and inexperienced mountain hiker. You work at Migros for five to seven years until the project is completed. “Eiger” is currently on track, it is roughly at the middle station and “on schedule,” said project manager Franziska Reist to the NZZ. Migros is not the only company dealing with this topic.
The German SAP group is one of the world's leading providers of business software and has several hundred Swiss customers, including the federal administration. Use these SAP solutions for central business processes such as financial accounting, logistics and human resources management.
Reist does not want to reveal how much money the project is costing Migros. The update helped standardize processes, which made operations more efficient. But Reist speaks of a “replacement investment”. By definition, this is an investment to ensure operational performance. This means: only the status quo is secured, there is no additional return. Migros also invests more in the SAP update than it can save in the long term by operating the new version.
The need for the cloud
Then why does the company go to the trouble and the expense? Because Migros, like every other SAP customer, is forced to do this update and thus move to a cloud environment. After 2030 at the latest, there will be no support, innovations or security updates for older versions of the software. A situation that hardly any company wants to live with.
“SAP is self-confident,” is what Franziska Reist calls it. The group knows that in many companies, business-critical processes are dependent on SAP and a comprehensive change of provider hardly makes sense. Like many other large corporations, Migros is “married” to SAP, as Reist puts it. In technical terms, this is called the vendor lock-in effect and means that changing providers would often be even more expensive and tedious than swallowing the “update toad”. That's why Migros didn't even examine alternatives. That would have been pure “fantasy satisfaction,” says Franziska Reist. It is not because there are no alternatives on the market that the American companies Oracle and Microsoft offer comparable products. No, it would have been an exercise in fantasy because the costs of switching would have been disproportionate to the benefits due to the historical dependency. SAP is system-critical; at Migros, in addition to finance and HR, the entire goods management also depends on the software.
Many companies and institutions are in the same situation as Migros. The University Hospital of Zurich (USZ) also looked into the question and came to the conclusion that “SAP continues to be the right solution for the areas in use today,” says Guru Sivaraman, technology manager and member of the management board. When asked whether the USZ is also dependent on the provider, Sivaraman says: “Our operations are dependent on every important IT system.” The update makes it easier to estimate costs and risks than with a migration to another system.
This is exactly why “certain SAP customers are struggling,” says Yves Dennler from the consulting firm Accenture. He also confirms that very few customers change providers once they have decided on a software solution. There are many people affected. “Large companies and corporations headquartered in Switzerland almost all use SAP,” says Dennler. The software company with its headquarters in Walldorf, Germany, near Mannheim, also dominates medium-sized companies with a turnover of 500 million francs or more and with 1,000 employees or more.
The German Silicon Valley: SAP office in Walldorf near Mannheim in 1983.
This is what the SAP headquarters in Walldorf looks like today. SAP is the largest software company in Europe.
The customer's dilemma
The interest group IG SAP Switzerland has recorded the anger in numbers. In a survey from 2023, 97 percent of SAP customers surveyed said that they “view the company’s product strategy critically.” Customer trust has decreased by 42 percent in the last two years, according to the study. Just over half (51 percent) rate their own satisfaction with SAP services as “bad or that’s fine”. And almost a third of customers are dissatisfied with “conditions, licenses and maintenance services”.
Remo Schneider, Head of IG SAP Switzerland, makes it clear: It is not without reason that SAP is forcing companies to move towards the cloud, because this means that the providers bind their customers even more closely. And once you've chosen a provider of logistics software, you'll quickly find yourself stuck, as switching would involve costs running into several million euros. De facto, SAP can dictate the prices: “An annual increase of 3.3 percent is provided for in the standard cloud contracts.”
This clause only gets rid of those who have a good negotiating position, “everyone else pays more every year”. His organization is therefore in regular contact with SAP, the price monitor and the competition authorities. “We formulate SAP customers’ expectations, seek dialogue and ensure that SAP doesn’t get too comfortable with product and pricing,” says Schneider. For him, it is important that SAP “does not overuse its market power and that amicable solutions are found for the benefit of SAP customers.”
Changes and in-house developments
Few companies dare to switch away from SAP; the number is probably in the low single-digit percentage range. The minority includes the chip manufacturer Doubt, which decided on the Swiss provider Abacus after a “comprehensive evaluation for a successor system”. “Flexibility, openness and closeness” were factors that were present with this partner, said project manager Anita Binder when asked by “NZZ am Sonntag”. The Zurich media company TX Group also swapped its system and opted for the American provider Workday. Factors such as “sustainability, flexibility, scalability as well as the long-term costs for ERP and the expected savings in the organization” were decisive in the choice, says CIO Simon Maurer. With the new provider you will be “substantially” cheaper. Exact numbers are not given.
The TX Group previously mainly used the finance and HR functionalities at SAP. Changing this is significantly easier than changing the system for planning logistics processes. Migros has already completed the change of these systems – the bigger chunk with logistics is still to come.
The German discounter Lidl is taking a completely different approach. He has been relying on Wawi's own development for over three decades, but wanted to replace the system with SAP in the medium term from 2012 onwards. “SAP was introduced in Serbia, Austria, the USA and Northern Ireland,” says Walter Wolf, CEO of Lidl’s IT service provider Schwarz Digits. After five years and costs of around 500 million euros, the project was stopped and the four countries were returned to Wawi. “Wawi is perfectly tailored to Lidl, while many processes at SAP have to be recreated,” explains Wolf. Lidl will still benefit from the advantages of cloud technology, but in its own data center. Schwarz Digits is currently converting its own Wawi system accordingly.
SAP rejects criticism that it is exploiting customers' dependency. Regarding the criticism of the vendor lock-in, Sabrina Storck, co-managing director of SAP Switzerland, says that the “boundaries between customers, partners and competitors are becoming increasingly blurred”. Ecosystems are important for bringing together complementary skills. But she also admits that strong customer loyalty is important for SAP. A new board area will ensure “customers quickly adopt and leverage innovations and fully realize the benefits of the cloud.”
Storck promises “S/4 Hana support and maintenance until 2040” for customers who do not want to migrate their data to the cloud. After this point, it will probably be unavoidable for everyone to migrate to the cloud world. This statement gives companies pause, but the pressure to move to the cloud in the long term remains. The only variable is the time. Because the compulsion firstly to S/4 Hana and secondly to the cloud remains.
Between dependency and alternatives
The criticism of SAP is not new, but the forced cloud migration to S/4 Hana has taken the dissatisfaction of many customers to a new level. Corporations such as Migros or the University Hospital of Zurich are forced to invest immense amounts of money in projects whose benefits are often difficult to measure. The so-called vendor lock-in binds companies to SAP and makes alternatives more difficult – a dependency that not only causes frustration but also costs.
It remains to be seen whether SAP can maintain its market dominance in the long term or whether criticism of the lock-in and rising costs will ultimately lead to a rethink. One thing is certain, however: In the future, companies should pay more attention to how they design their IT landscape – and what power they want to leave to a single provider. This applies not only to SAP, but also to providers from other areas such as Microsoft.
