IT Transformation The Two Paths in the SAP Cloud Strategy

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SAP's increased cloud focus requires companies to rethink their IT strategies. The choice between a pure cloud solution and a hybrid approach should be carefully considered and weighed.

SAP's strategic focus on cloud-based solutions continues to spark intense discussions in the IT world. The decision to primarily provide future innovations for the cloud versions of S/4HANA forces companies to realign their IT strategy. Especially affected are those who have recently switched to or plan to switch to S/4HANA On-Premises. The concern that SAP is forcing its customers into a pure "Cloud Only" strategy has fueled uncertainties.

Besides the strategic orientation, aspects such as data sovereignty, investment protection, and future flexibility are particularly in focus. A differentiated view, however, reveals various solutions that can help companies find the optimal strategy for their individual requirements.

Cloud First or Cloud Only—The Strategic Direction

The terms "Cloud First" and "Cloud Only" are central components of SAP's strategy. While "Cloud First" means that new innovations are primarily developed for the cloud, but on-premises options continue to exist, "Cloud Only" stands for exclusive cloud functionalities. Officially, SAP pursues a "Cloud First" strategy, yet the gradual restriction of local installations indicates an increasing focus on cloud-based solutions. This direction has raised concerns among many companies regarding dependence on external providers, licensing costs, and especially data security.

Many SAP solutions are hosted by hyperscalers with headquarters outside the EU, which amplifies existing concerns. This poses a risk, especially for European companies subject to the stringent data protection regulations of the GDPR, even if SAP and the hyperscalers assure that data remains in European data centers.

Cloud Or On-Premises—A Differentiated Comparison

A central aspect of this discussion is the distinction between the traditional on-premises variant and SAP's cloud offerings. On-premises systems are operated in company-owned data centers and provide businesses with full control over their data. These systems are often the result of years of customizations and investments tailored specifically to the company's needs. In contrast, cloud solutions are hosted either in the public cloud or the private cloud.

The public cloud offers standardized services that are easily scalable but less customizable. The private cloud combines the advantages of the cloud with a higher degree of control and customization, which is particularly attractive for companies with specific compliance requirements. Technologically, the private cloud differs little from a traditional on-premises system, as both approaches offer similar extension and customizing options. These hybrid models are gaining increasing importance in the SAP community, as they allow companies to leverage the benefits of both worlds.

Rise And Grow: Packages With Potential

In this context, Rise with SAP and Grow with SAP play a crucial role. Often misunderstood, these are not standalone products but contractual constructs that allow companies to combine S/4HANA licenses with additional services. They provide access to key technologies such as the Integration Suite or the Analytics Cloud, which help companies integrate cloud applications into existing on-premises systems.

The Integration Suite, for example, replaces the classic PI/PO solution and illustrates how SAP attempts to gradually lead companies into the cloud without forcing them. The debate over whether SAP deliberately pushes its customers into a "Cloud Only" strategy cannot be answered definitively. Nevertheless, the complexity of the contractual models raises questions about long-term licensing costs and the degree of flexibility these solutions actually offer. Ultimately, SAP prioritizes the cloud, yet hybrid models remain a valid option.

The Integration Solution: SAP Business Technology Platform

A key to these hybrid scenarios is the SAP Business Technology Platform (BTP). It enables companies to seamlessly connect cloud solutions like the Digital Manufacturing Cloud or the Analytics Cloud with on-premises systems. Integration is facilitated through technologies such as the SAP Cloud Connector, which creates a secure connection between cloud and on-premises systems. The successor solution for the Solution Manager, Cloud ALM, can also be integrated into existing landscapes via the BTP.

This shows that SAP is deliberately building bridges between cloud and on-premises to ease the transition for companies. Nevertheless, the move to the cloud comes with challenges. In addition to technical questions about integration, there are also strategic considerations that companies must take into account. These include aspects such as long-term licensing costs, security requirements, and the speed at which new innovations can be introduced.

Technological Innovation Through the Cloud

Another important issue is the speed of development. The cloud allows SAP to introduce new features more quickly, as updates can be centralized and rolled out regularly. On-premises systems, on the other hand, are slower in this regard, as companies are responsible for implementing new releases themselves. However, this does not mean that on-premises solutions are entirely excluded from innovations. Through the BTP, on-premises users can also benefit from new technologies, such as the integration of modern analytics tools or AI-powered applications.

The long-term decision between a pure cloud strategy and a hybrid approach requires careful consideration of the pros and cons. For many companies, security concerns are a central factor. Although major hyperscalers offer extensive security measures, control over data remains a sensitive issue, especially in highly regulated industries such as finance or healthcare. On the other hand, hybrid approaches offer the opportunity to protect existing investments in on-premises systems while benefiting from cloud innovations. Companies choosing this path should note that managing a hybrid landscape places additional demands on the IT department.

SAP's Cloud Future: Opportunities And Strategic Considerations

The future of SAP's strategy shows a clear orientation towards the cloud, yet hybrid approaches remain a viable solution for many companies. Success depends on careful analysis and planning that considers both technical and economic aspects. Solutions like the BTP play a central role here, as they pave the way to the cloud while protecting existing investments. Companies that successfully manage this transition can benefit from the advantages of the cloud without having to completely abandon their existing systems. This is particularly evident in the integration of new technologies that are exclusively available in the cloud, such as advanced analytics and IoT solutions.

The decision on whether "Cloud First" or "Cloud Only" is the right path ultimately depends on individual requirements and goals. SAP offers the tools and strategies to support both approaches. It is important for companies to leverage these opportunities to advance their digital transformation and prepare for the future. The cloud is not an end in itself, but a means to increase innovation, efficiency, and competitiveness. Companies that recognize and purposefully implement these potentials will be successful in the long term.

*Tim Schlömp is a Senior Consultant at Abat AG.

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