3. Upgrade to release 4.6C

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1 Decision Framework, B. Zrimsek, Y. Genovese, D. Prior Research Note 25 June 2003 SAP ERP Upgrades: Seeking SAP's Next Vintage Release With the recent announcements of R/3 Enterprise and mysap Enterprise Resource Planning, users have several options in addition to version 4.6C when planning an SAP upgrade. Core Topic ERP II, Supply Chain & Manufacturing: ERP II Strategies, Applications and Technologies Key Issue How will successful enterprises select, deploy and manage ERP II solutions to minimize risk and achieve optimum ROI? More than half of SAP's nearly 20,000 customers are faced with the termination of standard application support by year-end 2003 (see "ERP II 2003: The Year of the Version Upgrade"). Even with an option to extend support through 2004 for an additional 2 percent in maintenance fees, many of these users are planning SAP upgrade projects. SAP users have four options, listed in increasing order of preference: 1. Do nothing and remain on the current, older release. 2. Pay the 2 percent maintenance fee add-on to extend support for an additional year. 3. Upgrade to release 4.6C 4. Upgrade to R/3 Enterprise (also referred to as release 4.70). The recently announced mysap Enterprise Resource Planning (ERP) product includes SAP R/3 Enterprise, SAP NetWeaver and some other applications and does not require a customer to upgrade. The real question that users must ask is: Will release 4.6C or R/3 Enterprise be the next "vintage release" of SAP? Like preceding versions 3.1I and 4.0B, a vintage release stands out as a stable, populous release worthy of full user support and upgrade investment. With four options from which to choose, by 2005, at least 40 percent of the SAP installed base will embrace R/3 Enterprise, seeking a stable ERP application core built on the latest SAP technology, and making R/3 Enterprise the next vintage release of SAP's core ERP product (0.7 probability). Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Option 1: Do nothing. This option means continuing to run currently installed R/3 releases. Based on the lack of product support, enhancements and resources for upgrade assistance for older releases, this option is not recommended. Although the economic climate may force a substantial number of R/3 customers to adopt this option in the short-term, upgrade plans and options should be developed in anticipation of an economic recovery. Upside: No incremental expenditures are required. Downside: The user is unable to take advantage of new application and technical features. The user enterprise is at significant risk, because without support, a significant application issue could require an extended period of time to resolve. Enterprises that choose this option must have an effective dataarchiving procedure, and must be willing to lock down the production environment to minimize overall application risk. Option 2: Extend the support of an earlier vintage release (3.1I, 4.0B, 4.5B and 4.6B) through Essentially, this decision buys extra time for upgrade planning and execution Enterprises will ultimately have to choose Option 3 or Option 4, but time constraints will not be as great if Option 2 is selected. Upside: Users can extend support to buy time for the upgrade process. Downside: An upgrade is still required by year-end 2004, with maintenance fees increasing by 2 percent. Customers in some countries will not have this option. Specific eligibility should be verified with SAP. Enterprises that operate the supportable versions should take advantage of this offer from SAP if upgrade projects have not begun or will not be completed by year-end Users on other, nonvintage versions should examine options 3 and 4. Option 3:. Upgrade to SAP R/3 release 4.6C. R/3 v.4.6c is the current release of SAP's core ERP product, and accounts for nearly 50 percent of the SAP installed base. Upside: 4.6C offers proven product quality, upgrade process and infrastructure "footprint," and customers should need only a 25 June

3 technical upgrade to move from 4.6C to R/3 Enterprise at a convenient time thereafter. Downside: With a stated de-support date of 31 March 2006, 4.6C offers relatively short-term relief from upgrade pressures, because user enterprises that choose this route will be required to perform another upgrade in less than three years. Users migrating from versions prior to 4.6 will need much more network bandwidth, plus greater CPU, memory and disk space in their desktops to run the SAP Graphical User Interface (GUI). Constraints: Any AS/400 users will be required to upgrade to version 4.6C before moving to R/3 Enterprise or mysap ERP. Enterprises should upgrade to 4.6C if the upgrade is currently more than 25 percent complete, or if specific, required industry solutions are not yet available for R/3 Enterprise or mysap ERP. Version 4.6C can also be a viable platform for enterprises that do not anticipate expanding their use of SAP beyond traditional ERP functions. Option 4: Upgrade to SAP R/3 Enterprise (release 4.70). R/3 Enterprise is the next generation of R/3, and its last traditional release. R/3 Enterprise is an evolutionary upgrade offered as part of normal maintenance. The real value proposition of this version is not technology-related or application-oriented what is important is that the R/3 core will be frozen moving forward, providing users with a code base that will not change substantially. This will reduce user costs associated with large upgrade cycles, and will provide SAP with the opportunity to offer enhancements in smaller, more-focused, encapsulated extensions. The extension concept brings benefits and constraints. Extension Benefits: Extensions provide implementation flexibility because they are owned by users under established licensing agreements, and their enablement does not create a licensing issue. As functionality evolves, extensions can be upgraded independent of the R/3 Enterprise core. Extension Constraints: Although technically feasible, it is not recommended that an extension be disabled after being enabled, because data corruption may occur. 25 June

4 All extensions are delivered in a set and must be upgraded as a set, eliminating the capability to selectively upgrade a specific extension. Extension enablemement is an SAP client-independent activity that would prohibit the creation of an extension test client without impacting other clients within an instance. A significant enhancement associated with R/3 Enterprise is the addition of the Web Application Server (Web AS, release 6.20) and the new SAP NetWeaver architecture, which are based on more-open technology standards and connectivity options than traditional SAP Basis (see "SAP's Visionary NetWeaver Platform May Be a Risky Bet"). R/3 Enterprise can be upgraded directly from SAP versions 3.1I, 4.0B, 4.5B, 4.6B and 4.6C. Users of other versions should work directly with SAP to define an upgrade path. AS/400 users will be required to upgrade to 4.6C before upgrading to R/3 Enterprise. Upside: For R/3 enterprises using SAP maintenance, moving to R/3 Enterprise does not involve a payment to SAP, unless the user is adding seats at the time of the upgrade, or converting its license contract to mysap ERP or mysap Business Suite. Two technical upgrade options are available, so users can choose to minimize upgrade downtime or the cost of additional infrastructure resources. R/3 Enterprise provides more connectivity and Java options from Web AS, and a longer support window. Upgrading from 4.6C to R/3 Enterprise is technically only a small step if Unicode is not required. SAP has provided a "system switch" capability in Web AS 6.20, which enables the user to have a test environment and a mirror image production environment. The user can automatically switch to the mirror image production environment at "go live" without major business disruption. Because this functionality is provided by Web AS, only R/3 Enterprise and mysap users have this capability. Downside: Although SAP reports that enterprises have successfully made the R/3 Enterprise upgrade, few reference sites have completed the R/3 Enterprise upgrade process. As of May 2003, only 54 enterprises had completed the upgrade. R/3 Enterprise needs some additional production system server hardware, compared to release 4.6C (see Figure 1). 25 June

5 Figure 1 Infrastructure Requirements Increase for R/3 Upgrades R/3 Release 3.X 4.0X 4.5X 4.6X R/3 Ent. R/3 Ent. + Unicode 1. Disk Disk Space 1 +10% +10% +10% +10% +35% (UTF-8) +60% to 70% (UTF-16) 2. Database Server CPU 1 +30% +20% +15% - +30% to 35% Memory % +20% - +50% 3. Application Server CPU 1 +30% +20% +15% +5% +30% to 35% Memory 1 +20% +10% +5% +50% Reference SAP Note SAP Service Marketplace Source: Gartner Research (June 2003) Users migrating from versions prior to 4.6 will need much more network bandwidth, depending on their SAP GUI settings. Most SAP customers work with the downward-compatible SAP GUI 6.20 or SAP GUI 4.6 versions, and will not face additional desktop hardware requirements. Other options will require greater desktop CPU, memory and disk space to run the SAP GUI. All clients should consult with SAP for the latest specifications for network bandwidth and desktop minimum hardware. All clients should also carefully measure the change in network bandwidth between their current and target R/3 releases for the typical transaction mixes that their end users operate, because network bandwidth changes greatly by module type between R/3 releases. As shown in Figure 1, R/3 Enterprise is Unicode-enabled, but needs much more hardware to run and is not yet proved on large R/3 systems. Note 1 Planned Availability of SAP Industry Solutions for R/3 Enterprise The following will be available as of 1 July 2003: mysap Aerospace & Defense mysap Automotive mysap Engineering & Construction mysap High Tech mysap Mill Products The following will not be available until 4Q03: mysap Mining mysapoil&gas mysap Apparel and Footwear Constraint: Not all Industry Solutions are currently available. Users that have deployed these Industry Solutions will not be able to upgrade to R/3 Enterprise core until the extension becomes available (see Note 1). Enterprises can buy mysap solutions, such as mysap Customer Relationship Management or mysap Supply Chain Management, and implement them with the R/3 Enterprise core. Although SAP has not announced an end-of-support date for R/3 Enterprise, Gartner expects that this licensing option will be discontinued by 2009 (0.8 probability). 25 June

6 SAP R/3 Enterprise or mysap ERP? mysap ERP takes the R/3 Enterprise stable application core, augments it with additional functionality and supports it with the complete NetWeaver technology stack, including Web AS, Enterprise Portal and Exchange Infrastructure (see "SAP Adds Enterprise Resource Planning to mysap"). However, because mysap ERP is based on R/3 Enterprise, it does not affect the upgrade decision. Enterprises should convert their licenses from R/3 to mysap ERP when there is a clear need for additional functionality, or when the full NetWeaver stack is required to enable integration in a heterogeneous application environment. Users of other mysap solutions should favor mysap ERP, because an overall integration of the mysap Business Suite will be based on NetWeaver application architecture (see Figure 2). Figure 2 Transition Options From SAP R/3 to mysap Business Suite mysap Business Suite mysap ERP SAP R/3 Application SAP R/3 Enterprise Collaborative Functions Application Core and Extensions mysap SCM mysap PLM mysap CRM mysap SRM Basis SAP Web Application Server SAP NetWeaver CRM = Customer Relationship Management PLM = Product Lifecycle Management SCM = Supply Chain Management SRM = Supplier Relationship Management Source: SAP (June 2003) Acronym Key ERP GUI Web AS Enterprise Resource Planning Graphical User Interface Web Application Server Bottom Line: Most user enterprises should upgrade directly to R/3 Enterprise as the next "vintage" release of SAP's core ERP product. Users should carefully assess all of the benefits, costs and risks of each upgrade option, as well as hidden dependencies on third-party tools and bolt-ons. R/3 Enterprise represents the best route. However, users should be cautious until more details about the sophisticated upgrade process become available. To obtain buy-in from senior management, IT managers should identify incremental functionality that will provide real business benefits. Such incremental functionality 25 June

7 may drive a need for components available under the mysap ERP licensing option. This option should be considered if users plan to deploy the incremental functionality or technology provided under this more-expensive licensing agreement. SAP has developed a comprehensive program to help customers determine the right strategy based on their specific situation, addressing technical upgrades and license conversion. Before making a final decision, customers should obtain more information from SAP. 25 June