ISG Provider Lens™ SAP HANA and Leonardo Ecosystem Partners - Brazil 2019

6 Aug 2019
by Pedro Maschio, Kartik Subramaniam, Jan Erik Aase

The individual quadrant reports are available at:

Since 1996, SAP has won more than 3,700 clients in Brazil, where it also has 2,000 employees and 165 listed partners that cover multiple specializations. Brazil ranks 13th by country revenue according to SAP’s 2018 annual report. SAP Labs Latin America was created in 2006 in São Leopoldo, located in the southern state of Rio Grande do Sul.

ISG qualified 36 service provides for this study, of which 31 are SAP consulting and integration partners. These partners employ more than 13,000 SAP consultants. The SAP service market is estimated to employ 46,000 people in Brazil, according to a 2016 research published by Red Commerce in partnership with LinkedIn. Many of these consultants work for client organizations as employees or contractors, which indicates an opportunity for expanding SAP partners’ networks. ISG estimates the Brazilian SAP services market, including inhouse and outsourced services, is worth $2.3 billion.

Service revenue is spread across many providers. SAP’s expansion into the midmarket has proven to be the correct decision. SAP has attracted many new partners that deliver S/4HANA to midsized companies. Consequently, no SAP partner holds more than a 10 percent market share.

S/4HANA Transformation Trends

The large enterprise client offers more resistance to move to S/4HANA or Business Suite on HANA. SAP partners reported that many clients had acquired HANA license rights to stay compliant with licensing terms but have no planned schedule to upgrade their old systems.

In this market segment, companies tend to opt for a brownfield project, using conversion tools that transfer their configuration and customizations to Business Suite on HANA. Large transformations have occurred since 2017, which proved the viability of brownfield tools. Few large enterprise clients opt for a greenfield S/4HANA project because of the complexity of changing business processes. In general terms, large enterprise clients are waiting for SAP incentives to compensate for the upgrade costs, or they are quietly betting on an extension of the 2025 end-of-support date.

In Brazil, an estimated 1,300 SAP systems should be converted to S/4HANA or Business Suite on HANA before 2025. SAP partners are enthusiastic by the promised revenue stream this bold move will deliver; however, the deadline is approaching, pushing many projects to happen simultaneously. SAP partners fear that part of the conversion market revenue may flow to competitors and smaller providers. If that happens, the door is opened for a competitor to take over the entire client account.

The midmarket usually adopts S/4HANA as a greenfield project. These are clients replacing inhouse systems or obsolete packaged ERP systems. Few midmarket companies have SAP ECC legacy systems to upgrade. Providers that focus on the midmarket offer preconfigured industry vertical solutions that they improved from SAP models. For these and other characteristics, this study breaks the transformation market into two quadrants, one covering the large enterprise market and another focused on the midmarket.

SAP S/4HANA Managed Services Trends

While SAP projects’ duration ranges from nine to 24 months, managed services contracts are typically five years long. In general, a client takes five to eight years before going through a major ERP upgrade. These facts make the maintenance, enhancement and operation managed services market more robust than the consulting and transformation market. Of the 36 companies that qualified for this study, 61 percent (22 companies) were qualified for the managed services quadrant.

This is a highly competitive market. Qualified competitors range from a minimum of 150 SAP consultants to more than 1,000, with an average of 500. The only barrier for new contenders is the need to obtain SAP certifications, which is a reasonable investment for a small company as it needs to hire and train consultants before winning the first deal. Most of the market participants have been SAP partners for a long time, but some have just recently grown into the Brazilian managed services market and have become more competitive. They are, in alphabetical order, BCI Consulting, Cast group, FH, Megawork, Resource, Seidor and Wipro. These companies are challenging a market that was concentrated among a few SAP partners.

Higher competition forces lower margins. Artificial intelligence (AI) and machine learning (ML) have been incorporated into application maintenance and operations to predict incidents and automate troubleshooting and provisioning. Gaining scale is necessary to survive in a low margin market. These factors combined suggest that market consolidation should happen soon. However, because of the 2025 S/4HANA upgrade deadline, major players may prioritize investments in transformation tools and expertise rather than acquisitions.

BW/4HANA & BW On HANA Trends

Analytics has not been a robust market in Brazil. Many small consulting firms and contractors deliver SAP Business Warehouse (BW) and analytics on demand, or have larger providers subcontract their services under large project assignments. Only 13 SAP partners have qualified as providers of BW/4HANA and BW on HANA services.

SAP Business Planning and Consolidation (SAP BPC), which launched with previous versions of S/4HANA, has analytical functionalities for budgeting, forecasting and financial consolidation. BPC promises faster closing cycles and financial reporting compliance. BW is used for multiple purposes, however, SAP BPC 11.0 for BW/4HANA merges SAP BW Integrated Planning and SAP BPC into one solution. During provider briefings, BW service providers described finance consolidation as a compelling reason for using SAP BW. While SAP Analytics Cloud can provide real-time financial data about one company, BW/4HANA consolidates real-time business performance information for multiple companies or business units.

BW services is a niche market requiring specialization. SAP also offers SAP Analytics Cloud and SAP BusinessObjects. SAS is a strong SAP partner with more than 200 clients in Brazil, frequently integrated into SAP. Other competing solutions come from SAP partners IBM, Microsoft, Tableau and Qlik. Oracle is a robust competitor in this market. The leading companies in this quadrant can support one or more of these alternatives.

SAP Leonardo Trends

SAP Leonardo is an application development platform that uses microservices and APIs from the SAP Cloud Platform marketplace. Using SAP Leonardo, developers can leverage use cases and industry accelerators, which reduces the time required to prototype and test ideas. It is a prominent market; however, only 12 SAP partners have qualified for this quadrant, which reflects slow adoption. Many reasons contribute to this slow pace, including competition from startups, alternative development platforms or simply because AI/ML, IoT and blockchain have had little demand so far, as ISG has observed in other research studies in Brazil.

From a client perspective, using SAP Leonardo reduces innovation cost and risk. SAP Leonardo client reference cases show improved customer experience, new revenue from digital products and improved business processes with cognitive bots, automation, analytics and other optimizations. Some competitors believe that SAP Leonardo is the key to convince clients to upgrade to S/4HANA.

SAP HANA Cloud Infrastructure Trends

The initial technical barriers and client resistance to moving ERP to the cloud are gradually disappearing. Real cases of S/4HANA running in the cloud demonstrate that the cloud can be safer than inhouse hosting. Technical concerns around virtual machine memory scalability are over. Virtual machine memory capacity can go up to 20 terabytes, with a 24-terabyte option announced for the end of this year. This represents a significant increase in the last two years. Bare metal instances offer up to 64 terabytes of memory in the public cloud. Cluster combinations can go even further. A typical S/4HANA client rarely needs such large memory configurations. However, an inhouse server replacement to increase memory capacity can be expensive and time-consuming, while cloud scalability and pay-as-you-go have minimum operation impact. These large memory capacities assure a client that disturbing hardware upgrades will never happen again, which is an appealing reason to consider the cloud.

The emergence of hybrid cloud tools and low-latency direct connections between public clouds also contribute to amplifying the number of options for hosting HANA and legacy systems. We have qualified 12 providers that combined offer 14 IaaS data center options in Brazil. We also identified that some clients opt to host S/4HANA in IaaS regions outside Brazil to benefit from lower prices.

Clients can opt to move SAP to the cloud by themselves or hire service providers with proven methodologies to do the job.