Zeiss Overhauls SAP Cloud Migration After Costs Hit €200 Million

Germany’s Zeiss Group, a key supplier to the global semiconductor industry, overhauled plans to move to a new cloud-based SAP SE software service after costs swelled to more than €200 million ($232 million) over several years.

The precision optics maker will now use a so-called brownfield approach, which means moving its existing software systems to the cloud, in order to save money, according to people familiar with the matter who asked not to be identified because the information isn’t public.

External consultancies are leading the transition, the people said. The initial attempts to build a new system from the ground up were more complicated than expected, they added.

The decision offers a window into the complexity and expense of cloud transformations, a process that will drive SAP’s growth through the end of the decade. Starting in 2020, SAP Chief Executive Officer Christian Klein has pushed customers to move from locally hosted enterprise software to a subscription-based online service, which is more lucrative for the company and currently accounts for more than 60% of revenue.

SAP is Europe’s largest software company and sells products to manage finances, supply chains and other core business functions. More than 90% of the Fortune 500 use its solutions. Moving to the cloud can be a complex process and many customers still haven’t completed the transition, even as SAP plans to end regular support for its legacy on-premise solutions by the end of next year.

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Cloud migration projects often involve external partners such as Accenture, EY or PricewaterhouseCoopers and take years and millions of dollars to complete. Moving sensitive business data is a delicate operation and can cause critical disruptions if done poorly.

US medical tech company Zimmer Biomet Holdings Inc. sued Deloitte last year over a botched implementation of SAP’s cloud platform. The complaint alleges the process “was a disaster” and the result “was an overly customized software system riddled with defects and functionality gaps.” Zimmer paid $94 million in fees, 36% more than Deloitte had represented, according to the complaint.

Deloitte is fighting Zimmer Biomet’s “meritless claim,” according to a company spokesperson. A spokesperson for Zimmer Biomet declined to comment.

Zeiss began planning its path to the cloud six years ago and has now reconfigured the migration of its enterprise resource planning, or ERP, software “to achieve faster progress,” a spokeswoman for the company said in a statement. She declined to comment on the investment or the project’s timeline.

A spokesperson for SAP declined to comment on customers’ projects.

Zeiss is the exclusive supplier of optics used in ASML Holding NV’s most sophisticated lithography machines, which make advanced semiconductors, including for Nvidia Corp. Based in the German city of Oberkochen, Zeiss is expanding its operations to meet booming demand from chipmakers, the head of its semiconductor division, Frank Rohmund, told Bloomberg last month.

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Zeiss initially planned a greenfield approach, which would have meant building the company’s core IT functions from scratch in the cloud, according to the people. Such projects seek to get rid of needlessly complex legacy processes and streamline systems.

The company has now pivoted to a brownfield approach that will preserve many existing data systems, according to the Zeiss spokeswoman.

The cost of moving to the cloud is highly variable, according to Byron Ford, a consultant at the Berkeley Partnership who works on SAP migrations. Greenfield projects generally cost at least 20% more than brownfield ones but can be twice as expensive, depending on factors such as which geographies are moving, the number of systems involved and the client’s own resources, he said.

A greenfield migration of several systems in a single country might cost £35 million ($47 million) to £40 million and a global project twice that or more, Ford added.