Migrating to SAP S/4HANA for All the Right Reasons
By Alice LaPlante, Contributing Writer, SAPinsider
There are three plausible reasons to migrate to SAP S/4HANA. The most common one is also the most obvious: mainstream maintenance for SAP ERP systems released before SAP S/4HANA will end in six years (2027). A second reason is to seize the performance enhancements offered by the new technology. And the third reason is to achieve true digital transformation.
The first reason—eventually-to-be-discontinued support—is a non-starter. First, six years is a long time. There’s no urgency to this arbitrary deadline. A project with that long a lead time will not be prioritized in your IT planning, and consequently you risk it not being done thoroughly or well. Additionally, third parties will rush in to fill the services gap left by SAP after it discontinues support for its legacy ERP systems. So you won’t be left without resources. Not at all.
“If you migrate to SAP S/4HANA because either you want to check that box, or because you’re afraid of being out of support, you’ve fallen victim to the fear game,” says Dr. Steele Arbeeny, Chief Technology Officer at SNP, “and making a large investment under either of those circumstances is not a great way to kick off such a significant project.”
The second reason — to take advantage of SAP’s technical innovations — will lead to very real innovations in embedded artificial intelligence (AI), machine learning, and analytics that SAP has been lauding, says Arbeeny. But the incremental productivity and efficiency improvements you are likely to achieve from them might not deliver sufficient value on their own to justify the disruption. Your ROI analysis could potentially run into negative numbers that won’t win you any accolades in the C-suite. And your users won’t thank you for disturbing their routines without measurable advantage to them.
This brings us to the final, and, according to Arbeeny, recommended solution — digital transformation. Organizations that make a move to SAP S/4HANA an integral part of their digital transformation strategy will find ample value in the migration. A full 65% of respondents to an SAPinsider survey said digital transformation was necessary to making a business case to move the new technology. But a prerequisite to achieving this business value is choosing the right migration path.
“Businesses absolutely have to migrate to SAP S/4HANA to complete their digital transformations, otherwise, they’re going to be left behind,” declares Arbeeny. In this article, Arbeeny provides his expert guidance on why now is the time to move to SAP S/4HANA, and explains how to choose the right migration path for your organization, accompanied by lots of real world examples.
Much is at stake, he says.
“It’s a complex endeavor because legacy systems are often heavily customized, and hold massive amounts of data that are not clean,” he says. “The SAP S/4HANA migration can thus be a risky and costly process if thoughtful planning around a migration approach is not applied.”
How Digital Transformation Will Drive SAP S/4HANA Value
Most businesses are undergoing some type of digital transformation — and businesses that are not are at great risk. Migrating to SAP S/4HANA should absolutely be part of your transformation journey, according to Arbeeny.
However, many large companies have huge data landscapes that have evolved over time. Perhaps they have acquired other companies but never fully merged the systems in order to avoid associated costs. Or maybe they have divested a department or division but left the data in the system rather than pay to eliminate it. In either case, these organizations are faced with a lot of baggage consisting of segregated, unused, and out-of-date data.
“The real benefit of migrating — and our colleagues at SAP realize this — and the real way to unlock value is through harmonizing the data through the digital transformation itself,” says Arbeeny. “It’s the transformation of getting there, the merging of those systems, the cleansing of the data, the migration of the historical data, and the unifying of trusted data to a common structure, that delivers real value.”
How does that work? The analytics that come with SAP S/4HANA.
SAP S/4HANA’s new embedded analytics is its most popular feature at this time. According to SAPinsider research, 58% of survey respondents cited this capability as a primary way to make a migration case.
With SAP S/4HANA, both transactions and analytics exist together in a single platform. This allows business users to conduct business and perform real-time analytics on live transactional data. They can get real-time, actionable insights from the data without worrying about the underlying data structure. And SAP S/4HANA embedded analytics can be placed directly into transactional business processes or be consumed by standalone third-party analytics applications.
Let’s consider a real-world example of how having the SAP S/4HANA embedded analytics can drive business value.
An SNP airline client was raking in revenues, but its procurement costs were too high, squeezing margins. By transforming itself into a digital business and migrating to SAP S/4HANA, the company will capture and categorize procurement costs more granularly, in real time. Thus it can closely track individual costs for spare parts, maintenance, fuel, computers, and so on. Because the airline will have tight control over the costs in each category, it will be in a strengthened position to negotiate buying terms. With an annual procurement outflow of $30 billion, even if analytics saves only 1% of total costs, that’s still $300 million — a significant ROI.
“Becoming a digital business is allowing organizations to attack the root of the problem by addressing the highest cost areas and applying resources and effort where it will help the most,” says Arbeeny.
This concept applies to every process within a business — not the procurement process alone. Companies that produce products with warranties can, after digital transformation with SAP S/4HANA, track and rigorously control the warranties. And, for example, regarding accounts receivables, companies can consider payment terms and optimize margins by establishing shorter payment terms for most customers, permitting longer payment periods for only a select few. This way, the company is not effectively “loaning” cash to vendors, but can use it in more strategic ways.
SNP has witnessed businesses able to save, on average, between 8% and 9% through digital transformation.
“In such cases, moving to SAP S/4HANA is not a technical upgrade, but a business transformation. It’s going to change the way your company does things and change people’s day-to-day jobs,” says Arbeeny.
However, he says, a big caveat is that you have to make sure that you’re giving your system the data it needs to make the appropriate analytical decisions. “Being able to access sufficient volumes of clean data should be the motivational reason for migrating in the first place,” says Arbeeny.
One recurring question Arbeeny hears when businesses talk about their desire to take advantage of the advanced analytics available in SAP S/4HANA: what to do with the often-numerous and separate SAP ERP systems they now possess? These organizations must understand that if they do one-to-one upgrades of each system, their analytics will never work properly.
To get the benefit of the analytics, the data needs to be collected in a single SAP HANA database, Arbeeny says. Unless these systems are merged into one SAP S/4HANA system, “the migration project will never deliver on value,” he says. “It will join the realm of most ERP projects that deliver negative ROI.”
You can see from these examples where the true value lies. It is not in the adoption of a new ERP system or some new underlying technology. “The value is in the transformation itself,” Arbeeny stresses. “The act of merging and harmonizing these systems is what allows SAP S/4HANA to deliver on its promised value.”
But How To Do It?
For organizations ready to make the leap, the first challenge they frequently face is the complexity of legacy systems that are often heavily customized, and which hold massive amounts of data that is not clean or trustworthy.
You basically have three choices when it comes to migrating to SAP S/4HANA: greenfield, brownfield, and Bluefield. Let’s consider these one at a time.
Greenfield is like wiping your ERP slate clean. You start from scratch with an empty system and then bring over master data. It involves a complete reengineering of your SAP processes and workflows. Any customization is also reset.
This has its advantages. If you’ve been using SAP for a long time, and have accumulated complicated legacy workflows and heavily customized code, a fresh start is what you might need to reduce complexities. But there’s one huge disadvantage, according to Arbeeny.
“If we accept the premise that becoming a digital business and using analytics is the driving factor for migrating, then you just destroyed all potential value,” he says. “Because now you have to wait five years to build up enough data in that greenfield system for the analytics to work.”
Unfortunately, a lot of businesses take the greenfield approach because it seems like the safest bet, Arbeeny says.
Brownfield is an in-place technical upgrade. It enables you to migrate to SAP S/4HANA without re-implementation or disruption to existing business processes.
The way brownfield works: your company takes your old ERP system and installs SAP S/4HANA right on top of it. Although that might sound appealing, this often leads to broken features and flawed data that pollute the future analytics you want to perform. The broken or incorrect code and data will remain broken or incorrect, even in the upgrade, thus limiting the value of the migration yet again.
Consider a company that has five SAP ERP systems and wants to perform a brownfield upgrade to SAP S/4HANA on each. All the issues and inconsistencies of the old systems move into the new upgrades as is. Additionally, as the company has processed five separate migrations, there is no one combined SAP HANA database with historical information that could serve as a single source of truth for the entire organization. Because it lacks a consolidated view of data in one system, it’s impossible to identify trends or perform meaningful analyses.
Customizations have long cost SAP customers pain. Most businesses have systems with thousands of unused customizations, says Arbeeny. If migrating one customization takes an average of 10 person-days at the cost of a thousand dollars a person-day, that could add up to millions wasted on useless customization.
“Each time you do an upgrade, you have to make sure all customizations get pulled over,” says Arbeeny. This makes the system bigger, and it drags out the migration. “In many cases, you’re dragging all the customizations along without realizing that maybe only 10%, 20%, or 30% are really mission-critical,” says Arbeeny.
According to Arbeeny, the solution to these challenges is SNP’s Bluefield migration approach. It takes the best of both worlds, offering options for selective and simultaneous business and technical transformation, and lets you choose the features you want to innovate. Bluefield allows companies to merge multiple systems, harmonize the data, and pick only a certain amount of relevant history in a single project. All this drives you towards the goal of unlocking the value of SAP S/4HANA transformation. The act of merging and harmonizing the systems allows SAP S/4HANA to deliver on this promised value.
Consider a company that is contemplating using the brownfield technique to innovate. A unique finance business, they have a highly customized usage and billing program for processing their invoicing. As their system is exclusive, Brownfield would not allow them to take advantage of the innovations in SAP S/4HANA. Similarly, using Greenfield would get rid of all their mission-critical usage and billing process details. However, with SNP’s Bluefield approach, they could choose to migrate the most important customizations and bring them over during the transformation.
SNP recently worked with a large consumer packaged goods company that had created a roadmap for a Brownfield migration. The timeframe for completion was a full 10 years. With the help of SNP’s Bluefield method, they were able to complete the migration within two years, and get the benefit of SAP S/4HANA 80% faster than expected.
Conclusion: Identify the Right Business Case for Digital Transformation
By taking the time to explore all the possible paths, and then quantifying how SAP S/4HANA can support your digital transformation efforts, it will become clear that the time for migration is now. A recent SAPinsider survey found that 73% of companies have at least started evaluating a business case for SAP S/4HANA. Additionally:
■ Nearly half (42%) of respondents said that they were examining the cost/benefit of deploying SAP S/4HANA on private, public, or hybrid cloud environments as part of their migrations and digital transformations.
■ Almost as many (41%) want to migrate so as to improve their ability to better support organizational change.
■ Almost three-fourths (73%) said their business cases for migration centered on finance, followed closely by supply chain, procurement, and manufacturing (71%).
■ The majority (80%) of respondents said that they are expecting to see financial benefits in improved productivity as a result of their transition to SAP S/4HANA, with 69% expecting financial benefits through increased efficiency.
Take a look at your aging on-premise infrastructure and the lack of agility in your business processes and see how transitioning to SAP S/4HANA is an opportunity to drive digital transformation. Use the tools available from both SAP and third parties like SNP to build business cases. Then your SAP S/4HANA-fueled digital transformation is certain to succeed.