Does my organization need to move to S/4HANA? Can we justify the investment? What are the risks of not migrating? What are the risks of migrating? Is now the right time to migrate? How to ensure we realize the business case? These questions are troubling many CEOs today. Join us as we discuss these and more in this guide to S/4HANA migrations.
SAP is actively promoting organizations to migrate to the newer S/4HANA platform. Many IT professionals agree. While the vast majority of these are objective, a small number will be influenced by the opportunity to work on the newest “hot” technology and enhance their CV and employability.
The Key Question For CEOs & CFOs
Is there a compelling business case for your organization?
The reality is S/4HANA will provide different values for every enterprise. There is no single answer. The migration could have major benefits but they’re potentially very expensive and risky.
CEOs and CFOs must determine whether migration will create value for the enterprise.
This blog will provide insight into what other SAP customers are doing with regard to S/4HANA as well as an overview of CEO and CFO considerations:
- Long-term strategic alignment
- Migration options
- Key risks associated with S/4HANA migration.
These are the important elements that determine whether an S/4HANA migration will add value for the enterprise, and to the employees and customers. Of course, having a positive business case is very different from realizing the business case. 83% of transformation projects fail to meet their objectives, according to Gartner. But that’s a topic for another day and another blog.
How Some Are Approaching S/4HANA Migrations – And What We Can Learn From What Others Are Doing
Gartner estimates that more than 2/3 of SAP ECC clients had not licensed S/4HANA This implies SAP is likely to miss its target to terminate mainstream maintenance support for ECC in 2027 and these clients will be exposed to an extra 2% extra maintenance cost.
This begs the question, why the adoption gap? Business case uncertainty is, according to most analysts, clients, and consultants we speak with, the key inhibitor to S/4HANA adoption.
Although S/4HANA is the natural upgrade from ECC, functionality differs and there is no single migration approach that creates value for everyone.
Any well-managed organization will require a comprehensive, objective business case before deciding to migrate. However, this is providing one that is comprehensive enough is easier said than done, because the benefits, cost, and risk profiles of the different migration approaches are vastly different. As a result, there is substantial uncertainty in this process and many of the components of S/4HANA migration are difficult to know, evaluate and estimate.
Long-term Strategic Alignment
It goes without saying that any significant investment needs to align with the company’s long-term business and IT strategies. This can be challenging if those strategies are not well defined, or if there are disagreements among key stakeholders about the direction of the company.
Many S/4HANA migrations will take several years. The economy, operating environment, and leadership group could undergo significant change during this period, potentially exerting significant influence over the program.
There are many different options to migrate, with various deployment models. These have massively different benefits, costs, and durations. This makes the business case for S/4HANA a complex exercise.
Alternatives options to move to S/4HANA need to be considered to determine which aligns best with your business goals. Brownfield, greenfield, and hybrid approaches depend largely on the need for new and improved processes (referenced in the below diagram), and these must align with the company’s long-term business strategies.
Deployment models include on-premises, private cloud, and RISE with SAP (RISE with SAP is the subscription commercial package for SAP S/4HANA Cloud services). However, more complex environments will require multiyear journeys with more highly skilled and experienced resources, so external support may be needed. Functional/ business migration usually takes 2 to 3 years and even longer for larger, more complex enterprises.
Migration Options are shown in the diagram:
What Are The Benefits Of S/4HANA Adoption?
The benefits of S/4HANA can be hard to make, however, could be substantial. There is little new core functionality and even reduced functionality in some areas. The benefits need to be tied to digital outcomes, for example:
- Business transformation – the ability to shape or react better to changing markets, new business models, potentially providing first mover advantage, improved competitive positioning, etc.
- Business optimization – faster innovation, better cycle times and simplified processes, better customer service and experience, improved productivity, easier access to data and real-time analytics for improved decision-making, and lower cost of operations, etc.
The benefits evaluation should be broader than the effect on revenue, cost, and capital, and include impact on customer, employee, and societal value (e.g., reduce waste, better resource utilization, ESG effectiveness).
Many of these benefits are not easy to realize and need experienced, focused teams to achieve.
Cost Of Implementation
The migration to SAP S/4HANA requires a significant upfront cost, including the cost of consultants, software, cloud technology, internal people cost for project management, training, and potential downtime.
Attention must be paid to the potential for business disruption. In fact, 65% of respondents to an SAP Users’ Group (ASUG) survey cited “business process disruption” as a top challenge in moving to SAP S/4HANA. [https://www.asug.com/news/asug-survey-reveals-top-challenges-for-implementing-sap-s-4hana]. The impact of changes to business processes, roles, and responsibilities is often underestimated. These changes can be very disruptive and, if not managed properly, can impact sales, customer satisfaction, retention, logistics, and so much more. With this in mind, one can see how this is challenging to incorporate in a business case.
Risks And Uncertainties
Migrating to a new ERP system entails significant uncertainty. You often don’t know what you don’t know until you are well into the process.
What steps can be taken to mitigate risk and uncertainty?
- Data transformation This is where difficulties usually arise. It is a major contributor to why 83% of projects fail to meet their objectives. For standard items, such as customers or suppliers, the process of transforming data from one format to another is a relatively straightforward process. However current approaches don’t effectively deal with the more complex data transformation uncertainties including specific elements for each enterprise e.g., cost centers, materials, projects, etc. which differ by enterprise and where there are no pre-built tools. These structures are unique. r4apps effectively leverages AI and other analytics to manage this data e.g., to identify and deal with duplicates, missing and non-compliant data, etc. It easily prepares the data that’s always hard to deal with. It’s hard to fully anticipate upfront what objects need to be migrated (structures, processes, data objects, etc.). This detail is often not known until you are well into the migration, i.e., you don’t know what you don’t know. This is where r4apps excels – allowing you to identify and transform data on the fly, as you work, in real-time. This can save you up to 70% of the effort and budget for data migration, per Gartner. Most current tools are inflexible, slow, and require extensive training and experience. r4apps has a unique approach, creating a virtual layer from all existing data sources that are easily understood, auditable, and agile. The use of metadata allows for metadata modeling, so fast, flexible, and agile. Data transformations can be executed on virtual models, without reloading data structures like cubes. Filters are dynamically forwarded to the source for further improved performance.
- Readiness for change: Leadership must recognize that transformation is fraught with risk. As mentioned above, the vast majority of organizational transformations fail. What can be done to improve the odds of success? Leadership and culture are key determinants of success. The organization needs to understand the compelling rationale for the change/ transformation. A shared vision of success is a fundamental requirement. Employees need to understand the need to disrupt the status quo. An honest assessment of the organization’s readiness for change must be done.
- Sufficient resourcing: Do we have the right experienced resources across all functions? These migrations are complex and usually internal resources will need to be complemented with external, experienced resources. These are increasingly difficult to find and, if adoption increases, this will be a significant issue.
- Funding: Is this secured for the duration of the project? Is there a reasonable contingency?
- Risk of doing nothing: Operating with minimal upgrades could put the business at a competitive disadvantage and even become non-compliant with government requirements. Additional maintenance costs will be an issue for SAP customers that delay the migration beyond the SAP deadline.
What Can Be Done differently?
- Better up-front planning. Don’t shortcut the planning process.
- Understand the risks and uncertainties (e.g. use r4apps to understand the data issues upfront).
- Develop contingency plans.
- Use experienced resources. “Experience is something you don’t get until just after you need it.” – Steven Wright
- Provide leadership. These are long, complex programs and visible, committed leadership is important.
- Effective change management. Communicate, communicate, communicate. Among the team, with leadership, the affected functional and regional groups and the broader enterprise.
A future blog will address “Realizing the S/4HANA business case”.