In the past, we have seen new generations of SAP software being propelled by seismic shifts in the market. R/2 rode on a wave, moving ERP from being characterised by disparate batch-driven best-of-breed functional applications to one, largely monolithic, integrated functional application in real time. The release of R/3 coincided with companies moving towards global business models and processes, and became the main vehicle for them to do so. I strongly believe that the business benefits companies achieved eclipsed the costs many times over and that the costs were much more driven by the scale and complexity of business change, rather than by the nature of the SAP software itself. This brings us to the latest kid on the block, S/4HANA. What is the compelling event(s) that will drive the adoption of S/4HANA, and when will it/ they materialise?
Although for the majority of customers, there could be a strong business case for implementing S/4HANA - more about this later. I think the compelling events leading to a higher adoption rate mainly fall into three categories:
A. Application Architecture
Many SAP customers finalised their core SAP implementations decades ago and have since largely merely carried out technical upgrades and minor enhancements. They have eased up on the solution governance that existed when they first implemented and become more user-driven. The consequences are typically that the business models and processes have not been re-invented for a very long time and the application has moved further away from the SAP out-of-the box standard. Business processes have also become less harmonised and data has become more unclean. Several will also have acquired companies and sold off business units leading to a fragmented application landscape.
Frustratingly for business executives rolling out new business models and implementing new, innovative technologies such as AI, IoT, Robotics etc. on a global scale, have therefore become a struggle and IT is quickly earning a reputation for being inflexible and expensive to run, even ‘just’ keeping the lights on. This is leading to businesses looking for their own solutions, which do not necessarily fit with the existing Application Architecture.
The arrival of S/4HANA and the many surrounding Cloud applications covering business processes and functions as diverse as HR, travel & expense, indirect procurement, demand planning etc. represent a golden opportunity to once and for all create a flexible and stable application architecture that will deliver on-going business innovation and drive down the total cost of ownership. Where companies do not need to differentiate themselves, implementing business processes in the Cloud achieves economies of scale and standardisation by force, thus freeing up funds to be spent elsewhere or in creating real savings. Implementing S/4HANA as the digital core enables companies to differentiate themselves in terms of implementing an up-to-date business model or an on-going governance model that will prevent past sins.
Implementing S/4HANA as part of a new flexible application architecture, whether completely re-innovating the business model or partially re-using past investment, could therefore be the answer to business executives’ prayers and the opportunity for IT companies to exonerate themselves and enhance their reputations.
B. Business Transformation
Whilst some industries run stable business models, others are in flux, such as Retail going more and more on-line, Automotive, Aerospace & Defence becoming more service-focused and Airlines both facing stiffer competition and expanding their product and services footprint. They therefore need new business capabilities to help them re-engineer their business models to increase their competitiveness in the market. You often hear that S/4HANA has lightening quick response times and so what, but this is a simplified view of the world. Implementing S/4HANA can be a catalyst for business transformation and the quicker response times help in that respect, often in ways that are not necessarily apparent to the naked eye. A global CPG company, for example, has foreign currency exposures at the end of each month and it took them days to figure out their net exposure, after which, they placed their hedging bets. A&D companies often run very large projects across plants, which they struggle to effectively manage, as running project reports across plants time out. On a HANA database, these organisations can run reports in minutes, offering the opportunity to have full visibility of stock levels, capacity levels and utilisation, finances etc. which help them plan much better and achieve efficiencies that were not possible before.
In addition, S/4HANA, leaving aside the obvious opportunities to increase an organisation’s productivity and to reduce their TCO, offers significant new functionalities that companies can exploit to re-engineer their processes and increase business performance. On the finance, side the new functionality includes the universal ledger, soft month end closing, real-time cash flow forecasting and bank masters for bank account management. On the logistics side, backorder processing, MRP Live, advanced ATP and modelling promotion scenarios have been introduced.
C. Automation and the Intelligent Enterprise
Arguably, though, it is the explosion of Automation, Robotics, Artificial Intelligence, Machine Learning etc. that is squeezing out the need for human intervention to perform tasks. It is revolutionising SAP applications too, and S/4HANA is bang in the middle of it. Even if existing SAP clients’ business models are not radically changing and their application architectures’ agility enables them to roll out new business concepts such as setting up shared services, integrate acquisitions and carve out business units smoothly, without adopting S/4HANA they will, by a long shot, not be able to take full advantage of the productivity gains and powerful Analytics insight capabilities that the new suite of applications are offering on an accelerated scale. Forward thinking companies have already put automation at the top of their strategic agendas and are aggressively pursuing measuring process automation targets.
Productivity gains and powerful and predictive analytics should be the cornerstones, propelling the business case for S/4HANA:
SAP already offers a significant number of Machine Learning applications ranging from predicting cash positions, forecasting contract consumption to invoice matching
SAP offers more than 3000 standard Fiori tiles accessing exactly the screens and fields users need for a specific task, also running on devices like iPads and mobile phones, enabling users to enter purchase requisition, approve expenses and check financials on the go.
SAP Predictive Analytics powerfully forecasts maintenance of anything from trains to war ships and provides powerful insights into consumer and customer behaviour.
I could go on.
These opportunities to achieve quantum leaps in performance are just a fraction of what is on offer in terms of SAP-driven innovation, with the potential to drive productivity gains and improvements in business performance.
My advice to existing SAP customers is therefore not to be blindsided by 2025. Think opportunity instead. Take a close, and maybe even overdue, look at your existing business, application, data and infrastructure architecture instead:
- Is it fit for purpose?
- Is it future-proof?
- Does it provide value for money, or, can the TCO be reduced further?
- Are their significant pain points?
- Can they fulfil your dreams?
These should be the questions guiding SAP roadmaps at the very least, in conjunction with ECC officially running out of maintenance.