The era of the SAP Business Suite – the former centerpiece of the SAP product family – is coming to an end: SAP will stop providing maintenance and support for the solution in 2027. Customers will therefore need to switch to the new ERP generation, SAP S/4HANA, before then. Otherwise, they will have to expect high maintenance costs (Extended Maintenance). As far as large companies are concerned, some players have now defined a procedure for the changeover to S/4HANA, and some have even started to implement it. The situation is different for medium-sized companies than for large corporations: the cost of migration is often underestimated and there is often no clear strategy on how to enter the transformation process.
Small and medium-sized enterprises are lagging behind
The changeover to the new SAP ERP generation is possibly the greatest challenge for SAP customers since the introduction of the (old) ERP system. However, this is not only due to the new business software, but also to the market conditions worldwide, which are changing ever faster.
Rapidly changing customer requirements (individual products and services), disruptive business models and technologies, new competitors that do not necessarily follow familiar market rules, and globalized processes in production, supply chain and logistics are confronting managers with increasingly complex tasks in ever shorter time frames.
What’s more, some companies are still busy now rolling out their latest SAP ECC standardization approaches. Even the changeover of the old ERP system to the HANA database has not yet been completed by some companies, although this is a basic prerequisite for migration. Many managers shy away from implementing large IT projects because they are usually associated with long runtimes, the utilization of a great deal of resources and high costs.
Ultimately, most companies realize that the entire organization is affected by the migration to S/4HANA. The ERP migration is however only one part of the very important digital transformation, which all companies need to complete if they want to remain successful in the future.
Business, and not IT, is driving forward the digital transformation
The automation of production processes in the 1980s essentially only had an impact on production itself. With the introduction of SAP R/3 in the 1990s, the focus then shifted primarily to corporate processes. In contrast to these two developments in the past, the new ERP system S/4HANA intervenes in processes across all corporate divisions. This results in an additional complexity factor during the migration to the new system or the implementation of the new system.
In the case of an SAP S/4HANA Cloud implementation, companies focus on the standard processes specified by SAP, for example in financial accounting, purchasing or production, and benefit from fast project implementation times and short innovation cycles for the standard software.
If a company needs greater flexibility, for example, to implement individual process adjustments or company-specific extensions, then S/4HANA on-premise or an S/4HANA Private Cloud can be used.
Experience shows that the deployment model is always a topic to be discussed individually, especially since a hybrid S/4HANA concept also has advantages for some customers. Examples include the integration of pure sales companies or the pursuit of central finance or central procurement approaches.
The changing role of IT within a company leads to another aspect in the changeover to S/4HANA. In recent years, the value-adding units have taken the reins and many CIOs have been confronted with high cost pressure and justifications for their IT team.
In the past, the introduction of SAP ERP was predominantly an IT-driven project. The business had no other choice than to more or less accept the given processes or to have their requirements realized via custom developments at great expense.
However, projects that are currently related to the digital transformation are now business-driven to a large extent. And this is precisely where the next challenge for companies arises, because these projects tie up corresponding resources, which are then not available, or only to a limited extent, to the operative business for longer periods of time.
Chances and advantages of migration
Nevertheless, companies should not ignore the fact that the digital transformation and thus also the migration to the new SAP S/4HANA system offer some opportunities despite all the challenges.
However, the first thing that must be taken note of here is that an SAP S/4HANA project cannot be compared with the introduction of the previous system. One key difference is that S/4HANA a system that meets so-called soft real-time requirements. This means that S/4HANA can collect and process data and information from subsystems, among other things, almost in real time. This makes it possible, for example, to shorten process throughput times or to create decision templates faster.
In addition, S/4HANA is available in different deployment models: on-premise, cloud-based or hybrid. Although this may sound confusing at first glance, the different deployment models offer great potential benefits for some companies. For example, when it comes to the rapid integration of small national subsidiaries, such as sales units. Thanks to the so-called 2-tier approach, purchased operating units, among other things, can be connected to the central ERP system via the S/4HANA Cloud in the shortest possible time.
Finding the right strategy
Companies need to make a few basic considerations – strategic, tactical, and operational – before they start to develop an appropriate migration strategy.
The question of whether and which new business models may be relevant, determines the considerations in the strategic area. Should new products or markets be approached? How does the competition behave and what is your own position in the market? What is the medium and long-term orientation of the company? What will be future KPIs to run and control the company?
Based on the corporate strategy, it must be considered what effects these things will have on the operating models. Will operational processes have to be organized differently in the future? What consequences will this have for the entire organization and for the individual employees? For example, will new methods for certain work processes need to be established? Demand-Driven Planning can serve as an example here. Despite all the impending changes, companies must remember to involve their employees in good time, to cope with fears or resistance to change.
When considering the operational area, the key consideration relates to which innovations are to be implemented. This also includes the question of which other SAP solutions can create added value, such as the utilization of SAP EWM. Is the company considering solutions from the Internet of Things (IoT) area? Can new technologies such as artificial intelligence or blockchain offer additional potential benefits? Will it be possible to replace any existing middleware solutions, as the integration of the various systems will be easier to realize and maintain with the new SAP tools?
Once these strategic, tactical, and operational issues have been analyzed and the future direction determined, it’s time to consider what the best migration strategy will be for the company.
Different migration approaches
Basically, two different approaches can be defined for a migration: Brownfield and Greenfield. If the old ECC system is transferred in its entirety to the new S/4HANA solution (data, customizing, in-house developments, etc.), this is known as a brownfield approach. In contrast, the greenfield approach starts with a new project, on a greenfield site as such, and simply migrates the data from the legacy system. Depending on the scenario, mixed approaches like the so–called “Selective Data Transition” approach, may also be appropriate in individual cases. There is no patent remedy to determine which migration approach would be best.
A brownfield approach can be useful, for example, if harmonized processes already exist in the legacy system and the data has been cleaned up, or if the ECC system has been implemented close to the SAP standard.
If the system has been heavily modified over the years by integrating numerous in-house developments, with hardly any data cleansing and no harmonized processes, then it is advisable to set up a new system on a greenfield site, which will allow you to get rid of the old ballast before migrating.
The hybrid approach of “Selective Data Transition” can be useful when companies plan to consolidate several ERP systems to one future central SAP S/4HANA system while flexibly deciding which data to migrate.
No matter which strategy a company chooses, extensive preparations are always necessary prior to migration. For example, it must be checked whether functionalities used in the ECC solution are available in the S/4HANA system. To facilitate such a check, SAP provides tools such as the “Readiness Check”. Interfaces are another important topic, as batch runs are often processed via these. This may cause problems with a real-time ERP system like S/4HANA. Furthermore, the data to be migrated must be cleaned up, because you generally do not want to transfer old data, or data that is no longer needed, to the new system.
At this point in time, a Fiori strategy should also be defined for the future S/4HANA system and the principle “keep the core clean” should be anchored within the project implementation guidelines. As a new SAP user interface, Fiori is already delivered by SAP as standard for some applications. Fiori represents a state-of-the-art environment that provides role- and user-specific tiles to access the respective transactions, which means there is no need to enter transaction codes. Furthermore, own Fiori interfaces can be developed at any time, e.g. for individual views or in-house developed applications.
The principle “keep the core clean” means it is advisable to keep the number of core system modifications as low as possible, as this simplifies future upgrades and allows them to be implemented more quickly. Any necessary extensions to the standard software should then be made via the SAP Cloud Platform, SAP’s new integration and development platform.
Ensure a professional transformation process
In view of the quantity and complexity of the tasks to be mastered – in strategic, tactical as well as operational terms, and their impact on the entire company – it can be summarized that professional change management is indispensable for successfully realizing the transformation process during the implementation. Unfortunately many companies still underestimate the importance of Organizational Change Management for a digital transformation project.
We would like to thank José Iglesias for his contribution to this article.