Digital Transformation with SAP S/4HANA - done the right way!

“Some approach digitalization like they want to shower, but they don’t want to get wet.”

Letter to the Digitalist Magazine by SAP, 2020

That response to one of my articles about digital transformation is one of my favorites. It conveys exactly what I want you to know: To be successful with digital transformation means getting in all the way.

It means recognizing that digital transformation is not about continuing what you’ve been doing a little bit better or a little bit faster. It’s about doing new things that you couldn’t do before. Maybe at first you don’t know exactly what those things are. But you need the right tools in place when opportunities – and threats – arise.

Here’s another one of my favorite quotes, this one from the Wall Street Journal in 2019:

“Embracing digitalization is a must for enterprises because disruption can come from all sides!”

That was written before the pandemic turned the world upside-down, disrupting supply chains, business models, the workplace, business relationships, before the chip crisis, before wanna-be dictators decided to invade other countries and caused on of the biggest inflations in decades. How well prepared was your business? It is like a Deja-vu of 2008 (Finance Crisis) and 2011 (Fukushima Crisis): Resilient enterprises that had certain IT-enabled capabilities like Insight-to-action fared better than others.

Disruption from all sides

But what are the learnings out of that? It is all about how you approach IT-enabled capabilities. Let me use an analogy: In 2005, I had a mobile phone that I really enjoyed. It could take photos. It could send text messages. It could play to music. I couldn’t possibly imagine anything better – and definitely not my 2021 smartphone and everything I can do with it with its next gen capabilities! So why did I use the 2005 legacy mobile phone the way I did? Because the limitations of the old technology did not allow me to work any different with it. The same with enterprises using the legacy technology of e.g. SAP ECC. The way they work with SAPs legacy ERP is determined by the guardrails and limitations of its 20th century technology. But approaching S/4HANA (the 2021 smartphone example in our analogy) by migrating all the stuff from ECC into it means bringing over its limitations into a world where these limitations do not exist anymore. So we should approach SAP S/4HANA the same way as we approach and Iphone in our private lives: Not backwards looking but aligning the new capabilities with the challenges and needs of our individual situations and going full into using the aspects that we will benefit most. By that we will fully leverage the benefits of the new capabilities of today’s technology.

Disruptions can come from “big bangs” – something new that suddenly replaces a traditional way of doing things – or it can be gradual. Simple compressions are more common and just as easy to miss as they sneak up on you. For example, we are now experiencing a gradual shift to new sources of automotive fuel. Ten years ago, almost all cars ran on diesel and gasoline. Now, we see a few electric cars on the road, but 10 years from now, it will be gas-powered cars that are nearly extinct. This will cause profound disruption that affects countless businesses. As the threat of climate change identified 50 years ago finally enters the public consciousness, the gradual shift will become sudden. And we’d better be ready. It’s shocking how quickly successful companies can become into trouble.

The changing world – and preparing for the future

But you can’t win the future with the tools and mindset of the past. Being prepared means evolving to a modern infrastructure. Today’s legacy landscapes are fragmented, with disconnected storage and processing of information that make it impossible to react to a crisis or seize on a new idea. They can’t take full advantage of data sources like IoT. Batch processing of customer and operational data is too slow; decisions are made based on information that arrives on Monday morning are already outdated on Tuesday. Today, business processes are complex and inefficient, and employees spend too much time on activities that add no value. According to the 2019 Global Simplicity Index, the top 200 global companies lost 10.2% of profits due to the hidden costs of complexity.

With today’s ERP, you can’t even talk seriously about innovation. It’s like using a small shovel to mine for gold when you could be using an excavator. The excavator is SAP S/4HANA, the new ERP system with built-in intelligent technologies that’s the foundation of the future-ready business.

Making such a big shift in your business requires following a proven formula. You cannot skip a step. You cannot take shortcuts or oversimplify or do a lean approach. This would be the mentioned attempt to shower without getting wet. The formula consists of four principles that are essential and add up to success.

Principle #1: The new data model

SAP S/4HANA enables you to bring all data together, preparing your data structures for real-time requirements, processing of big data, and high throughput. There is no more separation of transactional and operational data; no more batch runs to reconcile the two. Instead, the data is aggregated for a single 360-degree view, with embedded analytics and predictive modeling to give you real-time decision support. For example, in finance, a single line-item table has full detail for all applications – general ledger, accounting, profitability – for instant insight and extensibility. Data is stored only once with no need for reconciliation, and the memory footprint is reduced by eliminating redundancy. Fast multidimensional reporting is possible without data replication.

Principle #2: The new GUI

SAP S/4HANA runs your business as never before, with role-based cockpits and digital assistants accessible on any device. Analytics are embedded for simulation, prediction, and insights. Machine learning and automated processing are infused into all business processes for decision support.

These insights are delivered via a new user interface, SAP Fiori, that lets a user click from one screen to another seamlessly. The SAP Fiori Launchpad is a single point of entry, providing domain-specific information, where users can see their personal KPIs at a glance drill down to the details, explore in depth, and carry out transactions that change those KPIs for the better. With embedded analytics and converged customer and operational data, SAP S/4HANA powers SAP Digital Boardroom for a 360-degree view of the business. Capabilities for creating reports and dashboards, personalized to the user, are accessible to everyone without help from IT or data scientists.

Principle #3: Innovative business processes and automation

SAP S/4HANA automates processes as the foundation for a superior experience, allowing you to use intelligent technologies such as AI, machine learning, and the Internet of Things to drive innovation. It provides data management and analytics and supports agile application development and integration. Instead of just alerting you to a problem, it takes you by the hand, showing you a snapshot of how a situation has changed and generating suggestions for next steps: that’s genuine insight to action.

Principle #4: Use the benefits of the cloud

Remaining stuck in obsolete deployment models like On-Premise is like running on the rev-limiter without changing the gear. Cloud deployments are able to do almost anything so much better than On-Premise that for Digital Champions the typical argument-logic has turned around: Now you don't have to justify anymore to move into the cloud, you have to justify why you wouldn't.

How to leverage digitalization the right way

Let’s look at a realistic plan for moving forward now.

Just as most disruption happens gradually, rotation to the new should be a steady journey of perpetual change, not a single event. The strategy for this is:

·????????Transforming the core, building more competitive cost structures to improve flexibility, increase profits, and drive investment capacity.

·????????Growing the core by redirecting investment capacity to drive incremental growth in the core business.

·????????Scaling the new by identifying areas that are growing up next to the core and are relevant in your industry.

·????????Pivoting wisely by keeping an eye on pace and balance. The legacy business and new models typically need to coexist for a few years.

For this you need a ERP that is capable of driving this strategy for you. The SAP Technology Platform should be your choice for innovation, SAP S/4HANA for core business transformation.

This brings me back to my beginning premise. Don’t try to approach SAP S/4HANA the way you did traditional ERP. Avoid getting bogged down looking for the delta between the two. Understand the difference between commodity processes and differentiating processes. Have a forward-looking discussion with C-level execs about the business. Get buy-in and budget.

And then be ready to get wet!

Alexander Greb - Vice President Digital Transformation - Westernacher Consulting