Use the SAP S/4HANA? Required Upgrade to Adopt a Value-Oriented Approach

Additional article contributors at EY: Chris Massouras, Paul Carbonneau, Rakesh Kumar, Cordry Johns, Jesse Rothermel, Spencer Farr

Rather than looking at your required #SAP S/4HANA upgrade — scheduled for 2027 — as a standard tech upgrade of your SAP ecosystem, use it as a catalyst to explore the full potential for value realization of an enterprise resource planning (ERP) and adjacent technologies implementation.

Typically led by IT and constrained by narrow business cases, SAP and other major #ERP implementations often fail to establish a clear link between value, capabilities and technology, rendering them ineffective or obsolete in little time.

Regrettably, many companies also lack the discipline to measure the implementation’s contribution to revenue growth and return on invested capital (ROIC), which impedes their ability to obtain executive buy-in for a value realization plan and secure funding for future projects. In the current high-cost-of-capital environment, companies need a fresh perspective to help them navigate the potential impacts on total shareholder return (TSR) and enterprise value.

With SAP’s mandatory S/4HANA upgrade approaching in 2027, business leaders have an opportunity today to embrace an investor lens while becoming compliant with SAP’s new support system. Instead of slamming in a tech upgrade, companies should take the opportunity now to evaluate the move to SAP S/4HANA based on its full potential for value realization.

Value-led transformations vs. conventional technology transformation

Over the years, the insights our team has gained from working with our clients have inspired us to think differently about large technology investments, such as complex #ERP implementations.

First, we firmly believe a shift away from the traditional IT-centric perspective is necessary. Senior business leaders must take ownership of the initiative to enable a unified vision of success and maintain alignment with the organization’s strategic objectives.

Second, by understanding the capabilities that the technology transformation supports, and by mapping value drivers to those capabilities, leaders gain clarity on the impact and relevance of their investments.

Finally, companies looking to the future must move beyond pro forma or one-dimensional business cases that promise too much, too soon. A more sophisticated approach can position the business case as a dynamic instrument for tracking benefits, mitigating risks and eradicating value leakages, steps that help bolster revenue growth and ROIC, the cornerstones of TSR.

These are some of the core tenets of the EY Enterprise Reimagined approach which we have established to help our clients navigate such transformative journeys and embark on technology initiatives with precision and foresight.

The EY Enterprise Reimagined approach: Bringing the Investor Lens together with the Business Lens

The Business Lens connects the business strategy with practical technology requirements of the transformation. The approach translates the strategic commitments of business units, functions and the overall organization into a future-oriented business capabilities map that captures the things the organization needs to know how to do well to compete and win in the next five to 10 years.

Each identified business capability drives process needs, skills, data and technology requirements for SAP and other digital tools essential for a future-fit organization. In this way, top-to-bottom strategic thinking creates the essential conditions for a successful implementation.

The Investor Lens complements the Business Lens by connecting the business case to the ultimate goals, enterprise value and TSR. The approach links business capabilities and tech functionalities with value levers that can be activated in the overall technological transformation to correctly assess cash flow impacts from the transformation. The new KPIs may also help discover value leakages and misalignment with benchmarks.

The resulting insights become the basis for an investment case that significantly impacts enterprise value and TSR.

Accelerating the technology transformation funding

Many organizations view technology transformations as “big bang” projects that entail all-or-nothing financial investments.

The Enterprise Reimagined approach can help business leaders balance risks and rewards by helping identify the long-term value of the transformation. It can also embrace a “pay as you go” funding model that can help relieve the stress of funding an SAP S/4HANA program. Instead, the project can help create a flywheel of realized benefits that can be pumped back into the SAP S/4HANA program, easing the overall costs.

Based on the EY experience in unlocking capital to fund large transformations, working capital and tax incentives are usually the fastest value levers to activate and help fund multiyear programs. Before deploying technologies, it is possible to minimize some of the existing leakages in those two value levers and generate positive cash flows from the very beginning.

Companies that adopt an investor lens and can see the required SAP S/4HANA upgrade as an opportunity to make lasting improvements stand to gain financial benefits as well as an organizational culture that embraces a value-added approach to transformations.

The views expressed by the authors are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

#ERPimplementations #technologytransformation #SAP