Why many still haven't moved to S/4HANA.

Gartner recently estimated that less than 30% of SAP's ECC ERP customers had made the move to S/4HANA (as at Q4 2023). Why is this so low?

Imagine if you were living comfortably in your family home and one day the landlord (or some other authority) came and said you must rebuild or renovate your home, like it or not. (Stay with me, an analogy is building). Having just lived through a major home renovation I can say that at times it can be grim. Yes, you will get a nicer home but you will endure noise, rubble, dust, difficult contractors and family friction for what seems like an eternity.?You must fund this somehow and it means the new car and holiday might not happen. Excited or not? If you have other priorities in mind right now then you might not appreciate having this “opportunity” rammed down your throat. ?

?

Now put yourself in the shoes of a CIO, CFO, COO or even the CEO. Maybe you're already in those shoes. You're hearing that SAP is ending support of the core ERP platform that underpins your business and this might mean a big, expensive and disruptive project on your watch. A "heart and lungs transplant". Faster analytics, a more agile solution and less clunky user interface sounds nice but not compelling. Add in "Rise" to go cloud with SAP and maybe you scratch your head and think "but I'm already in the cloud with a hyperscaler". Think of the renovation analogy above. Maybe we shouldn't be surprised that some SAP customers still haven't fully embraced S/4HANA let alone Rise.

?

This blog is not a criticism of SAP or its strategy. I think SAP has mostly got it right for their customers. S/4HANA is an excellent modernisation of an industry leading and powerful ERP solution. It’s the perfect foundation for business transformation with industry best practices and business AI to automate and drive efficiency. Rise offers a cloud service option. SAP customers can also get there as an upgrade from their ECC on-prem without the pain of a "heart and lung transplant". ??

?

So what's holding customers back?

?

I was privileged to lead the GTM for S/4HANA at SAP Australia near the very start (almost ten years ago). No doubt there is still some blue blood in my veins, but I try hard to be objective. I had many executive interactions with SAP's customers and I worked hard to change the collective narrative..

From “The Stick”:

"ECC support ends in 2025 (now 2027) so you must do S/4HANA"

?And “Features and Functions / a Solution looking for a Problem”:

"Here's our shiny new ERP: Faster, Better looking etc"

To “the Carrot”:

"Here's how we can support or accelerate your business and IT strategy and here’s the business benefits"

This wasn’t easy. In many ways SAP had to learn to become an ERP business all over again ?

Of course there were many lessons to be learned. After changing roles then leaving SAP over five years ago I've remained close to Australian businesses and the opportunities and challenges presented by S/4HANA and Rise. There are?plenty of opinions out there and still some myths. Most importantly there are now many successes and lessons learned in the SAP ecosystem.

?

Do those still on ECC have their heads in the sand? Are some seriously considering another ERP vendor? Perhaps. Maybe others are resigned to sweat the asset with the extra cost of extended SAP support or cheaper third-party support. These are legitimate options but only for a very small minority in my (unbiased) view.?

?

The main reason they haven't yet moved.

?

The reason many businesses have failed to move forward to S/4HANA (so far) is because this is a multi-dimensional challenge (logistically, technically, politically and commercially) for a business to navigate. It impacts IT and potentially many business stakeholders, even all the way to the CEO. It must compete with or support other business initiatives. How does it fit with the business and IT strategy? Who should own and drive it internally? The “why” and the “how” are inextricably linked.

?

In my simple world, for any business, it comes down to these factors:

1. The business and IT drivers for change (Now and in future)
2. The business appetite and readiness for change (by line of business and division)

Then:

3.???The right approach to adopt S/4HANA, at the right time, in a roadmap.

4. The right executive support and sponsorship given the approach

5. A commercially acceptable, negotiated deal with SAP (Rise or alternative) and any partners.

I’m not suggesting these are the only things that need be considered but in my opinion?those that have already moved to S/4HANA have got these important things right.?Many others could have moved already but have got this wrong (20:20 hindsight is a wonderful thing).

?

Let’s look at some examples of both:

?

S/4HANA Champions. Those that have got it right:

?

Example 1.? Laying the foundation first.

?

This major household name identified the opportunity for procurement transformation using SAP’s Ariba. This created a technical dependency their ECC system could not meet. They also had a longer-term intent to significantly transform finance but not at that time. With a smart approach they were able do an S/HANA upgrade and move to the cloud in less than six months. Their historical data was cleansed and re-aligned to their latest organisational structure adding further value. A daunting number of interfaces were successfully remediated without fuss. There was minimal change impact to the broader business and some immediate benefits for finance. The platform was then in place to support the procurement transformation and, later, finance business transformation when they were ready. ?S/4HANA adoption was initially technical or IT driven to a large extent to create the foundation for future business transformation and avoid any regret cost.?

?

Example 2.? Smart business transformation in one step.

?

This organisation, a miner, recognised the business and technical value that could come from an upgrade to S/4HANA. It aligned with their strategy to be an innovative and low-cost producer. The existing ECC system held important history but this needed to be cleansed and realigned to their latest operating model. A move to a hyperscaler also promised TCO savings. Once again, a smart approach made all this possible in one project over about 12 months. This meant that the value in the existing ECC system was retained and processes could be streamlined without a disruptive new implementation.?

?

Example 3.? Long term planning with low business risk

?

An asset intensive business in a highly regulated industry recognised early that S/4HANA must be part of its long-range plans to provide a robust, secure and supported platform for the future.?Its stakeholders see this as imperative. A well-considered, low risk, staged approach was therefore planned and taken after appropriate external consultation. ECC was moved to Cloud first. An S/4HANA upgrade with some selective improvements in operations came next. Then followed staged business improvements and transformation in the core operations of the business. Business continuity and carefully managed change continues to be paramount while transformation benefits are realised.

?

Example 4.? A roadmap for solution consolidation and transformation

?

This large public sector department recognised the need for modernisation, process improvement and some system and process consolidation that S/HANA could provide longer term. Further benefits could be gained by moving to hosting on a hyperscaler with some managed services. A roadmap was developed that balanced these needs and opportunities. The initial project upgraded ECC to S/4HANA and moved to a hyperscaler in one project. New managed services were initiated. Some early process benefits were targeted and achieved but these initial changes to the business were very selective rather than widespread. This made the initial change effort more manageable. The first project therefore opened the way for more significant business transformation later in further distinct projects.?

?

Example 5.? Global size and complexity: safely delivered modernisation.

?

A global leader with many international companies, thousands of users and extensive operations ran in a complex single ECC system with many large custom enhancements. This business recognised the inherent strategic value of their secure and highly functional core ERP system (SAP ECC). They also recognised the business value that would come from S/4HANA enhancements across their operations. Together with SAP and a key systems integrator they planned the right approach and made the move to S/4HANA within a reasonable budget and timeframe.?Again, the approach found the right balance between technical change and up-front impact (and benefit) to the business. ?

?

Laggards. Those that haven't got it right...yet.

?

In contrast here's some examples of some businesses that have been unsuccessful in transition so far and why. These are real but anonymized for obvious reasons.

?

Case study 1.? If only we knew then. ??

?

In the early S/4 days (but after S/4HANA 1511) I engaged with an asset intensive business exploring the case for change from ECC to S/4HANA. The CIO could see the technical and business benefits. The finance department and CFO were delighted by what they saw and were desperate to get it. Procurement also. It was "high fives" all-round. The only challenge was that no-one wanted to make a change that could impact the "operational assets" at a particularly sensitive time. This was the handful of major sites that had a highly unionised workforce maintaining the critical physical assets of the business.

?

Could they adopt S/4HANA's new capabilities for finance and procurement but leave the asset maintenance workers alone for now? Back then we couldn't confirm this as no-one had taken this approach with the latest release. That was enough to kill the initiative. Now with hindsight and as we have seen with the examples above the answer could have been yes.

?

Leadership changed, business priorities changed and to date this business still runs on good old ECC.?The path forward and case for change is now clear however and I know they will get there.?

?

Case Study 2.? Sweat the Asset or Analysis Paralysis?

?

This global business is one of the largest in its industry. They have many thousands of users, many countries and legal entities and extensive operations in each. All this runs in a single SAP ECC system. Clearly any major change to this core system is a daunting prospect.

?

In the early S/4 days I led an expert team from SAP (business, functional and technical) in workshops for two days with a large room full of experienced IT business partners and IT architects from this customer. We came away, collectively, with a preferred approach to S/4HANA and a solid collective understanding of the considerations.

?

Over time (after my involvement) more analysis followed with more internal and external parties. At some point an eye-watering estimate emerged for the cost to move.?Scars from the original ERP project were probably also deeply etched in the organisation’s memories. It’s no surprise that executives failed to embrace a change and chose to sweat the asset. In the years since then further money has been spent looking at wide ranging alternatives which most would say are far-fetched.?

?

Unfortunately, the initial over-inflated cost estimate put up a barrier that's only now beginning to be overcome.?There is now enough collective experience and demonstrated success amongst SAP customers and SI's to shine a very bright light on the path forward for this business. I'm confident this business will now build its case for change and get the right executive sponsorship to finally move forward.

?

Case Study 3. Biting off too much too soon.

?

Another business heavily into manufacturing and distribution ran multiple ERP systems across several divisions to essentially run the same processes. Simplification, consolidation and harmonisation of the landscape stood out as a driver for change if nothing else. Throw S/4HANA into the roadmap and naturally there are many ways of approaching this. One way is an end-to-end business transformation underpinned by S/4HANA. Throw everything away and start with a clean S/4HANA system and industry best practice. This approach had a degree of momentum.

?

Way back in the nineties John P Kotter wrote in the Harvard Business Review something like: "business transformations rarely/never get off the ground unless there is a minimum leadership coalition to build the momentum". A full business transformation must be owned by the business and sponsored or driven by the CEO. In this case the business appetite and imperative just wasn't there to transform the business end-to-end on new software. At least not right now. For the executive running the biggest division the existing SAP ECC system functioned fine. Furthermore, any business disruption posed a threat to the relationship with his demanding customers.

?

This all or nothing transformation approach meant that S/4HANA was shelved and ECC has endured. More tactical projects commenced like investment in a major ECC enhancement package upgrade. Yes, there may be some benefits but in the end money and time is wasted and effort must be repeated to move to the single modern target platform.

?

What if, alternatively, the program of work started as (mainly) IT driven, included an S/4HANA upgrade and began the system consolidation. There are still business and IT benefits to be had. It is less disruptive up front and it allows time for broader executive stakeholders to be brought on board. ??

?

Conclusion:

?

I’m not advocating one approach over another to get to S/4HANA. Hopefully the examples I have given show the breadth of possibilities. It’s great to pursue full business transformation and get maximum value from S/4HANA (I would encourage it) but a business may not be completely ready for that right now. The current and future drivers for change, business appetite, appropriate roadmap and executive support must all come together. The bottom line is that one size does not fit all and each organisation must find its path.

The good news is there is enough experience in the market now to show the best path forward for almost all organisations running ECC.

?

Do you agree?