An Insider’s Look at SAP S/4HANA Migration Drivers

Riz Ahmed:
Well, hello, and welcome to our podcast. I am Riz Ahmed and I am EVP of research here at SAPinsider. I am joined today by Rick Smith with SAP, and our topic of discussion is the road to S/4HANA.

Unless you’ve been living under a rock or under an outdated datacenter, you know generally what this is, and every single SAP customer, no matter what you are running right now, has to at least understand what SAP S/4HANA is so that they can make an informed decision.

I myself have been covering and have been involved with SAP for almost 20 years, and I can tell you from my experience, this is one of the most interesting and impactful upgrades, migrations, or releases to have come along in a long, long time. So much so that we’re constantly getting questions here at SAPinsider; our experts are; and it’s a hot topic at our events, our webinars, and we are actually doing a State of the Market report on where customers are with S/4HANA, and we’ll have more to share with you in the coming weeks.

Like with any other major new software upgrades or releases, there are many things to understand both from a technical level, but really from a business and strategic level, as well. I know from speaking to customers that there are a lot of misconceptions and unknowns, so today during our podcast, one of our goals is to clarify some of these so that you can approach your decisions, your business strategy, your upgrade plan, with a much more informed perspective.

With that in mind, I’d really like to introduce our guest Rick Smith. Rick is solution advisor with SAP Platform and Database Management and Center of Excellence and former SAP principal consultant and presales engineer, and in his current role, he helps align customer solutions with their needs and use cases. So, thank you Rick so much for taking the time to join us today.

Rick Smith (0:01:54):
Thank you. Glad to be here.

Riz Ahmed (0:01:58):
Rick, let’s start with the ‘why’. That seems like always a good place to start. In your experience and what you are hearing from customers, what are the drivers that you are seeing with respect to SAP S/4HANA migration and the activity that is going on out there.

Rick Smith (00:02:17): 
I think one of the bigger pieces of it is to really understand the value and the benefit of what S/4HANA is bringing to the table. For a lot of customers, they’ve looked at it, and they’ll see some of the comparatives out there, some of the other products out there  from competitors in the same space. And they go, ‘Well it’s kind of the same thing. What makes it different?’ Well, there are some major differences that I think customers and potential customers should be aware of as far as the benefit that is out there.

Some of the things that come to mind are the overall simplification of what S/4HANA is. It really brings about this immense simplification of the management and administration of the IT landscape. You’re able now to take the centralization, the hardware and network resources, and operate on what we are terming to be the intelligent core for business process simplification by harnessing all of that capability in the in-memory database structure.

All your older systems now are able to be aggregated into a new, instantaneous digital in-memory system and all with the ability to run multiple batch jobs with no dependencies, the elimination of aggregation tables, the reduced processing time needed to help those systems to actually make sense of all those actions and queries that happen, and now you can actually do what you’re supposed to do – and that’s run your business. So that simplification is one thing that’s there that I think drives a lot of it.

And, of course, the overall ease of use.  We are embracing the full UX experience; so how do your users want to work? Do they want to work in a fat client, thin client, do they want to actually have the ability to use an on-device or an agnostic type of environment like an HTML5 client which we bring together with SAP Fiori, or would they like to go to a deeper level and start to extend it out to IoT or Big Data scenarios? We incorporate that ability so you can be flexible to work as you choose to work.

Another big piece of this is the increased performance in an environment.  As you take in data, whether it’s transactional or analytical data,  I can start the ability to execute and generate reports on live data. I don’t have to go back in as I mentioned before and run aggregates of that data.  The whole process of extract, transform, and load is all mitigated because I am taking it in and running calculations on the data in real time. It’s a big differentiator to what competitors and other solutions in the marketplace are doing.

Tying that all together, what that starts to do to an environment is it creates this layer of cost effectiveness. Well if I don’t have to do extract, transform, and load functions to the level that I had to do before, I can now take it back to a point where, guess what, I can eliminate those actions and therefore the relevant systems for those actions in my environment. It starts to flatten the overall IT landscape. So, it’s a big differentiator and I think that’s a core driver for that move to S/4HANA, not to mention the fact a lot of customers are looking for, ‘How can I achieve this digital transformation capability?’ It has different meanings to different people. Some people want to just access everything digitally and do it effectively. But, also, other people have an aspect of intelligence, and that’s something I think we have a very strong anchoring, in terms of bringing to the table, the intelligent enterprise.

Riz Ahmed (00:05:55):
That’s really interesting because one thing that we’re seeing in the questions and how this is playing out is – there are both business and technical drivers here, and there’s a lot of potential benefit to both areas. How are these interrelated? You talked about the intelligent enterprise and that being driven from a strong technical digital core foundation. But what else is important to know about the interrelationship between these two drivers?

Rick Smith (00:06:27):
I think one of the big ones is every business we’ve run into now, and everybody is seeing this across industries and lines of business, they are all trying to figure out the juggle to make the transition to cloud or to maximize their on-premise environments to transition to cloud. And one of the things that is there within S/4HANA and all of the other solutions, is our providing of a digital core that enables the platform itself. It allows you to maximize and actually materialize those benefits from an upgrade or migration where you can actually take advantage of these digital core capabilities, whether it’s on-premise or in the cloud.

We’ve taken some things that are out there from the way SAP categorizes and compartmentalizes things; we realize an environment is just not the technology. There are processes that are involved in the technology. Those processes also have particular dependencies that help to make them happen. Being able to have a good understanding of all the contingencies and the pieces that help incorporate and integrate to make a true business work, is what’s out there.

You’ll see lots of solutions out there in the marketplace but none truly have that business layer Say for accounting, what is general ledger? Well they don’t have solutions for that that are standalone. What is accounting? It could be many things, we have industry standards that are built into the solution platform that I think helps to make a difference form a business standpoint. When we talk about that leap ahead and that ability to try to make things move faster and to realize the actual migration and reduced project cost, that’s a big differentiator. You’re not having to go back and recreate that framework, it’s delivered in the actual solution. It’s a major game-changer I think.

Riz Ahmed (00:08:28):
So, Rick, what are some of the common misunderstandings or mistakes that you’re seeing in people’s perception of SAP S/4HANA and the reasons to migrate.

Rick Smith (00:08:40):
One of the big things that you’ll typically see is that since SAP has been around for a while, there’s still the concept that we’re legacy and proprietary, all these things. There’s still that stigma out there in the marketplace, so one of the things that I’d like to stress to customers that are even considering or looking at the whole S/4HANA scenario, is that really, simplicity is the model that is being brought in, that we are really embracing  and exposing onto the marketplace.

In that simplicity though there is that whole ease of management and administration of an IT landscape to bring together, because as I mentioned before, we’re consolidating a lot of the enterprise and also a lot of the solutions and applications and integration points that are there but the overall framework for how everything operates and the application itself is still built on an open framework. The same standards, whether it’s HTML5, any standard APIs, these can all be used on the system as a whole.

If you’ve got older systems we make it a lot easier to bring things in and use those same integration points to incorporate them into a much more advanced back office or backplane type of environment, which is what S/4HANA essentially is, for you to start to do some of those advanced calculations and analytics and things that you want to get as a business to drive an intelligent enterprise. So that’s one thing that’s there.

Then I think driving that as a whole to make the transition to an S/4, one of the things customers forget – for anything that’s a transition process there is an amount of effort to make it happen, and what are the steps that are required to make it happen. Often customers forgot about that. I don’t care if you are going from S/4 to any of the standard big three cloud vendors that are out there, you still have to go through some process to make that happen and typically that means you are either going in and looking at overall costs, determining what’s going to go out on that environment, if that is up to date for what’s going to go there from an application perspective,  if an application can actually run, do you still need it – you know all these things that go into it.

A lot of customers don’t like to hear that, but they have to understand that there is a process to make it happen, for all the regression testing, all the actual load and testing that’s involved. All that has to be taken into account.

SAP has a very strong track record in terms of, ‘Alright, how do we go about this?’” We have processes in place, we have roadmaps, we’ve got guidelines that help to reduce the overall project costs, and we also have solutions that actually help to mitigate some of the risk in the environment, if you will, and also to decelerate the overall complexity that happens in that environment, for “Hey, I need to go live. I’ve got X amount of time – how long do I want this thing to drag on?” Well, for a lot of that we have tools and solutions that help to drive and make it much easier for a customer to do as opposed to, ‘Alright I’ll figure these things out as I go along.” We’ve already got those solutions in place.

Riz Ahmed (00:11:50):
I think that’s a really important point, because as we talk to people about migration and upgrade activity, they don’t know that a lot of these tools and accelerators are out there and they are often asking for help in places that there is help already. Is there any particular website or area that you would encourage people to go to, to get some knowledge on some of these tools and accelerators and help, that SAP has?

Rick Smith (00:12:23):
The SAP Community Network is a great external facing free resource of information where you can not only dig into the information that SAP is able to provide but also the overall community of SAP users, user groups, companies, organizations, individuals that are out and using the product. So, if you want to know about smart data, or the intelligent enterprise or just overall S/4HANA as a whole, that’s there. But one of the pieces that is really going to be crucial for a lot of the customer base that is looking at it is “How do I get there? How do I make that happen?”

You can do research on a topic, we’ve introduced as S/4 Surround, which is the tools and resources that are used to kind of facilitate that transformation or conversion to an S/4 environment, and this can go the same for a brownfield or greenfield type environment. We don’t make a distinction, but it is a tool or solution set that can be used across the board for customers that want to transition to SAP S/4HANA.

Riz Ahmed (00:13:46):
That’s great. You know one of the other areas we are seeing a lot of need around is business case. We talked about drivers early on, but I know from talking to customers in our early research, building the business case is one of the most important, and sometimes the most difficult, things to do as part of any project. And this is a very special project. So, what’s your view on building the business case for S/4HANA? How should customers really start to think about this, and how is this business case potentially different from business cases that they’ve done for previous upgrades.

Rick Smith (00:14:26):
That’s a very interesting question. So, part of what’s there – some folks are driving it by this concept of, “Well, we know that certain components are end-of-license by 2025.” Others are more focused on business and use case functionality, which is an excellent driver for making the case back to the business to understand why we need to go to this path.

So, there are different camps that are involved, but really making that case, understanding it, part of what we like to do is initiate a dialogue that discusses the business requirements and potential benefits of an S/4HANA platform. It can vary from organization to organization. Some folks, they want the ability to have some transparency into some of the costs and analytics across the business. Others may have a need to have information that is readily available based on certain regulatory and/or business guidelines. So, there are different things that apply that are there.

 Then there’s also the overall assessment of the environment as a whole. Is the environment ready and capable to make the leap to an S/4HANA? Do they have all the pieces in place? Do they need to transition? What needs to be migrated? What needs to be retired? All those things that have got to go into the readiness assessment.

We end up doing sizing, identify the business processes that are there – there’s a lot more that goes into and that’s the reason why you will not see a lot of the whole ERP and the cloud type of scenarios from some of the major cloud players out there. There’s a lot more that SAP has, from an overall experience, and an overall capability matrix, in ability, that we bring to the table. That’s 41-plus years of actual industry standard capability and business processes that we bring to the table. On top of that what businesses have to look at is, “Ok, we’ve got this idea. We know the capabilities of what this is going to produce and bring to the table. How do we assess going about this and what recommendations can we take moving forward from SAP for this to get the most out of our investment to this transition?”

Riz Ahmed (00:16:41):
That’s really interesting. If you think about the relationship between business and IT, it’s been a long one over the years and it’s not always been a great one for many companies in terms of how IT feels they are looked at by some of the business, and IT not knowing enough about the business, you know we’ve heard that from  many customers all walks and sizes. How do things have to change for S/4HANA to be successful and how does S/4HANA successfully bring these two worlds together in a high-value way for the company?

Rick Smith (00:17:25):
It’s a very, very poignant question.

For starters, the whole intelligent enterprise is fueled by one thing, and that’s data. Data is the fuel in the 21^st century. Each customers’ data landscape has different processes, and technical capabilities and the baseline is going to be different for each company, each organization. So, the engagement methodology allows for the discovery to take place where we can understand the status of each one of those particular scenarios. Those are all fueled by that data. When we talk about the intelligent enterprise, I have to have accurate, timely, and governed, clean quality of data, to have an intelligent enterprise be able to make proper and correct “intelligent” decisions.

I think about that, and every business is data driven, and every employee now has become an analytics user – from you entering in time and location information, to HR assessing how long you’ve been with the company, what role you play, and how often you log into your work station. We’re taking all those real-time scenarios and starting to do actionable types of drivers for the business, that are all being fueled by data, but are being actually enabled by the IT group.

Now IT is an enabler, not a cost, to the business. They are bringing something that actually brings in some value to the overall business. And employees expect to have the same speed and intelligent information that they get in their personal life. Just like you pick up the phone and get the weather and understand what’s going to happen with your calendar today, people expect the same transparency and accuracy in their day-to-day business operations.

Businesses used to have this distribution-based decision makers, and they only had insight on the things that they focused on in their particular area of focus in the business. Now, you can have insight across everything in the business. You’ve got enterprise capability that empowers the right users to use the data correctly. We are also taking those existing data assets at this point and now combining them to where you can turn that data into decisions at the right time, and with that, we start to generate new business outcomes and processes that are happening as needed.

Riz Ahmed (00:20:13):
What if you are not so forward-looking in terms of the way you use data to drive decision making to drive the business. How does the company who might not be as visionary with uses of data get ideas, get inspiration, about what is possible when they put something like SAP S/4HANA in?

Rick Smith (00:20:44):
There’s a lot of capability that is introduced. The art of the possible is a big thing, that I think it gives customers the ability to achieve all of this stuff. All data aside, you may decide we take the data aside and a minor capability outside of just the data itself may be just that I want to reduce the replication of tasks or the replication of overall data entry in my environment.

Some of the tools that are in that S/4 Surround strategy are really built around the overall look of, ‘Ok, what does your enterprise consist of?” We’ve categorized it into really four areas. We have of course the real-time blackboard, which is what S/4HANA really is, it’s a digital core that allows you to achieve real-time capability across transactions and analytics. On top of that and surrounding it we kind of have these three categories that are there.

Information Excellence

There’s information excellence, there may be things that are built around the data or content that may not be overall data in your data store. It could be documents, invoices, you name it. And then we are also looking at the processes themselves. You may not be that forward-thinking, but every business has a business process.

Process Optimization

So, there’s process optimization, another category. Within process optimization we’ll have tools, like process mining, tools that are there to actually help to optimize how the process runs. Most people don’t think about it but every business, you think about a transaction as a sale. Typically, a sale, it’s – I am buying something from a business and the business is allocating that item out to me. It seems simple, right? But there’s a little bit more than that on the backend of the business process. That item has to be inventoried, that item has to be the right price. Is it in the right location? Who is going to ship it? Is it the right color? All that information has to go into it. And now on top of that you have other processes you have to take into account – how am I going to take in the money? How is that rendered back into the business? How do we record that in the book? All those things are there, and if that process to purchase and deliver the item is not clean, then guess what – I have a dirty process. It takes me 30 days to get my money. Why? Well, the process may have some bottleneck somewhere. How do I identify that? Well, process optimization allows me to do that. I can take a good look into the individual key capabilities of a process and determine where inefficiencies are in the business.

IT Efficiency

We can extend that even further with IT efficiency which is another approach that we are looking at.  I take overall my environment from an IT efficiency capability. And it can be applications, it can be databases, it can be actual stores or information that are non-SAP, we don’t care what it is, but someone’s got to manage it. Someone’s got to do the administrative task of the data. What if I can free up a portion of my operational effort, which in turn frees up a portion of my operational costs, and have it be automated?

You have a solution set that will actually address some of that as well, and that’s SAP Landscape Management, but I’m able to see a dashboard single view of the truth across my enterprise and automate as needed the various tasks that go from day-to-day whether it’s stopping or starting a system, copying information from one system to another – you name it. I can automate all those tasks. It gives a very holistic viewpoint on how the environment can be perceived. A lot of businesses haven’t taken into account that they have to do these tasks.

Riz Ahmed (00:25:00):
That makes a lot of sense. Sort of related to the technology-business discussion is innovation. Innovation is also one of the big drivers putting pressure on IT to digitize their business, or to have this digital core. We are hearing a lot about that. Can you talk to me a little bit about how you define the digital core and why do you think this is such an important link between having a digital core and driving innovation in the business?

Rick Smith (00:25:35):
It’s interesting for me, I always look at the digital core as kind of a combination of things. When I think of SAP HANA and what it brings to the table – high level, that digital core really gives me the whole capability to run analytics to make accurate and actionable decisions on my environment, ensure that that environment is consuming and has the right data in the right format, and that it has data lineage.

Data lineage is going to be a big concept that is going to be more and more prevalent as we move into the age of big data – where is that data coming from who created it? Is the data trustworthy? Is the content that I have trustworthy and also, can I actively share that content with the right security to the right users. That’s also going to be part of what’s there. But in the bigger picture and having the insight into not only where that data comes from but what type of data is it? Is that data that pertains to the business, is that  data able to actually meet the actual standard of what’s out there in the overall environment? Does that application have access to the right data? It is all being fueled around this whole data scenario.

I’d like to go back to your other comment – you made an interesting comment about, ‘What if I am not a mature enough business to take it back to drive some of this realization of modernization or digitizing my data?’ Every business runs on that data, so if you’re making a sale, you have to make sure the actual sales order or purchase order has the correct information. If it doesn’t, that could come back to bite you. You have to make sure all the inventory is correct. If it doesn’t, well you may not have the items on inventory or you may have a problem that you need to address.  So, having that insight from a data perspective and being able to drive it is going to be one of the key differentiators of SAP’s approach to it. Everybody says they can do data but tying that data to some semantic equivalent, it has to be something the business can use. Is it in the right standard, what’s an account look like, what does a sale order consist of for my business, are the mappings right, all that is there and was delivered in the actual SAP scenario for S/4HANA.

Riz Ahmed (00:28:09):
That makes a lot of sense in terms being, it’s not just about raw data with no business contacts with no best practices with no process and workflow – it’s all got to be contained in one platform which is interesting. You mentioned the S/4 Surround program. I know people are always looking for examples and resources and industry use cases. Can you talk a little bit about some of those examples that people can look at and learn from?

Rick Smith:
There are quite a few that are out there that are noteworthy. Some of the most recent ones that come to mind are things like the Salt River Project.

I mentioned to you before about the IT optimization. The Salt River Project is a utility in Arizona. They had a great need in their overall operational requirement to reduce overall time and costs for maintenance tasks from an administration perspective in their IT environment.         What they were able to do was see an 80 percent reduction in the number of hours spent on system administration tasks overall. IT  is usually seen as a drain on the business, if I can reduce the number of hours that I put out there for system administration overall – that’s a big number. The business is going to look at that. That is operational cost that is reduced and eventually they’re going to get to the point, once they do a full-scale implementation of everything, they are actually going to start to reduce the actual amount of effort in terms of headcount and start to reduce some of that as well. They’re not going to get rid of anybody but they were able to cut down system refreshes from 5 days to 1 day.

Complex process, lots of starts stops, lots of info that had to be entered into the system, certain contingencies that had to take place in order for it to continue – they were able to automate that with the actual landscape management solution and they cut it down from 5 days to 1.

Riz Ahmed (00:30:24):
Wow, that’s pretty significant. In terms of lessons from these experiences, what are some of the lessons that can be taken or sort of narrowed down from these examples that you’d want to highlight for this audience?

Rick Smith (00:30:47):
So I think the lesson one of the core lessons that can be taken from this is seeing the environment in a holistic type of view as opposed to, ‘Hey, I’ve got to focus on one thing I just want to get this done.’ There are elements of acceleration of the overall migration project while still being able to (inaudible) taken into account. There’s the reduction of project cost, the need to improve data quality is really a key to the intelligent enterprise. The data lineage and lifecycle management, how long do I keep that data, how is it maintained, how is it stored? All of those things are driving it.

We’ve got customers, like one corporation – they were able to do that with mass data governance, so adding that ability to ensure that the data is in the right format, the right quality. They saw a 33 percent decrease in their item master management time at just one of their sites in Asia. That’s a huge savings to their business ensuring the right level of material master is out there for actual delivery in their supply chain and ensuring that it’s there. This resulted in like a 50 percent reduction in approval signoff time within their workflow that came out of that. 

What happens with a lot of customers, they get very macular on what they want to focus on – ‘I just want to get it to where it’s all digital’. Well, there’s a lot of the business that can be addressed that you should probably look at and we’ve got a lot of offers from SAP, there are assessments, there are workshops. A lot of these are complimentary services within SAP, some of these are paid services. But we are giving you the ability to come in. It’s kind of like going to a good physician. I don’t know if it’s my heart or my kidney – well, I’m not a doctor, but you’ve got the option to bring one in, and they can actually tell you what is it that is actually the cause of your issue.

Riz Ahmed (00:32:58):
That’s great. I know so many of our customers and our audience are really at the very beginning of their own journey. You have given us a lot of insights and tips throughout this podcast.  But what are some of recommendations you haven’t talked about that you would give to companies that are just starting their journeys, and just starting to get information about S/4HANA and educate themselves.

Rick Smith (00:33:30):
The whole strategy of S/4 Surround is really to address potential issues that can provide costs savings and reduce the time to value in running S/4HANA and implementing the application as a whole.

When I think about that, most companies have this idea of how their process is performing and they keep some basic documentation out there, but overall there’s everything form the data to the processes to the actual task involved in managing that come into play. Take a look at really the holistic content of what is your IT enterprise, your IT ERP landscape, what is it and try to get a step-backed understanding of what is out there and how it all actually operates. I think that’s a big thing that a lot of businesses haven’t looked at.

There are things you can do now which is really where the S/4 Surround is focused on as well. What can I do now if I am not able to go to the full intelligent enterprise? What are some of the things Ican do to enable the intelligent enterprise? Well, I can start by cleaning up some of my data. I can ensure that every query, every analysis that I run comes back with cleaner and more efficient and readily available data. Or I can take it to a point where, ‘You know what, I don’t want to do anything with my data, but I’d like to make sure I start the process of cleaning up some of my IT operational tasks.’ You can do that. You’ve got options of each piece of where you’d like to start in the journey.

The thing is, eventually every organization is going to have to make a jump toward the next step in their evolution. What can I do to help ease the burden or ease the overall costs of time to delivery for that step? It’s something every business is going to have to start to look at.

Riz Ahmed (00:35:41):
I really want to thank you for your time today. You’ve had so much to share with us about your experiences and the experiences of customers when it comes to S/4HANA. There’s a lot for people to take away from this conversation and I know there are plenty more resources and information out there, so than you very much, Rick.

Rick Smith (00:36:09):
I thoroughly enjoyed it. One of the things that are out there, too, you’ll find on the site, there are additional assets from a one-pager to a complete overview of the multiple categories I mentioned with process excellence and information optimization. They break down the different capabilities of the solution asset, as well. It’s a pleasure to participate and I look forward to helping when I can.