How to Understand the Business Benefits of SAP S/4HANA Better

Published in November 2015 by Hasso Plattner

The annual user group meetings in Germany, the U.S. and the UK/Ireland showed that many midsize and smaller companies still have difficulties to see the benefits of SAP S/4HANA for their business. There is nothing wrong with having other priorities than to convert to SAP S/4HANA, but lack of information or even wrong facts about it shouldn’t be the reason.

Some said they would like to see more examples by other customers of their size. Right, but there is the problem: while the large organizations have already embarked on the SAP S/4HANA journey at large scale, their projects will take time. Most of them want to take the opportunity the reevaluate their customer extensions to the suite in order to reduce the cost of maintenance in the future and to streamline their business processes. On the other hand are net new customers, who are attracted by the technical superiority of the product and the lower cost of ownership, but they might not be members of the user groups yet.

Or, there is a question about the roadmap of SAP S/4HANA. It’s simple: first it covers the functionality of SAP ECC 6.0, including the industry specifics, and secondly new application components will be added in cooperation with the customers and the user groups.

It is sad to still hear the same arguments after all the sales success, the implementations in record time and happy productive customers. We have written books, where we describe dozens of new or improved application scenarios, specific events are taking place throughout the world and we have many success stories on our website. I just heard of a Chinese fashion manufacturer who installed SAP S/4HANA and reports a game changing improvement of the MRP2 run from more than 24 hours to under two hours. My advice for the smaller and midsize SAP Business Suite customers is to carefully watch the early adopters, soon approaching 2000, especially in related industries.

When you ask longtime SAP customers what they want from their ERP system in the future, they will tell you: lower cost of operation, a better user interface, easier maintenance, better integration with other applications, mainly services in the cloud, faster MRP2 runs, new business processes for customer interaction and customer service and most importantly, simplification wherever possible. All of the above has been achieved in SAP S/4HANA, but there is much more. The Q3/15 results clearly show how SAP S/4HANA has taken off and it is a pity that, after all the positive feedback, there is still some uncertainty among our customers.

Once again I’ll try to summarise the key advantages of SAP S/4HANA over the current business suite on any db and the ERP systems by other vendors.

SAP S/4HANA Is an Alternative to the Existing SAP Business Suite 

The SAP Business Suite ECC X.X will see continued development and maintenance for the next ten years. It is the backbone of many enterprise systems around the world and with the introduction of the SAP HANA database the suite became even better in some critical areas. New solutions developed for SAP S/4HANA will be checked, whether they could also be deployed in the suite as well. A good example are the SAP Fiori self- service scenarios. It is perfectly fine to stay on the business suite for the foreseeable future.

But that doesn’t mean no other system should exist next to it. The in-memory database SAP HANA allows for a radically different application architecture and a new philosophy with regards to the data model simplicity. While most of the business functionality of the business suite will be  carried over to SAP S/4HANA, new workflows, larger transaction volumes, real time analytics on  transactional data, unmatched flexibility when changing reporting structures and even real time  simulation of business scenarios are possible. And all this comes with a completely new UI and a new framework for modifications and extensions. SAP S/4HANA will continue to be developed at a different speed in order to match the new requirements of the digital age.

With SAP Business ByDesign, SAP first tried a hybrid approach for data management, transactional processing on a traditional disk based relational database and reporting with a redundant copy of the data in-memory using a columnar store. Despite some attractive results, it also demonstrated that the future has to be a system where all data is completely in memory, using only one copy of the data in a columnar store and the transactional processing is drastically simplified.

How Complete is SAP S/4HANA?  

One of the reasons why companies have more long-term plans for SAP  S/4HANA is the completeness of the product. To recreate the wealth of functionality of the business suite is quite a challenge, but now financials, sales and logistics are available and most of the industry specific solutions will follow soon. SAP wants to achieve a better separation between the industries in order to reduce potential conflicts between them. Every transition case from SAP ECC 6.0 to SAP S/4HANA has to be evaluated individually but most of the installed base should be covered by now. For some time there will always be a constellation, where the suite is the more complete solution for a specific client. That shouldn’t be interpreted as a weakness of SAP S/4HANA but a compliment to the suite. Many clients choose to become familiar with SAP HANA by moving the business warehouse onto SAP S/4HANA or start with completely new projects in product research or service including internet of things scenarios.

SAP S/4HANA Only Runs on SAP HANA  

Yes, SAP HANA is the only database SAP S/4HANA runs on. The rapid growth of cloud based applications did clearly show that the underlying technology stack has to be simplified.  Actually our largest competitors concentrate their offerings on one database only: Oracle, Salesforce, Workday, Netsuite and Microsoft. The enormous potential of an in-memory database needs to be fully exploited to reshape the way we design enterprise applications and cannot be compromised by finding the lowest common denominator, while using multiple databases. As a result we can see a dramatic simplification of the application code. The SAP HANA database family offers radically new ways of solving today’s and tomorrow’s challenges in enterprise  applications and this gives the SAP S/4HANA system a substantial advantage over the competition.  It supports in addition to SAP S/4HANA many other application scenarios from analytics of big data or scientific research to new iot applications. Through data federation SAP HANA can seamlessly integrate with other databases.

Hardware Costs for SAP S/HANA  

Some smaller customers say that the hardware costs are prohibitive. I vigorously dispute that notion. SAP S/4HANA strictly runs on standard Intel x86 servers or now on IBM POWER servers as well. The data footprint reduction can reach a factor 10+, where the columnar store is responsible for a factor 5 and the removal of aggregates and the reorganisation of transient data tables add at least another factor 2. We recommend a split of transactional data into actual and historical partitions. The extent for how long you keep data in the historical partition online depends on the type of business. Older historical data can easily be archived on HADOOP and still be accessed by SAP HANA in order to further reduce the online footprint. This means a 10 terabyte ERP system becomes a 1 terabyte system or less. This reduces the time for backup and restore by a factor 10x and more (only the actual data) and allows to use a single CPU board with high speed data access from all cores. Even the largest customers won’t need a scale out configuration for their actual data partitions.

For development and test systems a copy of the actual data is sufficient. I recommend to always test with real data sets. With the split into actual and historical data partition the archiving task for transactional data has been solved in the most elegant way. Older partitions can just be dropped on HADOOP according to legal requirements.

Why Does the Database Speed Matter?  

The biggest business advantage of SAP S/4HANA is the simplicity of the database layout. This allows for higher data entry speed, unbelievable improvements in reporting and most importantly a complete flexibility in reporting using external hierarchies. These hierarchies can be changed any time (restructuring, acquisitions, etc) without changes to the database.   The new UI isn’t just cleaner, easier to understand and use, but completely new processes are possible because of the speed of SAP HANA. The fact that any field in a table can be used as an index adds to the simplicity and no database administrator has to be involved. This system is ready to grow again in functionality and become the backbone of the new digital world.  Those management meetings can now use live data to illustrate the current situation of their company’s business, that predictive analytics and simulations help to open up a window into the future in real time, is only possible because of the extreme database speed. The digital boardroom will become fully interactive on current data.  All bottlenecks like ‘back flush of material’ after an assembly process finished or mass data entry are gone, batch programs become transactions, reports run in seconds and the period end closing is now completely streamlined.

Deployment in the Cloud or On-Premise?  

There are many advantages to deploy the system in the cloud, but if regional preferences call for an implementation on-premise — no problem, it might be just a different cost factor. It has to be understood that the deployment in the cloud has a principal advantage when it comes to the implementation of new functionality. Just take the new online sales scenarios with different revenue creation and recognition practices. Most companies will be in need of these features pretty soon and only with SAP S/4HANA can SAO really accelerate the adoption. SAP offers a test migration of SAP ECC 6.0 systems in the cloud and the customer can later decide where to run the production system.

How Disruptive is SAP S/4HANA?  

All master and transactional data will be migrated, all the business processes are still available, the new UI is easy to comprehend and most importantly the application configuration can also be carried forward. Many long-term SAP customers are contributing in the design efforts of the new user interaction. By applying the principles of design thinking, end users, consultants, domain experts and developers interact till the most comprehensive solution is found. All predefined aggregate data (totals, info cubes) have been eliminated and the system offers now the highest flexibility in reporting and analysing business data.

The first step in an SAP S/4HANA project should be the evaluation of the system without the company-specific modifications and extensions but using the customer production dataset. Many new features are added and may make modifications obsolete. Don’t extrapolate the amount of work and training from previous experience with ERP release changes. Once the data is carried over to SAP S/4HANA everything will be much faster. In case of an on-premise or hosted deployment, the previous UI will still be available in order to ease the transition phase.

SAP S/4HANA Only for Larger Companies?   

It is interesting to see regional differences in the speed of adoption. It is similar to the introduction SAP R/3 in 1992/3. The SAP R/3 system was meant to be for smaller companies and who jumped on it first? The large and super large ones. I am absolutely convinced that smaller and midsize companies will now benefit even more since they might be able to drop most of their modifications, as a consequence reduce the TCO, and have significantly more productive users, who will gain business insights like never before.

The Reduction of Complexity  

For years our customers complained about the complexity of the business suite and asked for simplification. Now some fear they have to relearn a lot and that will cost time and money. The simplification of the UI is real and will save time with the first day of productive use. The business functionality of the transactions is still the same but comes in a much more efficient form.

The dramatic simplification of the data model, the fact that any field can be used as an index for selecting data and the unprecedented short response times are allowing for much faster development cycles of new applications. The deployment of extensions in SAP HANA Cloud Platform is an elegant way to enhance SAP S/4HANA systems or to build completely new applications. SAP S/4HANA combines the proven set of core business functionality, in many languages and for nearly all countries, with the ability to venture into completely new dimensions of applications. This capability is key when business processes are developing at an ever-increasing speed and core enterprise systems cannot just be complemented by point solutions but have to also accommodate these changes.  This reduction in complexity also lowers the threshold for smaller companies to switch to SAP S/4HANA.

New Concepts for Sales, Customer Support, Product Development  

After the simplification of the main application in sales, logistics and finance, the development of new functionality has started and will be rolled out in short release cycles. It is paramount that SAP and its community learns how to efficiently deal with shorter release cycles, without introducing any kind of instability. The reduced complexity of the data model and the removal of transactional data aggregation clearly improves robustness.   The focus on the SAP HANA platform allows for better applications because the technical advantages of SAP HANA can now be exploited without consideration for compliance with other platforms. This is a formidable advantage and as mentioned before a strategy taken by all other providers of cloud services.

SAP still believes in running the new system in the cloud and on-premise, but it will be only SAP S/4HANA with which we can achieve this in one software version going forward. This will reduce the TCO and speed up the so much needed step into the future. Every single application area like data entry, standard reporting, analytics and predictions, the digital boardroom or the multi-channel customer interaction, to name a few, becomes a world-class component in its own right. This alone is a reason to consider an earlier migration to SAP S/4HANA.

SAP HANA allows the access of other databases, e.g., SAP HANA Vora or Hadoop, which helps to integrate with IoT scenarios, or data for weather, geography, statistical information, without copying the data into the ERP system.  SAP just announced a host of innovations for SAP S/4HANA in Barcelona, including the new logistics components, business planning and the reintegration of some sales management functions.

Transition to SAP S/4HANA 

A first step can always be the implementation of the suite SAP ECC 6.0 on SAP HANA. SAP offers the option to help convert an existing ERP 6.0 system in the cloud to an SAP S/4HANA system. All data will be carried forward, the database stripped of unnecessary indices and aggregate tables, the remaining object clusters dissolved into regular tables, all tables converted to a columnar store with the exception of transient data like EDI protocols. Customer data extensions will be included. The new SAP S/4HANA applications should work instantly with the exception of the customer extension or modifications, these have to be reevaluated and if necessary reimplemented, using the new extension framework. The interfaces with other customer applications have to be checked and in many cases optimized.  SAP will help to minimize the data footprint with data tiering including archiving, e.g. using HADOOP. The standard SAP S/4HANA system should be thoroughly tested before considering any modifications.  Despite SAP S/4HANA offers a new UI (SAP Fiori-based), the customer can choose to have the old UI still available to assist the users in the transition.

Summary  

SAP S/4HANA is by far the best ERP system SAP has ever offered to the market. In combination with the new customer-facing applications like those from hybrid, the SaaS applications from Success Factors,  Ariba, Fieldglass, Concur and the Internet of Things projects with SAP HANA Vora, SAP offers a  unique suite of products, which can be installed and activated quickly. The SAP HANA Cloud Platform allows for easy implementation of extensions to integrate other software products or bespoke applications. As a result, the new product offers a clear competitive advantage for relatively low costs.  SAP saw a dramatic increase in SAP S/4HANA projects in the third quarter and it would be a shame, if lack of information or an overly conservative attitude hinders companies, which could otherwise benefit a lot in these days of massive changes, to make the move to SAP S/4HANA.