SAP S/4HANA: What we must learn from SAP R/3: Part...

Former Member · ‎02-16-2015

I came to write this blog, and the introduction: SAP S/4HANA: What we must learn from SAP R/3: Part 1, History turned into an essay of its own, so I decided to turn it into its own blog.

In short - the business economy of 1992 is very different to the times we face now in 2015, and if we approach SAP S/4HANA like we approached SAP R/3, then I believe the SAP economy is in serious trouble. As partners, customers and employees within the SAP ecosystem, we must rally together.

Here are the elements that I have - in no particular order - been thinking about over the last days and weeks. I hope they provide food for thought.

Control the partner ecosystem

The scariest thing about the S/4HANA launch was the Partner Quote Sheet. SAP R/3 was characterized by large-scale business change initiatives, providing huge ROI for a huge cost, often running into 8 or 9 digits. On that whole that was fine at the time, but it did lead to some high-profile project failures. Consulting costs were often 8x the initial software cost. Times were good, and the fat cats got fatter.

However times are different in 2015 and the businesses are much more likely to take nibbles out the apple, rather than swallow it whole. At Bluefin, our typical project has an external budget of 1/3 software, 1/3 hardware and 1/3 consulting. A typical project timeline is 8-16 weeks, and has an ROI in 6-12 months.

The Partner Quote Sheet looks to me like lions getting ready for feeding time (did you notice that IBM is notably missing?).

There are glimmers of light here - the guided configurations do away - to some extent - with the expensive functional resources required in SAP projects. Customization using SAP's ABAP programming language is discouraged, and in the S/4HANA Public Cloud is not permitted at all. However the migration tooling to S/4HANA shown so far is a manual process costing hundreds of thousands or millions of dollars.

Customer call to action: Educate yourself and resist the temptation to undergo huge transformations for the sake of it. Save substantial transformation projects for areas which have not yet been consolidated onto an ERP.

Partner call to action: Up-skill your resources and find ways to add value. Please don't repeat the history of huge expensive project teams flow in from around the world

SAP call to action: Control your partners, give exposure to those partners who are helping the ecosystem and do not do deals with the devil. Work much harder to create software which automates the transition to S/4HANA.

Do not customize

I was involved in a customer who wrote over a million lines of custom code in their ERP implementation. It was a nightmare to support and a bigger nightmare to upgrade. When they did their next big project, which happened to be Supply Chain Management, the CIO imposed a simple rule: any custom code had to be approved by him, and fairly justified. The story goes that this project had just 7 customizations, each of which for a specific business reason. Strangely enough, this system was more reliable, less expensive to run, and much less expensive to keep up to date.

Two important trends happened since 1992: first, much of ERP is best-practice and customers have realized that they can standardize processes based on the SAP standard (at least where they don't have a differentiator). Second, SAP has become almost infinitely customizable without custom code. Most customization I see is due to resources who lack the training and understanding to implement without customization.

The good news is that S/4HANA appears to actively discourage customization, and provides HANA Cloud Platform (HCP) extensions to add new modules in a honeycomb style. This should in time make S/4HANA platforms easier to update.

Customer call to action: Put a change process in for customization, which includes a QA process by an internal or customer-side resource and sign-off by a very senior resource. Hold both internal resources and partner resources to account and only customize when it is truly required.

Partner call to action: Invest in training of functional resources, and decrease the number of developers in the team mix.

SAP call to action: Focus on helping customers and partners avoid customization by enabling S/4HANA to be obviously configurable in a clear way. Focus on creating training material for how to configure S/4HANA without substantial customization.

Keep up to date

One of the things that makes me shudder when I talk to customers is using a "N-1 policy". This is borne out of a belief that being on an old version will reduce risk, which is patently ridiculous. Instead, I talk to customers about being on the "right version" at the right phase of a project lifecycle. For example, at the beginning of a project we should always be on the latest version, whilst we never update the system during User Acceptance Testing unless there is an issue identified which is resolved in a newer version.

The "N-1 policy" is one of the single biggest reasons for lack of innovation. In theory, S/4HANA fixes this, and cloud versions will be automatically updated on a quarterly basis. However, customers will require Regression Testing and I wonder how long before a customer refuses to regression test in time? Will SAP upgrade the system anyhow, or will they bow to the customer and allow them to run on an older version?

In addition, I'm already talking to customers who don't want to implement Simple Finance in 2015, and aren't considering SAP S/4HANA any time soon. This is crazy, when these projects in many cases won't go live until 2016, leaving plenty of time to iron out any issues found along the way.

Customer call to action: Focus on creating automatic test management together to quickly complete parallel regression testing in 1-2 weeks. This will be critical to the innovation without disruption that S/4HANA promises. Focus on starting projects on the latest innovations.

Partner call to action: Help customers with the chance process and advise on how to manage testing and how to start projects on the latest version whilst keeping the risk profile acceptable.

SAP call to action: Do not make exceptions here, focus on helping customers with the quarterly strategy. Build automated regression testing into S/4HANA with reports that the business can sign off on.

Clear and Actionable Roadmaps

The last 23 years were shadowed by sharp changes in direction in the SAP Ecosystem. SAP changed its mobile strategy 4 times between 2008 and 2012, and missed critical industry shifts like the Internet and the Cloud. This causes uncertainty in the customer base and an aversion to change, and that won't be acceptable for S/4HANA.

The S/4HANA launch was light on details, and some felt that this was a problem. I happen to think that a launch that is a statement of strategy is a good thing, provided that it is followed up with a roadmap containing clear customer journeys. These roadmaps are a joint responsibility between customer, partner and vendor, and will be critical to the success of S/4HANA.

In addition, SAP has a propensity to be risk-averse in laying down roadmaps. This has to change with S/4HANA, because customers need to see a long-term roadmap, even one which is subject to change. Customers would much rather see a roadmap with elements which slips a quarter here and there, than having information about a quarterly release available 2 weeks after the release.

Other vendors have a different strategy. Take, for example, the Salesforce.com Release Schedule. They take a "past, present and future" approach, which gives some insight into what's coming next.

Customer call to action: Push both SAP and your partners to create a roadmap that is aligned to your business objectives.

Partner call to action: Work closely with SAP to understand the workings of S/4HANA, and align these with the needs of the customer.

SAP call to action: Be incredibly structured about the messages sent to the market. Use SAPPHIRE 2015 as a launchpad for clear customer roadmaps that reach out as far into the future as possible.

The Future of Business

The market vacillates between best-of-breed solutions and suite-based solutions, and the current trend is towards best-of-breed cloud solutions with open integration standards. In addition, industry-specific cloud solutions like Veeva Systems, Epicor and many others are gaining ground. It's fair to say that the Future of Business is happening right now, in the best-of-breed cloud.

SAP made a brand of creating the future of business with SAP R/3, both from a Line of Business perspective, and from an Industry Vertical perspective. SAP transformed global businesses by introducing multi-currency finance and integrated supply chains in the 1990s.

Much of SAP's R&D budget has gone into creating the HANA platform in the last 4 years, which has created a world-class platform for software application innovation. HANA in itself, however, is just a platform for application development, and it is not the future of business applications in itself.

There are signals that SAP S/4HANA could be the future of business. The first application, Simple Finance, is largely focussed around speed and simplicity of operations. It does, however provide some differentiating functionality around financial supply chain management, which could be considered the Future of Finance.

In a discussion with HCM Analyst Naomi Bloom, we discussed what really mattered to HCM buyers. Her perspective was clear - SAP S/4HANA must provide "modernization that goes beyond using HANA to simplify tables/new UX/improved analytics". SAP must be double careful, because in its drive to integrate the Suite, it risks not spending enough time driving its newly-acquired HCM platform to be the Future of HCM.

Equally, HANA has geospatial capabilities that can be used for workforce planning, and graph capabilities that can be used for network optimization problems. If SAP are to win with S/4HANA, they must drive the Future of Business using the capabilities of the HANA platform.

Customer call to action: Clearly identify the drivers for innovation within your business, and communicate them to SAP.

Partner call to action: Help customers identify the drivers for innovation. Help build HCP Extensions for industry and LoB that help customers innovate.

SAP call to action: Be ruthless in this area and do not settle for development areas just moving to S/4HANA as enough. Drive business innovation at the same time as platform innovation.

SaaS Economics

One thing that SAP R/3 did really well was to ride the wave of UNIX and commoditized IT servers. Gone were expensive and bespoke mainframes, and in were the (then) less costly UNIX systems.

SaaS economics have been coming fro some years, and they are driving down the cost of ownership of IT assets using a sharing economy. Equipment is bought direct from source, and put in one location, and is shared amongst multiple tenants. Data like reference and master data is shared once and stored, and code lines are shared between tenants.

SAP's HANA Enterprise Cloud was effectively a managed server service, with the benefits of centralized procurement and hosting and support, but without the benefits of multi-tenancy. Part of the argument for that was that Enterprise customers didn't want multi-tenancy, and HANA was very much a single-tenant database at that time.

With the SAP S/4HANA Public Cloud, we see further SaaS economics in play: HANA database multi-tenancy is used to isolate customers, though data is still private. Shared data will need to wait for further innovations around multi-tenancy in the HANA platform.

Remember that SAP HANA is billed as the Great Simplifier, and data footprint reductions of 10:1 are claimed. It's fair to say that this provides value, and cost reduction of 10:1 wouldn't be fair to ask for, but if HANA simplifies then it must reduce the cost of platform ownership.

Customer call to action: Measure TCO of the current environment and drive vendors to reduce TCO. We already do this with on-premise HANA customers and when purchased and deployed correctly, HANA reduces TCO.

Partner call to action: Create propositions for customers focussed around the business case. Take these to customers including financial models for TCO and ROI. Help the CIO speak to the language of the CFO.

SAP call to action: Make sure that the S/4HANA economics stack up, and lead with the numbers. How does S/4HANA reduce TCO and how does it stack up compared to the competition?

Business Case First

With SAP R/3, the business case was quite straightforward. Either the business case was focussed around risk reduction (millennium bug), or around cost reduction/growth (globalization). These led to large business transformation projects, followed by a long period of optimization. Most SAP competencies are focused around the TCO of the back-office, which drives an annual cost reduction.

In order for SAP S/4HANA to be a success, SAP must lead in customer conversations with the business case. Any other conversation is the wrong conversation. The language needs to be around supporting an increase in sales, reduction of debtor days, faster financial closed, supply chain optimization or and increase in adoption and usage.

This will be a tough transformation for a partner ecosystem and salesforce who are focussed around leading with technology, speeds and feeds. It is very tough to build a business case around speeds and feeds, because faster reporting isn't necessarily correlated with better decision making.

Customer call to action: Push back on any vendor/partner conversation that doesn't focus on value first.

Partner call to action: Focus on the value of the project lifecycle, including all costs. Look for ways to focus customers on value, not cost.

SAP call to action: Lead with value first and tie this in with S/4HANA, transformation, simplification, data reduction and cost reduction. Tell a rounded story of all elements of the value lifecycle.

Final Words

I hope that whether you are a customer, partner or SAP employee, this blog has made you think. To recall Hasso's words:

"If this doesn’t work, we’re dead. Flat-out dead."

The timing is critical: SAP has a one-off shot to execute on this really well at the SAPPHIRE NOW + ASUG Annual Conference on May 5th, 2015. That's just 11 short weeks from writing.

The main thing that makes me feel good as I write this is that the SAP leadership - under the stewardship of bill.mcdermott, have the ability to do something about this. If they execute on all cylinders, and they have the capability to do so, then we have the foundation for the renewal of the SAP R/3 platform.

These are very exciting times, but we must all be mindful that nothing lasts for ever. Great companies like Nokia, Motorola, Commodore and Wang Computers were left behind in the last innovation cycles. Let's make sure we learn from the lessons of the last 23 years. This is a call of action to all of us.