The requirement to upgrade or migrate from SAP ECC to S/4HANA by 2025 is one of the hottest topics at SAP industry events and is widespread on blogs and webinars. However, the much-hyped and anticipated wave has been slow to materialise with more talk than action. Our experience is that this has now started to change, with the majority of SAP customers engaged in or kicking off assessments, roadmaps, proofs of concept and pilot projects, and a few underway with full transformation projects, but there is still slow progress at the very top: the percentage of the world’s top 500 SAP customers who have now completely transitioned to S/4HANA is close to zero.
I want to look at some of the reasons behind this and the impact of delayed adoption, investigate how the market is responding and what SAP’s reaction has been, and explore what this means for SAP customers and in particular how they can benefit from market innovation to accelerate the migration to S/4HANA.
"The common S/4HANA migration options are proving unfit for the challenge ahead"
Some of the reasons behind the delayed adoption of S/4HANA by major companies are obvious and immediate. Inertia, economic uncertainty, cost and competing priorities make it an easy option to do nothing. However, there is also compelling anecdotal evidence that the limitations of the binary migration options - technical upgrade (Brownfield) or complete re-implementation (Greenfield) - and too much focus on the initial 2025 sunset date have exacerbated lack of adoption.
The downside of the Brownfield option is that it offers little more than a technical upgrade. So, while there might be some interest from IT in upgrading to the latest database technology and software release, there is limited business value. There is no option to position a technical upgrade as part of a wider and more compelling programme of business change unless you are willing to sign up to multiple go-lives with all the resulting business interruption. And even from a technical perspective, it is limited: there is complexity in upgrading a heavily customised ECC system to S/4 and the need for days and perhaps weeks of system downtime at cutover for larger ECC estates. And while Greenfield offers companies an obvious opportunity to design a new system fit for the intelligent enterprise, we are seeing that the majority of multinational, diverse businesses who have invested heavily in their SAP estate are proving to be highly reluctant to rip it all up, throw away years of spend on systems and data, and embark on a long, costly, complex re-implementation.
"Building a business case around the need to be off ECC by 2025 is the wrong approach"
To try to build a business case around the need to be off ECC by 2025, hemmed in by the constraints of Brownfield or with the prohibitive cost and timelines of Greenfield, has perhaps unsurprisingly turned out to be difficult. The false choice of Greenfield vs Brownfield is also impeding strategic thinking; it is completely the wrong place to start. A far better question for IT leaders to ask is whether their business will be able to continue to grow and thrive and respond rapidly to the market opportunity and technological innovation that will present itself between now until 2025 without fundamentally transforming their systems. And if part of the solution is to transition away from fragmented and overly complex ECC systems to a consolidated, simplified S/4HANA digital core, then there need to be smarter, quicker and more flexible ways of delivering that transition as part of a much broader programme of strategic business transformation.
Because there is an additional problem caused by the slow adoption rates: human resources. As far as I am aware there are no official figures made public, but the commonly stated estimates for the number of SAP customers across the world who will move from ECC to S/4HANA over the next few years range from 30,000 to 50,000. If we stay at the lower end of that range and divide it by the number of weeks left between now and the end of 2025, we are looking at a completely unsustainable (and growing) required adoption rate of 100 companies per week over the next 6½ years. As we are nowhere near a peak rate of S/4HANA adoption, most companies are not yet experiencing this problem. But they will. And in the very largest companies, where they are starting to prepare transformation budgets not in the tens or hundreds of millions of Euros, but in billions, they are already looking with concern at how they are going to mitigate a major shortage of skilled resources.
"The largest companies are already facing a major shortage of skilled S/4HANA consultants"
So, what comes next and how is the market responding to address this? I will talk first about the innovation in transformation technology could help to meet this challenge and then expand this out to include the wider SAP consulting market and SAP themselves. With landscape transformation software, companies can stand up replica copies of SAP systems, apply selective and targeted change to those systems, and then repopulate those systems with a complete or selective set of a company's business data. This ability to decouple systems from data has allowed for a smarter and quicker way of delivering the transition to S/4HANA that allows customers to deliver business as well as technological transformation. SAP calls this Selective Data Transition. I prefer Selective Data Transformation. It provides the benefits of both Greenfield (using the move to S/4HANA as an ideal opportunity to deliver business change and IT innovation, for example Cloud, in a single business go-live) and Brownfield (retaining and leveraging all that prior investment in solutions and data) while cutting consulting effort and project timelines by half.
"A selective transformation approach to S/4HANA migration cuts project effort and timelines by half"
This innovation has not gone unnoticed by the market. IBM launched their Rapid Move for SAP S/4HANA offering in May, which contains transformation software at its core, to help their customers accelerate the reinvention of core business processes and integration of new technology. Fujitsu and T-Systems have done something similar.
Even more significantly, SAP has also realised that a binary choice of S/4 migration options is not providing the flexibility required for the majority of their largest global customers. At SAP SE board level, Michael Kleinemeier, who leads SAP's global Digital Business Services organisation, has come out in support of IBM's Rapid Move offering, recognising that it gives "customers a major head start on their digital transformation projects ... [and] the ability to realise value from their deployments with even greater speed and agility". It is exactly that speed and agility that customers require. Speed, in terms of using software to hugely accelerate time to value, and flexibility, meaning that it is business value and the transformation agenda that drive the approach rather than the migration options constraining the roadmap.
"Selective Data Transition adds a necessary third option to SAP's S/4HANA Move programme"
Finally, and perhaps most interestingly in terms of the impact it will have going forward, SAP has decided to launch a new transformation community to promote, support and facilitate what it has termed Selective Data Transition approaches explicitly recognising there is a large section of the SAP market that needs more flexibility when it comes to designing an S/4HANA roadmap. ‘The SAP S/4HANA Selective Data Transition Engagement working group adds a necessary third option to our SAP S/4HANA Move programme for scenarios where market requirements make a mere re-implementation or system conversion impossible," said Stefanie Kübler, VP of Data Management and Landscape Transformation, SAP Digital Business Services, adding "our customers can be confident that the members of this working group understand the opportunities and risks of a selective approach, have expertise in this area, continuously expand their knowledge and share project experiences.’
Across the enterprise applications industry, there is general agreement on the reasons behind the initially sluggish S/4HANA adoption rates and on the need for change. Transformation companies, major consulting partners and SAP themselves are working together to develop innovative solutions which will enable customers to drive business transformation through S/4HANA. Speaking to industry analysts and market watchers, the consensus is that we are only at the start of a major wave of S/4HANA transformation that is going to transform not only our customers but also the consulting industry itself.
"The move to S/4 should not be seen simply as another upgrade"
Paul Esherwood, editor of ERP Today, says, "CIOs are battle weary and the thought of another ERP project, especially one they are forced into, does not sit well with many. The move to S/4 should not be seen simply as another upgrade – it’s a move towards an entirely new business model that has the potential to revolutionise processes and procedures that have held many businesses back for decades."
We need to stop talking about expiry dates and give customers the flexible solutions to drive business innovation as well as IT change through S/4HANA.
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