Insight
S/4HANA: balancing ambitions, costs and constraints
For some, the move to SAP S/4HANA will be a springboard for wide-ranging business transformation, while others may see it as an unwelcome distraction. But most will be somewhere in between as they seek out opportunities for optimization in key areas such as procurement, finance or supply chain. So how can you best determine your appetite for change as you look to balance your organization’s ambitions, costs and constraints?
S/4HANA is SAP’s current cloud platform and ECC6, as a result, is being phased out. Which leads to the question of how far organizations can leverage the opportunity for optimization.
The benefits of S/4HANA
So, what are the potential benefits of switching to S/4HANA? Berkeley’s experience as ERP consultants shows us that the new platform offers the agility and versatility of a public or private cloud-based platform and a launchpad for embedding new capabilities such as generative artificial intelligence (GenAI) and ESG reporting.
But what you get largely depends on your ambition for change, along with the trade-offs between costs, implementation time, organizational impact and operational risks this entails.
Exploring your S/4HANA options
At the most ambitious end of the spectrum are the ‘greenfield’ options of a new or fully re-implemented enterprise resource planning (ERP) system. The advantages of this fresh start approach are that industry best practice processes can be implemented, helping to drive efficiency. As a new implementation, the greenfield approach can also minimize the integration and operational risks. The trade-off is that this can be the most costly and time-consuming choice to implement, and drives the greatest business change adoption challenge.
At the other end of the spectrum is the ‘do nothing’ option. Conceivably, there is nothing to stop you from sticking with ECC6 if you want to go with what you know and avoid the inevitable complexities, challenges and SAP implementation costs of ERP transformation. But SAP is planning to scale back support for ECC6 from 2027 and withdraw it altogether by 2030. The results are likely to be higher maintenance costs and rising risks of functional disruption. As ECC6 heads towards obsolescence, it will also be harder to keep pace with new competitive business priorities and regulatory change.
Crucially, there are also a number of other approaches, including a ‘hybrid’ approach, which is a technical upgrade which also allows you to optimize some areas of your business that adds the most value, while leaving other current processes intact. If you want to modernize manufacturing and logistics, for example, S/4HANA capabilities can help to boost efficiency and reduce costs in areas such as inventory management, route planning and product overheads. Similarly, if you’re planning to overhaul your finance function capabilities, S/4HANA offers improved visibility and speed of response over spending, while eliminating some of the process delays and workarounds that can lead to revenue leakage in areas such as collections. It can also reduce costs and free up time through quicker and more efficient budgeting, forecasting and scenario planning.
The best S/4HANA approach for you
So what’s the best way forward? There is no single route that works for all – the right choices are specific to each organization and its ambitions, people and existing technical landscape. In our experience, five key considerations come into play when judging the right approach for your particular business:
The starting point is determining your ambition for change – a clear, realizable and organizationally-agreed set of objectives that would best suit the circumstances of your business and deliver the strategic outcomes you’re looking to achieve. Everything flows from that.
With your ambition defined, you can begin to identify and prioritise the signature capabilities within S/4HANA that could help you to achieve your goals. These might be full process optimization as part of a greenfield approach or improvements in specific areas as part of a hybrid option.
At the same time, it’s important to be realistic. A lot of the gains may be marginal or moderate at best, especially if tangible and intangible benefits are not properly considered when creating your initial business case, or the potential financial costs of a migration program are not sufficiently quantified upfront.
A realistic evaluation of the benefits will help you to decide how far you want to go in particular areas of migration. It can also help you to distinguish initial priorities from what can be implemented further down the line as more time and budget become available.
Along with the direct benefits of S/4HANA are opportunities to use migration as a catalyst to tackle pain points, enhance capabilities and accelerate modernization in other areas.
Data is a clear case in point. S/4HANA will require significant changes to the data model used in ECC6. Examples include the finance and business partner data structures and validation rules. So if you need to undertake what is likely to be a time-consuming data transition, there would certainly be a case for broadening this out to cover the overall timeliness, completeness and correctness of data within your organization and its value chain.
Clearly you need to balance your ambitions with your budget. How much you spend also depends on how many divisions and operating territories are involved.
But the cost considerations go beyond the initial SAP implementation. It’s also important to factor in potentially higher maintenance costs, as well as indirect expenses of workarounds, inefficient processes and lost opportunities that could come with a ‘do nothing’ or ‘almost nothing’ strategy.
Whatever you choose to spend, the key question is how to make it pay, while avoiding what can all too easily become needless expenditure and waste.
Budgets aren’t the only constraint. Just as important is how much change – and potential disruption – your organization has the capacity and willingness to absorb as well as new capabilities required to leverage new functionality and technology advances both across the business and in your support organization.
The organizational impact of any ERP software migration is always going to be significant. In return, you can usually offer compensatory benefits to help secure business buy-in. But the benefits of S/4HANA can be difficult to quantify and so ensuring you have identified the right migration approach for your business is fundamental. Identifying and targeting quick-wins to help build up momentum and support within your organization are important ways to engage stakeholders and set you on the path for success.
