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How to create digital transformation with an S/4HANA implementation

Moving off SAP's ECC software gives organizations the opportunity for true digital transformation. Here are some tips business leaders and CIOs can use to prepare for the change.

With the deadline for companies to move off SAP's ERP Central Component getting closer and COVID-19 wreaking havoc on companies' best-laid plans, business leaders and CIOs need to consider how best to move to SAP S/4HANA to help in their digital transformation journeys.

Digital transformation can mean different things to different people, said Eric Kimberling, CEO and founder of Third Stage Consulting Group, located in Denver, Colo.

"Some [companies] are going in with the expectation that they're going to use digital transformation to drive down costs," he said. "Others might look at it as a way to increase integration across the organization and for others it could be top-line revenue growth."

Digital transformation with S/4HANA can also help improve a specific area, such as customer experience.

"For our organization, digital transformation means automating manual business processes to provide better customer service and become more profitable," said Stephen Taylor, CIO at Vast Bank, a financial institution based in Tulsa, Okla.

Vast Bank is moving from the Jack Henry core banking system, the equivalent of an ERP system, to SAP Transactional Banking for SAP S/4HANA, he said. The organization is automating core banking tasks, such as deposits, loans and customer account management.

For many organizations, the true goal of digital transformation, whether through S/4HANA or another system, is gaining a competitive edge.

While improving customer service, automating business processes and driving down costs are important, the real goal of digital transformation should be creating new revenue, said Chris Devault, director of industry relations at Panorama Consulting Group in Greenwood Village, Colo.

Digital transformation can mean different things to different people.
Eric KimberlingCEO and founder, Third Stage Consulting Group

To that point, here are some ways CIOs and business leaders can approach an S/4HANA to achieve successful digital transformation.

Collaborate with strategic partners

Working with strategic partners can help make the transition to S/4HANA easier.

"Since Vast Bank is making some fairly major changes, we decided to use SAP Activate, a methodology for doing an SAP implementation," Taylor said.

"We're going through that process with a strategic partner, Axxiome Digital, our solution provider who is helping us to do our implementation," he said. "DXC Technology is managing our Amazon Web Services and infrastructure environment."

Plan for resource allocation pre-implementation

Before going through SAP implementation, business leaders need a solid plan for how they are going to divvy up responsibilities among the implementation team members.

Planning is really about resource allocation, which includes getting the proper teams set up, said Devault. These include the core team, the steering committee, the subject matter experts and the functional leads -- all the way down to understanding what the end users' involvement and time allocation will be.

"Some of our [clients] can backfill and hire new roles and some of these subject matter experts because the majority of their time is going to be dedicated to this ERP or digital transformation project," he said.

Some companies, however, may not be in the position to bring in other resources.

"[Those companies] have to really focus on the internal allocation and they have to ask certain people to do a little bit more than just their average daily work," Devault said.

Map out current and future business processes

Looking beyond current business processes to understand what the company needs going forward is key to digital transformation success with S/4HANA.

When Vast Bank decided to implement S/4HANA, the company examined the current state of its business processes, determined what those processes would look like in the future and drew up a roadmap, Taylor said.

A roadmap can help a company see the path it needs to travel from a higher-level view and address implementation concerns.

"We're looking at adopting more industry best practices and those based on the SAP architecture," Taylor said. "But since a lot of our current processes are based on the Jack Henry system, we're trying not to spend too much time in the current processes but spend more time focusing on what the translation will be to the new processes."

The bank's focus has been on ensuring that it is adopting the right regulatory compliance and oversight of its processes, which is critical to the institution's operations, he said.

Creating successful digital transformation through S/4HANA requires closely examining current business processes.

"Anytime you do a system implementation, it's a good time to step back and refresh on what your business processes are, how you got there and how customized you are," said Vishal Kumar, group vice president of IT at grocery chain Smart & Final, based in Commerce, Calif. "Then you should [determine] how aligned you are with the best practices in the market."

Smart & Final leaders have challenged every business process that wasn't aligned with the best practices they were seeing in S/4HANA, he said.

Taking a conservative approach to customization is wise, although there are cases for it.

"In some instances, we had to make exceptions [and keep the business process] because our business dictated it," Kumar said. "But in most instances, we were able to change the business process because there wasn't sufficient justification for us to be making any customizations to the best practice that already existed."

Implementing a new financial system was also an opportunity for Smart & Final to do some spring cleaning, he said.

However, business leaders need to make sure they are doing the research before changing anything.

"We looked at our master data," Kumar said. "We looked at our chart of accounts, which was really messy... and had gotten away from us."

The company also looked at some of the controls around its business processes because there were some major workarounds and inefficiencies in place, he said.

Resolving these issues before implementing S/4HANA is important.

"It was an opportunity to then remap to a brand new chart of accounts using a different nomenclature that would not only extend and be scalable moving forward, but also made sense from a public company standpoint," Kumar said.

Analyze gaps in software functionality

Business leaders should look for discrepancies in S/4HANA even if they're migrating to S/4HANA from other SAP ERPs, such as SAP R/3.

"Not because you want to change your mind necessarily, but because there are risks in the unknowns and the uncertainties," Kimberling said. "These are things that will throw a monkey wrench into your overall plan and strategy, so if you haven't addressed those gaps, or you aren't aware of those gaps, that's where companies get into unexpected trouble."

Understand the 'why' behind choosing S/4HANA

Knowing what aspects of S/4HANA the organization needs is important to digital transformation.

Before moving to S/4HANA, Smart & Final was on an ERP system called Lawson, which Infor purchased, Kumar said.

"When Infor opted to sunset Lawson, we decided to look at other ERPs in the market, particularly in terms of finance," he said. "Ultimately, the company implemented S/4HANA core finance functions, including accounts receivable, accounts payable, general ledger, project systems, purchasing and asset accounting, with the help of IBM, its transformation partner."

While it may be tempting to overload on features, it is important to focus on the functions that are most important to the organization.

"Finance would have been the first component on there from a functional standpoint," Kumar said. "Whenever you're implementing a new system, there's always a temptation when the hood is open, to say, 'Why don't we look at this, this and this?' but at the minimum, we wanted the existing functions that we had in Lawson to be mimicked in SAP in a better fashion."

For a successful implementation, organizations need to think about what components of S/4 HANA are best able to accomplish their goals and needs.

"For example, it may be that core financials and inventory management is usually in play," Kimberling said.

But there may be other essentials, he said. Some of the more common include the following:

  • Does the organization need customer relationship management (CRM)?
  • Does the organization need SAP Ariba on the procurement side?
  • Does the organization need SAP SuccessFactors on the human capital management (HCM) side?

Prepare the organization for the switch

Change is notoriously difficult, so leaders should address that proactively.

"I think the biggest challenge is that we are converting the entire thing from a lot of manual processes that people are used to, to a digital process," he said. "That means getting people used to being in the system, dealing with data where you're managing an automated process versus doing a manual process."

"That requires lots of communication, lots of demos, lots of training," he said.

Change management teams are the key to success for many organizations.

"If you don't have a change management team or resource, then you're not setting yourself up for success," Devault said.

"It's important for companies to continually reiterate what users are going through and why they're going through it," he said.

But there's more to change management than just training.

Companies also need to think about organizational design, that is, really designing what the organizational structure will look like in the future and what the roles and responsibilities will look like, Kimberling said.

"For example, it's a game changer for the accounts payable department, but what does that mean to us as an AP group?" he said. "Chances are it's going to be dramatically different than it is today."

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