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SAP S/4HANA Cloud vs. on-premises -- benefits, limitations, adoption

When it comes to SAP S/4HANA Cloud vs. on-premises, issues such as functionality and customization are paramount. Here's a look at where each shines and where each falls short.

SAP S/4HANA may be too immature for some enterprises, analysts say. But when weighing the question of SAP S/4HANA Cloud vs. on-premises, the latter version is currently ahead.

SAP hasn't broken down the numbers for SAP S/4HANA Cloud vs. S/4HANA on-premises implementations (see sidebar). But a majority of implementations have been on-premises or hosted. Some may make the case for that model because it's familiar. But others say it's because the cloud version of S/4HANA is lacking functionality critical for mature enterprises.

Benefits of SAP S/4HANA Cloud vs. on-premises

In both S/4HANA Cloud and on-premises versions, where S/4HANA excels beyond ECC [ERP Central Component] is in financials, according to Christopher Carter, CEO of Approyo. "The revenue recognition alone is a game changer in financials, and the hyperability for analytics is fantastic," he said.

Complex industries, such as manufacturing or pharmaceuticals, would find that S/4HANA on-premises is much more suited to their needs, said George Lawrie, vice president and principal analyst, Forrester Research. On-premises deployments provide the full scope of SAP's industry solutions, and they allow companies to configure, extend and modify S/4HANA as needed.

SAP S/4HANA Cloud is much better suited to companies that want to take advantage of massive economies of scale in public cloud options like AWS and deploy financials and HR, Lawrie said. Integrated business planning also makes a lot of sense for cloud deployments to handle multiple markets and facilities, as well as e-commerce and SAP Leonardo-type work that involves machine learning, IoT and analytics, he said.

However, if companies want to use conversational ERP, they may want to look to the cloud. While S/4HANA on-premises versions do allow companies to use SAP CoPilot, SAP's digital assistant and bot integration tool, it is supported in a very limited way, according to Duy Nguyen, an analyst at Gartner.

ASUG 2019 study reveals low adoption rate of SAP S/4HANA

Enterprises don't seem as ready to move to SAP S/4HANA as SAP expects, despite the SAP ECC sunset date of 2025 and the continuous announcement of new features. Recently available numbers from SAP indicate that, in Q4 2018, 10,500 customers purchased S/4HANA licenses. Yet compared to SAP's approximately 425,000 customers, that doesn't seem like a lot. And that number doesn't account for customers who may have purchased licenses but are still grappling with implementation questions.

According to ASUG's 2019 State of the Community Study, more than half of businesses plan to adopt SAP S/4HANA. However, the same study found that only 16% of customers are live. One of the top reasons why respondents are waiting on S/4HANA migration is that they are waiting for the product to mature so that it can fulfill the same needs that their existing systems already do.

Customization important to S/4HANA choice

Most customers, particularly those in complex manufacturing and oil and gas, would avoid the cloud version of S/4HANA because the ability to customize the software is limited, according to Nguyen. While SAP offers the option to build extensions on the SAP Cloud Platform to address this shortfall, that also means companies will need to hire more developers with cloud skills. On the other hand, to maintain S/4HANA on-premises, they can train existing developers on S/4HANA, he noted. This learning curve appears to be much less steep.

SAP S/4HANA Cloud might be used by larger customers but only for limited purposes. For example, Shell Corporation went live with S/4HANA Cloud in a multitenant deployment -- but only for finance. The company hasn't yet moved logistics to the cloud, and other companies may be doing the same thing: waiting to see how many other SAP customers are moving to the cloud, or keeping certain functions on-premises, Nguyen said. "Or they … realize it is still better to go with on-premises (deployments) because they still have the flexibility to add or customize it as needed," he added.

"SAP is actually running into issues where even their partners like Accenture, Deloitte and Capgemini, when it comes to advising complex manufacturing, retail, and pharmaceutical (companies), have confirmed that S/4HANA Cloud is not ready for some of these companies," Nguyen said.

Meanwhile, whether or not SAP S/4HANA Cloud is ready for complex industries is anyone's guess. SAP says it's ready. The Gartner perspective is that there are certain functions that are mature enough to use in SAP S/4HANA Cloud: financials, procurement, and sales and distribution, Nguyen said. For discrete manufacturing or process manufacturing, that is still to be determined, and SAP service providers are cautioning against the move, he said.

"It's a weakness that SAP needs to address," Nguyen said. Customers need some reassurance that SAP S/4HANA Cloud is ready to use.

Ultimately, there is a trade-off in functionality between on-premises and cloud deployments of SAP S/4HANA. It seems like many enterprises, while planning to move, are adopting a wait-and-see approach as they look for proof that S/4HANA can provide the same or better functionality as their SAP ECC systems.

This was last published in April 2019

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