SAP S/4HANA ERP platform options expand but raise deployment questions

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SAP makes choosing S/4HANA modules easier, but path unclear for some

Despite SAP's insistence that code base is the same, analysts and users say different S/4HANA on-premises and cloud versions can make readiness for cloud the deciding factor.

SAP continues to build out S/4HANA -- its next-generation ERP system -- by adding modules for common business processes such as procurement, inventory management and logistics. In doing so, the way forward from on-premises ERP is becoming clearer for some users. But ongoing questions about the completeness of some S/4HANA modules -- along with apparent differences in the on-premises and cloud versions -- are causing most SAP users to hesitate.

A case in point is Varian Medical Systems, Inc., a provider of cancer-treatment products and services based in Palo Alto, Calif. Seeking better performance, the longtime SAP customer is running Business Suite on HANA, a version of the previous on-premises ERP platform made to run on SAP's HANA in-memory database. But lately, the company has been analyzing the impact of moving to S/4HANA, according to Snehashish Sarkar, vice president of enterprise applications at Varian. Migrating to S/4HANA modules would require changing Varian's business processes, he said. "You have to reimplement [ERP]. The old way is not compatible."

Much of Varian's analysis is focused on the business-process effects. "You have to make sure what is working in your current system works in S/4," Sarkar explained. For example, the materials requirements planning module in S/4HANA "doesn't work the same" as the one in Business Suite on HANA. On the other hand, reconciling currency-exchange records in the accounting and controlling processes in Business Suite promises to be dramatically simpler in S/4HANA, he said.

Sarkar noted that Varian has talked with SAP about its infrastructure as a service (IaaS) option, HANA Enterprise Cloud, but rejected it. "The cost-benefit analysis of it for us is not there," he said. "We have invested heavily in our on-premises system. 'Cloud ' is an entirely different enterprise model. I just don't know if it's ready." He said cloud versions of S/4HANA are better suited to newer users, especially those with greenfield sites that don't already have ERP.

None of that changes Varian's commitment to move to S/4HANA eventually, according to Sarkar. "We always want to keep our system current," he said. "We have spent a huge amount in the past [on maintenance] when we have not kept it current."

SAP claims Business Suite rewrite mostly complete

In his keynote at the 2017 Sapphire Now conference, Hasso Plattner, SAP SE co-founder and chairman of the supervisory board, said most of the porting of Business Suite functions to S/4HANA modules has been completed, and the vendor is now turning to new features. "Our impression is that we have covered [all the Business Suite functions]. It could be there are gaps because we retired software," Plattner said. "Don't panic. We can look at it, we can talk about it."

The whole race in our industry is to go as quickly as possible with as many users as possible to the cloud.
Hasso Plattnerco-founder and chairman, SAP SE

Yet Plattner also made clear that the software as a service (SaaS) version of S/4HANA, which runs on the SAP Cloud Platform, will be where most future applications are developed, partly because it eases integration with other vendors' data and SaaS offerings. "The whole race in our industry is to go as quickly as possible with as many users as possible to the cloud," he said.

While S/4HANA modules have been released at a steady pace since the product debuted in February 2015, there's still some debate about whether S/4HANA is functional enough for most users, though SAP is quick to dispel any doubt.

"It is full-fledged ERP," said Sven Denecken, an SAP SE senior vice president and head of product innovation and co-innovation for S/4HANA. Denecken said the roadmap will next lead to S/4HANA modules for vertical industries, often co-developed with SAP customers in those industries. By early 2018, SAP plans to add blockchain capabilities to the S/4HANA treasury management module.

Navigating the S/4HANA modules roadmap

When asked for more specifics on the roadmap, SAP usually points people to its Transformation Navigator, a password-protected online tool that lets customers enter their current configurations and business processes and map them to S/4HANA modules in cloud and on-premises versions. The navigator also lists 5,000 integrations to other software, according to SAP.

As for the deployment decision, Denecken said there are three choices: on-premises, single-tenant SaaS (private cloud) or Multi-tenant SaaS. Specific requirements sometimes dictate the choice. For example, German government regulations won't permit cloud deployment of healthcare software, and some manufacturers don't like the idea of sharing a multi-tenant SaaS application with competitors. "It's the same code base, and the data semantics underneath is the same," Denecken said.

Holger Mueller, vice president and principal analyst, Constellation ResearchHolger Mueller

Nevertheless, the vast majority of S/4HANA modules are deployed on premises, according to Holger Mueller, vice president and principal analyst at Constellation Research. Mueller said the 1,000-plus S/4HANA customers claimed by SAP are almost entirely choosing on premises, "which surprised everybody," he said. "I would have expected 30% to 50% would be cloud. Real SaaS -- that's a real minority," a total barely reaching double digits. 

Should S/4HANA modules work the same as in Business Suite?

SAP officials say customers shouldn't expect the old modules to be completely replicated in S/4HANA modules, especially the SaaS versions, since two major benefits of the cloud are simplification and standardization of best practices. "That's never the intention," SAP's Denecken said. "Your future is a simplified way on HANA."

But Mueller said such distinctions are the crux of the S/4HANA migration decision for users and the reason companies with more complex needs have been the slowest to consider moving. He's also not sure how well the SaaS version of S/4HANA meets the needs of manufacturers, which tend to have complex on-premises production systems that must integrate closely with ERP. In contrast, customer relationship management and human capital management (HCM) have long since proved themselves to be well suited to SaaS delivery.

On premises vs. two flavors of cloud

How can users make sense of the possible configurations and deployment options for S/4HANA modules? "It's a pretty simple formula," said Joshua Greenbaum, founder and principal analyst of Enterprise Applications Consulting. "The on-prem and private cloud versions are sort of the original flagship versions, so they're much more extensive. They [have] much more of the industry functionality. They're really significantly more robust. Most of the clients I work with, who are in the large enterprise space, have either migrated to one of those platforms or are planning that."

Introduced last February, S/4HANA Cloud was a "significant subset" of the on-premises and private cloud versions, Greenbaum said, but SAP is devoting major resources to bringing the public cloud version up to parity as quickly as possible. Parity, however, is a moving target because all three versions of S/4HANA are under continuous development. For example, the software for the oil and gas industry has not been fully replicated in S/4HANA modules. "There's a lot of work to be done," he said.

Joshua Greenbaum, founder and principal analyst, Enterprise Applications ConsultingJoshua Greenbaum

The picture is even muddier in HCM. SAP has designated SaaS-based SuccessFactors its primary HCM platform and upgrade path from the on-premises SAP HCM suite. But the HCM capabilities in S/4HANA are limited to time recording, and the vendor pushes integration with SuccessFactors Employee Central as the way to get full HCM features on S/4HANA.

"That's a big dilemma," Greenbaum said, adding that SAP HCM users are struggling with the S/4HANA roadmap, deciding whether to migrate to SuccessFactors and the importance of integration with S/4HANA. Organizations that aren't interested in bringing innovation to their human resources functions should stick with what they have, but if they want advanced talent management, for example, and are moving to S/4HANA Cloud, anyway, they should consider SuccessFactors.

Greenbaum was complimentary about several S/4HANA modules. One of the very first, S/4HANA Finance, brought significant change to the management of basic back-end financial processes, and its use of SAP Fiori technology improved the user interface, he said. The S/4HANA modules for supply chain and logistics introduced last year promise to be a major improvement over SAP's long-in-the-tooth, on-premises offering, Advanced Planner and Optimizer (APO), which Greenbaum called "a dog." The ability to now run supply chain planning in-memory will be "pretty powerful," he said.

"SAP's job in general is to lay out this strategy where the sum of all these pieces makes sense to the customer and they leverage each other," Greenbaum explained. "When you have advanced supply chain functionality in S/4, and you tie that to logistics and you tie that to your manufacturing and parts delivery, you suddenly have this extremely effective digitized company."

Next Steps

Read an S/4HANA migration case study

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