As the ever-expanding digital economy drives decision makers to demand more from their IT infrastructure, we teamed up with market leading research firm Forrester to try and uncover the truth behind the role that SAP systems play in digital transformation strategies. Leading analyst George Lawrie, Vice President and Principal Analyst at Forrester Research, joined us to discuss the pressures that companies are feeling, what they can do to respond, and how SAP fits into the picture.
1. What kind of disruption do Forrester clients experience – either internal or external – that may be causing them to undergo transformation projects and re-assess the state of enterprise applications such as SAP?
Forrester clients, in common with other large firms, must face the challenge of digital disrupters in their markets. We all know about Uber and Amazon, but buying behavior has changed in every industry. This means that all firms face both the potential for new competition and the need to provide their customers with much greater transparency and a consumer-grade ease of interaction.
Increasingly, firms want to simplify their customer service. Many Forrester clients have used digital technologies to reach new markets and to extend the range of their offerings, but each such development requires adaptation of the core enterprise system to adequately manage, for example, product or customer profitability.
Firms continue to make acquisitions, merge, and restructure through divestiture. In recent years, Dow and DuPont have merged and HP split into two separate companies, while Procter & Gamble spun off some personal care brands and Reckitt Benckiser acquired numerous home care brands. Each type of restructuring requires the firm to adapt its enterprise applications (such as SAP) to serve the new structure, complete with a new chart of accounts, new policies and procedures, and new sets of dashboards and reports.
2. What high-level strategies can businesses adopt to align SAP systems with the needs of today’s digital business?
Most firms start by simplifying their SAP landscape. Wherever possible, they upgrade to the latest SAP release, absorbing as many modifications and extensions as they can in the process. They also reduce the number of SAP instances they run, possibly through system consolidation. Some firms run BW on Hana to get some experience and then progress to Enterprise Suite powered by SAP Hana (colloquially “Suite on Hana”) and S/4Hana Finance.
In our research, we found organizations rethinking their applications in the light of new possibilities. One beverage firm, for example, pointed out that it had to rethink the concept of product and customer profitability. In the past, it expected every product manager to review the performance of each product and customer at least monthly. As digital technology enabled its product managers to test and introduce many more products and segment its markets more finely, it had to evolve a culture of exception management, alerting managers only where products or customer channels overperformed or underperformed against expectations.
We also found that early adopters of S/4Hana Finance were targeting “lights out” finance operations that capture transactions without human intervention directly from electronic invoices. Such a system might also onboard suppliers directly from sourcing applications. We found that these early adopters were delegating budgetary control to budget holders and providing a high level of transparency to help them to understand, and even simulate, the likely cost and revenue impact of each policy option they consider.
3. Given the complexity of SAP system consolidation, in what circumstances would firms consider it an appropriate option?
While there can be some savings in IT cost from consolidating instances, these are usually far smaller than the enormous business benefits delivered by the enablement of group-level cross-selling and upselling across business unit customers.
Firms should consider SAP instance consolidation when there are clear business requirements. For example, in the case of Dow and DuPont, it was important that common customers could be recognized in a single instance, for the purpose of credit control and to ensure a consistent group-level customer experience.
We found examples of system consolidation to capitalize on new operating models, such as centralizing credit control or treasury functions across a group of business units. We also found cases in which firms provided greater levels of transparency to their suppliers, such as exposing the supplier invoice approval process and securing improved group-level discount and supplier credit in exchange.
Some firms wish to consolidate instances to ensure appropriate global consistency of recipes in process manufacturers, of bills of material and work center routings in discrete manufacturing, and of ‘available-to-promise’ inventory in multimarket, multiplant manufacturing. Most interestingly, with the new Hana database, we are seeing some firms run ECC and other SAP applications such as Supply Chain Management or Customer Relationship Management in the same environment.
4. How mature is S/4 for a large organization using a lot of features of the current ECC release? Is it sensible for them to wait until S/4HANA covers more of their core business?
Forrester has some clients that have the luxury of waiting before moving to S/4. However, many are anxious to start their journey, and they must build a cross-functional team and a business case to get started. Since the business case is about transformation — a different way of working — it needs very high-level visionary support and commitment. In our view, this is the reason for relatively slow adoption. We believe that there are 3,200 S/4Hana licensed customers, more than 200 of which are currently in live production on the core accounting module. Early adopters described significant advantages despite a limited rollout scope.