By Robert Holland, VP Research, SAPinsider
As the 2027 deadline for the end of mainstream maintenance approaches for SAP ERP Central Component (SAP ECC) and SAP ECC-based systems such as SAP Business Suite, companies have been following different paths as they seek to determine their ERP strategy going forward.
Some organizations have already completed an SAP S/4HANA implementation and are evaluating whether it is delivering the results they need, while others are yet to move away from their existing on-premise systems. The majority, according to SAPinsider’s December 2019 report on SAP S/4HANA in the cloud, are still in the evaluation (35%), pilot (19%), or deployment phase (16%), and many are using this process to evaluate not only SAP S/4HANA, but also the cloud platforms and technologies that have become a key part of SAP’s strategy for the future.
When asked about the top drivers impacting their ERP strategies, all respondents to the survey for the SAP S/4HANA in the cloud report cited cost as a major determining factor, whether it was to lower overall IT spend, reduce the cost of running and maintaining ERP systems, or reduce private data center and IT hardware spend. While having a focus on cost reduction, respondents also cited the push to implement a cloud-first deployment strategy for all new projects as a key factor. A quarter of respondents overall indicated this was a top driver, but among leaders and those in the industry average group the proportion was higher, with nearly a third saying this was a requirement.* In addition, 43% of leaders cited demand for the faster deployment of SAP instances as a key factor, and 62% of respondents overall said that they were already evaluating opportunities in the hyperscale/public cloud environment.
Looking ahead, whether firms end up deploying SAP S/4HANA in an on-premise, hybrid, or fully cloud-based environment, our research shows that the cloud will be a key part of their overall ERP strategies in the future. Technologies such as cloud integration solutions, cloud-based security tools, and cloud management tools will help facilitate cloud adoption, and will also help alleviate the concerns that organizations have raised about the risk involved with a cloud-based deployment in areas such as compatibility, confidentiality, and compliance. They can also continue to leverage the opportunities that evaluating SAP S/4HANA provides to drive knowledge and experience in the cloud space.
Focus on Learning in the Cloud
The first step toward a cloud-based future must be organizational preparedness. Part of this involves building an internal knowledge base so that enterprises understand how the cloud works and how cloud-based solutions are different from their existing on-premise solutions, while another part is ensuring that their data is ready and able to be moved to the cloud. One of the main drivers for moving to the cloud, according to the research for SAPinsider’s July 2019 report on cloud migration, is the pressure to modernize infrastructure, and part of doing this is merging many of the data marts that have come into existence as organizations have worked to meet constantly changing requirements placed on them internally. One of the advantages that the cloud can bring is a central repository of data that reflects a single version of the truth, and that can be used by all the different systems and products that enterprises rely upon for their day-to-day decision making. Implementing something like this requires a plan for how that data will move, and knowledge and expertise on how to move and manage the data once the plan is made.
In the same SAPinsider report on cloud migration, survey respondents rated themselves only slightly higher than neutral, with an average score of 3.29 out of 5, when scoring their organizational strength across 13 different skillsets and competencies related to the cloud. Those that cited results in the cloud above expectations had the highest average strength score (3.49), while those that were lagging in their cloud adoption scored only 3.17. This shows that without investment in understanding the cloud environment, completing a successful migration that meets or exceeds expectations is significantly more difficult.
Using an SAP S/4HANA implementation to learn more about the cloud is a path that allows organizations to leverage investments that are already being made. Nearly a quarter of the respondents to the survey for the cloud migration report indicated that one of the top drivers for moving to the cloud was an SAP S/4HANA migration. In addition, the research for the SAP S/4HANA in the cloud report revealed that those implementing SAP S/4HANA in either a hybrid or fully cloud environment were far more likely to report exceptional performance in their ERP systems. Given that SAP S/4HANA will be the only ERP system in mainstream support after 2027, and that many organizations are still in the evaluation or deployment phase, as mentioned previously, this is a significant opportunity to leverage the evaluation of SAP S/4HANA to develop cloud-based skillsets and competencies. Even if this involves simply running a single report in a low-cost trial environment provided by a hyperscaler, these experiences can help lay the groundwork for more significant future investment and successful outcomes.
Cloud-Based Technologies That Are Driving the Way Forward
Integration has always been one of SAP’s key differentiators — no matter what SAP products were in use, the integration between these products always provided a means to drive business success. SAP S/4HANA is no different in this sense, and includes both predefined and custom integration scenarios.
In keeping with this need to support product integration, one of the technologies that all groups identified as key to moving forward was cloud integration solutions, with 78% of respondents to the survey for the SAP S/4HANA in the cloud report either currently using or planning on using this technology within the next two years (see Figure 1).
Demonstrating its importance in any cloud strategy, the technology that will draw the most investment going forward is cloud-based security tools. Already in use by over a quarter of all respondents, an additional 49% plan to use these tools within the next 24 months.
This connects to the findings in the cloud migration report, where survey respondents indicated that security was the second most important criteria after price when selecting a cloud vendor. Given the number of publicly reported hacks of large corporations over the last decade, it is hardly surprising that organizations are prioritizing security when considering a cloud-based implementation, especially of an ERP system such as SAP S/4HANA.
Drawing only a slightly smaller level of investment is cloud-based intelligent technologies, with 45% of respondents planning to use these in the 24-month time frame, and cloud management tools such as backup and recovery, with 43% planning to use these over the next 24 months. While technologies such as machine learning (ML) and artificial intelligence (AI) have some of the lowest current usage rates in the survey, the fact that this area will draw some of the highest investment from organizations implementing an ERP strategy for the cloud reflects that these same organizations either view them as a way to gain a competitive advantage, or want to ensure that they are not falling behind their competition. Also, any cloud-based strategy will require backup and recovery tools that will likely also help organizations manage the data model.
Experiences Build Outcomes: Advice for a Successful Migration
Regardless of the immediate goals SAP customers have for SAP S/4HANA, SAP is offering many opportunities for companies to innovate in the cloud space and has provided a path toward the cloud using SAP S/4HANA as a vehicle for learning and success. The timelines set for the end of mainstream maintenance of existing SAP ECC systems mean that organizations will need to start down that path soon, and there are steps they can take that will help make any migration to the cloud or implementation in that space more successful:
- Experience in the cloud is required to build successful outcomes. The cloud can be a complex environment, especially if organizations are looking to merge existing data sets and manage a much larger data model in the cloud while leveraging the ability to access that data from multiple products. Learning as much as possible during the evaluation and pilots of SAP S/4HANA can help with gaining this experience.
- Learn from those that are already active in the cloud. While building your own internal skillsets, look to learn from those that are ahead of you on the cloud implementation path. Whether in case studies and interviews from SAPinsider, or through user groups and conferences, leverage their experience to drive your success.
- Be prepared for your implementation. Building a plan for your data organization, how your data will be moved back and forth between your on-premise and cloud-based systems, what data you may decide to keep on premise, and how much data cleansing will be necessary to facilitate the use of technologies such as ML and AI are critical parts of your success. So too is being informed about what your cloud provider offers, and whether that meets all your needs or you require multiple providers that each address a different need.
- Ensure that you know how your system is performing. When you move to the cloud, things such as deployment, administration, and control will change. To achieve success, it is important to have meaningful KPIs — in availability, reliability, and response time, for example — to help you understand how the cloud is performing for you.
Following this guidance will help SAP customers get the most out of their evaluations of SAP S/4HANA and move toward a successful future in the cloud using that experience.
* Leaders are defined as those ahead of the competition with their ERP speed, availability, ease of management, and total cost of management. The industry average group is defined as those equal to or somewhat ahead of the competition.