by Amr EL Meleegy, Principal, Presales Enterprise Architect, SAP
To date, over 13,800 enterprise customers have chosen SAP S/4HANA as the catalyst to accelerate their digital and business model transformation journeys.
At its core, SAP S/4HANA helps simplify all layers of the classic SAP Enterprise Resource Planning (ERP) stack. It collapses transactional and analytical processing with a modern, in-memory columnar store database. It simplifies the application layer, allowing organizations to run advanced business capabilities, such as Capacity Constrained Production Planning (PP/DS), and advanced available to promise (aATP) capabilities, such as product allocation and advanced back order promising. The solution also offers a new user experience that is personalized based on business users’ roles and responsibilities and can operate on any device.
In the past, I have shared some of the benefits of bringing advanced functionalities like PP/DS and aATP into the core. In this article, I will shed some light on a new advanced capability, subscription order management (SOM), which has been folded into the SAP S/4HANA digital core. You’ll learn how SOM can empower organizations to evolve their business model into one capable of selling products-as-a-service to generate new and predictable revenue streams.
Business Model Transformation
As cliché as it sounds to be referencing companies like Uber, Airbnb, and Netflix in 2020, there is no doubt that these companies have demonstrated to the world the untapped potential that moving from selling products to selling products-as-a-service can open up for many industries.
Not only does such a model eliminate the barriers to product adoption by reducing the upfront costs that customers have to pay to get access to a product; it also generates a predictable and recurring revenue stream for the enterprise implementing it, which in turn directly impact its future cash flows and thereby market capitalization and valuation. This Harvard Business Review article explores in more detail the stock valuation impact for organizations that moved to a product-as-a-service model.
However, this transition from selling products to selling products-as-a-service is easier said than done. One of the core requirements to successfully execute this transition is an organization’s ability to move from a fixed, one-time and upfront charging and invoicing model to a more flexible consumption or subscription-based model where customers are charged based either on a recurring fee or based on their actual usage of a product or service. This is where SAP’s Billing and Revenue Innovation Management solution comes into play.
Introducing SAP Billing and Revenue Innovation Management
SAP Billing and Revenue Innovation Management (formerly known as SAP Hybris Billing) is an SAP solution that supports industries that have high-volume subscription- and consumption-based billing and invoicing requirements, such as the telecommunication and utilities industries.
Today, as the line between industries continues to blur and more companies begin to mimic these subscription- and consumption-based charging and billing models, SAP Billing and Revenue Innovation Management is more frequently introduced to SAP landscapes in new industries, such as high-tech.
SAP Billing and Revenue Innovation Management is comprised of five main components (see Figure 1):
- Subscription Order Management – responsible for creating the subscription order document which is the core object that triggers all subsequent SAP Billing and Revenue Innovation Management activities and has the capability of bundling both physical and subscription orders together.
- SAP Convergent Mediation by Digital Route – a third party partner solution (solution extension) responsible for interpreting usage and consumption signals and converting them into an SAP readable data format for downstream consumption.
- SAP Convergent Charging – responsible for triggering subscription bills and digesting incoming signals from SAP Convergent Mediation and converting them into billable items.
- SAP Convergent Invoicing – responsible for consuming the various billable items generated from SAP Convergent Charging and aggregating them into a single invoice that can be sent to the customer
- SAP Contract Accounts Receivables and Payables – an SAP S/4HANA accounts payable and receivable subledger built for high volume pay-per-use accounting.
Taken together, these solutions can help customers transform their charging, billing and end to end Order-to-Cash process to one that supports subscription and consumption-based billing.
Figure 1 — View of the SAP Billing and Revenue Innovation Management and How Subscription Order Management is Being Folded into SAP S/4HANA
SOM, Now Folded into SAP S/4HANA
SOM has traditionally been part of the customer relationship management (CRM) backbone. As such, customers who wanted to deploy SAP Billing and Revenue Innovation Management into their SAP landscapes would have had to deploy an SAP CRM system and deal with the added cost and effort of maintaining the middleware required to replicate master data and other necessary objects between CRM and their ERP systems.
In cases of very large SAP ERP footprints we have even seen customers carve out their entire digital/ subscription businesses into a separate new ERP environment and deploy SOM in that new environment. This ERP split led to a lack of 360 view of the customer as incoming customer orders were split across two ERP systems, lower customer satisfaction, and weaken net promoter scores. This complexity also presents a challenge for customers who are looking to simplify their landscapes and who don’t want to carry over the technical debt associated with either the middleware integration or an additional ERP environment.
Today, and with the latest release of SAP S/4HANA 1909, customers have the option to deploy SOM (renamed SAP S/4HANA Service) as part of their SAP S/4HANA digital core, enabling them to both streamline their IT environments and open up a completely new recurring revenue stream for their business at the same time.
Sample Order-to-Cash Business Process
An example of a business process flow in an SAP S/4HANA and SAP Billing and Revenue Innovation Management environment (see Figure 2) begins with a customer placing an order for a product-as-a-service in an SAP (e.g. SAP C/4HANA) or non- SAP e-commerce platform. This order would then make its way to SAP S/4HANA Service (aka SOM) via SAP Cloud Platform Integration.
Figure 2 — Sample SAP S/4HANA and SAP Billing and Revenue Innovation Management Process Flow for an Order That Contains Both Physical and Nonphysical Items
Once SAP S/4HANA Service receives the order, it would trigger the creation of a provider order which, as mentioned earlier, is a unique SAP order document type that is capable of handling both physical and non-physical products together. The provider order subsequently creates a provider contract that constitutes the long-term agreement between the customer and the provider around consuming the product-as-a-service.
In scenarios where both a physical and a nonphysical order are involved, SAP S/4HANA Service would trigger the creation of a classic physical SAP sales order (see figure 2) to initiate downstream physical delivery and inventory movement processes. Additionally, in scenarios where SAP Entitlement Management systems are in place (not shown in Figure 2), SAP S/4HANA Service would also trigger the provisioning of the necessary entitlements and privileges.
Once the provider contract and entitlements are setup and the products are delivered to the customer, the customer can then start consuming the product-as-a-service which is where the remaining SAP Billing and Revenue Innovation Management components come into play.
Once customers start using the product, consumption, usage and Internet of Things (IoT) signals from the product would flow into SAP Convergent Mediation by DigitalRoute, where they would be processed and converted into SAP readable data formats and sent to SAP Convergent Charging.
The SAP Convergent Charging module would determine the rating and charging to arrive at the billing amount. The billing amount is then sent to the SAP Convergent Invoicing module in SAP S/4HANA for aggregation into a single invoice to be sent to the customer. Subsequent accounts receivable process would then carryover using the SAP Contract Accounts Receivables and Payables component of SAP S/4HANA.
Next Steps in Your SAP S/4HANA Journey
Moving from selling products to selling products-as-a-service is just one example of how enterprises are transforming their business models with the help of SAP S/4HANA and other SAP solutions, such as SAP Billing and Revenue Innovation Management.
As more advanced functionalities and machine learning capabilities are folded into the SAP S/4HANA digital core with every new release, more and more customers are being empowered to push the boundaries of their industries with new and innovative business models.
If you would like to learn more about how SAP S/4HANA can help you accelerate your company’s digital transformation journey, I invite you to check out the SAP Business Scenario Recommendations tool and start charting your very own company-specific SAP S/4HANA business transformation journey today.
MEET THE AUTHORS
Amr El Meleegy is Principal, Enterprise Architect, at SAP. Prior to his current role he was a Principal Value Advisor with SAP Digital Business Services helping enterprises identify the economic impact of modernizing their ERP and enterprise software applications. Amr started his SAP career 9 years ago in product marketing where as Sr. Director of Product Marketing he helped launch and take to market SAP’s next generation cloud ERP. Amr received his MBA from the Haas School of Business in Berkeley, CA and earned his bachelor’s degree in Engineering from Cairo University in Egypt. He lives in San Francisco with his wife and two cats and spends his spare time turning wrenches under his car.