A CIOs checklist of S/4 HANA questions for SAPPHIRE Now 2015

Brian Sommer Profile picture for user brianssommer April 28, 2015
Brian Sommer offers CIOs his starting checklist for those interested in S/4 HANA. It's not a slam dunk.

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(via SAP)
SAPPHIRE Now, SAP's annual confab is just a few days away. Without a doubt, the show will be buzzing about the recent announcements re: S/4 HANA. This solution is the reworked, cloud and in-memory version of SAP’s classic Business Suite. It’s a major upgrade for the product line as it modernizes a lot of the underlying technology, speeds performance and can reduce the amount of redundant data stored within its database.

But with all this change in the product, R/3 ECC customers will have many questions. They’ll want to get comfortable with the business, technical, process, deployment and other aspects of the change before they take the upgrade leap. I know I would.

So, if I were one of these customers, I’d start my introspective questioning by first remembering some key things about ERP systems. For example:

  1. ERP projects can be VERY expensive. I was personally involved in numerous 7-8 digit deals. I am aware of many 9-digit deals. One spectacularly large ERP project clocked in with over a $1 billion in costs before the implementation itself was scrubbed. As we say in Texas, these projects don’t cost ‘front-pocket’ money. Shoot, they’re not even ‘back-pocket’ money. This could be 'get a mortgage' kind of money for some companies.
  2. The ROI of ERP deals used to be huge but has waned over the years. Why? The first time you automate a process, there are often big efficiency and effectiveness savings opportunities possible. But, after a process has been automated once, any subsequent re-automation effort will only generate smaller, incremental benefits. And, when you re-automate the same process a second, third or fourth time, there’s pitifully little in benefits to grab.
  3. Top executives don’t like to drop big coin on capital intensive projects unless there’s a compelling reason to do so. These people know that capital is not free and they’d rather invest in new products, buildings, capital equipment, etc. if it has a better ROI.

diminishing returns
Long ago, software salespeople quit trying to sell a lot of back office and ERP software based on ROI as they knew they couldn’t quantify benefits in excess of the fully loaded cost. Instead they started using another concept: TCO - total cost of ownership. Vendor after vendor started pitching that their TCO was lower than a competitor’s. It was a pretty sketchy sales practice then and it’s still bad now.

I remind you of all these things as SAP will need to convince its existing ECC customers to make a big move that could be akin to a re-implementation of the software. So, let’s imagine the conversations to come in board rooms and executive committee meetings around the world. Let’s imagine what these titans of business will be wondering:

  • So, will our firm get any material BUSINESS benefit from this transition to S/4 HANA? Or is this mostly a technology refresh? If the latter, then what’s the hurry?
  • Why is this upgrade more important than other capital intensive projects that our firm needs?
  • Are we going to do this all-at-once or in stages?
    • If all-at-once, then when will all modules of S/4 HANA be ready for us to implement? Can we wait that long to modernize this much of our technology stack?
    • If all-at-once, is this something our IT department can do on its own or will we need help from an integrator or outsourcer?
      • How are these integrators and outsourcers gaining experience with this radically different solution? Would we be well-advised to wait things out and let these integrators gain expertise on someone else’s nickel?
    • If all-at-once, how will we test this to ensure we don’t suffer a conversion fiasco like Hershey and others did?
  • Is there any way we could chunk this up into several sub-projects so that it doesn’t overtax our already busy IT staff? If so, how would that work given the super-integrated nature of the SAP products we’ve already got installed?
  • I thought we outsourced a lot of the maintenance and operation of our SAP R/3 or ECC software to an outsourcer. Why aren’t they doing this upgrade for us for free as part of our outsourcing agreement? Do we need to find a different outsourcer who will do the upgrade as part of us transitioning this software to their firm?
  • What if we want to take this back in-house and put it on a private cloud? How is that going to work? Where would we get the SAP expertise in-house to do this? Does this option even make economic sense?
  • How many people are there that have the technical skills to make this S/4 HANA upgrade work?
  • I don’t recall seeing any training requests from IT to get staff trained on S/4 HANA? Why wasn’t that in the 2015 budget? Will it be in the 2016 budget and, if so, who’s paying for it and how much will it cost?
  • If we move ahead with this upgrade, what IT projects are going to get deferred or cancelled? Which business units will not get their requested systems? What was the justification for this?
  • It’s my understanding that S/4 HANA is not a multi-tenant solution like Salesforce. So, aren’t we missing out on having SAP maintain the software for us as part of our subscription cost? Our current maintenance costs and labor are already significant. Why aren’t we getting a multi-tenant solution?
  • What happens to all of those customizations we made to our SAP solution? Those were things our business spent a lot of money on and will want to see them reflected in the new solution. How will or can these customizations get in the new solution?
  • Will we need to recreate/re-write all of our integrations? We must have hundreds of systems connecting to our SAP software today. Do we have to pay for this? Is SAP pre-testing a lot of the common interfaces e.g. to ADP, Salesforce, etc?
  • What happens if we don’t want to do this? Can we wait it out? For how long?
  • On a risk-adjusted basis, I just don’t understand how we’re saving money on this upgrade. If our subscription costs are close to our old maintenance fees, but we have to license HANA DB and acquire a bunch of private cloud hardware and systems software, how does this make economic sense? Is SAP reducing its pricing to reflect the more efficient software?

I suspect a lot of CIOs attending SAPPHIRE will be trying to get answers to questions like these. They’ll need to have comprehensive answers as they know they’ll get hammered at the executive committee if they’re not prepared.

In 2009, I recall a major firm’s CIO speaking at a tech event. He said he had to go to the board to get approval to implement SAP globally. It was the biggest deal they’d ever done in that firm’s IT history. He indicated that they got a lot of benefit from freeing up inventory and helping the firm’s free cash flow as a result of the project. But, he added, he doubted he would ever be able to get that kind of capital for an IT project again.

So, if the initial SAP ERP implementation years ago was a once in a career event for a CIO, can another CIO get this big upgrade green-lit, too? Maybe, if that CIO is as prepared as a Boy Scout……

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