CF Industries on their move to S/4HANA Cloud - "We're not cloud-first; we're business-first"

Profile picture for user jreed By Jon Reed August 16, 2018
Debates on the virtues of cloud ERP will be settled by customers. CF Industries VP and CIO Tom Grooms gave a straight shooting view of the dangers of code customization - and how he's planning for growth with S/4HANA Cloud.

Rail track heading into blue sky with white clouds © Jürgen Fälchle -
Each time I write on extracting value from cloud ERP, I face the question:

Can't this be done on-premise?

Last week, I gave a tentative "yes," but yeah - I'm an advocate for cloud applications. That got me thinking about a refreshing S/4HANA Cloud customer interview from SAP Sapphire Now with Tom Grooms, VP and Chief Information Officer at CF Industries.

A little marketing birdie had whispered in my ear that Grooms was a "cloud-first" CIO. Grooms immediately corrected that:

I don't consider myself a cloud-first advocate. I consider myself more a "do the best thing for the business," and if that happens to be cloud, okay, then we will happily embrace that for all the same reasons everybody else does.

When I wrote that you can achieve modern ERP benefits on-premise, I issued this caveat:

Custom coding the heck out of on-premise systems looms as a catastrophic temptation.

Grooms might not agree with this exact wording, but his story is absolutely about customization lessons learned - and what his team did about it. But Grooms would start with the business, and so should we. CF Industries bills itself as "a global leader in nitrogen fertilizer manufacturing and distribution." It's about "transforming natural gas into nitrogen, helping feed the crops that feed the world." Sounds like a worthy mission.

The "Do it Right" mantra is put to the test

During a sit-down with the always-inquisitive Holger Mueller of Constellation Research, we wanted to know: what makes CF Industries world class? For Grooms, it starts with safety:

We have an industry-leading record on safety. The thing about our product is that you won't meet someone who survives an ammonia spill - it's fatal.

Safety-first works for me. But - a competitive advantage? Grooms says yes:

It's easy to say, “Well then, of course you should be safe,” right? Well, that's different than to actually be safe. To actually be safe takes a really big cultural focus, so our entire culture is around safety. Our own logo is "Do It Right," and so that goes beyond just the safety of handling the product. That goes into the decisions we make in the business as well, even including IT, and including finance or sales.

Do It Right means take the time, think about it. Even if it means that it takes longer and you spend more money - that's okay as long as you do it right.

When CF Industries ran into adversity with their SAP implementation, that mantra was put to the test. CF Industries went live on SAP on-premise ERP (ECC 6) in January of 2014. Grooms:

I wasn't there at that time, but what we learned from that is what set us up for the decision to go to S/4HANA Cloud.

Custom code is not a forward-thinking strategy

With 3,000 employees counting on smooth ERP operations, there's no margin for error. So what went wrong?

Nothing wrong with a third-party, but we utilized a third-party to help us. Rather than adopt our process to fit the technology, we made the technology adapt to fit our business.

That meant lots of customizations. And that spelled trouble:

We customized everything because we wanted to preserve our business process as part of our go-live.

When Grooms joined CF Industries in March 2016, they worked to change those problems:

That's not a looking forward strategy, so all it did was preserve the past. So now we're utilizing things like S/4HANA Cloud to help us think more about the future, and try to adapt. It's not really so much about technology as it is about organizational change management.

As soon as you can't upgrade your ERP, you are boxed in:

We're using ECC today, and we did so much customization that we were unable to upgrade.

Process industries like chemicals do have special transport handling and pricing considerations, but at Grooms told us, that wasn't enough to justify their ECC customizations:

We're not this really unique, niche manufacturer where you would say, “Oh, well that's understandable. You make this really crazy product, of course I understand why you customize.”

Custom code is risky enough when you are addressing unique processes. But Grooms says their customizations were in non-differentiating areas. Or, as he put it, with devastating simplicity:

Nothing that our customers would care about.

Pushing for a fresh start on the S/4HANA Cloud

Grooms believed S/4HANA (Public) Cloud would give them a fresh start and a platform for growth. But there was one problem: convincing SAP to go that route. Grooms, who has prior customer experience with Rimini Street, knows his options. So how did he pull it off?

It started by terminating our support contract.

Sounds like a wake-up call for sure. How did SAP respond?

When I let that lapse, I got a lot of attention.

A flurry of negotiations ensued. Grooms made his case:

I told them: "I would like you to treat me as a new customer.” It took a while, but ultimately they did. It was wonderful that SAP they did that, because it helped them realize where we were coming from, and it helped us be able to get ready and make the right decision.

Grooms was drawn to S/4HANA Cloud for several reasons. CF Industries combines organic growth (e.g. capacity increases) with inorganic growth via acquisitions. They needed an ERP platform to support that:

If you're trying to do both of those things, you need to have an open, standardized set of business processes that you can leverage. Basically, we knew we were going to fail if we ever needed to integrate another business. So we're trying to do that now, before we're faced with an acquisition and then a subsequent integration of a new business.

This is a different kind of ERP move. Grooms isn't using a third party consulting partner. And: no more "big bang" go-lives. In a two-tier twist, they will run their ECC system, based in financials and order management, concurrently, as they gradually move onto the S/4HANA Cloud system. As of Sapphire Now in June, Grooms and team were getting ready for their first go-live wave, after a rigorous process of assessing S/4HANA Cloud functionality.

Closing the cloud functionality gap

To get vertical traction, cloud ERP vendors must demonstrate a strong level of functional parity with on-premise systems. So how is S/4HANA Cloud doing in this case? Grooms:

There's 45 business processes in order management; there's 32 in inventory management. I don't even know how many there are in finance and accounting because I'm not focused on that at this time. But I'm focused on those two areas, because you can break those down and really study them, and then go through the Fit-to-Standard workshop.

The functionality gap is closing fast:

I feel very confident. We spent twelve months analyzing this. We have a 93 percent fit today with the release they have today - 1805 - and by 1811 [November 2018], we'll have 99 percent fit, somewhere up in that range. So there's only like a 2-3 percent gap there that we would have to either wait on the roadmap, adopt a business process, change one of our processes or do an extension - but it's a very high percentage.

After they go-live in these areas, Grooms intends to expand their S/4HANA Cloud move into logistics and plant maintenance - two key areas where multiple systems are now in play. Grooms is hopeful that a close partnership with SAP will bring them a good result. In the past, he's had influence working for huge SAP customers. Now his influence comes from being an early S/4HANA Cloud adopter:

As a leader, I'm looking for the same thing. I'm looking to maximize my leverage.

This is a use case where there is still plenty to accomplish on all sides. We'll be tracking this one as CF Industries gets further into their S/4HANA Cloud pursuits.