The definitive guide to making a successful SAP S/4 HANA business case

Following last week's SAP Q3 FY2016 earnings call, I caught up with Marcus Schwarz VP and general manager, S/4 HANA to discuss S/4 HANA specific metrics. These are vitally important because S/4 stands as the underpinning for SAP's foray into meeting the demands of the digital enterprise. During the call, we discussed what the 2016 business case now looks like. It's something I can buy. But first, let's get the numbers out of the way.

• During the quarter, SAP added 400 new customers bringing the total to 4,100. 40% are net new names.
• The total existing customers who have done deals now represents something like 6-7% of the market SAP owns, excluding net new. If you factor in net new then the number jumps to 11%. There is, in other words, a long way to go but the company is satisfied with progress to date.
• SAP does not provide a split between on-premises and cloud numbers but informal field inquiries by me suggest it is roughly 50/50. Note that when SAP talks about cloud in this context it is really a hosted solution.
• As previously predicted, 60% of projects are full scope on version 1511. That leaves 40% as S/4 FIN (Simple Finance.)
• Most projects are either divisions of global customers or are Mittelstand type customers. These are larger mid-market customers. There are no strategic customers at this time.
• The number of go lives now totals 350 but Schwarz expects that to double or triple by Q1 FY 2017. That should not surprise, as you'd expect significant go lives in the early part of the fiscal year.
• Release 1610 is on track to come out in a week or so's time with a cloud release in the November timeframe.
• Within industries, consumer products businesses dominate take up, accounting for 500, the remainder are across the board at roughly 100-200 each. Media and entertainment is also doing well.
• All customers are expressing an urgency to undertake projects that allow for some degree of digital transformation which includes automation of routine processes but also the ability to refresh or add business models.
• There is now a dedicated S/4 cloud division.

One interesting point when talking about business models. Schwarz said:

Businesses are seeing a blurring of business model types. So in chemicals for example, some companies are making parts for automotive which means mixing process and build to order or batch in the same business. In the past, this would have required separate instances but we can accommodate both in a single instance.

Just think about that for a moment. This means SAP customers who are working on business model migration and/or additional models can respond more quickly to new requirements and don't have to concern themselves with additional implementations. That is a big step forward that will allow customers to concentrate on modeling for business imperatives rather than IT investments.

Connected applications

The big news though comes in the form of connected applications. What do we mean?

A practical example provides a better way to understand the topic. Here's how Schwarz put it to me:

Every customer is trying to work out what digital transformation means for them. They know they need to be customer facing in some way and that might be where hybris fits in. But then once you've done that, you still have to think about how you're going to track the orders which may be smaller in value but higher in volume in a refreshed model. That means passing data to the core (S/4 HANA) so that the transaction piece can be handled in real time. Then you have to consider how products or services will be sourced so you might need access to the business network we have in Ariba. Again, data has to flow back to the core to be processed, preferably without needing human intervention. While all this is happening, you still need to optimize the model and perhaps look at reviewing the labor component using Fieldglass to source contingent requirements while all the time remaining in compliance for your industry. The business cockpit brings that together for all the management stakeholders.

I like this way of looking at a business. It appeals to my consulting mentality of not just giving the customer what they think they need but giving them something that will solve their whole problem.

To my mind, this is a much more strategic and simpler way of looking at what at first appears to be a single business problem and ensuring that you have not solved for one thing without considering the knock on impacts that could also be solved through a variety of components that, in this case, make up the SAP portfolio. What's more, this approach can readily be applied to a division of a larger, autonomous entity and act as a working proof of concept for ite3rative rollout.

This was the first time I had heard about the portfolio expressed in this way. The speed and flexibility that SAP touts in S/4 HANA now makes much more sense than simply talking in terms of a re-implementation of ERP with which SAP has had so much trouble in persuading its customers.

Bill McDermott CEO SAP likes to talk about:

Core to the edge and edge to the core

as a way of quickly summarizing how S/4 HANA operates as the digital core while solutions like ECC, Ariba, Fieldglass and hybris sit more at the edge but work with the core, with content digested both ways.

To my mind that's a bit of a fluffy mouthful best reserved for the end of a business transformation conversation rather than as the opening gambit. Why? The variety of business problem that Schwarz is seeing is infinitely variable, something I mentioned at the last call. SAP therefore needs to have a consulting led engagement with business oriented folk who can synthesize a problem or topic and then assemble an appropriate solution. If the company wants a moniker against which to hang all this then we'd recommend Phil Wainewright's 'Frictionless Enterprise.' (TM)

My take

It's taken some time and a lot of discomfiture over the years, but I think we've finally got to a form of messaging that takes SAP customers on a journey they will understand. That still leaves some open questions. Will the required integrations all work in harmony? SAP will say yes but then we need to see the customer stories that prove the point.

SAP's cloud story is still muddled. Whether that matters in the short term is moot but with its own data centers, AWS and Azure as partners, SAP is at least offering a differentiated choice, albeit in co-opetition with Amazon and Microsoft. It will be useful to start seeing where these particular bets are falling among customer installs.

This is all about HANA and the inevitable lock-in that represents. How will SAP nurture a platform play such that ISVs will feel it is worthwhile building the numerous adjacent applications that will surely be needed? Here, companies like Salesforce are well ahead of SAP's curve. SAP for its part doesn't have a great track record of partnering or discovering and supporting those startups that will make the last mile difference. It remains a source of sadness that I met with something like 70-80 startups in the period 2012-14, all of which had promising content and not one of which I've heard survived and thrived.

SAP sales people will doubtless be delighted at the possibility of cross-selling the entire portfolio but there will need to be careful customer management and the setting of appropriate expectations. Promising the earth is not something SAP customers are likely to be over excited about. They've heard that playbook before and weren't impressed by the outcomes.

The picture Schwarz is painting now means that while analysts will focus on S/4 HANA, as they should, those same analysts should also look more closely at what SAP says about portfolio revenue. More transparency on the component parts SAP reports upon will help in that regard.

One point in all this that is easy to miss. Hybris is a world class omni-channel solution that commands a good chunk of market share. Fieldglass comes at the right time as companies consider re-shaping their workforce. EC/SuccessFactors is starting to deliver impressive results. Those are excellent assets with which to complement an S/4 HANA story. I'll let you know my thinking about Ariba once I've had upcoming briefings with that group's leadership. My point is that this portfolio play now makes sense to a customer base that has, in the past, been sold piece parts.

Finally, I look forward to my next conversation with Schwarz. They are valuable conversations and helpful to understanding how this story plays out. By that time, I will be pressing SAP to speak with implemented customers. I also look forward to hearing from SIs who are in the field to discover their learnings and recommendations. Check this story for example from iTelligence which offers one example.