SAP S/4HANA Upgrade: Is it really worth it for your organisation?

With over 8,700 customers of SAP on S/4HANA and many hundreds going live every month, organisations see S/4HANA as a game changer. Designed to work with its inbuilt memory database HANA to reduce redundancies and speed up processes, S/4HANA also provides AI/ML, BI and real-time analytics capabilities to automate processes and assist real-time decision making.
However, there are downsides, not necessarily in the technology. SAP systems, for many companies, have become the beating heart of the organisation. Thus, making an upgrade needs proper planning and roll-out, along with user training. Any oversight at any step can lead to organisations not reaping the benefits of the upgrade from day one. There have also been cases where the upgrade had to be rolled-back due to mistakes in the planning and implementation phases. In this blog, we will look at some high-profile failures and what organisations can learn from them. Before that, let us look at the pros and cons of moving to SAP S/4HANA.

SAP S/4HANA: What does it give your organisation

In our previous blog, we covered the various benefits an organisation can gain in adopting SAP S/4HANA. To touch upon a few:

• Automate business processes leveraging AI/ML capabilities
• Aid real-time decision making though real-time BI and analytics capabilities
• Remove redundancies to improve and speed up business processes
• Improved user interface for better user experience and ease of use
• Decreased spend and increased savings by eliminating multiple platforms
• A Highly scalable solution that will help making enhancements and movement to cloud easier

SAP provides industry-specific customisations and solutions which are tailor-made based on best practices available for the industry.

Downsides of SAP S/4HANA

Every technology, new or old, will have its downsides. Similarly, S/4HANA is not free from this. With customers, some large, having built their enterprise systems and processes on earlier versions of SAP as the base, a few are finding it difficult, complex and time consuming to move to S/4HANA. Many SAP installations are highly customized which adds unique complexity for each client when planning a move to S/4HANA. Considering these issues, numerous organisations have held back from moving to S/4HANA. Let us look at some other downsides, that are being widely discussed:

• Compatibility with databases other than SAP HANA

Being built on SAP HANA gives S/4HANA an advantage of faster processing, however lack of features to work with other databases is seen as a downside. Since many organisations use multiple databases for their processes, having to move away from them requires a lot of time and effort (more on that later)

• Limited Technical Expertise available in the market

S/4HANA is a relatively new technology but it is being adopted at a rapid pace. Being a young technology, the number of experts available in the market is limited. This means that an organisation might end up spending more time with the SAP teams to build the use cases and implement them, who may or may not align with the larger business goals, or the organisation may shell out extra money to hire an S/4HANA expert.

• Re-engineering and revamping

Setting up S4/HANA with other databases is complex, and the existing processes and systems might have to be re-engineered and revamped. It will require an investment of time and resources, and the complexity increases with customizations. 

• Change in existing business processes to suite features of SAP S/4HANA

Based on our experience, we have seen some of our customers having to modify their business processes based on the available features in S/4HANA. Whether small or large, analysis of the existing business processes will need to be undertaken to understand how they may be impacted by the way S4/HANA operates.

• Takes time to learn

Do not assume that an existing user of SAP will be able to walk straight into using SAP S4/HANA. Training on new features and functions is almost inevitable in any organisation, and it might take longer in the case of S/4HANA.

• Hefty upfront financial investment and slower Return-on-Investment (RoI)

Moving away from legacy SAP systems (e.g. SAP ECC) to S/4HANA is a considerable financial investment for any organisation. Companies must factor in re-engineer processes and systems, re-engineering of data, and business planning, training, before they can even get to the implementation costs. New systems will take time to mature to the level of the existing systems with users probably showing the biggest impact in terms of lost productivity. Careful attention must be given to the Return-on-Investment case before undertaking the migration.

Top S/4HANA upgrade failures

The above-mentioned drawbacks are primarily non-technical. SAP provides great assistance in the migration by providing specific tools and expertise. Even with these drawbacks, the pros of S/4HANA outweigh the cons and given the right migration and implementation strategy, any organisation can reap the benefits of adopting S/4HANA. The focus is on the RIGHT strategy there are some notable failures and lessons to be learnt. 

• In 2019, an American multinational cosmetic, skincare, fragrance & personal care company carried out the SAP S/4HANA implementation, but it got delayed due to which reporting deadlines were missed and orders did not come through. Due to this the company was unable to fulfil product shipments of approx. USD $64M and it incurred $53.6M of incremental charges. Risks were not well documented, planned, quantified, understood and mitigated.

• A German confectionery company known for its gummy bears, kicked off the SAP upgrade in 2018, but soon ran into troubles, resulting in stalled deliveries and production leading to reduced sales. Due to lack of proper planning, hastening of S/4HANA implementation across its 16 plants over 10 countries without understanding the business requirements completely led to the failure of this implementation. This led to a disrupted supply chain further resulting in dip in sales.

• A lot of things went wrong with the implementation of S/4HANA at an international company specializing in automobile leasing and fleet management. First, the company had 35 different industry-specific systems and consolidating them was an operational and managerial challenge. Second, the company was undergoing a reorganisation in their business model, wherein they were looking at implementing disruptive business models, that did not align well with the digital transformation strategy (S/4HANA implementation). Finally, the company wanted to roll-out the new systems across all the locations at once, rather than in a phased manner. Additionally, there was no proper change management plan in place and people issues relating to the digital transformation were not addressed. Eventually, the company had to pull the plug on the upgrade and had to write off close to 100M Euros.

• One of the most talked about cases is the case of S/4HANA implementation at a multinational electricity and gas utility company based in Europe. The payment system was riddled with issues post the implementation, leading to irregular payments to employees, partners and other parties. It also led to major audit issues for the company, as well as disrupting their supply chain and procurement. Several lawsuits were filed, with the service provider involved in the implementation paying $75M as settlement, as well as multiple million dollars were written off by the company.

What can be learnt from these failures?

Most of the issues mentioned above are usual challenges in any project implementation. But since SAP systems are the core for the organisations and their usage is widespread; the effect is amplified. Like any other project implementation, it is important to have the right strategy in place to avoid failure. Some other common trends that can be observed are lack of proper roadmap, lack of change management plan, misalignment of digital strategy with business goals, and not factoring in for operational disruptions. While thinking about making a move to S/4HANA and drawing up the plan, organisations need to factor in the below:

• Reengineering business process is critical: Invest time and resources in ensuring that the existing business processes are correctly mapped, and knock-on effects are studied and factored in,
• Align the goal of the migration with the business/organisational goals to reap maximum benefits,
• Create and execute a change management plan to ensure all relevant stakeholders including employees, suppliers and customers are considered,
• Testing, testing and testing: Testing of the internal systems, along with all interaction points with other downstream and partner systems is a must to ensure no critical disruptions are caused post go-live, and
• Choose an implementation partner who can bring in experience and skills needed for such major transformation

In our experience, SAP implementations are too SAP-centric, and they fail to take sufficient account of integrated systems, sometimes built around third-party applications, and the knock-on effect changes can have. One classic case is the exchange of files between an organisation and its suppliers. The supplier systems are designed to receive files in a specific format and type from the SAP based systems. Due to re-engineering of these systems or the default file format being changed in the SAP system, the format/type of the file flowing-in through the new upgraded system might be different from what the supplier system is configured with, and hence the system might fail. This will lead to a disruption in the file transfer and will have further knock-on effects on the system. 

Proper testing and inclusion of partners in the planning strategy is essential to avoid this issue.

There are a few more such examples where the upgrades can fail in the dependent systems within the ecosystem (both upstream and downstream) that we will see in our next blogs. Want some advice or consultation on this topic? Feel free to drop your queries in the section below or shoot an email to info@coliance.co. We are here to help you.