How to safely switch to SAP S/4HANA in your business

What are the conditions for successful implementation of S/4HANA?

Slawomir Tarkowski
Business Transformation Manager in IFAO Consulting Team in Business Services in Capgemini

In the period of increased technological progress, which we are currently witnessing, giving up digitalization and real-time data processing is a bit like resigning from using electricity in the 20th century. Our FPIA Consulting team is very well aware of this situation. For years we have been working with clients from all over the world on the digital transformation of their businesses, and part of that transformation recently has been the implementation of a next-generation ERP system – SAP S/4HANA. Migrating to the new system comes with new terms of use, something SAP informed customers about in 2015. It announced then that earlier versions of SAP’s software, R/3 or ERP, would be maintained only until 2025. This means that by that time, companies that are already using SAP’s application, i.e. the vast majority of large corporations, should switch to S/4HANA so that they can continue to benefit from the continued support of this system in their development. This leads to the final conclusion and it is no longer a question of whether it is worth migrating, but when is the best time to do it and how to do it intelligently?

Change is constant. Yes, but happening faster and faster!

The number of changes and the speed at which they occur in the environment surrounding companies is constantly increasing. Innovations, new technologies, social and labor market changes, as well as events related to climate change and the recent pandemic mean that the world is not slowing down, but on the contrary – accelerating. Changes are not only happening faster and faster, but they are also becoming more and more difficult to predict and plan for. This increases the pressure to make many decisions in a short period of time, despite their considerable importance and impact on the further fate of the company, its employees and ourselves.

Imagine, for example, that you are a large entrepreneur who conducts business in 20 countries, where he has stationary sales – stores – and online – 3 factories – which produce 60% of the offered assortment (the rest comes from other suppliers) and employs a total of 15 000 people. And suddenly overnight the running of this business becomes severely restricted due to the lockdown associated with Covid-19. What do you do?
One thing is for sure, you will need a lot of information from many places and different areas to know what to do next and what decisions to make. How have customers reacted? How are sales shaping up across product areas and sales channels?  Are employees at work or in quarantine? Are there problems with deliveries? How much financial resources does the company have and how long will they last? Are customers paying their debts normally or not? And many other pieces of information. In such a situation the timing of receiving this information starts to play a key role.

What is SAP S/4HANA?

Before we get back to our entrepreneur, I would like to give you an overview of what SAP S/4HANA is and how this new generation of ERP system can impact our entrepreneur’s situation.

S/4 HANA is an abbreviation from English where „S” stands for Simple, 4 stands for fourth generation of SAP system and HANA stands for High performance ANalytic Appliance. While the topic of S/4HANA is very broad, for the purpose of this article we will focus on its most important functionality – real-time data processing at high speed and the possibility of viewing it also on a cell phone. In practice, this means that our entrepreneur and his managers can see in real time the situation in the company and its subordinate areas. What is more, they can do it at any time on a smartphone and without being dependent on other departments to receive this data.

How is it different from SAP R/3 or ERP or earlier versions of this system?

Basically, there data is not processed in real time, and is not available on a smartphone. The different architecture of the system means that data is collected in many places (SAP tables), which are then integrated into the main database (eng. business warehouse), from which they are then extracted in the form of reports, in which managers are usually supported by the controlling department. The complexity of this process means that many reports are prepared monthly, i.e. at the beginning of the month, after the accounting and controlling departments have closed the period for the previous accounting month. The reports or the information that they are ready are sent by e-mail to the managers. In the hypothetical situation described earlier, as in the case of our company, the data is very historical, i.e. from the time when everything worked normally. In other words, this data is of little use for decision-making here and now, in a business environment that changes dynamically from day to day. Additionally, getting this data depends on the involvement of various departments to prepare it. What about when someone is not there because they are sick, for example? Valuable time is lost and stress levels rise. The competition acts and if it has implemented S/4HANA it can gain a significant competitive advantage in such a situation and emerge from the crisis situation strengthened, as its employees have access to current information in real time, which allows them to make the right decisions much faster. Additionally, they have the comfort of using this data on a smartphone, which makes them independent from access to a computer, saves time and contributes to a better work-life balance of the entire team. Employees can view the data while waiting in a doctor’s surgery queue, for example, or at any other convenient time.

SAP S/4HANA is great! Yes, it is. It is on the basis of these functionalities described above that many companies decide to implement this system as soon as possible in order to create a competitive advantage and fully exploit the potential of the data they have that exists in SAP and other applications. Especially customer-facing applications, i.e. CRM, which, based on the data they have that is transactively linked to the SAP system (if not fully integrated), allow you to see how customer behavior is shaping up in these dynamic times. Are customers holding back from buying, or on the contrary? Are online sales growing or not, and if so, how fast? What is the reaction to promotions? How are customers paying their debts? And much more.

How to take full advantage of S/4HANA?

However, in order to use fully functionalities of SAP S/4HANA it is not enough just to implement the system. At the same time, and even better earlier, i.e. before implementation, you should take care of unification and standardization of processes within which the data is processed. Prepare and train employees in this area, and change the attitude of employees who previously worked in the month-end closing mode. And with data being processed in real time, they need to ensure that the data is up-to-date and correct in real time. This is a big change for accounting, controlling and other employees who have an impact on the reported data.

In particular, the quality of master data processes (setting up and updating) and the speed with which these changes are processed are beginning to be critical. Why? Master Data (customer, product, profit center, cost center, account, etc.) are needed to process business transactions (e.g. sales, material flow, costs, …). If the master data does not exist in the system, then the transaction cannot take place, and if this data is incorrect, then the report will contain incomplete or distorted data. In addition, master data have many attributes that, in conjunction with each other, have significant implications on how data is shown in reports. A customer, for example, may be assigned to a region for which a sales person is responsible, and a product is a segment, which in the customer/product combination appears in specific places in the reports for which the sales person or sales manager is responsible and on which they make decisions. If this data is not correct and reliable, it becomes of little use in making business decisions.

The second issue is to standardize this data so that data in different countries means the same thing. For this purpose, the fields to be filled in the system must be used in the same way. Contrary to appearances, this is not so obvious, because if someone has not spent time on this topic beforehand in order to create a uniform policy for the entire company, and preferably centralize the processing of this data in one place, then you should expect many differences in the approach to filling it out. Especially, that in many companies for the purposes of previous databases (eng. business warehose) used offline applied their mapping, by which local data are converted for the purposes of reporting a particular group. A good example of this is the local chart of accounts, which are mapped to group accounts for the purposes of financial reports (IFRS or US GAAP) to ensure they are presented correctly in the report. At this level they are standardized, but as we go deeper the proverbial stairs begin, because often even the numbering of accounts is very different in different countries, not to mention the standardized analytics of using individual accounts. And to make the right decision we need this information on a much more detailed level, often with the possibility to go down to a specific transaction.

So if we build standard reports for managers to use in making decisions in different countries, it is possible as long as we have standardized master data and processes that process this data. Then we get the full benefit because the number of reports is limited, the data can be easily aggregated not only at the country level but also at the region level or globally. Managers have access to reports that present reliable information.

Standardization of processes, but also standardization of the organization is the key to success

Standardization of master data, and the processes that process this data, is one of the most important conditions for success for the implementation of SAP S/4HANA, but also for any other system that you want to scale to multiple markets. But is it the only one?

While the above condition is quite obvious and many companies are aware of it, there are other issues that play no less important role – unification of the organizational structure and change management, which involves changing employees’ approach to data processing.

Why is unification of the organizational structure important in a digitalized company?

Well, systems, including SAP S/4HANA, require that system users be given authorization to perform their duties. If the same data is processed by different departments in different countries, or processes that should be in the Shared Service Center are still done locally, then when confronted with the fact that authorizations are configured in a certain way globally for the system, we have two solutions. The first, give some users very broad authorizations so that authorizations do not limit the ability to perform tasks. The second, unify and simplify the organizational structure. I strongly advise against the first solution because apart from the problem of risk related to the lack of segregation of duties, which is contrary to SOX regulations for companies listed on the NYSE in New York, there is also the problem of proper flow of communication.

Global functions, i.e. process owners, communicate changes within their functions, which means that if a change concerns e.g. the accounting department, this department will receive it, but if some tasks are performed by e.g. controlling or logistics, these departments may not be informed about it and continue to perform their work as before. This often leads to chaos, and in the best case, it requires additional time for such communication to get to where it needs to be and for everyone to know what is expected of them in terms of data processing in a particular process. This extra time is a delay in implementing the change, and if the data is being processed in the system in real time, not implementing it on schedule distorts it and reduces its quality. In my experience and observation, these are often the most difficult changes to implement. They often involve big changes for long-time and deserving employees. This is not easy to communicate by their superiors, who have been through more than one thing together and often these people are in these roles thanks to the excellent work of those affected by the change. While this is a broad and sensitive topic that is a topic for a separate article, it is crucial for a company to get to the next level of growth using systems like SAP S/4HANA.

The changing role of the Shared Service Center

A prerequisite for successful implementation of SAP S/4HANA is also having a Shared Service Center (eng. global business services) and a Center of Competence (eng. center of excellence). While 10 years ago the creation of an SSC was mainly driven by cost optimization based on locations with lower labor costs and achieving synergies through economies of scale. Whereas today, the roles of CUWs/CCs need to be redefined. These organizations are becoming drivers of optimization based on the digitalization of processes and thereby creating competitive advantages for the company. For this reason, they are also becoming a prerequisite for implementing SAP S/4HANA. With one important change, the transactional part of the CUW is strongly reduced through digitization, and the Competence Center becomes the core element of this organization, increasingly designing end-to-end processes with locally executed processes. So it is changing its nature from a production function to a research and development function, or more precisely the proportions of these functions are changing strongly. Under these conditions, CK should take on yet another important role – being a Knowledge Management Centre (CZW) of processes for the whole company. The primary role in this regard should be to document process knowledge in a written form that is electronically accessible to all process stake holders. This uses applications such as BusinessOptix, MS Visio, Salesforce or others. As well as arranging with the process owners for effective communication of changes to these processes so that when a change occurs, all those involved in the process are informed at the appropriate stage to prepare for and implement it. This element relates back to an earlier part of this article – organizational alignment is important for this purpose.

This is a huge change that is crucial to make for companies that want to successfully implement solutions based on digitalization and SAP S/4HANA and fully realize the potential that lies within it. It is all the more difficult because the CUW, which only a few years ago was often communicated in the organization as an administrative and service unit with a major role in decision-making regarding processes at the local level, i.e. in the countries, is changing. The decisive influence on how future processes should look like in the whole organization is being taken over by the Competence Centers, which, being part of the CUW, have a much better picture of how processes work on a global level, i.e. across all countries. This change still requires close cooperation between the CUW and the local departments, but the CK is taking on a leadership role. So there is a need to manage this change, which is another part of the whole project.

Is it worth it?

The question is often asked – is it worth it? And this is a difficult question to quantify on a detailed level, as these types of changes affect the entire organization. It is assumed, however, that the implementation of these changes in their entirety, should generate an effect in the form of a few percent of the value of the entire sales of the company.

So if the company has, for example, revenues of 5 billion dollars and we assume 2%, we are talking about the level of improvement of the result at the level of 100 million dollars per year, and if the organization starts from a low level of process development, the effects can be even better.

As they say „the game is worth the candle”. However, this is not an easy change. It requires a major transformation of the organization, in which the main stakeholders of the company, e.g. the CEO and CFO, must be strongly involved, as well as the main shareholders must support it, because these changes require expenditures at the beginning, also counted in millions of dollars on a company-wide scale, and in addition they will arouse emotions during their implementation, not only among line employees, but also at higher levels of management. Therefore, it is important that the sponsors of such a project are aware from the beginning both of what the effect of these changes may be (the more pleasant part) as well as of the amount of work that needs to be done to implement the changes (the more difficult part) and are agreed on their implementation.