SAP S/4HANA migration: A definitive guide

Why migrate to SAP S/4HANA?

Practice leaders at three major consulting firms that are also SAP ERP implementation partners -- Deloitte, EY and IBM -- say companies typically move to S/4HANA because their legacy systems are no longer sustainable or they want a more current ERP system with access to leading-edge technologies.

In the first three or four years after S/4HANA's 2015 debut, the demand came from companies with some kind of "real, immediate, burning platform," said Jesse Rothermel, SAP transformation lead at EY.

"The house was burning down, and they needed to get out of it: legacy architecture or infrastructure that just didn't work anymore, and disparate systems that were really just not serving the day-to-day needs of the business," Rothermel said.

Merger and acquisition activity was another early driver of demand for S/4HANA, he said. At companies with disparate ERP systems, it made sense to consolidate, while companies that were spun off from their parent companies needed to start fresh on a new ERP.

Jesse Rothermel

Lately, Rothermel said, EY is seeing more thoughtful, long-term planning by companies that view S/4HANA as important to their business strategy -- whether that's to become a serial acquirer of companies, divest themselves or reinvent their business models to become subscription based.

"When they're looking to reinvent their business, that's when they've found the ability to align to S/4 and actually justify the cost," he said.

December 2027 is the deadline SAP has set for customers to move to S/4HANA from its predecessor, Business Suite and its digital core, SAP ERP Central Component (ECC), which it plans to stop supporting in 2030. But that's not why companies are moving to S/4HANA, asserted Keith Costello, IBM's general manager for global SAP business.

"It's not about believing whether SAP will stick to the deadline or not. It's more about, 'We've got a business to run, we already run everything on SAP and we're going to continue to run everything on SAP. The question is, what version? How does it support our strategic objectives?'"

What are the benefits of an S/4HANA migration?

The list of potential SAP S/4HANA benefits is extensive. Most of them derive from S/4HANA's roots in its underlying SAP HANA in-memory database, which speeds up queries and analytics on potentially large pools of data, both internal and external. The common theme is speed -- especially compared to ERP on traditional databases.

The other big batch of potential benefits is enabled by the multi-tenant SaaS architecture of SAP S/4HANA Cloud and close integration with the SAP Business Network and other cloud-enabled technologies, such as AI -- many of which are also accessible from S/4HANA's other cloud deployment options.

The most important advantages include the following:

• real-time analytics on consolidated data;
• speedier period-end financial closings;
• access to the latest technology, including AI, chatbots and IoT;
• automatic updates every quarter;
• a simpler UI;
• process automation; and
• easier-to-update business models.

Three SAP S/4HANA migration approaches

Organizations that move their ERP to S/4HANA have a handful of options that vary by how complete the migration process is, whether SAP or an implementation partner provides the consulting services, and whose cloud infrastructure hosts the ERP.

Here are three typical methods.

Greenfield. A greenfield deployment is a fresh start: a completely new ERP system often running on new data center or cloud infrastructure. In some cases, it is an organization's very first ERP. More often, though, a greenfield S/4HANA deployment involves a move from another vendor's ERP or an older SAP system. One significant drawback is the work required to translate existing business processes into S/4HANA's way of doing things. Moving data from the old ERP and training employees on the new system are the other major challenges. But this kind of wholesale move is the best way to get all of S/4HANA's purported advantages, such as predictive analytics, AI modeling, process automation and real-time reporting.

Carsten Hilker

Starting with S/4HANA Finance. A very common approach is to start with the financial module, SAP S/4HANA Finance, and its integration platform, Central Finance, and put off the move to other modules. Such a partial migration is feasible because accounting is a classic back-end process that doesn't change much, according to Carsten Hilker, SAP's global solution owner for S/4HANA Central Finance. "You can change finance in the background without any disruption. Once you really change the front end -- [for example] logistics -- you're talking about logistics processes, customer-facing processes. Finance is always the back end. You change the back end once and don't have to do anything to mount the logistics."

The S/4HANA Finance-Central Finance move is a so-called brownfield approach, the generic term in IT for continuing to use some legacy components. The SAP greenfield vs. brownfield debate can be helpful in framing the S/4HANA migration discussion.

Using Rise with SAP. Billed as "business transformation as a service," Rise with SAP is a bundle of products and services SAP offers to get customers quickly up and running on S/4HANA Cloud and its broader ecosystem, which includes the SAP Ariba procurement network and intelligent business process reengineering, among others. The ERP runs on SAP's public cloud or that of a hyperscaler, such as Amazon Web Services or Google Cloud Platform. Many of SAP's longstanding system integration and implementation partners handle the consulting, development and integration, among them Capgemini, Deloitte, EY, IBM and PwC. It's all done under a single contract meant to simplify administration and coordination of the various platforms and vendors.

The consulting firms also have their own methodologies and tools for SAP S/4HANA implementation outside of Rise with SAP. They can automate testing of ERP program code to determine what can and should move over to S/4HANA. They also offer prebuilt configurations of S/4HANA for certain industries.

How to choose your S/4HANA migration approach

The choice of migration method -- say, S/4HANA Finance vs. some other brownfield approach -- usually comes up in the design phase of planning the implementation when you set the strategy and roadmap.

SAP and its consulting partners each offer rigorous strategy and planning processes for analyzing the factors that determine which migration method is best. It's often called phase zero and aligns with the early stages of SAP's Activate methodology. The terminology varies, but here are the key steps:

• Evaluate the current system. Also called discovery or readiness assessment, this involves assessing the existing ERP system itself, its data and the business processes they impact, often with statistics to quantify their efficiency. Licensing and maintenance costs are also considered, and users share their pain points. IT takes an inventory of custom code and analyzes master data.
• Review the architecture. Here, you determine how your existing ERP modules and business processes map to the available S/4HANA modules and deployment options and decide which ones to leave behind.
• Analyze the future state. In this step, you envision what the new ERP should do based on requirements gathered from users, department heads, executives and other stakeholders. You also try to quantify the benefits, such as cost savings from consolidating ERP systems or launching a new e-commerce business. The information feeds into the ERP business case, which is usually one of the next steps.

Choosing an S/4HANA deployment option

SAP has long claimed S/4HANA is a complete rewrite of Business Suite to the tune of 400 million lines of program code. What has gradually become clear over the years, despite SAP's marketing claims and mixed messages, is that the on-premises version of S/4HANA does not yet cover all of the major functional areas in Business Suite. The most glaring example is human capital management, which SAP has bluntly said will only be available on SuccessFactors, a separate SaaS HCM suite it acquired years ago, or an upcoming "sidecar" based on the previous-generation SAP HCM that will run on HANA.

Other important SAP S/4HANA modules have been added since the initial rollout of Finance, such as Sales and Distribution, Production Planning, Sourcing and Procurement, and Supply Chain Management.

The divergence between on-premises Business Suite and on-premises S/4HANA can be mission critical to many enterprises, which is why it is essential to scrutinize S/4HANA's capabilities. Often, the decision comes down to whether to exchange longstanding customizations for the standardized processes, best practices, real-time analytics and leading-edge technology that S/4HANA offers.

The differences from legacy SAP ERP are usually even more pronounced with S/4HANA Cloud, the version that runs on the purest form of cloud: multi-tenant SaaS. S/4HANA Cloud is a significantly streamlined, somewhat generic and mostly noncustomizable version of S/4HANA. Understanding what S/4HANA Cloud does and doesn't do is absolutely vital when deciding whether to buy it.

"It's mature and well beyond what I ever imagined in the last five years," Rothermel said, adding that it is nonetheless still targeted at smaller companies that can use software out of the box. It also works well in two-tier ERP, where a company already runs ECC -- typically in headquarters -- and needs to extend its SAP environment quickly to a new market or business unit.

Keith Costello

IBM's Costello said the decision whether to buy S/4HANA Cloud usually comes down to the size of the company, the complexity of its operations, whether those operations are global, and the specific industry.

"The SaaS version has been proven to be very effective in professional services organizations and probably others where it's been deployed, but I don't think it's been deployed to run an entire Fortune 500 company," Costello said. "That's not what it's built for yet."

If adopting multi-tenant SaaS ERP is a goal in itself, or perhaps S/4HANA seems like too risky a bet, SAP offers another option: Business ByDesign, which it markets to SMBs. More than 11,000 customers use it, according to SAP, which continues to update the product and publish a roadmap of planned improvements. Carefully comparing SAP Business ByDesign vs. S/4HANA before committing to the latter, which is more complex and expensive but also more capable, could save significant time and money.

SAP S/4HANA alternatives are worth a look when buying from SAP is not a priority. Oracle Fusion Cloud ERP from archrival Oracle is among the leaders in full-featured SaaS ERP alongside Workday, which focuses more narrowly on SaaS HR and financials. Oracle's other product lines include SaaS-based NetSuite, which targets SMBs, and the on-premises E-Business Suite and JD Edwards, which have large installed bases in manufacturing and remain viable options. Other prominent brands, some of which continue to update on-premises manufacturing and supply chain suites that rival SAP and Oracle products while directing most new investment to SaaS, include Epicor, IFS, Infor, Microsoft, QAD and Unit4.

Besides the on-premises version and S/4HANA Cloud, there are three more S/4HANA deployment options: Private Edition, Extended Edition and Any Premise. All three are the on-premises S/4HANA code running on some type of cloud infrastructure. They differ mostly on whether they run in SAP data centers or a third-party cloud provider’s and where that cloud infrastructure is physically located.

What are common migration challenges?

Complex legacy landscapes, a high degree of customization and unclean master data are the top three SAP S/4HANA migration challenges, according to a survey by PwC and LeanIX, a maker of enterprise architecture tools.

Another big challenge is figuring out during phase zero whether the platform has the ERP functions the business needs. It involves closely examining the features of the S/4HANA modules that align with the business -- say, procurement, supply chain management and accounting -- and trying to map the specific actions and workflows of the existing ERP to S/4HANA.

For Chip Kleinheksel, principal and global SAP CTO at Deloitte Consulting, business adoption and change management are the biggest challenges, especially in greenfield deployments. Companies are spread thin across multiple initiatives, so it's critical to pay close attention to adoption and change management to ensure that the project delivers value and enables digital transformation.

Organizations also typically struggle with data and integration, he said, because legacy IT landscapes can be extremely complex with a mix of on-premises, SaaS and private cloud applications that have to be integrated with the new ERP.

"Establishing an inclusive integration layer and a common data model is necessary to break down the silos across applications for integration to and from the newly migrated S/4HANA ERP," he said.

Key steps and considerations to a successful SAP S/4HANA migration

Every S/4HANA project demands close attention to the steps outlined above for deciding on a migration approach and choosing a deployment option. Kleinheksel offered the following high-level advice for keeping them on track:

Chip Kleinheksel

1. Have a well-thought-out roadmap. "We've found taking the time to execute a phase zero to align on scope, business engagement, future state technical landscape and deployment is extremely helpful," Kleinheksel said, referring to Deloitte's early-stage process. "It doesn't have to be a static roadmap. It's OK if it changes over time to continue to align with business priorities."
2. Don't get stuck in the past. Kleinheksel stressed the importance of not trying to recreate the old configuration and holding on to technical debt: i.e., the neglected infrastructure, training and documentation that older ERP systems tend to accumulate. Preconfigured industry applications, "accelerators" and automated processes -- things Deloitte and competitors provide -- can help S/4HANA adopters put all that behind, he said, so they can focus on using the capabilities of next-generation ERP.
3. Avoid recreating the old mistakes in S/4HANA. There's also a risk of building up future technical debt with S/4HANA, according to Kleinheksel. It helps to establish a governance model at the beginning that specifies where software extensions are best suited, not just in S/4HANA but in other parts of the SAP ecosystem, such as the Business Technology Platform -- the collective name for the cloud, analytics, AI, machine learning and integration tools and platforms from which S/4HANA gets much of its mojo. Doing so will produce a more agile technology stack and avoid burdening and prematurely aging S/4HANA as a development platform, he said.

More migration best practices

Costello shared these tips for ensuring a successful SAP S/4HANA migration:

1. Use what's already available. No need to start from scratch if you can buy an S/4HANA extension, for example, instead of having one developed.
2. Think long term. Anticipating what you might need from S/4HANA in several years can avoid getting locked into an inflexible model that requires overengineered, customized systems.
3. Avoid customization. Costello said some IBM clients set a goal of zero customization when designing their S/4HANA migration projects. It usually requires being willing to use out-of-the-box functions.
4. Set a time limit. Previous ERP implementations took a long time, and setting a goal of completing one in a year could induce panic. But with SAP and its partners offering prebuilt templates, it's possible to get some parts of the business running on S/4HANA in six months. Setting a one-year time frame requires having a strong change management process that includes hands-on experience so users can see how the software really works.

Choosing an S/4HANA implementation partner

Dozens of implementation partners have long histories with SAP that predate S/4HANA by decades. Choosing the right one for your organization requires due diligence. Here is the consensus expert advice:

• Look for a strong selection of deployment methodologies, automated testing and data migration tools.
• Ask how many people will be assigned to the project, and which of them will be working exclusively for you.
• Check for SAP S/4HANA certification, an indicator not just of education but of experience in S/4HANA implementation.
• Talk to references with similar projects, ideally in the same industry.
• Ask what kind of support is available after the new system goes live and whether it costs extra.
• Insist on guarantees that the project won't be late or go over budget.

Close collaboration between your internal project team, SAP and its partner, all working from a detailed roadmap, can go a long way toward ensuring a successful S/4HANA deployment.