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Five tips to lower S/4 Hana costs

With budgets being squeezed, how can organisations on SAP ECC reduce the cost of switching to S/4 Hana?

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The outlook for new SAP adoption in the UK looks bleak. Research from ISG has forecast “very minimal or negative growth” for S/4 Hana, due to the coronavirus pandemic and Brexit. However, CIOs have a number of options available to them to reduce the cost of migrating off their old SAP system.

“UK firms are unsure of the tangible benefits from any major SAP initiative during these times,” said Barry Matthews, partner and leader of ISG North Europe.

The ISG Provider Lens: SAP Hana and Leonardo Ecosystem Partners report, published at the end of July, found that UK organisations were unsure of the tangible benefits that could be achieved from any IT project during these uncertain times.

“In this uncertain scenario, the complexity, cost and change management required for SAP S/4 Hana transformation adds to the enterprises’ reluctance to move to S/4 Hana,” the ISG report stated. “The firms that have not started their migrations have postponed their plans to move to S/4 Hana. Enterprises are also exploring options with their service providers for price reduction or payment deferment across various SAP outsourcing deals.”

Earlier this year, SAP announced it would extend support for its on-premise Enterprise Core Components (ECC) enterprise resource planning (ERP) system until 2027, which means extended support will be available at least until 2030. But this extension has not accelerated the upgrade to S/4 Hana, according to ISG.

A recent survey from the German-speaking SAP user group DSAG and the Americas’ SAP user group (ASUG) illustrates the current state of SAP deployments and implementation plans.

The most commonly used SAP software among members of both SAP user groups is still SAP ECC for 84% of DSAG respondents and 78% of ASUG respondents. The survey found that just 12% of DSAG members who took part in the research and 16% of ASUG respondents were running S/4 Hana live. However, 69% of DSAG members and 57% of ASUG members said they were considering using S/4 Hana in the future.

Use the SAP Cloud 

In the UK, ISG’s research found that the majority of service providers have been able to support their clients during the coronavirus pandemic by enforcing business continuity plans and finding ways to deliver essential services. But ISG said there was minimal or negative growth in the UK for SAP S/4 Hana, specifically among large accounts. It predicted that more organisations will be looking to implement S/4 Hana Cloud.

Given that cost reduction will be a primary enterprise focus, ISG said it expected the service providers that offer competitive pricing (at less cost) or an innovative pricing model (such as consumption-based) will have an extra edge over their competitors. According to the ISG report, managed services will increase for SAP applications because the client enterprises will want to optimise their cost model and service delivery efficiency for managing their SAP architecture.

Negotiate outcome-based pricing

In the report, ISG predicted that as enterprises navigate through the uncertainty of the pandemic and brace for alignment across regulations defined for Brexit completion, they will demand different types of outcome-based pricing and services from their service providers. Some of the pricing models explored are consumption-based, gain-sharing, risk-sharing and shared fixed reward, where a fixed fee amount is decided by both the provider and the client. Any delay in execution results in a reduced fee, while any increase in execution cost will add to it.

According to ISG, service providers will continue to focus on meeting their employees’ remote working needs to ensure business continuity, which will mean the use of data analytics for faster and efficient decision-making.

“There is a change in the workplace culture that has changed the dynamics of work because of the increased work-from-home enablement by service providers. With increased digital adoption and high focus on low-cost/effort requirements, service providers are focusing on design thinking tools to deliver digital technologies and applications on SAP Cloud Platform,” the report’s authors, lead analyst Akhila Harinarayan and senior analyst Arul Manoj, wrote.

Improve productivity with service provider AI

Assessing the SAP S/4 Hana service providers’ market, ISG found that service providers were relying on tools that use bots, automation, artificial intelligence (AI) and machine learning (ML) to deliver application management services. These bots are generally used for managing repetitive tasks and repeatable business processes, as well as fixing the more straightforward user support queries.

ISG found that the AI and ML deployed by SAP service providers was being used to resolve tickets automatically, learn from tasks in the IT landscape, predict application failures and perform fixes as required. The report’s authors found that most providers have holistic application management frameworks that enable better productivity, throughput, quality and reliability. 

Consider best of breed

As an alternative to embarking on a direct upgrade of ECC, which will involve a new SAP S/4 Hana implementation, Mark Armstrong, general manager for Europe, the Middle East and Africa (EMEA) at Rimini Street, recommended that CIOs consider best-of-breed products with application programming interfaces (APIs) that can be used to supplement the core SAP ERP system.

“In Germany, we know that existing SAP Payroll customers are likely going to have to move to SuccessFactors if they are to maintain access to the application. Given that only 30% of German users are considering SuccessFactors, that suggests it may not be the right path for the majority of customers,” said Armstrong.

“If you have time to plan you can also evaluate best-in-class applications, which may be more relevant to your industry and have the functionality you actually need. Today, there are many more choices, such as born-in-the-cloud applications that are API-ready, low-code platforms for building out systems of engagement, or mini-apps that are also API enabled and workflow based, which allow for agile development.”

Wait for improved integration

SAP has recognised that customers will face challenges and costs when they upgrade to S/4 Hana. It has set out a roadmap to simplify integration, in a bid to lower the transition cost of moving from ECC to the S/4 platform.

In a transcript of the company’s second-quarter 2020 earnings call, posted on the Seeking Alpha financial blogging site, Adaire Fox-Martin, president of customer success at SAP, said: “We can see a very clear roadmap across four clear end-to-end business processes that will be complete by the end of this year. This has an incredible impact on the business case that underpins the migration to S/4. And the business case has a series of costs in it.

“If the cost of integration is removed from that business case, the total cost of ownership is much lower for the customer. And aside from the value that S/4 itself delivers as a business transformation piece of software, the cost of ownership becomes much more attractive and much more tangible for our customers.”

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