When Does an S/4HANA Implementation Become a Business Transformation?

[ChetHarter]

Many people in the software industry will refer to an ERP implementation, for example, an SAP S/4HANA implementation, as a “business transformation."

Does an ERP implementation equate to a business transformation? Not necessarily. I would argue that a technical upgrade, sometimes called a “lift and shift,” is an ERP implementation but can hardly be called a business transformation since, from a business standpoint, little or nothing changes or "transforms."

Sometimes, companies elect to do a “brownfield” ERP implementation with the driving objective to minimize change for the users and avoid possible business disruption. Once again, I cannot call this a business transformation as they are attempting to minimize any changes to their operational business processes.

On the other hand, an ERP implementation project can be the perfect vehicle for making significant company changes with the purpose of better positioning and equipping the company for the future.

Why have your software company representatives not conveyed a valid vision or approach for business transformation? To be blunt, most software people represent a particular product area within their companies. The S/4HANA people will talk about the benefits of S/4HANA. The BTP people will talk about the benefits of BTP. The business process management people will talk about the benefits of Signavio and Lean IX. The Ariba people will talk about the capabilities and benefits of Ariba. And so on.

The key point is that very few software people will talk holistically about transforming your business. A holistic approach is realistic and, by far, the most beneficial and practical. Why not implement a new, more powerful, more capable enterprise system and ALSO address other high-impact aspects of your company? All under the umbrella of “ERP Implementation.”

An ERP implementation will provide benefits, especially in the areas of IT costs and complexity. However, there are other very significant benefits to be had by expanding the initiative to include other IT aspects, business aspects, and joint business-IT aspects.

The following list summarizes some of the opportunities and benefits of an ERP implementation project and of a business transformation project. The list is, to a degree, in order of the most obvious to least obvious, but all are very practical and realistic for both IT AND business improvements:

1. Reduce IT costs

Benefit:  Reduce cost of computer hardware, data center, cyber-security, etc.

Retire purchased and home-grown legacy applications by deploying a broader ERP footprint. Fewer applications also means fewer interfaces to maintain. Consider moving on-prem applications to the cloud to reduce “data center” expenses. The tools provided by ERP (e.g., SAP Business Technology Platform) allow for “tailoring” the new system to the specific business needs of your company for more streamlined processes. This cost reduction benefit is often the primary component of an ERP replacement/upgrade “business case,” although many other more difficult-to-quantify benefits should also be considered.

2. Reduce IT complexity

Benefit:  Encourage operational innovation and make the company more nimble.

Along with the cost-reduction points above, a simpler IT landscape with fewer applications and interfaces makes ongoing and future business process changes easier. Whether the change is to tweak a sales order process to make it more efficient or to roll out an entirely new business model, reduced IT complexity will make change easier. How often have process changes been avoided due to the fear of breaking things? How often have new processes been avoided because of the complex IT environment that currently does not support the new processes?

Simplifying your IT landscape should include a “clean core” initiative to move any required customizations outside of S/4HANA. S/4HANA with BTP are designed for developing and maintaining customizations in a manner that will not interfere with future upgrades and other system changes.

3. Lay the IT foundation for the future

Benefit:  Ability to leverage new technologies as needed, when needed to innovate and keep up with competition.

A major benefit of new ERP systems is the leveraging of the most current information technologies.  In-memory processing has revolutionized enterprise systems and enables the execution of an operational digital twin of your company’s operations, which in turn enables interactive applications (i.e., user alerts). 

More recently, the rapid development of applications enabled by Artificial Intelligence (AI) promises a sea change in how business processes are performed and how business intelligence is generated and delivered. Data collection methods continue to evolve, helping ensure complete capture of large volumes of high-quality, real-time transactional data. Running your company on old ERP systems will almost certainly impair your ability to compete as other companies design and adopt new processes and provide customers with improved service methods.

Companies remaining on ECC are already suffering from not being able to deploy new AI-enabled processes and other enhanced capabilities (i.e., workflows, Fiori apps, etc.) only available for S/4HANA.

4. Improve operational business processes

Transformation Benefit:  More effective and efficient business processes, contributing to lower cost, higher profitability, and better customer service and relationships.

This sounds simple and obvious, but companies struggle with it. The “this is how we’ve always done it” mindset makes it difficult to initiate process changes. Some companies are still using business processes they established decades ago based upon the technology at the time. However, they are running them on much newer, and much more capable, technology attributable to “technical upgrades.”

New systems have new capabilities that need to be considered. You might be able to decommission applications or remove older customizations. Automation of previously manual business processes and role-specific user cockpits can improve operational performance with minimal incremental cost. Capabilities for process automation, role-specific cockpits, and user interactivity are available in S/4HANA and BTP.

The HANA in-memory database has a major advantage over older disk-based databases. Faster processing enables the elimination of batch processes and the capture of more transactions and transaction details. S/4HANA has the power to run genuinely as your operational digital twin. Combined with new, improved data collection methods, S/4HANA will deliver more high-quality information to those who need it for daily decision-making.

5. Enhance your Business Process Management (BPM) program

Transformation Benefit:  Ability to manage company processes and operational performance.

Managing business processes is far more than documenting how work is currently done.

Operational business performance relies on the determination of processes capable of achieving desired performance objectives. Yet, many companies neglect to establish standard, acceptable processes and then monitor the execution of those processes to ensure conformance.

Just as in the world of manufacturing, process variations can result in poor or inconsistent quality and additional costs. There is no reason to rely on luck and hope to achieve performance goals. Becoming more of a process-oriented company is the only reasonable option.

In the context of your ERP implementation, your implementation team should identify and implement operational processes that are capable of achieving acceptable results. Digital platforms like SAP Signavio Process Manager are available to facilitate collaborative process design. This allows people in separate geographies to more effectively work together to identify processes that satisfy everyone’s needs (when possible). This collaboration, along with digitally-enabled communication, will help with employee acceptance and reduce resistance to change.

However, the bigger BPM program opportunity comes from the ability to analyze process execution to objectively assess employee conformance and performance. Process mining, provided by SAP Signavio, provides the ability to determine where process variations are occurring and helps assess the financial impact and impact on customer service of those variations. This has revolutionized how process managers govern business processes and orchestrate process changes.

After months of determining the right business processes for your company and building them into your new ERP, you will want to use process mining to monitor actual process execution to identify performance and conformance issues.

6. Adopt data-driven operational management

Transformation Benefit:  Faster, earlier, and better business decisions at all levels.

The best business decisions are made when decision-makers have the data or information they need to make the right decisions.

S/4HANA provides more opportunities for collecting and storing more data and more granular transactional data for real-time visibility and automated notifications using situation handling. This means that people at every level of the organization can access the information they need when they need it. It also opens the opportunity for information being pushed to the right people for proactive management of events and circumstances that offer a business opportunity or a business threat.

The sooner someone knows about an opportunity or a threat, the sooner they can take action to maximize the positive impact on the company.

Additional analytics and alerts based upon your company’s specific needs are feasible through the use of SAP BTP for process automation and SAP Signavio for process mining that can trigger company-specific alerts. SAP Analytics provides the foundation for data-driven operational management.

The tailoring of company-specific analytics, triggers, alerts, and automations should be part of your S/4HANA implementation to get the most value from your system. These capabilities will also be used on an ongoing basis for new process improvements after ERP go-live.

7. Enhance your Continuous Improvement program (business)

Transformation Benefit:  Maximizing the impact of your continuous improvement resources to improve customer interactions, profitability, and employee adoption of new processes.

Many companies today have something they call their “continuous improvement” program. Frequently, this is a person or group that is instructed by management to address business issues such as customer complaints, employee complaints, profitability leakages, chronic transactional errors, and a myriad of other issues.

A common weakness of many existing programs is the reliance on subjective criteria (i.e., opinions, biases, politics) for evaluating process performance and identifying improvement targets. These programs are almost entirely reactive, with the company’s limited “improvement” resources working on the wrong things while bigger issues go unnoticed or undetected.

Business process analytics (i.e., process mining) capabilities have progressed tremendously over the past few years and provide process managers with objective process performance measurements to help ensure the best improvement opportunities are identified, often proactively, by a continuous improvement leader.

Further, collaborative process design capabilities allow many employees and process stakeholders to participate effectively in enhancing the processes. This greatly reduces resistance to change and helps identify, develop, and deploy the best new processes.

An ERP implementation is the perfect time to rethink the company’s Continuous Improvement program. The methodology and tools used to improve processes during the implementation will be the same methodology and tools used within the Continuous Improvement program post-implementation.

8. Update your approach to strategic data management

Transformation Benefit:  Enhanced decision support.

Modern companies are data-driven. The days of little data and decisions based upon gut feel, intuition, opinions, selective perceptions, biases, and political forces should be a thing of the past. Today’s technology is far more capable of gathering great volumes of data and turning it into valuable information and insights.

In the context of ERP implementation, it is important to ensure the system has high-quality data for processing and that high-quality data is generated for decision support.

But the world of data is moving quickly. In addition to ERP data or data from multiple ERP systems, companies also have access to customer data (CRM), plant floor data (MES), machine telematics data (internal and external), purchased industry forecast data, economic forecast data, customer demand forecasts, and many other types of data. Capturing, consolidating, and making it consumable by business management has never been more practical.

Technology for managing all of this data is available and rapidly evolving. It is realistic to think the most successful companies are the ones that best determine how to effectively combine and utilize all of this data. The data management capabilities under the SAP BTP umbrella need to be considered for consolidation, federation, and governance of your corporate data.

Your ERP implementation is the opportune time to rethink your data strategy for ERP as well as beyond ERP. The current data explosion is more than a fad. The best companies will likely be the companies that best manage and consume the available data.

9. Develop an enterprise-wide approach to Organization Change Management (OCM)

Transformation Benefit:  Better, faster, and less costly adoption of ongoing company changes in processes, business models, organization, technology, etc.

Everyone agrees that change is a fact of life and business and that the rate of change is always increasing. Companies that fail to change or fail to manage change will likely fail.

ERP implementation methodologies are heavy on the technical aspects of implementation, but fall short when it comes to change management. The usual emphasis is on system configuration, data cleansing and migration, interfaces, custom code, etc. Aside from employee training near the end of the implementation project, relatively little focus is on the human element of the system change.

“Change Management” has consistently been identified in CIO surveys as one of the top three challenges encountered when implementing a new ERP, including S/4HANA. Proactively addressing change management as part of your implementation is imperative for reducing resistance to change and boosting user acceptance.

But it does not end there. Your company needs to become skilled at executing change. A strategic initiative is to make “change management” a company core competency, even to the point of making it part of the company culture, where everyone is encouraged to suggest, promote, and participate in change activities.

As mentioned, a planned approach to change management is crucial for your ERP implementation. The methods, practices, people, processes, and tools of change management need to continue after ERP go-live. Company leaders and managers need to be trained on the company’s OCM (Organizational Change Management) methodology, guided in their use of the methodology, and monitored for compliance. It is that important.

The training aspect of your ERP project is extremely important. Training methods and solutions have also come a long way over the past few years. SAP Enable Now should be considered as a foundation for project ERP training and ongoing training and retraining.

10. Reorganize or adjust for the future

Transformation Benefit:  An organizational structure that better represents and supports where the company is heading.

Most company organizational structures are based upon their past. Your company’s strategy might justify adjustments of the structure or possibly a complete reorganization.

An extreme example of this is the number of CIOs who report to CFOs. In the distant past, the primary purpose of IT was to support the financial reporting function of the company, so having IT report to the CFO made good sense. Today, IT support is needed by the entire enterprise and should be much more strategic for future business. Yet, many CIOs continue to report to the financial leadership.

Your ERP implementation project is a great opportunity to consider and execute organizational changes. Your company is already dealing with changes and hopefully has a better mindset for understanding and accepting the changes. A key aspect of making these changes is to provide an honest rationale to the people impacted, which includes why the change is appropriate or required and how the new organization will be better.

You can do an S/4HANA implementation for the IT benefits, or you can transform your business, beyond IT, to better support your current and future corporate strategy. An ERP implementation project is a great opportunity to make some changes, and maybe some very overdue changes, to how you manage and prepare your company for success.

An ERP implementation project can be a terrible thing to waste! It is your choice AND your opportunity!

The information and opinions written here are the views of the author.***REMOVED BY MODERATION***

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