Should corporate treasury ignore S/4 HANA for now? (1/2)

Plenty of attention has currently being given to the new S/4 HANA, a business suite that is built on SAP’s proprietary operational database system and in-memory computing platform called SAP HANA. The buzz may be coming from your IT colleagues, your SAP connections or your treasury peer group. But what’s in it for treasury? Can treasury just ignore S/4 HANA till the software is more mature? Or should you plan to migrate? This article sheds some light on this by going through the details of S/4 HANA from a treasury point of view.

This is the first of a two-part article. In the first part an overview and status of S/4 HANA is given, in the second part the drivers for treasury will be discussed.

The S/4 HANA product

S/4HANA is the new software solution from SAP. It comprises of S/4 and HANA. S/4 stands for the fourth generation of the enterprise risk management (ERP) software suite. The previous version is called SAP ERP, SAP ECC or R/3. This article refers to the previous version as SAP ERP. HANA is the newly developed database of SAP, which is an in-memory relational database management system. An in-memory database is a database whose data is stored in the main memory (a.k.a. RAM), and not on the disk, to facilitate faster response times. IT developments in recent years (e.g. better and cheaper processing speed and memory) have made in memory databases possible. The in memory database together with a simplified database structure makes the new SAP software much faster and ready for cloud computing and big data. S/4 HANA also comes with a new flexible User Interface, called Fiori, replacing the “old” SAPGui (Graphical User Interface). Fiori apps are available in a web browser and offer a better user experience. S/4 HANA is available as on-premise or as a cloud based solution. The software is ready for future (and current) plug-in solutions, like for example Hybris, Ariba or third party systems. S/4 HANA is the biggest change of the SAP software since R/3 came onto the market in 1992, according to SAP.

Status and Roadmap

Since 10 May, 2017, S/4 HANA version 1610 FSP02 is available. 1610 stands for the release. In this case, the version 1610 (“YYMM”) is from Oct 2016. S/4 HANA is currently under development, which means:

  • Certain processes have been migrated and developed in S/4, like Finance, Logistics, CM (Cash Management), LQP (Liquidity Planning) and BAM (Bank Account Management). For the developed functions, it implies that these processes may work in a different way than in the previous version.
  • Certain processes have not yet been developed for S/4, like TRM (treasury and risk management) or IHC (In House Cash). These processes are available under S/4 HANA but they are still running the classic functionality on the new HANA database and still have the “old” look and feel.

While SAP is developing S/4 HANA, with every update, called Feature Pack Stack (FPS) or Support Package Stack (SPS), new functionality will become available. The roadmap until September 2018 consists of the following steps:

A survey of the Americas’ SAP Users’ Group (ASUG) beginning of this year reveals the status of the product in the US.

  • 33%of respondents have already purchased S/4HANA and a further 28% expect to buy the suite at some point before the end of 2018;
  • 8% of respondents are live on S/4HANA, while 19% are not currently considering an S/4HANA purchase, and 20% don’t know or aren’t sure about their organizations’ plans;
  • On-premise is the dominant deployment choice for S/4HANA, chosen by 33% of respondents; but a further 33% don’t know or aren’t sure of their deployment option;
  • While finance is the primary area where respondents rolled out or plan to deploy S/4HANA (33%), the second largest group (22%) are set to implement the suite companywide.

It is my expectation that if a worldwide survey would have been conducted it would approximately show the same results. With 8% of the US customers “live” at the beginning of 2017 we can still consider the software to be in an Early Adopters phase in the innovation theory of Rogers. This theory explains how new technology is adopted. But with 33% of the customers that have purchased the software this can soon turn into a Early Majority phase, when these customers go live in the coming year.

Current most common SAP landscapes

In a multinational environment, different ERP systems exist beside each other: SAP and non-SAP-systems, different versions of an ERP system or additional best of breed software systems. With respect to the SAP ERP systems, the following installations are currently most common globally:

  1. SAP ERP. Most users will be on SAP ERP 6.0 and a certain level of Ehp (Enhancement Package), e.g. Ehp6, Ehp7 or Ehp8;
  2. SAP Business Suite on HANA (SAP ERP on HANA). Some corporates have moved to the HANA database and are running the SAP Business Suite (i.e. classic ERP functionality running on the HANA database).
  3. S/4 HANA Finance (formerly known as SAP Simple Finance).  Finance was the first business application developed for the S/4HANA platform. This replaced the “old” FICO functionality . In release terminology this was the case for release 1503. It runs as an add-on on top of SAP ERP. These corporates have implemented the HANA database and have implemented the Finance add-on. All other functionality is still used in the classic ERP environment.
  4. S/4 HANA. As more and more functionality was included in the software the term “Finance” was dropped. The latest releases (1511 and 1610) are called S/4 HANA. Some early adaptors have implemented S/4 HANA. As mentioned before, not all functionality has been developed for S/4 HANA yet. For these processes, corporates are still using the classic functionality and “old” look and feel.

S/4 HANA migration scenarios

As S/4 HANA is available for some time now and SAP has announced that the development on SAP ERP will be stopped by the end of 2025, it has become more relevant for corporates to define a migration strategy. The migration should be carried out in the following way:

  1. Move the database to the HANA database (Business Suite on HANA). It is recommended to upgrade to the latest EhP beforehand to be “HANA ready”. The minimum EhP levels is EhP7 for ERP.
  2. Moving from SAP ERP to S/4 can be done through 2 scenario’s:
    1. Through a side-by-side scenario. This means that certain processes are initially implemented in S/4 HANA (e.g. Finance and Treasury) and others still remain in SAP ERP (e.g. SD or MM). At a later stage the other areas can be migrated to S/4 HANA.
    2. Through an Integrated scenario. In this scenario all processes are migrated to S/4HANA at once.

Step 1 is quite easy and business users do not have to get used to new functions and processes. As scenario 2b has a big impact on the organization (for example on budget, resources, risk), it will probably not be the most chosen migration scenario. Scenario 2a is better scalable and manageable and therefore easier to carry out. A step by step migration is a better approach than a big bang.

Conclusion

Although S/4 HANA could be considered as a product in an early adaptors phase at this stage, the software will soon move to an early majority phase. Hence the importance to put S/4 HANA on the IT roadmap and create a business case. In general we see that the side-by-side approach, and not move all functionality to S/4 HANA at once, is the best approach. Should Treasury be one of the first functions to move to S/4 HANA? Read the second article in this series to find out.

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