To SAP or not to SAP? (And why you’ll have to upgrade to S/4HANA anyway.)
SAP has asked customers to upgrade aging R/3 and ECC 6 systems to the state-of-the-art S/4HANA application by 2027. Unfortunately, SAP implementations come with steep costs, high risks, and long timeframes.
Implementation projects can generate as much drama as a Shakespearean script. Overcrowded meeting rooms, confused stakeholders, clueless consultants, and (worst of all) the madness and mayhem of a botched go-live — who would want to go through all this? Is following SAP’s advice just inviting “a sea of troubles,” and might it not be better to put SAP “to sleep” and replace it with another — hopefully, less complicated — ERP product?
There are three logical options for improving the SAP system landscape:
· Greenfield (entire redesign, totally new customization, transfer only the data from the old system)
· Brownfield (upgrading the old system, customizing enhancements only where necessary, some master data transformation is still required)
· Bluefield (a practical hybrid approach between Green- and Brownfield)
SAP has pushed the Greenfield approach as a good sales pitch for modernization. Customers can simplify their processes and move into the cloud. But unfortunately, a Greenfield project is the most complex and costly approach of all.
C-level directors often suspect there must be a cheaper and simpler alternative. Hence, they will ask for an evaluation project to determine if another ERP package can do the job better, more affordably, and with less risk.
This article provides the major reasons why these investigations invariably lead to the same result: companies stay with SAP and eventually migrate to S/4HANA.
1. Sticking with SAP is the cheapest, shortest, and safest option
Since the early days of ERP, complexity has increased, demands on master data are higher, and interfacing with other systems has exploded. In practice, ERP systems have matured in functionality and grown their own tailor-made functionality. Given the costs and risks, a Greenfield project is a tricky proposition, even for mid-sized companies. Pitfalls arise particularly around areas such as supply chain, production integration, and variant configuration.
A Brownfield approach, while saving the trouble of business redesign, is still a technically demanding project. Ideally, it is primarily an IT project with little business impact other than testing and data preparation. IT will require significant resourcing, but the business involvement will be significantly lower than with other approaches.
Companies that shy away from a Greenfield approach but would still like to harmonize aspects of their system landscape may opt for the Bluefield approach. Many companies have numerous different SAP systems. In this case, most companies pick one SAP installation, redevelop it, and improve it to the extent that it is reusable for the entire company. Other variations of the Bluefield approach exist, but generally, this is the most common.
Switching the vendor, a project becomes a Greenfield approach by default. Even more, the change of technology stack compounds the difficulties and adds a whole new dimension of complexity and risk. Resource gaps will be difficult to fill as hiring an entire group of experts of a new technology will be a challenge. Your in-house IT staff, on the other hand, would be all too eager to upgrade their skills to S/4HANA.
Only an upgrade with SAP S/4HANA allows for a Brownfield and Bluefield approach. However, as a S/4 Greenfield project does not mandate an entirely new technology, even a total redesign within SAP would be cheaper, shorter, and safer than a re-implementation with an entirely new vendor.
2. Your IT department may vote with its feet and leave the company
SAP is a very marketable skill — the next job is just around the corner. Your IT staff and business users will be less than enthusiastic about reducing their market value. Many will look for opportunities elsewhere, especially the young and highly qualified. The ERP replacement project may find itself without the technical and process experts it desperately requires!
3. Major providers provide the similar functionality
At first sight, there are few differences between the major application providers (SAP, Infor LN, Dynamics, and Oracle). Smaller-scale providers may run into issues due to lack of core functionality required by customers. For example, Epicore cannot allocate stock to projects, NetSuite (an alternative ERP product of Oracle) cannot deliver make-to-order functionality. However, discerning the differences between vendors would take extensive evaluations and incur significant internal and external costs. The result would invariably be the same: SAP offers just as much as anyone else, if not more.
4. Licensing — SAP could be the cheapest option!
Do cheaper options to SAP exist? Smaller vendors (e.g., Epicore, IFS, and industry-specific solutions) may provide you with some cost savings. However, generally speaking, the top ERP brands (Microsoft Dynamics, Infor LN, Oracle ERP) are unlikely to offer cost savings on licensing grounds.
Pricing in the ERP world is anything but transparent; negotiation is everything and experiences vary. However, despite your best negotiation efforts, you are likely to pay more for licenses than if you just take the hit of upgrading to SAP S/4. Repurchasing Infor and Microsoft may be twice as expensive as extending the SAP license.
You are bound to save licensing costs when going with a lesser-known ERP provider. However, they rarely offer the complete international finance solution required for a global company. At minimum, you will need to improvise and use some third-party local finance applications. Moreover, small ERP providers may not be around in a decade or two, thus endangering your investment.
5. Contenders’ upgrade paths may be even worse than that of SAP
Customers have complained that the new S/4 application does not generate substantial business benefits for them — why should they pay for this new product? Infor and Microsoft have been even more ruthless than SAP when it comes to marketing and forcing re-engineered products upon their customers. Their upgrade paths often amount to re-implementations with little customer benefit.
Why are they doing this?
Microsoft and Infor have invested heavily into a cloud-first approach. Besides licensing, they charge for infrastructure services. The extra cloud service revenue compensates for the loss of a few customers.
Due to the greater complexity within its installation base, SAP faced more resistance from established customers and has not been able to push the cloud approach as much as other larger ERP vendors.
You think good SAP people are scarce — other vendors have an even bigger problem!
Recently, I spoke to an automotive company that moved from a custom-made ERP system to Infor LN. For various reasons, they did not get beyond the prototype phase. Critically, the consulting partner lacked sufficient qualified consulting resources. The CIO told me, “We completely underestimated the ecosystem.” They are now moving into SAP, hopefully with more success.
The European consulting market for Oracle is even worse. Outside banking, the American product has hardly any customer base in Europe.
Get over the S/4 hurdle and focus on your digital future
The upgrade to S/4 does not provide as much business benefit as SAP would like its customers to believe. But, given that it is forced upon them, they have little choice other than to go through the exercise. The earlier the S/4 project starts, the easier it is to avoid the rush on scarce SAP resources as time progresses. Taking on the S/4 project early will also help to keep your own IT staff within the company. A new ERP system is never the silver bullet to becoming a truly digital player, but it is a necessary step in the journey.
Focusing on the key deliverables during the upgrade provides the foundation for your future digital business strategy. A well-managed ERP project can deliver a higher quality of master data, better visibility of your supply chain, tighter integration of processes, higher availability of data, better KPI reporting, or simply faster system operation. The more extensive the system redesign is, the longer, costlier, and riskier the project will be. Shakespeareans would say, “If money go before, all ways do lie open” — or put differently, “You get what you pay for.” Spend the money where it is important, but don’t redesign every single process.
Do you need to improve your production and web presence? Start using artificial intelligence? Perhaps implement Business Process Management or CRM? Implementing these will require a solid ERP solution to be in place. While an ERP project is not an end in itself, it acts as a crucial enabler of these plans. A replacement of SAP may block programs for years, but a smart S/4 upgrade can kick-start your business’s digital future.
