Defining The Problem
In recent months, industry research has repeatedly indicated that despite acknowledging the business benefits of SAP projects, many organizations are hesitant to pull the trigger and commit to necessary transformations.
Considering this state of limbo seems to be quite widespread, IgniteSAP has compared several recent SAP industry surveys and reports to see the common factors causing organizations to delay mission-critical SAP initiatives.
We hope to provide some guidance to executives on how to evaluate and move forward with essential SAP investments, and give SAP consultants a clearer understanding of the problems holding their customers back.
Combining Research on SAP Project Trends
Recent research commissioned by Basis Technologies polled 200 SAP customers across the UK, US and Germany. It found that 59% currently use Excel spreadsheets to control SAP changes, despite SAP’s numerous process analytics and migration tools, and the recent launch of its first enterprise AI product to modernize business processes.
This over-reliance on manual tools has real consequences. 88% admitted it creates barriers to achieving growth goals. And 35% said they delay making necessary SAP changes due to fear of disrupting operations.
The root issue seems to be uncertainty and complexity. 96% worry about unintended impacts from changes to their critical SAP systems, and when they do make changes 40% estimate this process takes up to 50% more time and money than it should. But are they right?
David Lees, CTO at Basis Technologies said:
“Organizations are suffering from an SAP hangover that is hindering best practice, relying on archaic spreadsheets. It’s quite staggering that, at a time when SAP are releasing an enterprise generative AI offering, businesses are still trying to operate and manage their systems like it’s 1985. When SAP was originally implemented, there wasn’t the same level of focus on agility and change management.”
The View Of Users And CIOs
According to an Americas’ SAP User Group (ASUG) 2023 survey, only 18% of respondents stated they were planning to go live with S/4HANA in the next 7 to 24 months. A further 31% had decided to delay initiatives.
The DSAG Investment Report 2023 by the German-Speaking SAP User Group found that 28% of members had plans for high investments, and 38% in medium investments in S/4HANA. Agreeing that your organization has plans for investment is not the same as committing to investing, but a press release that accompanied the report pointed out “companies will have to switch from their old ERP system to S/4HANA by 2027 or 2030 at the latest” demonstrating a widespread understanding of the need to move, but concerns about going ahead.
Gartner’s CIO Agenda survey last year reported that SAP S/4HANA projects were among the top initiatives that CIOs identified as being at risk. Over 45% of respondents stated they may delay, downsize or cancel S/4HANA plans.
This data demonstrates that despite the best efforts by SAP to overcome common worries about disruption and cost, there is persistent reluctance among customers to progress with SAP rollouts, even though they are of strategic importance. But what is behind this hesitancy?
Business transactions are inherently subject to risk, and the best businesses recognize risk and mitigate it. There appear to be commonly held assumptions about the risks involved in SAP projects that are not examined in detail, and many of these assumptions are now outdated, but persist.
Upfront Investment Required For SAP S/4HANA
The amount of money to be invested, means that those making decisions about changes to SAP systems are so wary of making the wrong decision that they are willing to accept the ever-increasing risks that businesses which stay on outdated systems have to deal with. A case of the devil you know being preferable.
The previous ASUG survey in 2022 found 58% of respondents cited implementation costs as the top challenge around adopting S/4HANA. Even with the lower total cost of ownership available through accelerated cloud deployment programs like Rise with SAP, even small-to-medium organizations will need to invest substantially.
A white paper published in 2022 by IDC stated that:
“The average cost of the migration to SAP HANA and/or SAP S4/HANA on IaaS in terms
of third-party consulting is $1.5 million; the cost of disruption to the business is also around
$1.5 million. If businesses also need to move from a non-SAP database to SAP HANA, the
cost of that migration is, on average, $4.9 million, and the cost of moving from ECC to SAP
S/4HANA is roughly the same.”
With substantial budgets required upfront before realizing benefits, organizations are wary of the financial commitment, even though they are aware of the financial benefits. CIOs in particular are required to understand the technology and demonstrate why it is the best option for other executives and shareholders, but sometimes it is difficult to gather information specific to their line of business or industry and present a clear roadmap for changes explaining how the business will get to the stage of benefitting. This is possible with service provider partners but they don’t want to enter into discussions in case these morph into a sales process before they are ready to commit.
According to the IDC in their 2023 report “The Business Value of SAP Transformation Projects“ and the Gartner 2023 report “SAP Transformation: A Strategic Roadmap for Success” digital transformation projects positively impact operational efficiency and revenue by 20%. This would be considered a huge win for any business, but it cannot be guaranteed as not all projects are successful. Background concerns like ongoing economic uncertainty in 2023 further amplify hesitancy around large IT expenditure.
Uncertainty Around Timelines And Outcomes
The 2022 DSAG investment report revealed 60% of members were held back by concerns around project durations. With S/4HANA timelines ranging from 12 to 30 months on average, this is a significant level of upheaval for an unspecified period.
A Gartner survey in 2022 found that 78% of CIOs lacked confidence in their team’s ability to manage SAP S/4HANA projects while maintaining operations, but outsourcing highly qualified consultants to implement and manage change adds to the level of investment.
Integration and Migration Fears
Fears around systems integration and data migration also give customers pause:
The ASUG 2022 Pulse of the SAP Customer report showed 58% of participants were apprehensive about integration with existing systems during an S/4HANA move.
IDC’s research suggested the two most critical stages of S/4HANA projects are migrating data from legacy ERPs and integrating with other IT systems. These phases have tripped up many past SAP projects, and SAP has been keen to emphasize the importance of maintaining a clean core.
A DSAG survey in 2022 revealed 43% of members were concerned about migrating data to S/4HANA without business disruption.
New products like SAP Datasphere allow SAP and non-SAP data sources to be integrated more easily but it is still not yet widely understood and used.
Lacking Internal SAP S/4HANA Skills and Expertise
Another common concern is the lack of in-house team members with S/4HANA expertise.
The 2022 ASUG report showed 46% of respondents stated that a skills shortage was limiting adoption of S/4HANA, and IDC’s research has also highlighted that customers feel they lack expertise around how S/4HANA works and how to configure it to their specific business needs.
Without talent proficient in S/4HANA to properly implement and utilize these advanced systems, organizations are understandably wary to leap in. This demonstrates why it is important to work with a well established SAP consultancy to deliver deployment, and also training for business users.
It should also be added that with more recent offerings, customers can opt for SAP to manage the deployment, and provision of infrastructure.
Risks of Business Disruption
The risks of business disruption are related to uncertainty around timelines and outcomes. The Gartner survey reported that 80% of CIOs lacked confidence in being able to transform legacy ERP systems without interrupting key processes. The DSAG report showed over 50% of members were concerned about business process disruption during the transition to S/4HANA, and many DSAG members are very familiar with SAP solutions. IDC found hesitation around S/4HANA was highest in industries like manufacturing and utilities, where minimizing downtime is critical.
Guidance For Executives On SAP Projects
Given the valid concerns uncovered by industry research on SAP project rollouts, what should C-suite executives do to gather information, evaluate, and move forward with these mission-critical initiatives?
Here are five recommendations which can be considered part of a project “pre-scoping” phase:
- Pressure test cost assumptions. Conduct an independent assessment of TCO and ROI, questioning SAP’s cost estimates. Model different scenarios on timelines and business benefits to stress test assumptions.
- Audit integration readiness. Perform comprehensive audits assessing data quality, system interfaces, and integration demands. Uncover pain points and obstacles early.
- Evaluate migration strategies. Carefully determine optimal data migration and transition strategies to minimize disruption. Don’t just lift-and-shift legacy environments.
- Think ahead and source S/4HANA talent gaps prior to the commencement of a project. Workshops, exercises like mock go-lives, and upskilling will develop expertise before and during a project. Augment teams with experienced SAP partners if needed.
- Define business value, and identify priority business capabilities that the S/4HANA project must deliver from the outset and monitor these continuously. Stay focused on tangible outcomes and avoid scope creep during the project.
Proceeding with proper diligence around these areas will allow executives to validate the business case and plan SAP rollouts for maximum value and minimum disruption, which also allows them to make a better decision about which service provider to speak with.
How SAP Consultants Can Make the Case for Moving Forward
For those in SAP consulting firms advising customers, how can we build confidence in proceeding with essential SAP transformations like S/4HANA?
Illustrate an incremental approach. Highlight that SAP projects can be broken down into modular phases while maintaining operations. Quick wins build engagement and momentum.
Leverage reference cases. Point to case studies and testimonials from similar organizations that have completed successful rollouts, and describe these in monetary terms to make the investment logical.
Highlight innovations. Demonstrate how S/4HANA can enable advanced capabilities like artificial intelligence, predictive analytics and automation that drive competitive advantage. Also, point out the extent to which these technologies are being adopted by competitors.
Calculate efficiency gains as accurately as possible. Model and quantify how streamlined processes in S/4HANA translate to FTE and cost reductions.
Guide on change management. Provide frameworks, templates and best practices to manage workforce transitions and new ways of working.
By positioning SAP projects as enablers of innovation, efficiency and growth, we can provide the confidence needed to proceed. It is highly important to give a comprehensive report on the risks involved and clearly demonstrate the methods and tools which are used to mitigate these risks.
No Pain, No Gain?
The growing disconnect between the technology available for optimum business processes and the rate of transformation of businesses is explained when we take into account both the opinions of SAP specialists and those in organizations who are tasked with making IT investment decisions.
Recent research clearly shows that despite the urgency for SAP S/4HANA readiness, many organizations are hitting the pause button due to concerns around costs, complexity, capability gaps and potential disruption.
The primary reason for these concerns is uncertainty, and the way that the SAP ecosystem can bridge that gap is for all stakeholders to reach out to their partners on the other side without viewing contact immediately as a sales process. Both parties must be able to speak without being wary of being drawn into contracts.
Executives can initiate opportunities for gathering information about how they can meet their business requirements without it becoming a direct sales exercise, and SAP providers can also create situations for information sharing without selling their particular service. When both sides have more information then they can enter into mutually beneficial agreements with the right customer or service provider, and not just any customer or service provider.
By rigorously evaluating business cases, addressing risk areas, demonstrating incremental value delivery and guiding change management, both business leaders and SAP consulting firms can move past hesitation to complete crucial SAP transformations in the right way. The long-term payoff in performance and productivity will be well worth the short-term growing pains.
If you would like help sourcing experienced and confident SAP consultants for your upcoming project IgniteSAP can give you access to our extensive verified SAP talent pool, so let us know your requirements.