Why Have Businesses Been Slow to Migrate to S/4HANA?
September 11, 2020 | Technology trends
Oliver Presland Vice President, Global Consulting Services Portfolio
Earlier this year, SAP announced an extension to its previous 2025 end-of-support deadline for companies yet to make the move to S/4HANA – the company’s most recently released ERP business suite based on the SAP HANA in-memory database.
The news didn’t come as much of a shock to MSPs, customers, or the ERP sector – not least because the company has such a history of extending those deadlines. Since HANA’s launch back in 2010, SAP has pushed along end-of-support deadlines for 2017, 2019, and 2025, all because of snowballing customer pressure about the cost and complexity of upgrades and lack of confidence in the readiness of S/4HANA to fully replace their existing SAP landscapes.
2020 has proved to be no exception to the trend, and no doubt, the extension to 2027 came as a relief for the many companies which still run previous versions of the SAP stack. According to Ensono’s research on the matter of those using SAP for ERP, almost 7 in 10 are still running SAP’s legacy application, ECC. Even amongst this group, not all organisations are planning to ultimately migrate to S/4HANA. In fact, just 58% of those currently on SAP ECC intend to migrate to SAP’s latest ERP over the next three years.
Why this hesitation to move? According to Ensono’s data, there are at least two major issues at play here.
Lack of business case
The first has to do with a lack of a compelling business case: 25% of businesses which do not plan to move over to S/4HANA cite a lack of corporate buy-in. 38% cite a lack of alignment with their long term strategy.
It’s perhaps little wonder that SAP customers are struggling in this regard. The shift from legacy ECC to S/4HANA represents a major generational shift for SAP ERP users, and one that comes at significant cost too. Financing a migration can take millions of pounds, if not tens of millions of pounds, depending on the size and complexity of the journey. Making the business case for S/4HANA, at least purely based on the initial investment required, is a tough sell.
Building a persuasive S/4HANA business case will inevitably involve looking at the bigger picture beyond the high capital cost of the migration. As SAP itself recommends, IT leaders will need to think about the long term value of the migration by highlighting business value drivers and challenges, identifying SAP S/4HANA benefit areas, quantifying benefit and cost areas, and finally, putting together a cost-benefit analysis that connects all the dots of a qualitative and quantitative assessment.
In most cases, businesses will find that the value of SAP S/4HANA does outweigh the initial expense of the migration. At a technical level, it simplifies the management and administration of IT environments and offers improved performance. Perhaps most importantly, at a business-level, S/4HANA lays the foundations for improved productivity, innovation, and customer centricity, and helps firms make decisions much faster, with greater predictive capabilities.
Lack of appropriate skills
The other sticking point for companies not moving to S/4 HANA over the next three years is skills: in Ensono’s research, 38% currently on ECC cite lack of skills as a barrier to migrating.
It’s not hard to see why this is such a common pain point: businesses will need access to experience and specific skillsets to be able to push through the S/4HANA migration without hitches. ECC often has complex dependencies, and a lot can go wrong. Moreover, businesses often face an additional skills challenge if they decide to re-platform to public cloud before, during, or after, the upgrade to S4/HANA.
Resolving shortages in both SAP and cloud expertise is certainly no small task. Some businesses may decide to solve these skill deficiencies internally. After all, a skills shortage is, to put it another way, an educational opportunity. Others seem likely to go down the MSP route – either becoming fully reliant on the MSP to migrate and manage S/4HANA, or using MSPs to supplement and support the existing internal skillsets. According to our research, while just 23% of organisations use MSPs to manage their SAP applications, this is set to jump to 34% in only three years.
While most businesses do intend to ultimately move to S4/HANA, an apparent lack of an obvious business case and a skills crunch pose potentially major barriers to these migrations. Although, neither obstacle is insurmountable, IT leaders will need to act creatively to ensure plans can go ahead, leaning on an MSP where appropriate to provide support.
To read the whitepaper or for further details on Ensono’s Managed SAP on Azure, visit our dedicated Simplify your transition to SAP on Azure page here.