SAP S/4HANA Transformation

What is SAP S/4HANA transformation?

An SAP S/4HANA transformation includes a migration from an old SAP ERP system, such as SAP ECC that runs on-premise, to SAP's simplified 4th-generation SAP S/4HANA business suite, hosted either on-premise, in the cloud, or as a hybrid.

Migrating all your data and operations to S/4HANA with SAP Activate methodology is easier said than done. However, it is a move every SAP ERP customer will have to make. Read further to see how.

📚 Related: ERP Transformation

What are the transformation challenges?

The migration to a new ERP system is not a typical IT project, but rather a fundamental system change, the implementation is associated with some challenges. Our SAP study with PwC identified the biggest transformation hurdles, such as:

• Existing complex IT landscapes
• Unclean master data
• Company-specific ABAP code that is not compatible with S4Hana
• Creating inconsistent business processes that need to be harmonized before migration.
• Change management lacks the necessary expertise to develop the right strategy
• Slow or blocked migration process due to individual stakeholders

One of the biggest challenges organizations and their SAP system experts face when it comes to SAP S/4HANA transformation is showing the value that can be generated in the long term, therefore, making a strong case for migration is essential.

How to make a case for transformation?

Before writing a business case, your SAP Architects or enterprise architects should extensively research the problems of your existing SAP ECC system. This will help you evaluate the benefits of SAP S/4HANA for your business and sell the transformation to your management, demonstrating its benefits and ROI.

It’s important to get executive buy-in early as executive leadership can navigate roadblocks and maintain momentum throughout the transformation project. Key drivers enabling the transformation are:

1. SAP is ending support for ECC in 2027 for customers buying standard support, or until 2030 for customers that purchase extended support contracts. So, it’s not a matter of “if” customers have to migrate, but “when.”
2. Not meeting SAP’s deadlines will limit your ability to execute digital transformation and put your company—no matter your industry—at a competitive disadvantage.
3. The need to harmonize IT and your legacy ERP system into future-proof solutions.
4. Foundation of SAP S/4HANA and its new technical architecture that embeds automation and system intelligence to help with business practices across the entire platform.
5. It offers end users active, real-time decision support that’s data-driven, taking into consideration internal and external data sources. That means businesses processes that took minutes to complete will now take seconds.
6. ERP migration brings a lot of positive changes, including a better user experience, improved performance, and reduced total cost of ownership.

Three approaches to S/4HANA transformation

Depending on what S/4HANA deployment option you decide on, there are two options to approach transformation: the Greenfield approach, which is starting from scratch, or upgrading SAP ECC 6.0 in a Brownfield approach, which allows the transformation without re-implementation and without disrupting existing business processes.

Some organizations opt for a hybrid approach, which lets you choose the best parts of Greenfield and Brownfield implementations. This approach is best for large enterprises with a lot of data and complex systems.

A short introduction to all three S/4HANA transformation approaches is explained below and in our detailed Greenfield vs. Brownfield approach comparison.

Greenfield approach - new implementation

If a company decides to adopt the Greenfield approach, it abandons its existing ERP system. This has the advantage that a new, uniform system can be implemented that only contains the processes and data that are actually necessary.

If a company completely redefines its enterprise architecture, innovations can also be integrated more easily and a high level of functionality can be achieved. In the study mentioned above, only 14 percent of all respondents chose this approach because it involves more effort.

However, when switching to the SAP S/4HANA cloud version, the Greenfield approach is unavoidable as the systems are completely replaced.

Brownfield approach - system conversion

With the Brownfield approach, a system conversion takes place. This means that existing business processes are taken over and optimized if necessary.

Since most companies do not want to completely abandon their custom ERP system, the Brownfield approach is the most popular migration path. According to the study, 44 percent of respondents choose this strategy, while 42 percent opt for a combined Greenfield and Brownfield variant.

To ensure a smooth transition, EA tools are used to divide the conversion into clear phases. The tools also ensure that old processes are rethought so that redundancies and complexity are not adopted. The advantage over the Greenfield approach is that the project time for system conversion is reduced.

Hybrid approach - selective data transition

Strictly speaking, the hybrid approach and its landscape transformation is not an independent transformation strategy. It is simply a method that large companies with complex system landscapes can use to prepare for transformation. In practice, this means that databases are cleaned up and consolidated to reduce the Footprint before the change.

Companies can also use this approach to combine several ERP systems from different vendors. Such a simplification is also possible during the actual transformation. Whether this makes sense depends on the system landscape and the target system. In many cases, an enterprise architect works with all three approaches to achieve the best possible approach.

How to choose the right SAP S/4HANA approach?

Before transitioning to SAP S/4HANA, a company has to make a few important fundamental decisions that influence the overall transformation strategy. For example, switching to SAP S4HANA Cloud System requires a different approach than switching to SAP S/4HANA On-Premise System.

Another crucial question is whether the existing SAP ECC system with its data and settings should simply be converted. In some cases, it may make sense to set up a completely new ERP system that will cause fewer problems in the future. In any case, a transformation requires good preparation and a transparent strategy that is understandable for all business areas and stakeholders.

The key steps of SAP S/4HANA transformation

Understanding all the hurdles for a smooth transformation can be overwhelming but following the key S/4HANA transformation steps and using an enterprise architecture tool can turn your initiative into a manageable project for the key stakeholders in your company.

1. Set up a deployment team: Set up an SAP S/4HANA deployment team (SAP Center of Excellence) consisting of SAP experts, either internal resources or those of an SAP partner. Decide which deployment option is the best for your organization.
   
   
2. Organize workshops: Hold initial workshops for functional planning. You can develop prototypes and test systems inexpensively in the cloud that are useful for gathering early feedback from users.
   
   
3. Evaluate possible migration scenarios: Evaluate possible transition scenarios and migration approaches based on the business priorities, financial drivers, and architectural impact. Revisit this step for making any adjustments based on the analysis in subsequent phases.
   Key objectives:
   - Transition Scenarios
   - Migration Approaches
   
   
4. Identify the current state of IT: Identify the current state of IT to understand the most promising and critical business capability areas that would bene t most from the migration. Evaluate application portfolio based on TIME model to assess existing applications’ ability to meet business goals.
   Key objectives:
   - Business capabilities and applications
   - Business processes
   - TIME model evaluation
   
   
5. Define target ERP architecture: Define target ERP architecture including integration architecture and evaluate opportunities to go from an on-premise to a cloud-based hosting model. Consider the possibility of creating a pace-layered ERP architecture to meet evolving business needs. Expedite the target architecture design process by leveraging SAP Model Company (MC) baseline systems.
   Key objectives:
   - Integration architecture
   - Pace-layered application strategy
   - Data prioritization
   
   
6. Analyze the existing system: Analyze the existing system for fit-gap analysis and compatibility of current business functions. Consider migration costs and project value for further prioritization.
   Key objectives:
   - Technical and functional fit analysis
   - Transformation cost drivers
   - Project prioritization (project risk vs. business value)
   
   
7. Build implementation roadmap and migration schedule: Build roadmap, transformation schedule, and cutover activities including the definition of the overall transformation roadmap, intermediate steps, and architectural stages.
   Key objectives:
   - Project roadmap
   - Application roadmap
   - IT component roadmap
   
   
8. Implement and manage changes: Implement and manage changes to the IT landscape and promote architectural governance.
   Key objectives:
   - Management of new IT landscape
   - Monitor mission-critical applications
   - Analyze the root cause of system failures

Best practices

To take advantage of the benefits of SAP S/4HANA, organizations have to develop well-prepared transformation plans and pull in enterprise architects to help execute on them while following best practices, such as:

1. Align IT initiatives with business goals
2. Validate solutions with fit-gap workshops
3. Prioritize ready-to-run business processes
4. Use SAP Model Company (MC) solutions as a baseline system
5. Structure projects to deliver solutions incrementally
6. Leverage enterprise architecture for building and executing the migration strategy

The high complexity of such transformations can cause difficulties in project planning and quickly result in excessively large project budgets.

How does SAP LeanIX help with transformation?

From the study mentioned above, it is clear that the right enterprise architecture (EA) tools are an important tool for a smooth transformation. More than half of the companies surveyed stated that they use EA tools to assess the current status and plan the target architecture.

EA solutions such as LeanIX Enterprise Architecture integrate easily with SAP Solution Manager and bring transparency to a complex ERP landscape. The respondents ultimately see this as the greatest transformation challenge.

1. As-Is architecture and classify business capabilities
2. Modeling and comparing migration scenarios
3. Data to decide the right migration strategy
4. Signavio integration for process mapping
5. A detailed S/4Hana implementation roadmap that divides the transformation to SAP S/4HANA into individual steps.

📚 Related: Improving SAP S/4HANA Transformation with Enterprise Architecture

Conclusion

SAP S/4HANA transformation offers a number of benefits, including speed, cost savings, and innovation. As this is much more than just a technical update, organizations are taking advantage of the opportunity to combine the migration with business process improvement and overall modernization of their solution architectures.

Considering that moving to the next generation of SAP ERP is inevitable, it’s important to start developing your roadmap to SAP S/4HANA and building your SAP CoE now.