SAP S/4HANA: Rethinking Five Steps
Bluetooth opens car doors, smartphones replace cameras, retailers sell product warranties –those who do not reinvent themselves from time to time are soon replaced. SAP S/4HANA prepares customers for the world of tomorrow.
The market speaks a clear language: When you buy a new washing machine from a large electronics provider, you are also given the chance to purchase an extended service warranty. For new smart products, though, it is not the insurance companies that provide this service, but the retailers themselves. The broader mass market has diversified, and companies are feeling the impact.
The camera manufacturer Canon, for example, suffered significant revenue loss as a result – from €50 billion in 2008 to €13 billion today. In addition to apps, e-mail, and telephone functions, smartphones now have mini cameras with a resolution of 25 megapixels – enough to shake up the traditional camera market. We can even open car doors with Bluetooth-enabled smartphones these days. The entire supply chain from locking systems specialists to manufacturers of individual components is now on the line.
“Physical products are turning into services on smart devices,” Bert Schulze said while talking about “disruptive processes”.
Schulze, the vice president of co-innovation and strategy at SAP shared further important insight: “Innovation is the key to success nowadays.”
And to adapt to this situation, IT had to undergo a few changes:
1. Innovation through real-time instead of batch approach
Innovation cycles in the market follow the exact same pattern. A new idea takes form and finds a place in the market through consumers. Services and performance develop on basis of this product for some time until competition arises. In the end, the product is exhausted. Then something fundamentally new is generated and the transition into a new innovation cycle begins, better adapted to current times.
“ERP is a great example of this,” says Schulze. “It is an outdated, mature product in the best sense of the word, that was based on the thinking and technical limits of the 1970s.” SAP S/4HANA will replace the traditional ERP and revolutionize the traditional batch process thinking that divides analysis, transactions, and planning into different worlds. The result is something completely new that allows companies for example to run analysis anytime and enhance their forecasting abilities, which creates a strong basis for quickly rethinking existing business models.
2. Question the standards of perfection
IT systems work like a clock mechanism – perfectly attuned. “Plans become contracts,” is how Schulze describes this traditional part of IT, which is just as important as the business innovator branches of IT. Several years often pass between the conception and implementation of plans. There just comes a point when there is no more need to keep questioning things, because every detail of the process is precisely organized.
This understanding of IT services does not fit very well with the demand for innovation through IT, because innovation depends on improvisation, quick thinking, and new business models that come and go. It builds on trial and error, on the readiness to “fail fast”. But this fail fast mindset is directly opposed to the multi-year planning approach. Consequently, it is not surprising that IT and the other departments do not always get along.
“The departments push and pull, and IT has a hard time meeting their expectations,” explains Schulze. The innovation expert is convinced that CIOs and IT leaders need to be open to innovation if they want to regain the attention of the executive boards in other companies and have more influence.
3. Turn expenses into investments
Focusing on innovation instead of getting bogged down with operational tasks means that IT managers have to rethink their resource handling.
“We will need fewer basis consultants and more project managers and staff with economic skills,” Schulze predicts. Projects need to be set up fast, and their value for the company needs to be ascertained. This means the return on investment (ROI) in IT will increasingly have to make way to questions about the economic added value for the company in new revenues and new markets.
As a consequence, the expenses of IT must be reorganized as well. They must be turned into investments that can create new sources of income for the company. The head of IT will adopt qualities of an entrepreneur by bringing forth new business models.
4. More business acumen in IT
The concept of business IT is a part of the future. IT employees will now have to understand new business models and not only have a basic knowledge of IT processes, but also an understanding of how they affect business, ideally even across company boundaries.
Schulze believes that customers that are not able to carry their past success into the future could very well have found a way to save their turnovers. Even more, they could have found new approaches with new customers to secure their success. It is very easy for companies to get stuck in the conservative trap once they become successful, because they get a false sense of security in their current niches.
A quick look at the list of Forbes 500 companies, however, shows how dangerous this can be. Roughly half of all once-established companies disappeared from the list between the years 2000 and 2010. Stop being afraid of failure and learn to also accept 80%-solutions once in a while – this is a culture that IT has to adopt.
5. Pulling the right levers
Faster, more flexible and intelligent processes, quicker reactions, and connections to external microservices. These are a few of the levers modern IT needs to activate. The best example for this is SAP S/4HANA itself. If you view SAP HANA as just another IT tool and only use it to speed up existing processes through new technology, you would miss out on the added value the platform has to offer.
“New business models based on flexible data models cannot be implemented until companies rethink and redesign their processes. Only then can they proactively respond to new demands from the departments,” says Schulze.
The necessary digital transformation lies in redefining processes and digitalizing a more flexible core application, which the new business suite SAP S/4HANA can facilitate.
Thank you, Andreas, for a useful input. In particular, I agree with your last paragraphs, in which I think you touch a key issue when it comes to implementing S/4HANA. The need for new business models and reviewed business processes. I think customers should be very careful to launch an S/4HANA implementation without a complete review of the enterprise business processes and the establishment of a business process architecture. Thinking BPM and EA into an S/4HANA project, in case this is not operating already, should be considered mandatory.
Dismissing ERP systems as outdated, however, is wrong. An ERP system is not just a random mix of management systems but supports, ideally, a holistic picture of your company's performance. S/4HANA is basically a new intelligent generation ERP system - if you decide to implement more than just a narrow scope. But as with traditional ERP, S/4HANA does not guarantee silo-free organisations or cross-functional transparency. To be able to match the agility of S/4HANA, top management will need a tool for managing the organisational and business modus operandi - and this is where management of processes comes in. You are so right.