Digital Transformation: The Challenges for Our SAP Ecosystem—and How to Respond
Digital Transformation – The SAP User Community Perspective
Part four of a six-part weekly series
Over the past three weeks of this blog series, we have defined what Digital Transformation is and discussed the broad opportunities it brings to your organization and how to think through new business models. This week we turn our attention to some specific challenges that our shared SAP ecosystem faces in moving quickly to digitally transform. But merely pointing out the challenges isn’t all that helpful or inventive. This week, we will also point out ways to take those challenges and turn them into opportunities. As always, we welcome your comments and perspective on this important subject.
- The Legacy Challenge: Some of our member companies have wonderful histories in their markets, having served an industry, customer base or geography for decades. Their SAP and non-SAP landscapes reflect this reality with multitudes of custom enhancements, landscapes and business complexity. Unwinding this complexity in preparation for the road ahead can be a substantial and time-consuming undertaking. These members sometimes temper their enthusiasm for Digital Transformation by not wanting to get too far ahead of their customers, who themselves have yet to fully execute their own transformations. They have enormous investments in older technologies and business processes that cannot possibly be replaced wholesale by new technologies.
The ASUG/DSAG View: Rationalization of the existing SAP landscape is important. This means being on the latest release as well as preparing to move to a simplified landscape—either on premise, in the cloud or, more likely, some combination of the two. This approach will pave the way for change to occur when your company is ready to execute. For example, SAP® S/4HANA could enable net-new approaches that go well beyond a traditional system conversion strategy and position your SAP ecosystem as an “enabling business platform.” As use cases continue to emerge from the North American and European membership base, DSAG and ASUG believe this road map will become clearer.
We have examples of members with immense SAP landscapes who have made this shift. While their journey is nowhere near complete, these companies are starting to reap the rewards of this work. They are more nimble and flexible, they are able to move from problem to concept to solution faster, and the cost of taking a risk has fallen tremendously. We see these members as important points of light to guide the rest of us forward. If they can do it, so can the rest of you.
- The Global Challenge: When you can move gigabytes of information around the globe at the speed of light, it is hard to argue that our world isn’t getting smaller and more connected. However, regulatory and operating restrictions are creating significant roadblocks and speed bumps. Unfortunately for some and fortunately for others, Digital Transformation doesn’t stop at border crossings. Our member companies that operate in multiple countries and across many highly regulated markets recognize both the advantages of thinking about their business in unified global terms and the discontinuity that the global geopolitical climate presents. Government regulations themselves need transformation, given they were written for an analog and physical world in which geographic borders meant more than they do in today’s digital world. International regulatory requirements are increasingly out of step with today’s realities. Data confidentiality legislation is also on the rise which threatens to take an already complex landscape and make it far worse.
The ASUG/DSAG View: Operationally, our member companies need to be able to solve the complexities of maintaining IT and other services in the context of this complex global environment. For many, this means a new framework for conducting business in the newly globalized world economy. The collapsing of boundaries and entire markets requires new thinking about how products and services can be developed and brought to market. In addition, this new thinking must be reflected in how our software vendors deliver the services needed for businesses to achieve these goals.
Where possible, offload global regulatory or operational challenges to software-as-a-service (SaaS) providers. They are much better equipped to manage global complexities given their broad customer base. Their ability to deliver standardized solutions—including regulatory changes, among others—anywhere in the globe is an essential capability for living in a global economy. We also advise members to be vigilant in understanding the value and cost opportunities of these services across all business dimensions.
- The Portfolio Challenge: The majority of user group members have an application portfolio that, while centered around SAP, is likely not comprised of only SAP solutions. As the solution complexity of the technology portfolio grows—for most companies, a heterogeneous portfolio is a fact of life—so will the time and effort required to implement a Digital Transformation strategy, due to the increasing number of interfaces and different systems required to execute the business. If you subscribe to the mindset that Digital Transformation requires streamlined and efficient business processes, then you realize you can’t achieve this reality if your technology portfolio is overly complex and fragmented. This is especially true if key parts of the portfolio are based on legacy application frameworks. Therefore, in addition to simplifying the SAP landscape, the surrounding application portfolio must also be simplified.
One of the other key trends that we have observed in recent years is the fragmentation of technology purchasing decisions. As cloud and subscription-based services proliferate, business units within many member organizations have become the purchasers of these solutions, oftentimes without consulting the technology teams or thinking through the long-term impacts. While this gives business units a degree of technology autonomy they have never had before, it also exacerbates the fragmentation of the technology portfolio. And this is occurring at exactly the time that Digital Transformation requires clean and efficient business operations. While many of today’s cloud solutions are compelling answers to specific business unit challenges, few of them have the maturity, breadth and scale to operate at the enterprise level that many of our membercompanies require. Open business platforms simply cannot be achieved if the supporting technology portfolio is overly fragmented and interfaced. A careful balance must be struck between enabling an open business platform and keeping to a few standard applications. The answer is not to achieve open business platforms by implementing a new set of cloud solutions that are narrow in scope and sophistication.
When talking about the portfolio challenge, it’s also important to point out the immense capacity of SAP to be a core integration platform. In fact, we view ERP as the backbone of the enterprise, and as such it needs to accommodate a wide range of heterogeneous business services across a wide range of industries, business models and roles. It is the central clearing house and bedrock of the organization, where all the craziness and disruption inherent in Digital Transformation can be sorted out, organized and digested. In much the same way an organization would never throw out its general ledger because of Digital Transformation, neither should it throw out its core ERP system. Instead, the ERP system needs to be seen as an enabler and not a road block—a place where you can hear the phrase “Yes, we can do that” instead of “No, that will never work” or “We’re too busy keeping the lights on to accommodate your request.”
The ASUG/DSAG View: If you have a good handle on where in the organization you want to begin your Digital Transformation journey, start looking at the corresponding technology portfolio and assessing its readiness for Digital Transformation. If the portfolio contains too many applications and interfaces, then this is a great place to begin consolidating and simplifying. If the application frameworks are not built on modern architectures, then this is also a place to consider modernizing. Modernize only to the extent that you can achieve the speed, analytics and user-experience improvements a successful Digital Transformation journey will require. As a user community, we see that SAP S/4HANA could have potential capabilities to address these needs. When we think about ERP as the central nervous system of the modern digitally transformed enterprise, we know that ERP has to be fast, open, highly analytical and affordable. In other words, SAP S/4HANA has the potential to be part of your Digital Transformation journey.
- The Business Model Challenge: Digital Transformation, by its very nature, aims to disrupt business models. How might your customers, partners and suppliers respond if the age-old rules of the game suddenly shift? Assume that your suppliers and customers are thinking the same thing—trying to find ways to take you out of the game, deliver new value or tilt the playing field in their favor. Predicting these shifts, assigning probabilities to them and beginning to adjust your business models accordingly is a smart response. Along with the shift in your business models comes the necessary shift in your technology models. They must go hand in hand. One leading the other, or outpacing the other, will create only tension and disconnects that require additional work or rework.
The ASUG/DSAG View: Linear upgrade cycles are clearly out of step with the new Digital Transformation reality that by its very nature is faster, more dynamic and more agile. Design Thinking is a powerful tool to help evaluate business models from multiple different angles. ASUG, SAP and Stanford University, among others, can offer insight into how to implement Design Thinking principles in your organization. Design Thinking enables you to model the future business processes before making costly technology and people commitments. But Design Thinking by itself is not enough; our future development environments must also be more open, flexible and agile so that proof of concepts can be delivered with less cost and risk.
- The People Challenge: In the aggregate, Digital Transformation is ultimately a talent puzzle that’s all about finding, onboarding, training and retraining the essential talent who can help realize the fruits of this journey. At the same time, we can’t wish away the reality of the legacy drag. In other words, how well can your current team make the leap to thinking about the future world versus staunchly defending the status quo? How can you leverage the millennial generation, the very generation that is the spark for most of this, to help you on this journey while recognizing they don’t have the institutional experience and longevity to understand how your organization is stitched together?
The ASUG/DSAG View: The training and education industry is undergoing a similar transformation, and as such there is an ever-growing wealth of online education and training that can help prepare your team for this future world. In addition, the ability to create and maintain communities of interest can help diffuse knowledge and experience. And the ability to track and measure the increasingly online, heterogeneous world gives companies the ability to better understand what works, what doesn’t and how to fix it.
ASUG and DSAG’s connections with SAP’s University Alliance program are helping showcase the importance of a new focus on training and education and its evolution in the digital world. Our member companies need to reciprocate by hiring talent from these institutions in order to demonstrate to students that doing this coursework has a clear economic value. This new focus dovetails nicely with the imperative for a new User Experience, and processes such as Design Thinking can be tapped to further cement the bond between training and User Experience.
What is your perspective on Digital Transformation? We would like to hear your voice by participating in our Digital Transformation survey. We promise that it’s quick, relevant and digitally painless.
To learn more, visit the ASUG Digital Transformation Home Page. From there you can download webcasts and other important information. You can also watch our seminal webcast, Ready or Not, Digital Is Your Business – What SAP Customers Need to Know, which was recorded on April 20.
Next up is part five of six – The SAP HANA®, SAP S/4HANA and “Business Networks” Strategy.
Geoff Scott is the CEO of Americas’ SAP Users’ Group (ASUG).