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SAP Central Finance and Mergers & Acquisitions Framework

SAP Central Finance and Mergers & Acquisitions Framework

In this blog, we will focus on how SAP S/4HANA Central finance (we will say CFIN from now) can help in making the M&A framework easy, reusable, and can drop value to the organization.

Lot of content is available on what S/4HANA is, what CFIN is and about implementation, planning, and value discovery so I will just make a quick definition of each key term and will move to the core topic.

Definition of Terms

SAP HANA (High Performance Analytic Appliance) is an in-memory platform for processing high volumes of data in real time at faster speed.

SAP S/4HANA is a business suite designed to run processes to run & move business in a way of digital economy and it includes the components of core ERP like finance, Logistics, sales and so on.

SAP S/4HANA Finance is a component of S/4HANA, which focusses on Financial Accounting, reporting, planning, treasury & financial operations.

SAP Central Finance is a deployment strategy to start the SAP S/4HANA as a stepping-stone and then moving the processes to one core system reducing the complexity of landscape and standardizing the processes

 

Summary

In today’s world where business is growing rapidly and organizations have mergers & acquisitions as one of their strategy for sustained growth, market expansion and increase market share due to which the landscape is very fragmented & disparate which may include SAP systems of various releases, Non-SAP systems of different nature & suppliers and needless to say some of them may be out of maintenance as well. The drawback of such landscape can be but not limited to below:

  • Manual & labor intensive work
  • Reconciliation issues
  • Disruption towards movement to standardization
  • Delays in financial closing
  • High Cost of ownership
  • An obstacle in automation & digitization

Why do we have fragmented landscape?

  • Existing business structure based on legacy
  • Change in business strategy including expansion
  • Mergers & Acquisitions
  • Divestitures

SAP S/4HANA Central Finance provides on-disruptive approach & solution to all the above problems first time and in the longer run and enable the organization to move towards standardization, simplification & harmonization. In addition, this can help in achieving bigger goal of below as the source of truth is single.

  • Seamless & simple reporting
  • Simplified Planning & Analytics
  • Reduced reconciliation & and increased standardization for future
  • Consolidation & Inter company reconciliations
  • Path towards automation

SAP Central Finance can also be the strategy in case of single ERP in use. Read here how!!!

How Central Finance can help in M&A Strategy?

Now since we know what central Finance is and what may be the possible reasons for the fragmented landscape but that is a reality which can’t be changed and that’s nature of business but now let’s understand how Central Finance can help business achieving the objective and overcoming through the bitter reality.

Reducing complexity in short term

Being an M&A hub, SAP Central Finance supports non-disruptive, speedy and simple approach for M&A activities as SAP S/4HANA provides all the benefits to the organizations due to the several structural changes done by SAP as compared to SAP ECC. One of the key area is the integration of OLAP & OLTP functionality at the HANA database level and from operational perspective, the Financial Accounting (FI) and Controlling (CO) data are integrated into one single table, which gives more flexibility & usability of the system as single source of truth reducing reconciliation efforts within system.

From architecture standpoint, organization need to set up a standalone SAP S/4HANA system for finance only without changing or disturbing the existing systems, processes and people within the organization and bringing finance under the central lens of the organization. Here Finance is the front-runner, which will be followed by processes, logistics and platform integration.

In future if any M&A is happening then the new on-boarded organization ERP need not to be changed or decommissioned in short term rather connected to the existing SAP S/4HANA Central system.

Template based model

M&A is not something which organization do once in a lifetime and for large organizations it’s a general practice to acquire small/mid-size and sometimes large companies and each M&A event may come up with new ERP system depending on size, age and nature of the impacted organization. Keeping this view in mind it’s recommended to have a template created with the existing knowledge of systems and enhance it all the time based on every new M&A event. With this each time the acquisition is happening the template needs to be executed and the system can be connected to the central systems getting value of consolidation, reporting & planning in the immediate term using the features like data harmonization since the data of both organization is in same system with same set of data characteristics.

 Quick M&A Integration

During the past it was a trend that any M&A takes months to integrate in the parent organization from operations standpoint and it is all not due to technology but also the legal process. In general the legal framework takes few months and once its signed off the technological & people integration used to take few months. Keeping the legal framework unchanged the technological integration can be accelerated based on the template integration. When you plan to integrate the organization who have SAP or non-SAP systems it can be quick as all integrating systems are already running with CFIN being implemented already and you just need to add one more source system without impacting processes and people of the organization which is a plus as after acquisitions there is also an immediate fear of people impact which can be minimised and people organization will have now time to think about long term strategy while the enterprise architect study the overall landscape (core + satellite) of the acquired organization. Data of the organization will be centralised also resulting in driving the business strategy based on the organizational data set, which is newly added.

Project Management framework

It is always recommended to use Agile methodology in this integration approach as Central Finance will also help in providing new insights and there may be a need to learn & execute the integration. Since Central Finance enables data modelling & simulations all on the entire source systems data (being stored on universal Journal in S/4HANA), it significantly reduces the time & effort to provide business-critical financial and management accounting insight. If analysis are quick, need based and on the fly it’s always a value for the organization.

Possible deployment scenarios for Central Finance

When Central Finance is implemented, it needs to have a vision & support as the implementation is not limited to IT but it touches across data, people, business processes as well. The quality of technical design rules the journey throughout in longer run and its not just quality rather it should also fall in the line of future vision of redesigned business processes, architecture & people organization.  Possible deployment scenarios may be:

   

  • Short Term Value Drop-in – If organizations want to get value quickly based on SAP innovations with less cost and time then CFIN is the way to go. It completely realistic to start looking at redesign business processes and harmonised data structure, which are the foundation for long-term roadmap and strategy. Connect source systems, harmonize data and with data replication get benefits of centralised reporting.

 

  • Future Finance Vision – With future Finance Vision, SAP S/4HANA is the way for the future organization deployment strategy and all finance & logistics processes will run on S/4HANA and replication from CFIN perspective is really not needed but at the same time in order to use the framework for future M&A events it can be used as one of the approach & platform.

 

  • Final Step Consolidation – With this approach it is assumed that the organizations have completed the simplification of landscape and there is no more scope of reducing the ERPs then the Central Finance can be used as the central platform for reporting consolidating existing systems which are part of long term strategy and adding CFIN system on top will give ease of reporting, consolidation and planning at centralised level.

 

  • Stepping Consolidation – This is the real use case for central finance scenario where at step one the data from source systems are replicated and then at step two the finance operations are carried out on that data. For example data replication and then activating central payments, central credit check with more central functionalities keeping finance in scope. At final step, the logistics operations are moved from legacy to SAP S/4HANA giving value benefits of S/4HANA innovation and beautiful user interface delivered as Fiori.

 

In summary SAP Central Finance can be one of the key component of M&A strategy and important to note that more that IT, it will be a business driven transformation keeping in mind the future vision and it also open the way for several opportunities in terms of revisiting architecture, landscape, redesign of business processes, setting up new guidelines on technology, security & compliance.

Hope this gives some guidance on how to leverage CFIN for M&A events.

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