SAP S/4HANA conversion is costly, and delaying it makes it even costlier

SAP recently announced its FY 2022 financial results and registered healthy growth, driven mainly by its cloud business. In Q4 2022, SAP added new S/4HANA customers; about 50% are new to SAP, down from 60% in Q3 2022. Additionally, SAP stopped disclosing S/4HANA and Rise with SAP license sales numbers, further indicating the slow adoption and migration of S/4HANA.

SAP ERP Central Component (ECC) customers are cautious about migrating to the latest S/4HANA because of hefty migration costs and lengthy project duration; those reasons will only worsen if they fail to act quickly. Legacy customers must move to the latest SAP suite soon, or they will be at a competitive disadvantage, impacting their digital transformation journey.

Moving to S/4HANA will help your organization make data-driven decisions

In most cases, upgrading to the latest SAP solutions suite is part of an organization’s digital transformation strategy. A delay in moving to the latest SAP suite decelerates the overall transformation journey, putting an organization behind its digitally mature competitors in a few areas, such as innovation, competitiveness, and responsiveness.

Digital transformation is powered at its core by SAP solutions and other technologies, including cloud, automation, and AI. Running core business processes on an old SAP ECC system keeps them reliant on outdated capabilities and functionalities and unable to take advantage of newer technology such as cloud, analytics, artificial intelligence, and machine learning. ECC is responsible for transactional data and operational reporting, but moving to S/4HANA allows organizations to utilize the full potential of their data. It leverages data and processes it at a granular level to provide real-time actionable insights. Moving to the latest ERP version will give organizations an edge.

SAP’s maintenance cost strategies favor S/4HANA migration

After the 2027 deadline, SAP will switch off its support for ECC. SAP extended support (from 2028 to the end of 2030) will come at a premium of 2% of the existing maintenance. While the 2% premium is not huge, it will begin to add up and detract from investments in other areas. Customers not wishing to extend their maintenance support will be moved to a customer-specific maintenance model. Both options would cost your enterprise more for an outdated system.

SAP has already reduced its focus on ECC and its functionalities and begun investing 20% of its revenue in S/4HANA R&D to add functionality; it plans to continue its investments. SAP is pushing customers to move to S/4HANA, indirectly alerting them to be ready to negotiate on ECC maintenance costs.

Moving to S/4HANA soon is a no-brainer

Transformation and migration come with significant price tags, effort, time, and business continuity challenges. However, moving to S/4 improves efficiency, integration with other systems, and user experience. Technology and business leaders are building strong business cases to justify their efforts among key stakeholders. Your organization could face these common, significant challenges if it delays the S/4H migration until the end of SAP support (2027):

• Last-minute migration resource rates will spike
  If organizations keep the SAP S/4HANA conversion program until the 2027 support deadline, the last-minute conversion will reduce the availability of skilled resources. We can expect a massive rush at the end. Chances are that the unavailability of resources at that time will increase demand versus supply, leading to higher consultant rates. We discussed the same in our SAP S/4 Hana services study last year.
• Investment in hardware to maintain ECC will increase
  On the other hand, organizations that continue with ECC must retain dedicated resources to manage infrastructure (on-premises) and maintenance, which further increases costs.
• Last-minute projects could suffer from sub-optimal quality
  Last-minute hurry leads to serious quality concerns in engagements. Migration programs need adequate time to build a business case with extensive analysis, cost planning, realistic roadmap implementation, resource allocation, business continuity plans, and a change management framework. Organizations may find it hard to manage everything in a limited timeframe, leading to internal contradictions. During last year’s study, we learned that provider resources worked extra hours and supported multiple projects simultaneously, resulting in poor delivery quality.

Delaying migration delays your gains

In alignment with our earlier point, S/4HANA’s slow adoption and migration rate could lead to en masse, last-minute migration initiatives. If that happens, surely we can expect the challenges this perspective describes. A hurried migration process within a limited timeframe is more complicated than organizations would have planned in normal conditions, likely leading to failed migrations.

S/4HANA migration allows organizations to achieve specific benefits, such as deploying new capabilities (AI, ML, predictive analytics, and others), improving data set visibility, creating competitive advantage, increasing speed to market, enabling faster decision making, and scaling the existing business units. Delaying the migration initiatives delays the gains.

The Bottom Line: Enterprises eyeing S/4HANA migration must hurry to avoid high costs and resource availability challenges. Delays further impact the pace of an organization’s digital transformation journey.

It’s a double-edged sword: SAP ECC customers delay the migration initiatives because of cost and lack of solid business cases. But upgrading your core solutions (like SAP) is necessary for becoming a digitally transformed organization, and it should be a priority. Cost and demand for resources will only increase if enterprises delay the migration to the end of SAP support in 2027. Executing a complex migration initiative and transformation in a constrained time frame significantly increases the risk of failure. Enterprises’ SAP ECC customers must shift to S/4HANA early to gain competitive advantage and value.