Gartner Report Hana

What Customers Need to Know
When Considering a Move to

S/4HANA — 2018 Update
Published 8 October 2018 - ID G00363664 - 44 min read
Gartner has seen significant interest in the adoption of SAP

S/4HANA. Application leaders looking to transform their ERP should
use Gartner’s updated best practices to decide if, when and how
they should plan to adopt S/4HANA.
Overview
Key Challenges
 Convincing business cases: S/4HANA adoption is gaining momentum, but many
application leaders continue to struggle to identify business value and build a
compelling business case for adoption.
 Roadmap: The complexity of the SAP S/4HANA roadmap, lack of clarity in industry-
supported functions, and the range of deployment options available (both on-
premises and SaaS) mean that customers must spend more time selecting what is
best for them, given that SAP has stated that the future is cloud.
 Vertical functionality: Although there are significant common functional capabilities

between the two products (ECC and S/4HANA), moving to S/4HANA involves
changes to vertical industry functionality and business processes.
 Deployment flexibility and complexity: While SAP offers S/4HANA SaaS with private
and public options, SAP customers who decided to adopt S/4HANA on-premises will
continue to deal with the complexity of upkeeping the infrastructure upgrade and the
increase in support costs.
Recommendations
For application leaders responsible for postmodern ERP strategies and SAP
solutions:
 Assess whether S/4HANA is a strategic fit for your organization by performing a high-
level benefit analysis, assessing your readiness and determining your preferred
adoption model.
 Assess the functional capabilities of S/4HANA that pertain to you by using SAP’s
Transformation Navigator and SAP’s Readiness Assessment.
 Address industry-specific requirements, and streamline implementation by engaging

SAP’s Digital Business Services and third-party service providers.
 Prepare for a smooth transition to S/4HANA by first cleaning up your production

database, reviewing existing custom code and evaluating delivery alternatives.
Strategic Planning Assumptions

By 2020, at least 35% of SAP ERP clients will be running one or more functional
modules of SAP S/4HANA.
Through 2020, 80% of organizations conducting a “lift-and-shift” migration of internal

business applications from their own data centers to cloud will not achieve meaningful
cost savings.
Introduction
Since its premier in February 2015, S/4HANA continues to be SAP’s most significant
and strategic solution since the release of SAP R/3 in 1992. Powered by SAP HANA
in-memory database management system (IMDBMS), SAP’s proprietary in-memory
computing technology, S/4HANA has a hybrid transactional/analytical processing
(HTAP) architecture that enables real-time analytics, while live transaction data can
be processed without the need to run Business Warehouse or Data Warehouse in
parallel.
ERP suites will be greatly impacted by technology in the next several years. Gartner’s
research has shown that, by 2025, 60% of human tasks will be automated, and
speech and image recognition technology will be at 97% accuracy versus human rate
at 94.1% (see “Forecast: The Business Value of Artificial Intelligence, Worldwide,
2017-2025”). With the advancements in technology, enterprises are expected to drive
the demand for running smarter operational processes through the ability to identify
deficiencies as quickly as finding the solutions to address them. It is estimated that
overall spending in investment for machine learning (ML)/artificial intelligence (AI) will
reach at least $57 billion in Enterprise Machine Learning by 2021. 1 In this context,
SAP introduced S/4HANA as the intelligent ERP at the core of the Intelligent
Enterprise during SAPPHIRE NOW 2018.
S/4HANA is key to SAP’s continued success as a leading enterprise application

software provider. SAP R/3 and its successors, SAP ERP 5.0 and 6.0, have been the
most widely deployed ERP software in the last 20 years, supporting many large-scale
and mission-critical deployments. SAP needs S/4HANA to become a similar
enterprise foundation for the next 20 years to ensure its continued success in a very
dynamic ERP market.
SAP is making progress against its goal to shift all clients to S/4HANA. Table 1
provides Gartner’s estimate on the number of live S/4HANA customers to date and
SAP claimed that it will have 3,000 to 5,000 SAP ERP customers live by the
beginning of 2019. Although that is an aggressive goal, it demonstrates that
S/4HANA adoption is picking up steam. This number does not include 600 more
cloud customers (40% net new) added in SAP’s 2Q earnings, which brings the
estimated number of S/4HANA Cloud customers to around 750.
Table 1: Gartner-Estimated Percentage of SAP’s 35,000+ ERP Customers Buying,

Implementing or Live on S/4HANA
Enlarge Table
S/4HANA 1Q17 2Q17 3Q17 4Q17 1Q18
Sales 5,800 6,300 6,900 7,900 8,300
Projects underway 2,700 2,500 2,900 2,500 3,000

S/4HANA 1Q17 2Q17 3Q17 4Q17 1Q18
In production 700 850 1,150 1,500 1,600
Percentage of ERP 1Q17 2Q17 3Q17 4Q17 1Q18

Customers
Sales 17% 18% 20% 23% 24%
Projects underway 8% 7% 8% 7% 9%
In production 2% 2% 3% 4% 5%
Source: Gartner (October 2018)

SAP S/4HANA is SAP’s long-term strategic solution. The company announced that it
would prolong mainstream maintenance of SAP Business Suite on all databases until
at least 2025. It is clear that SAP expects all existing users to move to S/4HANA on-
premises or SaaS. SAP is still delivering enhancements for ECC 6.0 (as seen in the
company’s current roadmaps 2), but it is Gartner’s opinion that major investments and
innovations will be delivered through S/4HANA. Consequently, if your organization
views SAP as a strategic partner, you need to plan to adopt S/4HANA before 2025.
Gartner predicts that there will be a tsunami of S/4HANA adoption between 2021 and
2023, which could drive up the implementation cost as skilled resources are scarce.
SAP customers may be at risk if they recruit less-experienced talent, as this could
result in unsuccessful implementation programs.
It is critical to understand that, even if your company decides not to adopt S/4HANA
immediately, you still have to consider the changes imminent with S/4HANA —
including for all your current work on your existing ECC landscape — in order to not
add further technical debt. For example, continuing to add customizations to your
current ECC landscape will further complicate your migration approach and certainly
increase project costs.
This research note summarizes Gartner’s overall advice regarding S/4HANA in order
to help you determine how to start and what to evaluate in order to select the lowest-
risk approach. We would not recommend that it is read from start to finish in a single
sitting. Instead, we advise using this research in a modular fashion as follows.
Existing SAP ERP users that have limited S/4HANA knowledge
Focus on these best practices first:
 Review our Analysis section for a quick overview of S/4HANA and the Gartner’s
S/4HANA Benefits Assessment Framework.
 Perform a high-level benefit analysis to decide if S/4HANA and the model company
adoption has a role in your ERP strategy. Also determine what your adoption model
will be, which could be a combination of S/4HANA, SAP SaaS, or any other SaaS
vendors.
 Refer to Gartner’s note, “You Are Not ‘Doing ERP’: How CIOs Can Successfully
Present Their ERP Strategy to the Board,” to explore how to present to the board in a
way that shifts the perception of ERP from legacy transactional technology to digital
business enabler, and to determine whether S/4HANA has a role to play.
Once you are familiar with these best practices, review the remaining best practices
to help your company identify the right strategy to prepare to adopt S/4HANA.
Existing SAP ERP users that have reasonable knowledge of S/4HANA
 Use the SAP Transformation Navigator and SAP Readiness Check to evaluate the
current and future capability of S/4HANA. Leverage this finding to evaluate your
adoption timetable.
 Engage with SAP through Premium Engagement or third-party providers to identify

functional differences between S/4HANA and your current SAP ERP deployment.
Then decide which of the S/4HANA adoption approaches is the most appropriate to
your organization and migration objectives (Greenfield, Brownfield, Transformation or
Bluefield).
 Perform a high-level benefit analysis to decide if S/4HANA and the Model Company
vendors.
Use the first part of the document as reference material. Once you have read these
best practices, move on to:
 Establish the key project considerations and business gaps needed to support the
transition to S/4HANA that may be addressed via app extensions versus custom
development.
Existing SAP ERP users that have decided to adopt S/4HANA and are planning a
migration project
 Engage with SAP through Premium Engagement or third-party providers to identify

functional differences between S/4HANA and your current SAP ERP deployment.
Then decide which of the S/4HANA adoption approaches is the most appropriate for
your organization and migration objectives (Greenfield, Brownfield, Transformation or
Bluefield).
adoption (see SAP Model Company 3) has a role in your ERP strategy. Also determine
what your adoption model will be, which could be a combination of S/4HANA, SAP
SaaS, or any other SaaS vendors.
 Establish the key project considerations and business gaps needed to support the
transition to S/4HANA that may be addressed via app extensions versus custom
development.
Potential new users of SAP considering S/4HANA
Focus on:
vendors.
Existing SAP ERP users that have decided to prolong the life of Business Suite
beyond the 2025 deadline before adopting S/4HANA:
Focus on:
 See our explanation of the No Plans to Adopt approach in the Assess the Strategic
Fit of S/4HANA for Your Organization section.
Analysis
SAP S/4HANA is a new-generation ERP solution that is optimized for SAP HANA
IMDBMS. It is not a completely new solution because its starting point was SAP
Business Suite powered by SAP HANA (commonly known as “Business Suite on
HANA” or “BSoH”). BSoH was initially released in early 2013 (see “SAP’s Business
Suite on Hana Will Significantly Impact SAP Users”) and gave users the choice of
running all SAP Business Suite functionality (including ERP) on the HANA IMDBMS.
SAP still supported and developed its Business Suite applications for third-party
databases, because it wanted to allow BSoH to be consumed in a “nondisruptive”
manner and offer users choice.
BSoH offered some potential advantages over Business Suite on third-party

databases, such as improved processing speeds and real-time analytics, but the
functionality was generally equivalent across all database versions. This changed in
2014 when SAP introduced the first functional capabilities that were optimized purely
for the HANA IMDBMS and therefore only available with BSoH. This was the first
release of Simple Finance version 1503, which had a simplified data architecture for
the financial accounting (FI) and controlling (CO) modules, along with new Fiori
applications and some new functional capabilities. Simple Finance could be
purchased and installed in a BSoH environment as an add-on. The last version of
Simple Finance is 1605 and this version will reach end of life in 2021.
In February 2015, SAP significantly shifted its strategy when it announced SAP
S/4HANA. This was a departure from the multiple-database strategy implemented in
its Business Suite applications. SAP created a new code line from BSoH so that it
could focus on building the data architecture and functionality specifically for in -
memory computing. SAP S/4HANA (or SAP Business Suite 4 SAP HANA to give it its
full name) was therefore only available on the HANA IMDBMS and was licensed as a
new product, meaning that additional license fees would be payable for existing
Business Suite customers that wanted to move to S/4HANA. The additional license
fee for S/4HANA is relatively small, and the ERP user fees are unchanged (existing
ERP user licenses are carried forward into the S/4HANA license).
All existing SAP Business Suite users need to analyze the impact of S/4HANA on
their ERP strategies and SAP investments. Gartner’s advice is do not wait and
perform this analysis now. Many application leaders are tempted to ignore SAP
S/4HANA “until it is mature” because understanding its impact is complex. This is th e
wrong approach because any additional investments made in current SAP
deployments will be impacted by future plans regarding S/4HANA. Application
leaders must ensure that the business has a clear strategic direction agreed for
S/4HANA adoption roadmap before making any further investments in its current SAP
ERP landscape.
S/4HANA is a new product line that is a technical and functional evolution from BSoH.
The main development principles behind S/4HANA are as follows:
 Simplification and consolidation of the database schema: This has removed physical
database tables that are no longer required in an in-memory system. The IMC
capabilities of HANA mean that aggregate tables and materialized views (required for
efficient processing in a relational architecture) can be removed. The reduction in the
number of tables can be significant (for example, 28 were removed as part of the
simplification of materials management).
 Deployment of the SAP Fiori user experience: This has taken SAP time to deliver, but
there are now more than 7,800 Fiori applications available for the S/4HANA 1709
release. SAP has applied Fiori design principles to areas that still use the previous
user experience technologies (such as WebGUI and Web Dynpro).
 Delivery of new functional capabilities that are optimized for in-memory

computing:This is where there will be significant functional divergence from Business
Suite functionality over time. Examples are SAP Cash Management (a new product
for group-level cash management and forecasting), and real-time, multidimensional
Profitability Analysis (CO-PA), which uses a combination of the revised database
architecture, new data model attributes and Fiori applications.
S/4HANA will evolve to include integration to other SAP SaaS solutions such as SAP
Customer Experience (CX) Solutions. SAP is working on a capability that will deliver
intelligence in interface content advisory mapping to reduce the manual workload
during a S/4HANA transition. The amount of development work required by SAP to
fully realize the vision of S/4HANA is significant and, at the time of preparing this
research, was still in progress. It is Gartner’s opinion that it will take between three
and five years for SAP to complete the majority of this work. Application leaders must,
therefore, understand how S/4HANA has evolved (and will continue to evolve) in
order to assess the maturity of the different versions and deployment options.
S/4HANA Enterprise Management and S/4HANA Cloud are both developed from the
same code line, but have different functional scopes because the S/4HANA Cloud
editions have a full Fiori user experience. There are one retired and two updated
primary variants of S/4HANA in the market at the time of preparing this research:
 Retired S/4HANA Finance: Originally called Simple Finance, this is effectively BSoH
with the simplified architecture applied to FI and CO only. It has a separate release
cycle from S/4HANA Cloud and S/4HANA. SAP describes this as an “interim
architecture” and has announced that S/4HANA Finance 1605 was the last release,
after which it would not be further developed. It will be supported until 2021, and it is
possible to migrate to S/4HANA from S/4HANA Finance using SAP Maintenance
Planner and Software Update Manager. There are no additional licenses required for
this migration.
 Updated S/4HANA Cloud: The version available at the time of preparing this research
is 1808. S/4HANA Cloud has come a long way to now feature most functional scopes
in the areas listed in Table 2.
Table 2: Functional Areas Covered in S/4HANA Cloud
Enlarge Table
Functional Areas
Asset Management
Enterprise Portfolio and Project Management
Finance Research and Development
Intelligence Analytics
Functional Areas
Inventory Management
Machine Learning
Manufacturing
Predefined Integration
Quality Management
Research and Development
Sales
SAP Copilot — Natural Language Interaction (ML/AI)
Sourcing and Procurement
Variant Configuration

These are configurable SaaS solutions licensed on a subscription basis with no code
customization allowed, although they can be extended using SAP Cloud Platform.
There are typically quarterly releases of all cloud editions.
 Updated S/4HANA Enterprise Management: This is the on-premises variant of

S/4HANA that contains SAP’s definition 4 of core ERP functionality. There has been
simplification across all functional areas, but in each release there will be further
simplification and also new IMC-optimized functional capabilities. So far, there have
been three releases: S/4HANA Enterprise Management 1511, S/4HANA 1610 and
S/4HANA 1709 (see Figure 1 for changes in 1709). The next 1809 version is
scheduled to release in September 2018 (Gartner will update the capability of 1809
once the official announcement is made). Each release has its own life cycle, typically
with two or three “feature pack stacks” prior to the next release, followed by “support
pack stacks” once the next release is available. Users do not have to move from one
release of S/4HANA on-premises to the next (for example, from 1610 to 1709)
immediately after a new release is available. However, for existing 1511 or 1610
customers running on SAP HANA IMDBMS 1.X, they will have to perform a DB
upgrade to HANA IMDBMS 2.0 in order to upgrade to 1709.
Figure 1. Notable S/4HANA Release Capabilities

In addition, it is also possible to deploy S/4HANA in the SAP HANA Enterprise Cloud
(HEC; see “Is SAP HANA Enterprise Cloud Right for Your Organization?”), a scalable
and secure, privately managed cloud environment delivered by SAP. Users can opt
for either a perpetual license model (where each deployment can be customized) or a
subscription-based model (where case customization of the deployment is not
permitted). This is different from the S/4HANA Cloud editions because the
deployments run on dedicated hardware rather than in a shared public cloud
environment. However, for many SAP customers, this is “cloudy enough” because it
moves infrastructure and hardware out of their own data centers.
There are also a number of S/4HANA managed cloud service offerings from SAP
partners in addition to HEC (see “The Impact of SAP HANA on the SAP Infrastructure
Utility Services Marketplace”).
In “Best Practices in Planning for SAP S/4HANA — 2017 Update,” Gartner referred to
three types of SAP transitional approaches, as depicted in Figure 2.
Figure 2. S/4HANA Transitional Approaches

As of 2018, there is an emerging approach unofficially known as Bluefield migration

(also known as Shell Conversion/Harmonization). Gartner expects that this method
will combine with various SAP service provider’s tools to bring an optimized and
quicker way to upgrade Business Suite to S/4HANA. This approach works by creating
an empty target system (a shell) using Business Suite client (no data), and then using
these tools to upgrade this target system to S/4HANA. It performs any transformation
activities as needed before the final data migration and cutover phase. This approach
provides a nondestructive migration from source to target system, enabling system
consolidation, split, upgrade or harmonization at the same time. It also makes it
possible to perform a big-bang migration through the automation of data and
business processes pretesting. As ML/AI requires a large amount of data to process,
the Greenfield and Brownfield approaches will cause customers to lose data.
Bluefield, on the other hand, provides a promising methodology whereby customers
can potentially keep all of their data to harness and maximize the power of S/4HANA
sooner.
Assess Whether S/4HANA Is a Strategic Fit for Your

Organization
Many of SAP’s customers are, or will be shortly, at a crossroads where they need to
decide on their ERP strategy. This includes determining if SAP is the appropriate
strategic partner for their ERP solution and, if so, which S/4HANA deployment option
to choose. Critical to this decision is a high-level cost-benefit analysis to determine
your direction.
There are many factors that should be considered in this step. S/4HANA is a
transformational shift for SAP and its users. It is based on in-memory computing, real-
time processes and real-time analytics. It is also quite a departure from the legacy
SAP Business Suite, where relational database design typically limited real-time
capabilities, and often called for the reliance on additional tools — from SAP as well
as third-party vendors. This is not only a next-generation SAP improvement, but can
also be seen in new solutions from many of SAP’s prime competitors.
Gartner has defined six categories of potential benefits that S/4HANA can deliver,
based on our own analysis and growing evidence from reference customers:
1. Performance improvements: The IMC platform of S/4HANA means that existing

application processes should run faster and, in some cases, the performance
improvements can be dramatic, with long-running process execution reduced from
many hours to minutes, or even seconds.
2. Real-time analytics: The combination of IMC technology and the hybrid

transaction/analytical processing (HTAP) architecture of S/4HANA means that
analytics can be performed in real time on transaction data (instead of extracting
data to a separate instance of SAP Business Warehouse or other data warehouse
platform). Also, the processing power of the IMC platform means that forecasts
and simulations can be run in real time against large volumes of transaction data,
something that is not possible with traditional relational architectures. The HANA
IMDBMS technology includes predictive analytic algorithms (the Predictive
Analytics Library), which are being leveraged by the S/4HANA product developers.
3. Impact of the simplified architecture and associated Fiori applications: The
architectural changes in S/4HANA both simplify the data schema and, in some
areas, change the way existing functionality is used. For example, the new
Universal Journal table in financials removes the need for reconciliation between
the various ledgers in SAP financials, and should simplify month-end financial
close processes. It also enables profitability analysis at lower levels of granularity
through new and customizable derivation rules for profitability characteristics. Each
release of S/4HANA delivers more architectural changes (for example, 1511 and
1610 have delivered real-time inventory valuation and accelerated material
requirements planning).
 S/4HANA includes Fiori applications that only work with the simplified architecture.
These include transaction processing applications, fact sheets (these display KPI tiles
and allow further drill-down) and packaged analytics applications. These are mostly
role-based and could deliver improvements in how users process transactions and
access information. Each release of S/4HANA includes new Fiori applications of all
types.
4. Benefits of new S/4HANA functionality: SAP has already released several new
functional capabilities that are unique to S/4HANA; for example, SAP Cash
Management, Central Finance (see Note 1) and a version of SAP Business
Planning and Consolidation that is optimized for S/4HANA. So far, these new
capabilities have been focused on the finance domain, but it is likely that SAP
will release new solutions that impact other domains in the future. Any
assessment of potential S/4HANA benefits should include the impact of these
new capabilities, but they may require additional licenses, so it is important to
check licensing requirements with SAP.
5. IT benefits: There will be a reduction in database size because of the simplified

data architecture. There may also be some simplification of the IT landscape (for
example, the need for SAP Business Warehouse may be reduced or even
eliminated through the use of real-time analytics).
6. Potential for enabling new ways of doing business: The combination of

performance improvements, real-time analytics, the simplified architecture and
new functionality being delivered in S/4HANA could enable significant process
innovation. For example, running complex “time-bound” processes in minutes or
seconds rather than hours, coupled with real-time predictive simulation and
forecasting capabilities, means S/4HANA could become a real-time business
management system rather than a transaction-processing system based on daily,
weekly and monthly cycles. However, this may be challenging because business
leaders will have to rethink and change established ways of working to realize this
potential.
These benefits are summarized in the benefits assessment framework (shown in

Table 3), along with associated actions.
Table 3: Gartner’s S/4HANA Benefits Assessment Framework
Enlarge Table
Impact Potential Benefits Actions
Performance  Transaction processes  Identify time-bound

improvements run faster. processes in your current
SAP deployment.
 Some performance
improvements can be  Assess the business
significant. impact of running these
processes more rapidly.
Real-time  Analytics on real-time  Work with business users

analytics transaction data without to identify where real-time
separate SAP Business analytics — including
Warehouse instance. predictive analytics —
could deliver benefits.
 Virtual data model to
access data more  Identify end users that
easily. specialize in reporting and
analytics (starting with
 Ability to support
finance).
complex real-time
forecasting, simulation
and other predictive
analytics.
Simplified  Changes in data  Create teams of IT and

architecture and architecture enable new functional specialists by
Fiori functional capabilities. domain (finance, logistics
applications or production, for
 Fiori role-based
example) to evaluate
transactional
benefits.
applications.
 Allow time for training and
 Fiori analytics
review of SAP resources.
applications.
New  New applications or  Evaluate the role of new

functionality functionality only applications in your ERP
available with S/4HANA strategy.
that may offer business  Understand licensing
benefits. implications.
IT benefits  Reduction in database  Monitor the database size

size due to simplified reductions being achieved
architecture. by early adopters.
 Simplification of IT  Assess how the role of
architecture (if real-time SAP Business Warehouse
analytics used). changes with S/4HANA.
 Deliver real-time data and
less effort to generate
reports through embedded
analytics.
Potential  The combination of IMC  Work with senior

business processing power, management and line-of-
transformation HTAP architecture, real- business leaders to
time analytics and new identify if S/4HANA
capabilities in S/4HANA supports/enables
could be business transformation
transformational. initiatives (for example,
digital business).
 S/4HANA could be used
as a real-time business
management system.
ERP = enterprise resource planning; HTAP = hybrid transactional/analytical

processing; IMC = in-memory computing

The benefit analysis does not need to go into great depth at this stage. The goal is to
engage key business users to identify the level of “excitement” that S/4HANA creates
in terms of potential benefits, and to use that to decide on your adoption category.
Gartner has found that using this benefits framework in client interactions quickly
highlights if there are (or are not) significant potential benefits that could provide the
foundation for a compelling business case and detailed cost-benefit analysis in the
future. CIOs and application leaders should not try to build a business case for
S/4HANA adoption without engaging business users early in the process.
There are other key factors that should be considered if you are looking to move to
S/4HANA or you are considering solutions from other vendors (see “Magic Quadrant
for Cloud Core Financial Management Suites for Midsize, Large and Global
Enterprises”). We have included observations about S/4HANA that you should
investigate to determine if these could potentially benefit you.
In our research through client inquiries and Magic Quadrant reference surveys, we
have observed certain patterns how SAP customers perceive and react to S/4HANA
adoption. We have distilled these down to three categories of SAP
customers/prospects:
 Strategic adopter: The strategic adopter has bought into the SAP platform and/or
intelligent story, and sees SAP as critical to their operations. This type of organization
has seen the benefits of SAP and believes that following SAP to new technology
platforms is strategically critical for the future of their enterprise. They would view
moving to S/4HANA as an opportunity to deliver significant new benefits, especially to
enable new ways of doing business in the short term (within two to three years or
sooner). They would target S/4HANA to replace their older ECC deployment that is
no longer fit for purpose. If they have multiple instances of ECC deployed, they would
consider S/4HANA Enterprise Management or S/4HANA Cloud for a potentially
“staggered” rollout, focusing on learning from implementing this new technology in
smaller units first.
 Tactical adopter: The tactical adopter sees the potential benefits of S/4HANA, but
may not see these as being significant in the short term. This could be a customer
with a complex SAP landscape (multiple instances) that eventually wants to move to
the S/4HANA Cloud solution versus the on-premises version. However, not all of the
industry-specific components are yet available. They do, however, regard SAP as a
strategic long-term partner, so it is a question of timing (when, not if).
 No plans to adopt: This type of organization is typically unconvinced about the

potential benefits and views this as a technology shift forced on them by SAP so that
it can upcharge its customers. The organization mainly uses SAP as a system of
record. It may ringfence its ERP solution or consider minor upgrades to stay current,
but will not consider wholesale changes at this point. It may be unsure about whether
to stay with SAP in the future. In the meantime, the organization will augment its ECC
solution with additional (mainly cloud-based) tools from third-party vendors (as well
as SAP Leonardo to maximize the existing investment) for best-in-class functionality.
Another option is to save money for future ERP investment by leveraging third-party
maintenance support like Rimini Street or Spinnaker (see “Address Shelfware and
Reduce Your Software Maintenance Costs by Up to 50% With These Often-
Overlooked Best Practices”).
When considering S4/HANA, there are multiple deployments that are available. There
are essentially two main S4/HANA solutions:
 S/4HANA Enterprise Management (hosted on-premises, IaaS, or AMS)
 S/4HANA Cloud (pure SaaS with development of extensions using SAP PaaS, no
custom development)
Figure 3 further breaks down these options.
Figure 3. S/4HANA Solution Offerings

Source: Adapted from SAP
In addition to the above, an organization may also choose an enterprise management
solution that is hosted by SAP or may choose to have it hosted by a third party. As
there are several deployment options, it is often not clear which direction customers
are ultimately interested in or are targeting. SAP has made a clear statement that the
future direction for itself is S/4HANA Cloud. However, there are currently a limited
number of verticals available for implementation or stand-alone core financials
deployment void of industry-specificity. We believe that digital technologies such as
AI, ML, robotic process automation (RPA) and blockchain will mainly be offered as
cloud-only deployments, thus requiring a hybrid approach by those ultimately
selecting the S/4HANA Enterprise Management approach in the future. While SAP
has stated that the code base for the two main deployments are the same, we have
found differences, including in the approaches and solutions for financial planning
and analysis, and financial consolidations. For example, SAP Business Planning and
Consolidation [BPC] is only available on-premises, while the S/4HANA Cloud solution
relies on SAP BusinessObjects Business Intelligence suite and a new solution, Group
Reporting.
Recommendations:
 Perform a cost-benefit analysis on the value proposition of moving to a new ERP

solution. Understand the benefits of changing to a new technology for ERP, and how
it will affect your business processes, as well as your IT and end users.
 Understand the type of organization you are — a Strategic Adopter, Tactical Adopter,
or No Plans to Adopt — and develop migration strategies that fit your character.
 Assign a proof of concept (POC) project and architect solution baseline to monitor
and keep up with SAP’s (or any other vendor for that matter) roadmap, and to be
aware of when specific functional and industry components will be available either on-
premises or in the cloud.
 Understand and prepare for the eventual move to a cloud ERP. You may choose an
interim move to an on-premises solution now, but most ERP application leader’s
strategic direction will be the cloud in the next five to eight years.
 Evaluate the differences in on-premises versus cloud capabilities, including industry

verticals, as key inputs into your product migration/upgrade approach.
Assess the Functional Capabilities of S/4HANA

One of the first questions asked by enterprises considering the migration from an
existing SAP ECC to S/4HANA is related to what types of functionalities are present
(or not) in S/4HANA versus their SAP ECC deployment. As part of the discovery
initiative, SAP offers two free-of-charge applications that can work as a starting point.
Transformation Navigator
Since May 2017, SAP has offered a self-service tool called Transformation Navigator,
which was created to help SAP customers start building a business-driven
functionality roadmap based on how they operate within their SAP ECC instances.
Based on the currently used products, the application gives guidance on what SAP’s
recommended products are, highlights their business value, and details the transition
to SAP S/4HANA and other recommended products. It is important to understand that
this is an SAP-centered vision. Therefore, it focuses on providing guidance on how
those functionalities are fulfilled by S/4HANA and other SAP solutions (such as
C/4HANA, SuccessFactors and others). However, a spreadsheet-based output of the
application allows for offline modelling of migrations from and to third-party products
alongside SAP product transition scenarios.
The tool requires basic input, which includes currently used products (which can be
extracted through Solution Manager) and more detailed system information for
complex products like SAP ERP or SAP SCM. A feature called Usage Pre-population
can import information about the usage of those complex products with one click, and
makes the transition guidance simpler and faster. In addition, the Time Slider
functionality shows a timeline of upcoming changes in SAP’s product
recommendations as new features become available in S/4HANA or other products. It
lets you identify the best point in time for the migration by, for example, showing
when an ERP capability you are using will becomes available in S/4HANA. For the
business value part, the selection of value drivers is required, which are linked to and
derived from the list of recommended products. Not all the input requested is
mandatory, so you can create a product transition scenario without providing input for
the value part (for example, you don’t have to select business value drivers or
aspirations to for a technical comparison). The resulting report includes (see Note 1
for links to sample reports available from SAP’s website) suggestions tailored to
these inputs. Examples include:
 High-level capability gaps and matches between SAP ECC and S/4HANA Enterprise
Management/Cloud editions (or other SAP apps) — Section 2.2, Capabilities of
Recommended Products versus Current Products on the Business Guide Report.
 Transition guidance from your current capabilities to the S/4HANA suggested

capabilities/products, with suggested transition methods (conversion, process
transformation and others) — Section 2.1, Guidance on Your Current Product on the
Technical Guide Report.
 Mapping between current SAP products and recommended products licensing

models — Section 2.3, Licenses and Subscriptions for Your Target Product on Your
Transformation Guide Report.
As of the publication of this note, there are free resources available to understand
how the application works and how to operate it (see Note 1).
Readiness Check
Along with Transformation Navigator, SAP is also offering an application called

Readiness Check that provides a more technical-driven analysis of an SAP
environment. This enables a rough analysis of the potential technical changes
required to work with S/4HANA.
Figure 4 describes the main features according to SAP.
Figure 4. SAP’s Main Features

Source: SAP
Readiness Check helps customers understand what business areas may be more
affected by the several process simplification changes in S/4HANA (functional
changes), as well as the compatibility of existing add-on features with S/4HANA
(including industry solution features).
Overall Comments on SAP Transformation Navigator and Readiness Check
Expectations should be set in regard to the type of results these applications will
generate. Customers should understand that these are applications provided by SAP
— therefore, a lift-and-shift full SAP approach will be provided, although this is only
one of the potential scenarios in a postmodern ERP strategy. Only part of the results
may be valid to build the organization’s future roadmap, depending on your desired
future ERP applications architecture, but it can work as a starting point to analyze
what can (or cannot) be supported by S/4HANA.
The usage of such applications will require a valid and active S-User ID. Therefore,
customers who may not be under active yearly maintenance contracts with SAP (for
example, customers who may have opted to adopt third-party support) may not be
able to access this application.
Considering that the end results are dependent on the different release versions of
S/4HANA (of the several non-S/4 products recommended), customers should expect
different results depending on when the scenario is simulated. This may also allow
companies to evaluate the evolution of the application features, to analyze when
certain key features may now be considered part of the published roadmaps of
S/4HANA.
Recommendations:
 Have a postmodern ERP strategy set of principles to support the interpretation of the
results. Your company may not need all the applications suggested by these tools,
nor may the suggested applications be the best-suited in terms of functional fitness,
compared to other offerings in the market.
 Do not assume that all the applications suggested as solutions will provide out-of-the-
box integration among themselves. Beware that some industry specific-functions will
still need to be developed to enhance features that are unique and not yet
commoditized.
 Use these results as an input for your to-be architecture exercise, not as a final
architecture goal, unless your ERP strategy points toward a full-fledged SAP
application approach.
 Understand the licensing options and potential implications for your business case by
using “Toolkit: Negotiate On-Premises SAP Software Contracts to Optimize Pricing,
Terms and Conditions.” Ask Gartner analysts about the considerations to keep in
mind for the existing models, including the ones that enable migration of existing
licenses to new SAP applications.
Address Industry-Specific Requirements and Streamline

Implementation by Engaging SAP’s DBS and Third-Party
Service Providers
SAP DBS, the professional services arm of SAP, often works in conjunction with its
services partners to implement S/4HANA. SAP DBS has been very active and is
currently building a more robust portfolio to deliver innovations to clients post
S/4HANA go-live and provide production support. With involvement in more than
3,200 S/4HANA engagements in various capacities, SAP DBS has built assets to
improve and accelerate implementation. As SAP stated, it is not using DBS to
compete with SAP system integrators. The business support activities below
demonstrate how DBS can help to contribute to the success of the S/4HANA journey
outside of the system integrator’s role:
 Project Success — DBS will provide SAP Value Assurance, SAP Innovation and
Advisory Services, SAP Advanced Deployment, and SAP Model Company design to
customers. A model company is a prepackaged, ready-to-use, end-to-end reference
solution, tailored to an industry or line of business. SAP service providers will be
responsible for delivering the implementation/deployment while SAP DBS plays the
role of the enterprise architect and solution architect, and monitors the project’s
progress postimplementation.
 Continuous Success — DBS provides ongoing maintenance support via SAP

Preferred Success and SAP Enterprise Support.
 Premium Success — SAP MaxAttention.
SAP is not the only one that developed preconfigured business or industry-specific
solutions like SAP Model Company. Service providers, using their deep industry
experience, have augmented SAP Model Company through extensions and custom
development to make deployment of S/4HANA faster and quickly tailorable to the
customer’s specific industries processes. Accenture, EY and IBM, for example, are
developing industry enhancements built on SAP Cloud Platform. Deloitte, Capgemini
and Wipro are replatforming their preconfigured solutions onto S/4HANA
(see “Competitive Landscape: SAP S/4HANA Service Providers”).
In regard to tools and accelerators for assessment and migration, Cognizant, Tata
Consultancy Services and others have developed new tools, or made their current
tools compatible with S/4HANA, to accelerate migration and implementation. Atos
partners with Inventy to benchmark customers’ performance against their peers and
predict the business case for S/4HANA migration, with a 72-hour turnaround time. LTI
has an S/4HANA Smart Analyzer tool that, within two weeks, is able to show the
client the process and system impacts of migrating to S/4HANA, including risks and
benefits expected, and technical information on custom objects. Infosys has
developed HANA Code Migration Optimization tool to redevelop customers’ custom
development objects in S/4HANA with up to 80% accuracy. All of this information is
used as inputs to create the business case and migration roadmap. Service pro viders
that do not have their own tools should look to partner with companies such as
smartShift Technologies and SNP.
Recommendations:
 Clarify the value of service expected from SAP DBS. Don’t just use this service as an
insurance policy for your S/4HANA transition.
 Use Gartner’s “Magic Quadrant for SAP Application Services,
Worldwide” and “Critical Capabilities for SAP Application Services, Worldwide” to
assess which SAP service providers have deep industry experience and are better
suited for your operational needs.
 Monitor the success rate of using specialized approaches, such as the Bluefield
approach, to optimize your S/4HANA migration. There are huge potential benefits to
keeping your custom development and historical data, which most SAP service
providers are looking to perfect.
 Do not ignore small SAP service providers. Gartner’s interaction with these vendors
have shown that some of them have successfully implemented new S/4HANA
capabilities, like central finance, while bigger vendors have not.
Prepare for a Smooth Transition to S/4HANA

Gartner has identified a number of key considerations for existing SAP Business
Suite users planning a transition to S/4HANA based on discussions with early
adopters, SAP product management teams, assessments of SAP’s new deployment
methodology, and various SAP partners.
The next generation of SAP ASAP (Accelerated SAP) is Activate methodology. See
Table 4 for the use cases where SAP Activate can be leveraged to deploy S/4HANA.
Table 4: Use Cases for Leveraging SAP Activate
Enlarge Table
New System Landscape

Implementation Conversion Transformation
Scenario Characteristics Data migration Technical S/4HANA and

to S/4HANA conversion ECC running
from SAP in parallel to
ERP to consolidate or
SAP carve out.
S/4HANA
New System Landscape
Implementation Conversion Transformation
Target Audience New or Existing New or

existing customers existing
customers customers
Deployment Options
SAP SAP Best Yes Migration Migration and

Activate Practices and cloud cloud
(model integration integration,
company) ready-to-run
business
process based
on use cases
SAP Activate Yes Yes Yes

Methodology
SAP Guided Yes No Applicable if

Configuration ready-to-run
business
processes are
used

Key considerations for existing SAP customers looking to migrate to S4HANA
include:
 Clean up your production database through careful data deletion and archiving. This
will help reduce both new HANA hardware costs and planned system downtime. The
SAP Data Volume Management work center within SAP Solution Manager 7.2 can be
used to identify the largest data tables in source SAP ERP systems.
 Review all existing custom Advanced Business Application Programming (ABAP)

code on your SAP ERP system, and remove any custom code that is no longer being
used. Adjust all actively used custom code to be fully HANA compliant. The Custom
Code Check Tool (or a third-party equivalent) can be used to provide an overview of
how the current solution’s scope and custom code matches (or does not match) the
scope and data structure of S/4HANA Enterprise Management.
 S/4HANA includes new Fiori user interfaces and applications. Based on SAP’s
original recommendation, a separate Fiori Front-end Server (Netweaver Gateway)
Server is required. For large deployments, this will mean additional development, test
and production systems. However, SAP has since updated its recommendation to
advise customers to deploy Fiori Front-end Server with S/4HANA as a co-deployment
model.
 SAP has developed Maintenance Planner (this is how they collect system data for
SAP Readiness Check), a cloud-based tool used to plan all technical activities for this
type of conversion project. This replaces the Maintenance Optimizer in Solution
Manager. Maintenance Planner checks the system for business functions, industry
solutions and add-ons to ensure there is a valid path for the S/4HANA conversion. If
there is no valid path, the conversion is prevented. Maintenance Planner is used in
conjunction with Software Update Manager and a database migration option (if the
conversion includes migration to the HANA IMDBMS) to manage the technical system
conversion to S/4HANA. The Software Update Manager tool is familiar to most Basis
operations teams, but nevertheless plan to do at least three to five test conversions.
 Consider using the SAP Activate “innovation adoption framework” (when this is
available) for conversions and transformations to trial and review new S/4HANA
business process functionality. This includes a reference industry solution of
S/4HANA, with selected business processes preconfigured with sample data. Activate
also includes a testing tool and associated test data management.
 Create S/4HANA training and development plans for business analysts, superusers,
functional analysts, developers, SAP Security teams and SAP Basis technical teams.
Prospective SAP users considering an ERP deployment should evaluate S/4HANA as

the preferred solution, because SAP ECC is clearly no longer strategic for SAP. New
adoptions of the S/4HANA Enterprise Management on-premises 1610 and 1709
releases have been successful, and the S/4HANA on-premises 1809 release is likely
to gain wider adoption among existing SAP users.
New SAP users will need to choose between the following options:
 S/4HANA release deployed on-premises in their own data center.

 S/4HANA release deployed in the privately managed HANA Enterprise Cloud (HEC)
(or a similar partner-hosted offering).
 S/4HANA Cloud with a SaaS deployment option.
The choice between S/4HANA and S/4HANA Cloud depends on the functional
requirements and cloud strategy of each organization. Gartner is increasingly seeing
organizations adopting a “cloud-first” strategy, while many service-centric
organizations are moving core ERP capabilities like finance to SaaS environments
when replacing outdated or legacy applications. These organizations may be
attracted to S/4HANA Cloud, but they will have to ensure that the narrower functional
scope of these offerings compared to S/4HANA releases meets their functional
needs. They will also need to adopt the standardized business processes that such a
SaaS deployment enforces.
At the time this research was published, SAP allows customers to transport their own
ABAP codes into the environment as part of the SAP S/4HANA SaaS private option
offering. Also, for additional cost, SAP will take over the integration and regression
testing as part of its SaaS release cycle. This option is not the same as allowing
customers to modify the core ABAP codes. Instead, it allows them to add their own
independent objects and programs.
Figure 5 depicts the decision-flow chart for deploying S/4HANA.
Figure 5. S/4HANA Deployment and Consumption Models

Organizations that want the full scope of ERP capabilities in S/4HANA, coupled with
the ability to customize the solution to meet their unique differentiating needs, are
more likely to adopt S/4HANA Enterprise Management or S/4HANA Cloud single -
tenant edition. Gartner recommends that such organizations adopt the current on-
premises release, although they should always check references and any release
restrictions regarding functional capabilities (such as industry capabilities).
Prospective users that do not want to adopt S/4HANA Cloud, but would prefer not to
implement the technology to run S/4HANA in their own data centers, should consider
a range of cloud-based hosting models, including SAP’s own HEC offering (see “The
Impact of SAP Hana on the SAP Infrastructure Utility Services Marketplace”). These
will provide some of the benefits of cloud without delivering the full potential benefits
of SaaS.
Recommendations:
 Evaluate the latest release of S/4HANA (deployed on-premises or in a private

managed cloud) or S/4HANA Cloud with solutions (extensions) from SAP’s
competitors. Consider prior releases or S/4HANA Finance only if there are functional
gaps in the latest release.
 Evaluate SAP Model Company or explore the option of working with SAP Innovation
Business Services to build the features that the current release of S/4HANA is
lacking. That way these features can potentially become standards for future releases
and save you from managing them as custom developments.
 In addition to adopting the preconfigured SAP Model Company, customers should

also examine industry-specific preconfigured templates from SAP service providers
that specialize in various industries like oil and gas, retail, pharmaceutical, discrete
and process manufacturing, or CPG. These templates are available at an additional
cost from SAP partners. SAP has indicated strict guidelines and change management
processes in order for these add-on solutions to be up-to-date before each SAP
S/4HANA Enterprise Management or S/4HANA Cloud release.
 Evaluate S/4HANA Cloud if you are looking for a SaaS solution, but be aware that
these solutions are very early in their life cycles compared to most competitor
alternatives. This will likely change over the course of 2019 because S/4HANA Cloud
is a strategic initiative for SAP. Also, for organizations with less than 1,500
employees evaluating SaaS ERP capabilities, SAP recommends its Business
ByDesign solution rather than S/4HANA Cloud.
Evidence
1
“Roundup of Machine Learning Forecasts and Market Estimates, 2018,” Forbes.
2
“SAP Road Maps,” SAP.
3
“SAP Model Company,” SAP
4
“What Is ERP?” SAP.
Note 1SAP Central Finance

SAP Central Finance is a way of deploying SAP S/4HANA so that it acts as a
centralized repository for financial transactions from SAP and non-SAP finance
systems. The accounting entities in existing systems are mapped to one common set
of master data in the central system. Postings are then replicated in real time — using
SAP Landscape Transformation (SLT) replication server — to the Central Finance
system. This then acts as a “superledger” across all other systems, enabling the real-
time analytics and new functionality in S/4HANA to be used on the combined
transaction data. The replicated transaction data can also include cost objects (such
as production orders), and these can be mapped at varying levels of granularity.
The concept of Central Finance is also appealing to larger, more-complex SAP user
organizations that have multiple ECC instances, and also other non-SAP ERP
systems. However, it does introduce additional complexity and cost because Central
Finance requires installation of a dedicated instance of S/4HANA, and replicates
transaction data to the new instance. There will also be additional licensing costs.
SAP customers can leverage existing ERP licenses for the underlying finance
functionalities, but a separate license is required for Central Finance-specific
functions and features, as well as SLT. Central Finance is not a “lite” finance-system-
only installation, or a form of financial consolidation system that works on
summarized data. It requires a full deployment of S/4HANA 1610 or later to provide
the Central Finance capabilities, and is only available on-premises, or through SAP
HANA Enterprise Cloud (see “Is SAP HANA Enterprise Cloud Right for Your
Organization?”), which is a form of on-premises hosted in an IaaS through an
Application Management Service model or a hyper-scale IaaS provider.
Central Finance is also being considered by some organizations as a way of moving

to S/4HANA in a phased approach, rather than a “big bang” replacement. A Central
Finance S/4HANA instance will be deployed alongside an existing SAP ECC instance
and the Central Finance S/4HANA instance will be used as the corporate finance
system by replicating accounting data from the existing instance. This allows the
organization to realize the benefits of S/4HANA in the finance domain in a
nondisruptive manner. At some point in the future, system conversion will be used to
move other business processes to the S/4HANA instance to replace the existing ECC
instance. This allows a phased transition rather than a “big-bang” migration, although
it does mean that, in the short term, costs will increase as two ERP deployments will
be run side by side.
Central Finance is an innovative use of IMC to deliver new ways of deploying and
using the financial capabilities of S/4HANA. However, at the time of preparing this
research, SAP was unable to provide any live references for Gartner to speak with
that supported any of the potential use cases described above (although SAP did
state that it is live on Central Finance in its own organization). It is Gartner’s opinion
that Central Finance should, therefore, be approached with some caution and
appropriate risk mitigation, at least during 2018 and 2019, as strategic adopters go
live.
Note 2SAP Transformation Navigator in a

Nutshell
www.open.sap.com/courses/tn1
SAP Transformation Navigator Sample Report
www.sap.com/documents/2017/09/5cb6dab6-d47c-0010-82c7-eda71af511fa.html
SAP Transformation Navigator access (requires active S-ID user)
www.sap.com/transformationnavigator
SAP Readiness Check — “How to” references
www.help.sap.com/viewer/p/SAP_READINESS_CHECK
Note 3SAP HCM On-Premises Option for SAP

S/4HANA
ECC customers running HR and Payroll can either install or configure the SAP
compatibility packs to integrate ECC HR to S/4HANA (support will end by 2025) or
adopt SuccessFactors for HCM. However, SAP has announced that a new on-
premises HCM option that rus in parallel to S/4HANA will be available by 2023.
Gartner recommends that customers who are not looking to migrate to S/4HANA until
after 2023 should hold out for this solution. However, for those net new customers or
strategic adopters, you should move on and select either SuccessFactors or another
HCM solution to continue with your digital transformation.
By Duy Nguyen, John Van D
Strategy to the Board

Published 11 May 2018 - ID G00348255 - 23 min read
In the digital business era, CIOs must position themselves as trusted
allies responsible for leading strategic business initiatives. This
research explores how to present to the board in a way that shifts
the perception of ERP from legacy transactional technology to digital
business enabler.
Overview
Key Challenges
 ERP initiatives start with unclear and poorly communicated business goals and/or a
focus on buying software, resulting in poor outcomes and missed expectations. In
addition, the organizational readiness needed to be successful with an ERP initiative
is often overlooked, resulting in well-laid plans meeting resistance from the outset.
 Boards are often inconsistent with their request for details. This results in CIOs
presenting a confusing mix of irrelevant technical details and high-level obvious
business statements that leave the board frustrated and unimpressed.
 In contrast with other CxOs, CIOs are often seen primarily as managers of the IT
organization and secondarily as enterprisewide business leaders. This leads to the
business looking to the CIO to provide a technology-first solution to a complex
problem while ignoring any business insight the CIO may have.
Recommendations
To deliver a persuasive and compelling postmodern ERP strategy to the board, CIOs
should ask and answer four questions:
 What is it? — Explain what the business goals are of the program, what "ERP" means
to your organization and what the roadmap looks like over time.
 Why are we doing it now? — Explain the business situation and complications
occurring today and the implications (both good and bad) of action and inaction.
 Are we ready for this? — Explain organizational readiness, the changes needed to be
successful and the recognition that poor organizational culture is not remedied by
buying some new technology.
 What are the risks in waiting 12 months? — Be prepared to give an honest
assessment in business, not technology terms, when asked by the CFO (which you
will be) whether the start of this program can be delayed 12 months.
Strategic Planning Assumption
CIOs who take a business strategy-first approach to ERP will deliver 60% increased
business value over those who take a vendor-first approach.
Introduction
To "do ERP" risks starting with the nebulous and descending into the
ineffectual.
Traditionally, ERP was about cost reduction, operating efficiency, standardization and
centralization without focusing on opportunities to grow. Today, however, the board's
focus is on digital business rather than cost savings. Unless ERP strategies change
to embrace and enable digital business, they (and the CIOs that propose them) will
be relegated to a back-office, low-relevance activity.
Presenting to the board can be a daunting task, and many a talented CIO has been
tripped up by questions and statements from board members that appear to come
from left field. When under pressure, it is normal for us to resort to what is
comfortable, and for CIOs with a technology background that means vendors,
technologies and buzzwords.
The board wants to hear business-focused ally CIOs state how their ERP strategy will
deliver measurable business impact and provide a renovated core for digital
business. A technology-focused transactional CIO presenting a back-office, low-
relevance strategy that bemoans a historic lack of investment in IT portends a poor
outcome. The board cares primarily about only one thing: shareholder value. CIOs
need to communicate an understanding of the business context and how the
company will be competitive. For public-sector organizations, the focus should be
mission enhancement rather than competitive advantage (see "CIOs Emphasize
Value, Not Technology, When Communicating Strategy to the Board").
There is often a strange paradox in that boards expect CIOs to be business-focused,
strategic and succinct. Yet when presented with an ERP strategy in such terms, CIOs
may shift the focus to vendors and technologies since that is what they are
accustomed to talking to CIOs about.
Each recommendation within this research has a potential challenging question that
may be posed by a member of the board. It is important that CIOs maintain their talk
track and do not get derailed by engaging in a debate with an influential and powerful
board member whose argument may be completely unhindered by facts.
Analysis
Executing an ERP strategy is an ongoing stream of decisions and changes to
business processes. These cannot be resolved properly without strong executive
management and board support. Lack of executive leadership is one of the primary
reasons ERP programs fail. Executives will look to the board for support and
guidance, and their support of the agreed strategy reinforces its importance
throughout the organization (see "10 Success Factors of Postmodern ERP").
It is critical that the CIO knows who the digital influencers are on the board and
throughout the organization: Who is interested in transformation; where they feel that
responsibility lies, and their current satisfaction with IT's role and delivery. A
successful presentation to the board is not just about completing a check-the-box
exercise and gaining funding. It is about getting its support throughout the program. It
is important to help the board understand that ERP should be treated as an ongoing
strategy, not as an individual one-time project. The ERP strategy will contain multiple
programs and projects delivering measurable business value over time.
Gartner identifies four types of CIO: At-risk, transactional, partner and trusted ally.
Even though transactional CIOs are becoming less common, partner CIOs (and
traditional monolithic ERP strategies) are optimized for the era of IT
industrialization. While historically this has been the end state that many CIOs have
tried to achieve, it is no longer sufficient when facing the era of digitalization
(see "From Partner to Trusted Ally — How to Stay Relevant as a CIO").
When considering the next steps in their careers, partner CIOs run the risk of being
relegated to back-office suppliers and enablers if they are not able to make the final
step in transitioning from partner to trusted ally CIO. In other words, partner CIOs
may fall behind and even become transactional CIOs as other business executives
take a stronger role in building and executing a digital business.
CIOs must reframe their conversations, moving away from discussions of vendors,
technologies, efficiency and cost optimization to strategic storytelling, wearing the hat
of the business leader responsible for the information and technology investment
required to advance the enterprise agenda.
CIOs often find that board conversations can go in any direction and can be hard to
predict. Prepare a mind map such as Figure 1 to help you organize your thoughts and
talking points.
Figure 1. Organize Your Mind Map
Source: Gartner (May 2018)
What Is "It"?
Stating to the board (or the board assuming that) "we are doing ERP" is problematic
for several reasons:
 By itself, the term "ERP" no longer provides a level of understanding and/or clarity to
an organization. Over the years, the term has been used ubiquitously by
organizations to mean any type of back-end business system in any industry.
 ERP is not a single thing, application or vendor (see Note 1). Value does not derive
from buying software and simply implementing it. The value from ERP programs and
initiatives comes from the adoption of new and/or improved ways of working
(see "Best Practices for Accelerating ERP Time to Benefits"). It also comes from the
development of a strong core system of record (see "System of Record: You Can't
Innovate on an Unstable Foundation") that can be exposed to systems of
differentiation and innovation.
 Board members may have past experience with a variety of projects and programs
that were categorized as ERP, and these experiences, good and bad, may color their
view of this current initiative.
When presenting to the board, it is essential that your presentation clearly identifies
what information you want the board to understand and what outcome you need from
it: Do you require the board's support? Do you require funding? Executive
sponsorship? Or is this presentation just to provide it background information for
future discussions?
Board meetings can be quite contentious affairs, and it is important that you read the
room quickly and adjust your pitch accordingly. If you are a member of the board and
have been participating in the discussion so far, this task may be considerably easier.
Many CIOs, however, do not sit on the board and this ERP presentation may be only
one item on a very busy agenda.
You have a very short amount of time during which to set the tone for your
presentation. Your ERP strategy must clearly show alignment with the overall
business strategy. Avoid mentioning vendors, technologies and buzzwords. You need
the board to view you and this initiative as a business, not an IT priority. Only 16% of
trusted ally CIOs mentioned ERP as their top priority, as opposed to 29% of
transactional CIOs (see "From Partner to Trusted Ally — How to Stay Relevant as a
CIO"). This means that when you are talking to the board about ERP you must not
revert to being a transactional CIO. Postmodern ERP focuses on business strategy
and business outcomes. Your presentation to the board must do the same.
 For example:
 "Through 2023, our key strategic goals include increasing revenue by 60%, improving
margins across all product lines by 2% and expanding into adjacent markets in the
Asia/Pacific region. In order to achieve these, we need a solid base of finance, HR
and manufacturing capabilities upon which to operate. New entrants into our
profitable markets in Europe have been able to take substantial market share over
the past 18 months due to their superior use of operational analytics and a culture
that encourages fact-based decision making at all levels.
 "The systems, processes, roles and organizational culture that have served us well
through the last decade will not be sufficient in enabling us to realize our strategic
goals and reclaim market share. Today, I am proposing to the board that we embark
on a program of transforming how we operate as an organization by leveraging
technology where appropriate, but most importantly by focusing on information as a
corporate asset. At a high level, this program will deliver a new target operating
model and will see the replacement or enhancement of core business systems over
the next three years.
 "As we refine our strategy over the upcoming weeks, we will provide more detail
around roadmaps, priorities, costs and benefits. The program will cover all finance,
HR and indirect procurement activities globally, and the respective heads of those
areas are committed to delivering the benefits as laid out in the information pack that
has been distributed to you. I will be working closely with our transformation program
director to ensure the successful realization of the following benefits:
1. A new target operating model, a solid core of globally standardized processes and
an adaptive governance model that will provide us with confidence in our data and
the ability to work with up-to-date information.
2. New integration capabilities that will enable us to work with our peers across all
geographies, but also with our suppliers, partners and customers in a flexible but
secure manner.
3. A platform that supports existing and upcoming business models by providing the
secure and stable foundation upon which differentiating and innovative capabilities
can be realized.
 This presentation will explain to the board members why we must act on this now, the
organizational readiness challenges that we have, and the financial, commercial and
reputational risks of proceeding or not at this time."
Board member challenge — "I was talking with Bob at <insert company name here>,
they are running Vendor ABC and are doing really well. I wish we had their
international growth numbers. We should speak with them and see what they are
doing. We should use the same ERP system as them. Whatever we do, we shouldn't
use Vendor XYZ. We used that at my former company and it was a disaster."
CIO response — Don't get drawn in to a discussion about vendors or technology,
especially when there are no facts being used. In the game of "my ERP is better than
your ERP," there can be no winners. Stay focused on the overall strategy and
respond to the board member positively.
For example:
"That is a great point and certainly one we are aware of. We will, of course, be
benchmarking several organizations going forward, and if you would make an
introduction to Bob, I would be happy to find out more about not just their vendor
selection process, but also their operating model, integration capabilities and so on."
Why Are We Doing This Now?

Your ERP initiative will not be the only initiative that is proposed to the board this
year. You need to clearly state what is happening in business terms that requires
action at this point in time. Traditional ERP presentations often focus on risk, rather
than reward. One overused approach in monolithic ERP initiatives employed the
concept of a "burning platform": a sense of urgency around a dire situation, with the
goal of scaring the board into action by linking the ERP initiative to a veiled threat: "If
we don't do this, bad things will happen!"
The problem with this approach is boards do not scare easily. They are often
composed of seasoned business professionals who have "been there and done that,"
and have heard many CIOs make prophecies of doom in the past that did not turn out
to be true. One CIO, in recounting a rather unsuccessful pitch to the board, knew
things were not going well when the CEO asked, "Do you IT people all read off a
script? I've been hearing this same rubbish for the past 20 years."
Ensure your presentation includes both positive and negative consequences of action
and inaction. Identify and clarify the problems that this initiative will solve, along with
what benefits will be realized and when.
 For example:
 "Our current business systems have served us well over the past 18 years, and as
our business has changed we have been able to accommodate the vast majority of
needed changes in a reasonable time window. In order to support our strategy out to
2025 and beyond, however, we need a fundamental change in our approach to ERP.
 "For instance, our Widget X product line has been the core of our business for more
than 40 years, and our existing systems, structures and processes have been
designed to support it. As we know, the long-term viability of Widget X in the current
marketplace is not strong. North American sales have been declining year over year,
and margins are not sufficient to maintain profitability at the lower volumes.
 "In addition, we are currently unable to keep up with the Asia/Pacific demand for the
newer Widget Y, and we expect the volume of orders to maintain the current
incremental pace through 2023. Although we have tracked all of Widget Y's revenue
in our ERP systems since acquiring Company ABC three years ago, we have not
been able to leverage any of the systems or processes for supply chain,
manufacturing and warehousing. This is because they have been custom designed
from day one for Widget X.
 "According to market research, we have a short window of opportunity to differentiate
ourselves in both the Asia/Pacific and North American markets. We must take this
opportunity, not just to switch focus from Widget X to Widget Y, but to change our
mindset. We need to change our ways of working and our systems to be able to seize
the opportunities Widget Y presents, while preparing ourselves for whatever comes
next.
 "We currently spend 90% of our resources on maintaining the systems for Widget X.
This program will build upon a strong core of standardized business processes
across all geographies while providing flexibility for the future."
Board member challenge — "I don't need IT to tell me that this is about people,
process and technology. That is stating the obvious. What I do know is that it is the
technology is always promising to solve our problems with the next version that costs
only a few million more. IT always makes these things sound harder than they are.
We want to be No. 1 in our industry, but let's make sure we are doing something that
is tried, trusted and well-proven. And we don't need a top-tier solution, either. I drove
past Vendor XYZ's headquarters when I was on holiday. If they can afford a building
like that, they are charging us too much."
CIO response — Again, stay focused on the overall strategy and respond to the
board member in business terms.
For example:
"I've seen their headquarters too, and I would agree with you. That said, we are some
way off of vendor selection and our procurement guys are looking at all options. At
this point what we need is <insert your key desired outcomes from this meeting>. We
will, of course, keep the board up to date as required when we begin vendor
selection."
Are We Ready for This?

ERP projects are invariably risky, complex and significant investments for an
organization. Postmodern ERP adds even more complexity. Yet, far too many
organizations start their ERP projects without assessing whether they are really ready
to do so. They only discover they are not when they run into problems — usually with
a cost, time or resource impact to the initiative. (For details, see "Toolkit: ERP Project
Readiness Assessment.")
Organizational readiness continues to be one of the most important aspects of
postmodern ERP success. A well-crafted ERP strategy, combined with effective
governance, can still deliver little to no business benefit if the organization itself
cannot adapt to new ways of working. It is common for ERP teams to be flooded with
user requests post go-live that aim to turn new systems and processes back into the
old and familiar.
In the 2017 CIO Agenda, CIOs identify culture as a significant roadblock to changes
related to digital business. It is not enough to address organizational change, cultural
readiness or openness for change solely as part of the ERP program. It is necessary
to develop an organizational mindset that views change as an opportunity, and
embraces the concept of ongoing change as normal. Gartner has defined this as
change fitness, and developed a change leadership model using the ESCAPE —
envision, share, compose, attract, permit and enable — framework (see "ESCAPE
the Past: Six Steps to Successful Change Leadership").
While many organizations have already implemented ERP solutions (perhaps more
than once), executing an ERP strategy is never "done," and conducting a readiness
assessment is a worthwhile and necessary exercise for new ERP projects. The more
significant the project is (in terms of scope, budget or degree of change), the greater
the imperative for a readiness assessment.
Some ERP initiatives are still executed in an outdated, technology-centric and IT-led
way that treats employees as if the initiative is being done to them, rather than for
them and with them. CIOs are sometimes pressured by the board to use the ERP
initiative as a sledgehammer to drive compliance and standardize ways of working.
This approach has never worked in the entire history of ERP.
"Build it and they will come" is not a viable strategy. When presenting to the board,
you must get its support in using ERP as a program that can support and improve
new ways of working, not one that will dictate new ways of working.
You cannot drive organizational change merely through the acquisition

and implementation of ERP software.
Present to the board a vision and narrative of the future that provides a positive view
of the reasons behind the strategy, and an understanding of the objectives and
benefits. (For details, see "Create a Winning Postmodern ERP Vision Through a
Narrative Like Columbus' Journey.")
Board member challenge — "People always moan about change. We are wasting too
much money by having everyone do things however they want. We need to get
control here. Look at the performance of the guys in Division ABC. Great group of
guys. We don't have 'change management' problems there. They just do their jobs,
which incidentally is what they are paid to do. Let's not spend forever on this. As I've
said before, IT loves to drag these things out. Just go buy something and put it in —
they'll have to use it."
CIO response — Facts don't always win arguments, 1 and getting into an argument
with a board member is not often a good career move. That said, this is a
showstopper. CIOs who agree to implement an ERP solution into an organization that
is either not ready, or vehemently opposed to it, risk moving from being a
transactional CIO to an "at-risk" CIO. We estimate that 60% of ERP investments are
perceived as having failed because they are believed to have been compromised by
the business in some way. Examples include not achieving the stated goals of the
business case, being late, having a limited or incorrect scope, having unacceptable
usability, or delivering benefits that are unclear and/or cannot be measured. (For
details, see "Stop Chasing Rainbows and Unicorns: Learn From ERP History to
Maximize the Value of Postmodern ERP Strategies.")
Postmodern ERP requires greater involvement from all areas of the business. The
biggest obstacles to digital businesses scaling are culture, resources and talent, and
it is no different for ERP transformations. (For details, see "The Secret to Digital
Transformations Is Analog: Why a Digitally Dexterous Workforce Is the Key.")
Prior to the board meeting, ensure you have support from your human resources and
finance peers, and leverage this support in the meeting.
Complete a project readiness assessment to identify where the particular challenge
areas may be. (For details, see "Toolkit: Project Readiness Assessment.") Success
and the realization of business value require strategy, organizational change
leadership and effective governance. Technology by itself is not enough.
You will need board members' support throughout the program. Leave them with a
very clear understanding of what they are agreeing to and what their responsibility is.
Your response to the board member(s) should not be confrontational, but should
state that a "build it and they will come" approach will not result in success.
For example:
"You make a great point about the time it has taken to deliver some IT programs in
the past. We have made significant changes to our approach that I would be happy to
brief the board about at a future date. The success of any program of this magnitude
is based on us, as an organization, adopting new ways of working and adapting to
standard ways of working, where needed. By focusing on adoption and the delivery of
business outcomes, rather than just the time to implement, we will be able to deliver
value more quickly that will directly impact our four key strategic objectives."
What Are the Risks in Waiting 12 Months?

At some point during the presentation to the board, or most likely before you even get
to the board presentation, you will be asked by the CFO or one of the team if you can
hold off until next year.
You should give an honest assessment of the business risks of waiting for 12 months.
 For example:
 "There are three key parts of our strategy that this program supports: 1. Expansion of
our widget Z business into Europe by 2023, 2. Reduction of work in process (WIP) by
$6 million by 2021, and 3. 30% of revenue to come from acquisitive growth products
globally by 2025.
 "Our ERP strategy is focused on standardizing our core business on commodity
processes, thereby freeing up resources to focus on delivering differentiated business
value. The standardization of core business capabilities will enable us to integrate
newly acquired businesses at a much greater pace than we can today. Moving from a
dealer to a direct-to-customer model will improve our overall forecasting ability, which
will have a marked impact on WIP. Our recent acquisitions of businesses in Romania,
Sweden and Italy have brought great opportunity, which we are not currently realizing
due to our lack of visibility into core finance and their end-to-end supply chains.
 "Our window of opportunity for the widget Z business is about 36 months. We expect
to be able to get all factories standardized on our new ERP core within 18 months.
Delaying by 12 months would only give us six months to build our position in Europe
before Competitor ABC is up to speed."
Importantly, don't tell the story (however true) that the technology is falling over,
people are retiring, investment has been woeful and so on, especially if this has
happened on your watch. As CIO, dealing with complex, customized and outdated
technologies, an aging and retiring workforce, difficult vendors and competing
business demands are part of the job. They are not a reason to drag your entire
organization through a full-scale transformation. The timing of undertaking an ERP
initiative must be driven by business need, not budget cycles, IT's desire to maintain
technical currency or influential vendor marketing.
Before the board presentation, request to meet with the CFO and/or his or her team
in advance. Having their support will be crucial. Don't go into a board meeting and
surprise the CFO with plans and numbers that he or she hasn't approved.
Board member challenge — "We have just approved Project XYZ. That is sort of the
same thing isn't it? Let's use some of that budget for now. You IT guys are always
promising things in the next version."
CIO response — This is a funding question. The CFO is your critical ally here.
Leverage his or her support.
For example:
"Jane and I were discussing this earlier, and we wanted to ensure that we had the
bases covered. Project XYZ is at a critical phase, and there is only a small
contingency budget attached to it. Programs such as this ERP one follow our
standard funding process, and my team and Jane's have been in lockstep on this one
for a while now. As the program progresses, we will have separate business cases
and funding approvals for each of the delivered business outcomes as shown in the
presentation. We have also established formal governance for the program, and both
Jane and I are steering committee members."
Evidence
1
Kolbert, E., "Why Facts Don't Change Our Minds," The New Yorker, 27 February
2017.
Note 1Postmodern ERP

Gartner coined the term ERP in the early 1990s to identify an integrated suite of
business applications that automates and supports a range of administrative and
operational business processes across multiple industries. This includes line of
business, customer-facing, administrative and the asset management aspects of an
enterprise.
In 2013, Gartner recognized the stable world of ERP was changing, and a new era
was emerging. In this new era, the ERP suite is being deconstructed and replaced by
a more federated, loosely coupled ERP environment. Gartner calls this "postmodern
ERP."
ERP deployments tend to come at a significant price, and the business
benefits are difficult to justify and understand. Look for business benefits
in four areas: IT cost savings, business process efficiency, as a business
process platform for process standardization and as a catalyst for
business innovation. Most enterprises focus on the first two areas,
because they are the easiest to quantify; however, the latter two areas
often have the most significant impact on the enterprise.
Postmodern ERP is a technology strategy that automates and links

administrative and operational business capabilities (such as finance, HR,
purchasing, manufacturing and distribution) with appropriate levels of
integration that balance the benefits of vendor-delivered integration
against business flexibility and agility.

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What Customers Need to Know

When Considering a Move to

Gartner has seen significant interest in the adoption of SAP

 Vertical functionality: Although there are significant common functional capabilities

 Address industry-specific requirements, and streamline implementation by engaging

 Prepare for a smooth transition to S/4HANA by first cleaning up your production

Strategic Planning Assumptions

Through 2020, 80% of organizations conducting a “lift-and-shift” migration of internal

S/4HANA is key to SAP’s continued success as a leading enterprise application

Table 1: Gartner-Estimated Percentage of SAP’s 35,000+ ERP Customers Buying,

S/4HANA 1Q17 2Q17 3Q17 4Q17 1Q18

Sales 5,800 6,300 6,900 7,900 8,300

Projects underway 2,700 2,500 2,900 2,500 3,000

In production 700 850 1,150 1,500 1,600

Percentage of ERP 1Q17 2Q17 3Q17 4Q17 1Q18

Sales 17% 18% 20% 23% 24%

Source: Gartner (October 2018)

Existing SAP ERP users that have limited S/4HANA knowledge

Focus on these best practices first:

Existing SAP ERP users that have reasonable knowledge of S/4HANA

Focus on these best practices first:

 Engage with SAP through Premium Engagement or third-party providers to identify

Focus on these best practices first:

 Engage with SAP through Premium Engagement or third-party providers to identify

Potential new users of SAP considering S/4HANA

BSoH offered some potential advantages over Business Suite on third-party

 Delivery of new functional capabilities that are optimized for in-memory

Table 2: Functional Areas Covered in S/4HANA Cloud

Enterprise Portfolio and Project Management

Finance Research and Development

Research and Development

SAP Copilot — Natural Language Interaction (ML/AI)

Sourcing and Procurement

Source: Gartner (October 2018)

 Updated S/4HANA Enterprise Management: This is the on-premises variant of

Figure 1. Notable S/4HANA Release Capabilities

Figure 2. S/4HANA Transitional Approaches

As of 2018, there is an emerging approach unofficially known as Bluefield migration

Assess Whether S/4HANA Is a Strategic Fit for Your

1. Performance improvements: The IMC platform of S/4HANA means that existing

2. Real-time analytics: The combination of IMC technology and the hybrid

5. IT benefits: There will be a reduction in database size because of the simplified

6. Potential for enabling new ways of doing business: The combination of

These benefits are summarized in the benefits assessment framework (shown in

Table 3: Gartner’s S/4HANA Benefits Assessment Framework

Impact Potential Benefits Actions

Performance  Transaction processes  Identify time-bound

Real-time  Analytics on real-time  Work with business users

Simplified  Changes in data  Create teams of IT and

New  New applications or  Evaluate the role of new

IT benefits  Reduction in database  Monitor the database size

Potential  The combination of IMC  Work with senior

ERP = enterprise resource planning; HTAP = hybrid transactional/analytical

Source: Gartner (October 2018)

 No plans to adopt: This type of organization is typically unconvinced about the

 S/4HANA Enterprise Management (hosted on-premises, IaaS, or AMS)

Figure 3 further breaks down these options.

Figure 3. S/4HANA Solution Offerings

 Perform a cost-benefit analysis on the value proposition of moving to a new ERP