Everything you need to know about SAP S/4HANA Cloud

When SAP released S/4HANA in 2015, Gartner described it as a transformational shift. S/4HANA was SAP’s new flagship ERP product. Gone was the support for databases from other vendors. Instead, the product was based on SAP’s HANA database platform only. The emphasis was on in-memory, real-time processing and real-time analytics. For those old enough to remember, SAP’s earlier (and wildly successful) ERP offering in the 1990s was called R/3, where the R stood for real-time processing. R/3 evolved into their ECC product, and S/4HANA is the next iteration.

S/4HANA was purely an on-premise solution to begin with. Shortly after it was first released, SAP announced a public cloud version of its flagship product as a key element in its digital transformation initiative and shift to a cloud-first strategy. SAP S/4HANA Cloud placed customers in a “software as a service” model and used new technologies like artificial intelligence to make the software smarter than its predecessors.

You could be forgiven for thinking that S/4HANA Cloud is just a technical deployment option, but it is far from that. At its heart, S/4HANA Cloud is about standardisation, and the offering is really a trade-off between bespoke customising versus having latest functionality. If you can accept a level of standardisation and controlled customising, then in return you get the very latest innovations much faster and much cheaper than an on-premise customer ever could.

What You Will Learn

First, we will review what “software as a service” is and how S/4HANA Cloud fits into this paradigm. Then you will learn broadly what the benefits and constraints are, then we will look at some specific use cases and their benefits. We will conclude with an overview of the extensibility options and support.

Software as a Service

To better understand S/4HANA Cloud, first you must understand how the various “as a service” models of hardware and software delivery work. Consider the diagram below:

In the above diagram, the stack of orange components shows what typically makes up the infrastructure and software for an ERP or any other system. You begin with networks and servers at the base, and as you work upwards you add an OS, a database and finally at the top is your business data and applications.

As you “give away” control of these layers to an external third party, you are engaging variously in Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and ultimately Software as a Service (SaaS). This diagram applies not just to ERP, but to any software delivery. A good everyday example of SaaS is Dropbox, where Dropbox provide the entire stack and you make use of it as a service.

The more traditional, non-cloud scenario is shown as the green bar called S/4HANA On-Premise. This you will be familiar with, where servers in a data centre are controlled by Basis teams and you control every aspect of infrastructure, software and upgrade cycles.

Moving to the right in the diagram, you can see the situation where you engage a third party to provide and manage the infrastructure layer, and you retain control of everything on top. This is the IaaS scenario.

If you had a third party manage the infrastructure and platform layer, then that would be a PaaS scenario. An example of PaaS is SAP Cloud Platform, where SAP provide a development and runtime environment based on their HANA platform. This offering does not include S/4HANA.

If a third party managed the entire stack, then you are in a SaaS scenario. This is where the S/4HANA Public Cloud sits. The key thing to note here is that a third party is managing the deployed application, which for an SAP system might be a new concept for you to get used to.

All versions of S/4HANA, from On-Premise, through Private Managed Cloud (aka HANA Enterprise Cloud (HEC) or “IaaS plus managed services for SAP software”) to Public Cloud all share the same code base. On-Premise works on one release a year and lags behind the Public Cloud which gets four releases per year. Only the Public Cloud gives you the maximum rate of new releases. What benefits might this offer? Let’s find out.

Why Consider SAP S/4HANA Public Cloud?

As mentioned earlier, moving to S/4HANA Cloud is not just a technical upgrade. Moving to S/4HANA Cloud means you no longer have complete control over customisation and software release cycles, however there are some major benefits.

Constraints

S/4HANA Cloud has its own extensibility concept, controlled such that customising becomes decoupled from the upgrade lifecycle. New fields and business logic can still be added but the complete freedom available to an on-premise installation is gone. This will be discussed more later.

S/4HANA Cloud model has a very fast software release cycle, four releases per year. They are released on SAP’s predefined schedule and are compulsory.

Benefits

As a result of this fast release cycle and more standardised processes and data models, new innovations are available at a significantly faster rate and at lower cost. New innovations are “opt-in” as each release happens, and SAP guarantee system stability.

These innovations are not just marketing hyperbole but will include practical applications of new technology like internet of things, blockchain, artificial intelligence and machine learning to improve processes. Some already released examples are detailed in the section about sample use cases.

The fact that a common data model and processes are present also means that consumption for end users can be made easier, and fully mobile-compatible Fiori UIs are available.

The cloud model is paid for on a pay-per-use model, so is OPEX only. The cloud model is also elastic and scalable in a way that is generally much harder to do in an on-premise scenario.

Sample Use Cases

The overarching design goals of S/4HANA to deliver improvements to your business processes are as follows:

• Effectiveness. Choose the most useful thing to do. For example, react by exception, use workflows to just send valid signals, not noise, use machine learning to do invoice matching, speed up signal to action. This can be thought of as “doing the right thing”.
• Efficiency. The thing that you are doing, you do well. For example, automating process steps, high performance reporting. This can be thought of as “doing things right”.
• Agility. Increase agility, for example be able to drilldown to line item detail, quickly and from anywhere. This can be thought of as “speed and flexibility”.

At four releases a year, new innovations are added very quickly, just some of those already available are detailed below.

Core Finance

S/4HANA introduced a universal ledger as a single source of truth. No longer are accounts receivable, accounts payable, general ledger, profit and cost centre accounting held as separate tables that need reconciled. Instead they are all views based on the universal ledger. Every report is up to date all the time and never needs reconciled.

The common data model of S/4HANA Cloud means that integration with external systems can come pre-delivered. Integration with Concur, Ariba, SuccessFactors, Fieldglass and more are delivered out of the box.

Core finance makes use of artificial intelligence to improve your accounts receivable matching processes. When an incoming payment arrives with missing information, it can be a hard manual job to match it to an open invoice. S/4HANA Cloud can be trained on your own historical data to do the matching automatically using machine learning algorithms.

Enterprise Asset Management

Enterprise Asset Management in S/4HANA Cloud covers the inspection, maintenance and repair processes for operational systems like machinery or production installations. The key challenges in asset management identified by SAP include unplanned downtime, lack of compliance and inaccurate or difficult-to-access asset data.

S/4HANA Cloud seeks to address these challenges in a number of ways. By offering a single repository for data, there is a single source of truth, and real-time reporting ensures that everyone can share a common view of up-to-date information. Using prediction and simulation to evaluate asset behaviour, it is possible to better plan and forecast costs. S/4HANA Cloud also produces a common view over information technology and operational technology, that allows a holistic approach to be taken to asset management as outlined in ISO 55001.

Procurement

Another application of artificial intelligence is seen in the procurement modules. Algorithms learn from how previous contracts have been consumed, and predictive analytics are used to say when existing contracts may soon be fully consumed, flagging these up to the user as exceptions.

Also integrated with procurement is a digital assistant called the SAP “co-pilot“. The co-pilot is there to aid collaboration with colleagues. It is a bit like a scrapbook (chatbot) where you can store screenshots (static or live updating), notes, and schedule meetings relating to particular business items, for example a procurement contract that is nearly fully consumed.

Sales

Sales modules makes use of embedded analytics and real-time reporting, and has an improved customer returns process. Embedded analytics is a cross-module topic, covered next.

Embedded Analytics

A Harvard Business Review report from 2015 called “The Business Case for Managing Complexity” showed that business users want more real-time insights, advanced analytics and contextualised information than was currently available to them. Embedded analytics aims to deliver these things.

Embedded analytics brings transaction data and analytics into one platform with one single source of truth. There is no longer a requirement for external systems showing one day old data for your operational reporting. Instead these operational reports are available directly inside the business transaction in real-time. Embedded analytics is generally consumed with a Fiori front-end, however the underlying data views can be queried with other SAP tools also.

An example of how embedded analytics can be useful is that of posting an adjustment in finance. It is possible to see how an adjustment will affect summary finance reports from within the journal transaction itself, in simulation mode, before posting the journal for real.

SAP put a lot of effort into the usability of their embedded analytics tools and received a Red Dot design award for their Analytical List Page (ALP).

SAP Analytics Cloud

As SAP detailed at TechEd 2019 each S/4HANA Cloud subscription will now come with a free SAP Analytics Cloud (SAC) tenant. Enterprises can then run analytics reports and dashboards using Fiori Launchpad, avoiding the need to switch between operational and analytical tools.

Extensibility

The diagram below compares the extensibility concepts of on-premise and cloud S/4HANA deployments:

In the on-premise scenario, you retain complete control, up to and including direct modifications of SAP core data structures and processes. There is one new release from SAP per year and there is no obligation to take it. If and when you do take the upgrade, the timing is completely under your control. With the possibility of “heavyweight” modifications, IT is a major player in these scenarios.

In the cloud scenario, you are obliged to take four releases a year scheduled by SAP. This way you get the very latest functionality as soon as it is available. Extensions are limited in functionality, allowing additional reports, fields and logic through built-in capabilities (aka “In-App Extensibility”), but it is not as feature rich as for on-premise. For example, there is a restricted online ABAP editor that permits many operations, but not table writes or code generation.

These controlled extensions are decoupled from the upgrade lifecycle and are designed to adhere to zero-downtime principles during an upgrade. In accordance with SAP’s “Side-By-Side Extensibility” concept, extensions that cannot be performed in the core should be considered good candidates for services/modules deployed on SAP Cloud Platform (SCP) so as not to increase the technical debt deployed within the core. The different stacks are tightly integrated through whitelisted APIs.

As such, SAP Cloud Platform is the logical platform for any and all S/4 extensions that a customer has deemed not appropriate for an “in app” extension. SCP is the suggested extension platform for customers wanting to extend their S/4 on premise or S/4 Cloud environment.

For more information about SAP Cloud Platform’s capabilities, consider attending Scott Dillon’s excellent monthly webcast series: “SAP Cloud Platform in the Garage”.

Operations and Support

SAP have prepared a large amount of best practices material covering all aspects of S/4HANA Cloud, from project planning and initial implementation, through to upgrades and feature releases.

Cloud support is all about minimising business disruption. There is a focus on functional as well as technical issues and there is a dedicated SAP contact. Supports aims to be proactive and tailored to the individual customer.

Top tier support for priority one tickets offers an impressive one-hour initial response and four-hour resolution 24 hours a day seven days a week all year.

Cloud Architecture

It is interesting to note a recent trend in cloud architecture outside SAP and to speculate how it may affect S/4HANA Cloud. Much cloud software (e.g. Hadoop) was originally designed to “bring compute to the data” to keep performance high. As the bandwidth between cloud servers improves this is no longer critical. A separation of compute (application servers) and data (database servers) allows each to flex independently as requirements change. When Cloudera and Hortonworks merged in 2019, their post-merger release of Hadoop separated compute from data.

Of course, SAP have separated data and compute in their ERP software since the days of R/3. However, this cloud trend may affect what functionality S/4HANA Cloud offers to businesses in future. Imagine a month end closing where you can buy additional compute services for a few hours or days, on demand, without affecting data costs.

Conclusion

A summary of the main differences between on-premise and public cloud implementations of S/4HANA is shown below:

One way to think about S/4HANA Cloud is that, depending on your business, limited customisation can be a good thing, not a bad thing. With enforced limited customisation, adding new functionality becomes much cheaper and faster. Imagine you want to add functionality like the accounts receivable invoice matching process described earlier. In a heavily customised on-premise system, this could require significant development effort, testing and maintenance to accommodate these customisations.

In the S/4HANA Cloud world, the modifications are implemented in a very controlled way. This allows SAP to implement the new invoice matching process in their cloud, developing it and testing before releasing it to you.

The on-premise option is still likely to suit enterprises with well-established processes that they are not interested in changing. The cloud option suits enterprises that still want some flexibility but are interested in a faster innovation cycle.

More complex scenarios are also possible when an enterprise has many SAP ERP systems and wishes to retain some of them as on-premise. This can include “multi-tier” ERP architectures with process-specific systems feeding into a centralized system used for financial consolidation. S/4HANA Cloud can still be a good fit in some of these cases due to the predefined integration options available.

Gentackle are specialists in intelligent asset management. If you want to find out more about our top-tier consulting services, please get in touch.