SAP S/4HANA Unveiling

1. PRODUCT NOTE
.
THE BIGGEST SAP PRODUCT LAUNCH IN
A QUARTER CENTURY AND WHAT IT MEANS TO ERP
By P.J. Jakovljevic, TEC Principal Analyst
March 2015
www.technologyevaluation.com
Technology
Evaluation Centers

2. The Biggest SAP Product Launch in a Quarter Century and What it Means to ERP
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The Biggest SAP Product Launch in a Quarter Century and What
it Means to ERP
SAP recently picked the New York Stock Exchange (NYSE), the longest operating
financial institution in the world, as the venue to announce SAP Business Suite 4
SAP HANA (SAP S/4HANA), its next-generation business suite. NYSE was picked to
remind everyone of SAP’s similar longevity in the enterprise software market.
Touted as the largest product development undertaking in 23 years (since the
launch of the venerable client/server SAP R/3 offering in 1992), S/4HANA is a
brand-new product (and not necessarily a legal replacement for the current
flagship SAP Business Suite 7 offering), with its name indicating the following:
 “S” stands for simplicity for the 21st-century users (a.k.a. Millennials) via
the new roles-based Fiori user interface (UI) based on HTML5, cloud, and
responsive design mobility (see figures 1 and 2). Simplicity also comes
with guided configuration for adoption, a simplified data model, on-the-
fly insight at the highest possible level of granularity, and re-imagined
real-time business processes (which was not possible with previous
technologies).
 “4” stands for the 4th generation (after SAP R/2, R/3, and NetWeaver-
based SAP Business Suite).
 “HANA,” of course, stands for what SAP HANA is about: real-time, zero
response, in-memory, merged analytics (online analytical processing
[OLAP]) and transactional (online transaction processing [OLTP]) data,
built-in predictive analytics, the Internet of Things (IoT) and big data
applicability (textual, social, geo-aware, graphical, and processing data),
all in contrast to traditional disk-based relational databases’ limitations.

3. Figure 1. S/4HANA on tablet with predictive
analytics (screenshots from SAP S/4HANA
launch event at the NYSE, February 3, 2015)
Figure 2. S/4HANA on smartwatch
The new solution will offer cloud, on-premise, and hybrid deployment options to
provide ample choice to customers. SAP has already been offering a HANA
Enterprise Cloud (HEC)-hosted version of SAP Business Suite that runs on top of
HANA, whether from its own data centers or via Amazon, IBM, and others.
However, S/4HANA will sport an optimized code base created specifically for
HANA. See figure 3 for more of the product’s major traits.
Figure 3. S/4HANA traits
A major difference is that this next-gen product will only work on the SAP HANA
database. There is no longer a need for the so-called materialized views (i.e., a
layer of snapshots of aggregates, totals, and other redundant data) that Oracle,
Microsoft SQL Server, IBM DB2, and other supported databases have traditionally
needed as a layer. This means incredible speed and simplicity, but will legacy SAP
customers move from Oracle or SQL Server, and will they appreciate the lack of
database choice?

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The Good News First
SAP points out that migrations to S/4HANA will be simplified (less disruptive) due
to the preserved data schemas, interfaces, etc., as there is a so-called “Innovation
Exchange” tool that replaces the old code with the new optimized code. As
mentioned earlier, a previous layer with materialized views, indices, aggregates,
totals, etc. has been eliminated, as there is no longer a need to accommodate
multiple databases. As a caveat, this assumes that integration to all the other
customer apps and customer-specific customizations can be moved, which is
dubious at this stage.
Guided Configuration is also a cool novelty, and the idea came from the SAP
Business ByDesign sales configurator (a landing page that asks prospective
customers about their needs and then configures a recommended solution). For
the first time, SAP is delivering the test scripts during configuration, which will
help users set up views according to their particular roles. For example, a sales
manager, logistics manager, field service technician, CFO, etc. can all look at the
same set of data in a way that is most relevant for them.
Where SAP needs more substantiating evidence and explanations is its claim of a
lower total cost of ownership (TCO) for S/4HANA—but vs. which products and
what vendors? Is it the case for a brand-new pure subscription cloud customer
that costs per user per month? What about on-premise where one must buy a
perpetual license, HANA hardware, and even the multi-protocol label switching
(MPLS) telecom connectivity in case of hosting/managed cloud (which is often an
overlooked cost)?
SAP touts the reduction of the data footprint, owing to the ability to now separate
historical and real-time data, as a significant cost reduction and IT efficiency
booster. During his presentation, SAP’s co-founder and chairman Hasso Plattner
highlighted a case study of an average-sized business. He said that although 110
tables are typically used for transactions in traditional relational enterprise
resource planning (ERP) databases, S/4HANA needs only 10 tables. As figure 4
shows, a business with a traditional data footprint of 593 GB has a data footprint
of 118.6 GB on SAP HANA and 42.4GB on S/4HANA.

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Figure 4. S/4HANA data footprint savings
Further, if one were to separate historical data from current real-time data, as SAP
advises, then this data footprint would be reduced to 8 GB (in principle, one could
run a whole company on a smartphone). By separating historical data, which
cannot be changed, the system will run faster and increase performance by
multiple times, with most of the workload just being read only. But is lowering the
data volumes and storage (and perhaps eliminating some middleware) really
going to lower the TCO that much? If you remove Oracle database and hordes of
Oracle database support, integrations, and legions of IT people, one could make a
case for lower TCO (I am always amazed at the size of these IT staffs). But to
achieve this, you need to swap out most Oracle-based apps, and I don’t think that
most companies will do this in the short term.
Figure 5. SAP CEO Bill McDermott

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In his concluding remark, SAP CEO Bill McDermott said that S/4HANA is about
uniting software and people to build new business models that run real-time,
networked, and simple. The SAP Simple Finance solution, announced in June 2014,
marked the first step in the SAP S/4HANA roadmap. The suite will also expand the
SAP portfolio of cloud solutions such as those from SAP companies Ariba,
Fieldglass, Concur, hybris, and SuccessFactors. Over $700 billion (USD) in annual
transactions is currently running through the SAP Business Network–three times
more than Amazon, eBay, and Alibaba combined. Up to 10 percent of corporate
costs gets entrapped in travel and expense (T&E) management, where recently-
acquired Concur can help with simplification.
SAP pledges that this comprehensive offering will help allow customers define
their own pace to the cloud based on their needs while keeping all the integration
and business benefits of their existing SAP solutions. SAP has an established
partner ecosystem that is ready to resell and provide services for customers along
their journey with SAP S/4HANA. Partners and SAP will strive to provide an easy
path for customers to move to SAP S/4HANA with pre-defined migration and
deployment packages. Accenture, Capgemini, Deloitte Consulting LLP, EY, and PwC
seem to be on board, and some of them attended the event.
More Questions than Answers
It is not yet clear what SAP HANA can do for unstructured data that is not handled
via RAM/in-memory—CAD drawings, product catalog pictures, etc. Over the years,
Internet companies are increasingly using MongoDB and Hadoop-type databases
for structured and unstructured data. They are no longer looking for cheaper
alternatives to Oracle, as they have found other options that are faster, cheaper,
and easier to use. If SAP can achieve a broad adoption of HANA, it might be able
to pick off those best-of-breed solutions, but I do not believe that this is likely,
given that most enterprises also have many non-SAP applications. While licenses
can be reduced, changing IT resources is not easy, and risks of a massive migration
are high. Add-ons like MongoDB or Hadoop will continue to fill gaps even though
they are not meant to be a single corporate-wide IT database.
Thus, ironically, I can see S/4HANA as quite attractive to brand-new prospective
cloud subscription customers. Yet SAP is logically targeting it more to its 46k
existing R/3 and NetWeaver-based Business Suite users, who might not be that
hot on switching from Oracle database after finally getting their SAP ERP software
to work. Not every business needs true real-time capabilities and predictive
analytics for next best action; perhaps minutes/hours delay can be fine for some
businesses. And not everyone is in algorithmic trading where speed is of the
utmost importance. For example, NYSE traders live and die in the sub-second
world that drives their transactions. Few other companies do.

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Vinnie Mirchandani’s hit book SAP Nation’s major point is SAP’s customers’
resentment—they have been paying for decades about 20 percent of their
perpetual SAP licenses for annual service and maintenance (S&M) contracts.
Instead of getting necessary industry functionality for their product instances,
many of them believe that SAP has used that money to develop a brand-new SKU
that they did not ask for, and now they have to pay for a brand-new product
(instead of getting it free as part of S&M).
Since most SAP customers have heavy customization and CIOs that protect their
turf, I doubt that more than a handful will attempt to migrate soon. I’ve heard
stories of Colgate, P&G, General Mills, etc. creating their own custom code and
handing it to SAP to support. No other ERP company will do this kind of SAP
MaxAttention support plan. Additionally, many customers literally had to shut
down their business to implement SAP; few will want to risk a migration and
another shutdown. Most CIOs will look to do incremental migration or best-of-
breed strategies.
SAP must tread carefully not to turn customers’ resentment into a full-blown
revolt and departures, which would bode well for Workday, salesforce.com,
NetSuite, Infor, Oracle, UNIT4, Plex Systems, etc. SAP’s urge to innovate and its
vision for a 21st-century software suite is understandable and would be spot-on if
not for the question of what to do with the existing customers. It is not an easy
world—SAP needs to innovate to survive as a public company, and raising stock
prices and innovation also hold employee interest.
Being proprietary to SAP, HANA certainly lowers the cost of development and
operation for SAP, not for customers. Customers, no longer being ignorant, will
request that a fair share of these savings be transferred to them. In addition,
customers will require a risk-sharing premium for moving to a new proprietary
platform underneath their ERP and, in fact, to the brand-new ERP. Thus, talking to
some SAP product marketing and development folks at the NYSE event, SAP will
likely offer a license swap for equivalent functionality (e.g., Simple Finance for SAP
FICO), as SAP’s aim is to get rid of Oracle, SQL Server, and DB/2 database royalties
wherever possible. In case of a huge customer outcry, SAP will likely relent like in
the recent case with the Fiori UI, which it first wanted to charge for additionally,
but now it is part of regular maintenance. Some useful info on S/4HANA pricing
and more can be found at SAP’s FAQ webpage, bearing in mind that many details
might likely change down the track based on customers’ and partners’ feedback.
In addition, only SAP Simple Finance is currently available within S/4HANA, and
SAP is busy working on Simple Logistics, Simple CRM, Simple PLM, etc. Thus, it is
hard to get more details on business case propositions to new customers other
than speeding up financial processes tremendously. During his keynote, Plattner
himself acknowledged that there are still 400 million NetWeaver code lines, which
will be gradually reduced and optimized for S/4HANA (at least several years in my
estimate).

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Hype aside, HANA is simply a new database proprietary to SAP without a sizeable
install base even in the SAP ecosystem, and, most importantly, without a
community of trained developers and database administrators (DBAs). For a
database professional such platforms could be a career dead end so they might
still prefer platforms that everybody is using (e.g., Java, Oracle) or that are seen as
“hot.” At this stage, neither HANA nor ABAP are that hot, whereas Hadoop, NoSQL,
Ruby, etc. are (even Microsoft .NET on your resume can still affect your
employability). HANA is a modern database and technically there is almost
nothing that HANA can do that Oracle and SQL Server cannot (possibly using a
different technical approach), so the need to change the platform in the R/3
community might not yet be that compelling for the end-user.
SAP will have to make a compelling case why S/4HANA should be more attractive
as a development platform for independent software vendors (ISV) than, say, the
Salesforce1 platform. Perhaps SAP should partner with Microsoft Azure and turn
HANA into one of the underlying infrastructure components and leverage the
large amount of Microsoft developers into HANA lovers. In a multi-tenant
environment, this developer contingent could outrun Salesforce.com’s ecosystem.
But this might be too far-fetched, as Microsoft will tout its own in-memory and
predictive analytics capabilities to keep SAP at bay. Moreover, SAP could do the
same with Amazon whereby large enterprises can then use HANA for private
cloud deployments. But somehow, I’m not sure whether SAP has this in mind at all.
Parallel Play, for Quite Some Time
It might be interesting to note that S4/HANA is basically (at least philosophically)
SAP’s equivalent to Oracle Fusion Applications (OFA) including the novel Oracle
Cloud ERP. OFA was a necessary block-and-tackle and development optimization
architectural move for Oracle. From the customer point of view, OFA represents a
viable platform to migrate to, but not a must-upgrade-to platform. Migrations
from Oracle’s classic apps to OFA took many years, most clients never migrated,
and some of those who migrated moved to another platform. The same is
probably in the cards for S4/HANA.
S/4HANA is a new ERP product using a SAP proprietary database that will
probably have very limited traction as a general purpose platform (in a platform
as a service [PaaS] or on-premise mode) outside the “SAP Economy.” Like
S4/HANA, OFA solutions are offered as software as a service (SaaS), hybrid, and
on-premise, and they run on a fully proprietary Oracle stack (including even
Oracle Sun hardware) which lowers TCO for Oracle and adds to Oracle’s margins.
The database in OFA is more versatile and established than SAP’s new proprietary
database and so is Oracle’s java middleware and still, years after the OFA
announcement, the majority of Oracle application customers are still running
Oracle E-Business Suite (EBS), Siebel, PeopleSoft, etc. They either do not migrate
to OFA or migrate slowly, or when considering a migration, they evaluate OFA in
parallel with Workday, NetSuite, salesforce.com, etc. (and might even consider
S/4HANA in the future).

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So, SAP has announced a new ERP and will end up with two major ERP code bases
(I repeat: S4/HANA and R/3 seem to be as related as Oracle EBS and OFA). This is
technically possible as in the case of Oracle, which maintains Fusion, EBS, Siebel,
PeopleSoft, JD Edwards OneWorld Enterprise, even JD Edwards World (on IBM
AS/400), and more. Both OFA and S4/HANA are logical and good moves and
strategies, but not necessarily a revolution “outside the bubble,” and ERP
customers realize that. Oracle has long given up on aggressively pushing OFA as a
new revenue stream, and perhaps this relaxed approach will make customers
migrate eventually.
Thus, SAP seems to be on to something with S4/HANA, but it should tread
carefully when it comes to existing and new customers if it wants to truly succeed.
While R/3 and S/4HANA are semantically compatible, and this is why SAP (unlike
with Oracle EBS and OFA) believes a customer move will be smooth, the reality of
parallel install bases will be here for some time to come.
Related Reading
SAP Business Suite 4 SAP HANA launch Event video
Blog post by SAP consultancy Bluefin Solutions

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