E-Handbook: SAP S/4HANA deployment options: Legacy ERP vs. cloud Article 4 of 4

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As SaaS ERP, S/4HANA Cloud not meant to replicate ECC

In a Q&A, Jan Gilg, SAP's new global head of S/4HANA, joined SVP Sven Denecken to explain the differences between the on-premises and cloud versions of S/4.

There's little doubt that S/4HANA Cloud is the vanguard of SAP's ambitious effort to modernize its on-premises ERP Central Component, or ECC, the foundation and ERP core of the enterprise application flagship, Business Suite. But S/4HANA also comes in an on-premises version, and the cloud deployment options themselves have multiplied as SAP has moved to outsource more of the infrastructure to public cloud providers, such as AWS and Microsoft Azure.

Since January, Jan Gilg has been senior vice president and global head of SAP S/4HANA, responsible for engineering and product management for SAP's next-generation ERP platform. He joined Sven Denecken, senior vice president and head of product management and co-innovation for S/4HANA, for an interview.

Can you explain the differences between the on-premises and SaaS version of S/4HANA?

Jan Gilg, SAP senior vice presidentJan Gilg

Jan Gilg: The idea of S/4HANA Cloud is not to rebuild ECC in a multi-tenant cloud environment. The idea is really to have a next-generation cloud solution. That should obviously be significantly different than what ECC was in the past.

The whole way business processes are run, we look at this in a much more automated way. We think about how we can rethink and reimagine some of the business processes now that we have other technological possibilities at hand -- much more data-driven, much more using intelligent technologies. It [revolves] around, also, the way users interact with the system. That's why it's so important for us to focus on the user experience, as well. Those would [all] be called cloud qualities.

While the S/4HANA Cloud solution is technically from the same code line as the on-premises version, it has a smaller scope, and this is primarily because we are focusing so much on the cloud quality. This needs to fulfill certain criteria. We are very strict, because we want to take the opportunity to do things differently, and we can do that even though we are technically on the same code base.

[We have announced] certain things right now that are more on the technical side, because in the multi-tenant cloud, we also obviously have a very different role to play as a provider, [because] we need to think about operational excellence much, much more than in the on-premises world. So, we will announce availability of 99.9% high availability in the cloud and things like that, [including] how we can make it less disruptive to put upgrades, hotfixes and patches into the system, so customers don't have downtime.

When you talked about taking advantage of the cloud and the different business processes and best practices enabled by S/4HANA Cloud, were you specifically talking about SaaS?

Gilg: Definitely. I think that's the whole point, that this is really software as a service. The as-a-service component is extremely important for me, because that is really what distinguishes them, also, from the on-premises version. If you look into what you just mentioned -- the best practice processes -- we are very restrictive in the public cloud. Because if you think about where we're coming from, in the on-premises world, customers can do anything with the system. They have thousands of possibilities to configure the system, and then they can put in custom code; they can even modify the code that we deliver.

And then we said, '[We'll go to] the other end of the spectrum and really provide best practice processes ourselves and keep the boundaries extremely tight.' And we say, 'This is an opportunity for you to standardize your processes, to simplify and to go with a best-practice approach.'

You can go live rather quickly, and we can keep you current and upgrade you all the time. So, you can enjoy all the new things that are coming every quarter.

We deliberately said let's keep it tight to begin with. You can always open it up later if you can, but we have to control it as a vendor. And this is the challenge for us.

I'm under the impression that there are relatively few people using the SaaS version of S/4HANA Cloud. Is that still the case?

Sven Denecken, SAP senior vice presidentSven Denecken

Sven Denecken: Before we come to that, I think the question is, what is the purpose of software as a service for ERP? It's pretty simple for everyone to build software for ERP. The question is, who is successful [at building] as-a-service?

I more like the term more focused, rather than restriction. You need to be focused. What does SaaS stand for? It stands for the highest degree of automation, the lowest [total cost of ownership] and the ability of customers to consume innovation on the weekend.

By definition, there will be for a very long time [fewer] customers buying into a full SaaS solution in ERP. We just recently have been named the leader in the IDC quadrant for operational ERP, which is, I think, the North Star of how you can take an ERP to the cloud. Admin ERP? Everyone can do that. Finance, procurement, HR: That's a standard as a commodity in ERP and in SaaS.

Three years ago, you would never have thought that a company like Shell ... the petroleum company ... would ever think about software as a service. But they do, and it just recently went live ... in Venezuela. For a complete ERP, they have seven different tenants in public cloud, while in the headquarters they still run it on premises.

Gilg: We shouldn't be the ones dictating to a customer, 'You have to go to the cloud right now. You have to go to this or [that] version. You have to do public cloud or private cloud, and you better stay on premises.' You do want to offer this kind of choice and also the combination.

We see a lot of customers [who] do have an on-premises core system, and they start rolling out S/4HANA Cloud for their subsidiaries, for a business unit, for a specific process, etc. We are pushing now more to also modularize the system, so it's possible to only use certain functionality in the cloud while you still have maybe a majority of your processes and capabilities on premises.

Can we talk about the non-SaaS versions of S/4HANA Cloud? It seems as if versions that are more like private clouds run on public cloud infrastructure, such as AWS.

We are pushing now more to also modularize the system, so it's possible to only use certain functionality in the cloud.
Jan GilgGlobal head of SAP S/4HANA

Denecken: It's actually pretty simple. I have an on-prem version, which I can give the client and he can run that no matter how he wants, and you can customize it. We have the North Star SaaS, which is actually the public cloud, multi-tenant SaaS -- all what you expect from the cloud qualities.

Now, in reality, a client ... might want to take his on-prem version and run it on infrastructure as a service, which SAP can provide. It's called HANA Enterprise Cloud. So, it's our infrastructure as a service, or he decides to run that on one of the four major hyperscalers [Alibaba, AWS, Microsoft Azure and Google Cloud Platform]. We provide that openness, but in essence, it's still an on-prem version.

On the cloud side, we have two versions. One is the SaaS multi-tenant, and we have customers who decide, 'I don't want to run on a multi-tenant, be dependent on another. I want my own space.' Internally, we call that single-tenant. It's actually an environment which is safeguarded for him.

[It doesn't] matter if you run it on premises and have it on your metal in your basement, or you put it on the hyperscaler or HEC, or you run it as a dedicated tenant or in the multi-tenant. We have clients who use all four of them, because they realize that for certain regulated environments, they might need a little bit more guarded one, where in some subsidiaries they have zero IT department.

So, on prem, private cloud and then in the public cloud, you have a single and a multi-tenant.

Isn't one of the worries for SAP that if people want to move to cloud, that you could lose them as a customer for at least some functions? Are you trying to give them a migration path?

Gilg: It's a natural evolution. If you look into ECC, we came out with this in, I think, 2004, 2005. So, it's almost going on 20 years.

It's obviously then the point in time where we say so much has changed on the technology side, we need to come up with something new. And that was the motivation for S/4 in both models -- on premises, as well as cloud.

We said, 'This cannot just be another upgrade.' So, we said, 'Let's build a new product, which is still semantically compatible.' So, there is a path. I would say it's obviously much, much easier for our customer to move from ECC to S/4HANA as it is to anywhere else. But, obviously, it's still a stretch, and we know that. We know for our customers, this is an effort. But I believe it's an effort that's worth doing.

It's not about just pushing our customers to a new version. It's really saying this is the next-generation ERP, and we're offering to go down this path with us, no matter which deployment model.

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