This content is part of the Essential Guide: SAP S/4HANA migration: What you need to know

On-premises, hosted most popular S/4HANA deployment options

The pure cloud -- SaaS -- version of SAP's newest ERP, S/4HANA Cloud, lacks some of the same features of the on-premises version. But there are other reasons to keep S/4 close.

SAP S/4HANA deployment options have been subject to much confusion, partly because of cloud marketing hype but also because vendors and service providers aren't always consistent in their use of terminology.

In truth, when it comes time to plan implementation of SAP's newest-generation ERP platform, there are just three main S/4HANA deployment options to consider: on premises, private cloud (or hosted) and public cloud. Some experts, including SAP, said there are actually four S/4HANA deployment methods -- including hybrid deployment -- but it's some combination of the first three.

An SAP customer can host the on-premises version in its data center. SAP follows an annual innovation cycle for the on-premises product, although customers are not forced to upgrade.

The private cloud option is fundamentally an on-premises deployment hosted in a secure private cloud.

Finally, SAP offers a pure public cloud option: SaaS that SAP or a third-party provider, such as AWS or Microsoft Azure, hosts and manages, which includes quarterly upgrades.

How S/4HANA deployment options rank in popularity

At the beginning of 2018, SAP disclosed that almost 1,500 customers were live on S/4HANA, 19% of the 7,900 organizations that had purchased S/4HANA licenses or subscriptions up to that point.

SAP doesn't disclose the number of customers that have deployed the public cloud version, called S/4HANA Cloud. But Sven Denecken, SAP's senior vice president of product management and co-innovation for S/4HANA, acknowledged that most of them are running S/4HANA on premises, either in their data centers or hosted in SAP partners' data centers.

One of the reasons most of SAP's S/4HANA business is on premises is because large enterprises aren't willing to move to the public cloud just yet, said George Lawrie, vice president and principal analyst at Forrester Research, based in Cambridge, Mass.

"For example, I asked one of the largest oil companies in the world that I work with why they don't go to a public cloud infrastructure," Lawrie said. "They said, 'Don't be silly. Why would we do that? We're one of the largest oil companies in the world, and we'll run our own, thank you very much.' Companies in Europe especially think they can do it themselves, and they don't need anyone to help."

Smaller companies, however, are more willing to run S/4HANA in the public cloud.

"We did a webinar for our own SAP users, and we asked them how many are public cloud. Twenty percent said they were doing public cloud, and 20% said they were doing both S/4HANA Finance and S/4HANA Logistics in the public cloud. So, I suspect, it makes sense for those smaller companies to do all of this together."

Many clients -- and especially in certain regions, like Europe -- [are] still pretty hesitant to use the public cloud for anything that they do that's mission-critical.
Liz HerbertVice president and principal analyst, Forrester Research

Other organizations, including large enterprises and those in regulated industries, such as pharmaceuticals, aren't willing to deploy S/4HANA in the public cloud because they're worried about the security and reliability of their data.

"Many clients -- and especially in certain regions, like Europe -- [are] still pretty hesitant to use the public cloud for anything that they do that's mission-critical," said Liz Herbert, vice president and principal analyst at Forrester Research. "Given where S/4HANA plays, which is really at the core, that is a limiting factor for them. They just feel that it's too much risk."

Even though that way of thinking might not be based in reality, organizations would still rather house their sensitive data in local data centers or hosted private clouds where they feel that they have a bit more control, she said.

In addition to the security issues, there are companies that believe the public cloud is not as reliable in terms of performance or uptime, she said.

"In some industries, that argument is more viable than others," Herbert said. "We had a client recently talk to us about how they're working in remote sites in the United States where the internet is not reliable. And you also have different pockets around the world where the internet is perhaps not reliable and other places where it's also very expensive. Sometimes, those factors can weigh on the decision [to run S/4HANA] in the public cloud."

Decision often driven by broader goals for cloud

Also, a lot of companies are still trying to figure out their broader cloud strategies before they even get around to considering S/4HANA deployment options. Consequently, they're going to start with areas that can benefit from the properties of flexibility and agility, she said.

For instance, companies recognize more clearly that, by moving CRM or HR to the public cloud, they can benefit from regular upgrades that enable them to become more nimble and more agile, Herbert said.

"Generally, when I talk to customers about the core in finance in particular -- though you could make the case, and some do, about agility being important -- it doesn't shine through quite as compelling as a benefit to the buyers," she said. "Agile accounting doesn't quite have the same ring to it as the customer experience."

These days, on premises and hosted are the S/4HANA deployment options chosen most often because they're what customers are used to, said Michael Jolton, vice president of service delivery at Nimbl, an SAP partner based in Denver.

"I believe we are going to see that trend completely flip," he said. "And I think it's going to be predominantly cloud as time goes on. But if you look at licensing today, the technically correct answer is that there are more on-premises and hosted S/4HANA implementations right now than S/4HANA cloud implementations."

The current trend in S/4HANA deployment options will flip because most forward-thinking CIOs and businesses in general want to get out of the software business and focus on the actual business, Jolton said.

"They want software provided as a service that they turn on, and it just works," he said. "They don't want to have to maintain all of these code modifications that have been built over the years, a majority of which aren't even used, and yet prevent their ability to take advantage of new technology."

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