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SAP wants to own intelligent enterprise, but firms have options

SAP customers Paragon 28 and Merit Energy extoll the value of an S/4HANA-based intelligent enterprise, but an S/4HANA migration might not be needed to achieve the same benefits.

SAP has touted the value of the intelligent enterprise, a concept that centers on the S/4HANA modern ERP system running in the cloud, for years.

The vision of the SAP intelligent enterprise is that digitized business processes utilizing data from a variety of systems and fused with technology like advanced analytics, AI and machine learning provides a backbone for businesses to be more resilient and flexible.

That way, companies can make better, faster decisions; respond quicker to changing market requirements; and enable new business models.

SAP claims customers are embracing its vision of an intelligent enterprise and using S/4HANA as the ERP foundation, but industry analysts pointed out that companies don't need S/4HANA to transition to an intelligent enterprise.

Endorsing the SAP intelligent enterprise

During a session at the Sapphire Now 2021 virtual conference, two SAP customers -- medical device maker Paragon 28 and energy investment firm Merit Energy -- said moving to S/4HANA was necessary for establishing the intelligent enterprise.

Although the companies are very different, both Paragon 28 and Merit Energy are looking to use S/4HANA to become more flexible and responsive to changing business requirements.

During the session, Mary Sibley, vice president of SAP S/4HANA Center of Excellence, said the SAP intelligent enterprise provides customers with the "opportunity to positively impact revenue, productivity, asset utilization and support for strategy."

Mary Sibley
Mary Sibley, vice president of SAP S/4HANA Center of Excellence, at Sapphire Now 2021.

For example, for revenue, there's the ability to offer products as a service; for productivity, S/4HANA includes robotic process automation tech so rote tasks can be automated, providing employees more time for higher value work; for asset utilization, S/4HANA provides tools to help companies move from scheduled to predictive maintenance for more efficient equipment uptime and lower service costs; for strategy, the modern ERP system includes real-time analytics features to enable data-driven decision-making.

Paragon 28, based in Englewood, Colo., is implementing S/4HANA to serve as the core to meet its future growth and innovation needs, said Yuliya Aslan, vice president of information technology at the company.

Yuliya Aslan
Yuliya Aslan, Paragon 28 vice president of information, speaking at SAP Sapphire Now 2021.

"We are a very innovative company and are always looking ahead," Aslan said. "We already have several projects on the horizon that will incorporate intelligent technologies. But for the near future, we wanted to implement the core SAP functionality, which will give us the stability and growth to look ahead and be innovative."

Real-time analytics gateway to intelligent enterprise

The real value of the intelligent enterprise will come from having access to real-time analytics, Aslan explained, adding that Paragon 28 expects to use the capability to gain greater accuracy in its data and better visibility into everyday business processes. For the medical device industry, quickly understanding market fluctuations and supply needs is vital.

"We need real-time visibility into what's going on in the market so we can react quickly and make decisions as needed, which can be anything from production to distribution to safety," Aslan said. "For example, our business is all about enabling surgeries, and if there is an emergency surgery and our inventory is needed, we need to see this so we can react and ship quickly. That's key to our growth and success."

Russ Hulme
Russ Hulme, Merit Energy group manager for SAP systems, during a session at SAP Sapphire Now 2021.

For Merit Energy, the value of the intelligent enterprise is in enabling not just faster business decisions, but more informed and innovative business decisions, according to Russ Hulme, group manager for SAP systems at the investment firm.

Based in Dallas, Merit Energy acquires and invests in oil and gas companies. The company moved from SAP Business Suite on HANA to S/4HANA in 2020 to take advantage of S/4HANA's analytics capabilities.

"We already knew what the capabilities of HANA offered us, but in seeing what S/4HANA has to offer with the integration of the underlying data models, we've been able to break things down again at a more granular level and do our analysis better," Hulme said. "We didn't move to S/4HANA just to go faster or just to be more efficient. We moved to be better, to grow, to set ourselves up to be innovative, and that's just what we've seen."

S/4HANA not necessary for intelligent enterprise

The intelligent enterprise appears to be a concept most SAP customers view as valuable, but it remains to be seen if it will be widely adopted and, if so, whether SAP technology will be at its core.

A 2020 survey of the members of the Americas' SAP Users' Group and the German-speaking SAP User Group indicated SAP customers like S/4HANA and understand the value of the intelligent enterprise but have been slow to implement the technology.

SAP reports the number of customers migrating to S/4HANA continues to grow -- the vendor added 400 new customers in Q1 of 2021 for a total of 16,400, but this is still a fraction of SAP's overall customer base. It's estimated that SAP has 425,000 customers, but it does not disclose how many S/4HANA users are upgrades or net new, nor does it break down how many are on-premises, cloud or hybrid deployments.

Indeed, one of SAP's motivations behind the Rise with SAP program, which it dubbed business transformation as a service, is to simplify the implementation and management of S/4HANA and includes intelligent enterprise elements like advanced analytics.

Jon ReedJon Reed

Few SAP customers question the need for some kind of transformation to becoming more flexible and resilient, said Jon Reed, co-founder of Diginomica, an enterprise computing analysis and news site. The events of the last year have underscored the need to become adaptable to quickly changing markets and expand business markets.

But, he said, the problem for SAP is customers may not make S/4HANA the core of their intelligent enterprises.

"Rise with SAP can be viewed as a push by SAP to be at that table and not be squeezed out by [systems integrators], hyperscalers and other vendors," Reed said. "Nor does achieving an intelligent enterprise mean you have to upgrade to S/4HANA to get there."

Other ERP vendors are modularizing their products to enable a "ring-fence" strategy for a digital transformation, which surrounds the core ERP system with specialized applications for specific functions, he explained.

"For example, [Plex Systems'] cloud manufacturing prospects have expanded considerably now that Plex has componentized a number of its offerings, including [manufacturing execution system] and [quality management system]," Reed said. "If the S/4HANA transformation case is made, it's essential that customers get quick wins along the way. They simply won't put up with a multiyear wait for a digital payoff."

Predrag JakovljevicPredrag Jakovljevic

Migration needs to help with migration costs

However, it's still too early to tell whether Rise with SAP, which launched in January, is enough to persuade customers to migrate to S/4HANA and make it the center of their intelligent enterprise, said Predrag Jakovljevic, principal industry analyst at Technology Evaluation Centers.

"The intelligent enterprise is an incentive, but I'm not sure it will be enough [to get customers to move]," Jakovljevic said. "Moving to S/4HANA is by no means the best path to becoming an intelligent enterprise. SAP is smart to offer that, but dangling a modern cloud and AI-based ERP often isn't enough. Customers need some migration assurance and insurance."

Customers need ERP vendors to share more of the migration risks like cost overruns or missed deadlines, which SAP has not offered so far, though other vendors have, he said.

"For example, the ERP vendor QAD is packaging cloud migration and upgrade services into fixed engagements, taking on, at least, some of the consulting cost risk and making time commitments," Jakovljevic said.

SAP customers may be better persuaded to undergo a major migration to S/4HANA if SAP offers a fixed migration cost and if it and systems integrators assume the costs of overruns or shares them with the customer, he said.

Jim O'Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.

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