How to Understand Why S/4HANA is a Poor Fit for the Cloud

Executive Summary

  • There is a poor fit between S/4HANA and the cloud which is hidden by the fact that SAP commingles S/4HANA Cloud with S/4HANA on premises.
  • For this article, we needed to cover ASP (Application Service Provider) versus “single =tenant” versus “private cloud.”

Introduction to The Real Story on Cloud and S/4HANA

While researching the actual history of S/4HANA implementations, something that came to the surface is how rare it was for any S/4HANA implementation to be in the cloud. This is curious because so much of SAP’s marketing around S/4HANA has been used promoting S/4HANA Cloud as an application that is flexibly deployed. In this article, you will learn the real story on the applicability of the S/4HANA Cloud to the cloud.

What is the Cloud or SaaS?

Many people think that the cloud aka SaaS is undefinable and or that any claim by a vendor that something is cloud should be accepted as true. However, in fact, SaaS is actually very well defined. The terms SaaS and cloud are quite often used interchangeably. So while not entirely overlapping, they will be considered synonyms for this review.

Important supporting words are as follows:

  • Hosted: This means that the application is on servers that are outside of the company that uses them. It does not mean anything more than that. Sometimes hosted is used to be considered distinct from SaaS. But this is inaccurate. SaaS is a particular modality of hosting, and the benefits of SaaS do not generalize to any application that is hosted.
  • Application Service Provider (ASP): This means that the application is provided by an outsourced company that is not a SaaS/cloud arrangement.
  • Single tenant: This is where a single customer is supported by a hosted application.
  • Multitenant: This is where multiple customers are supported by a hosted applications.

Understanding the Interrelationships of SaaS

The interrelationships will be reviewed in this paper.

  • The Public Cloud
  • ASP
  • Private Cloud

The Public Cloud

The term public cloud is almost never used except when in the same sentence as the term private cloud. In the vast majority of cases, the term public cloud is used without a modifier, i.e., just the “cloud.”

ASP (Application Service Provider) Versus “Single-=Tenant” Versus “Private Cloud”

All of these terms have different origins. All are adjectives to define better a software instance which is a “hosted” service with a single tenant as opposed to multi-tenant, which is one of the basic requirements for SaaS.

The Private Cloud

The problem with this term is that “private cloud” is that it’s a bit of a misnomer because the term does not actually fit the definition of cloud computing. Cloud computing both implies and requires shared resources.  Regardless, private clouds are often lauded for their improved security. Still, they have a fundamental limitation. They do not offer the many benefits of cloud, public cloud or SaaS, and they do not scale well.

The Wikipedia Definition of Private Cloud

Wikipedia has a good description of private cloud, which states “they have attracted criticism because customers “still have to buy, build, and manage them,” and thus do not benefit from less hands-on management, essentially “[lacking] the economic model that makes Cloud computing such an intriguing concept.”

SAP’s marketing materials show many cloud-based third-party applications. However, SAP does little of its own hosting except for its newly acquired applications that were already cloud-based before they were purchased. Therefore, most of SAP’s database and applications revenue is from applications not in the cloud. S/4HANA Cloud matches this pattern by having very few customers. 

There is no doubt that Concur, Fieldglass, Ariba, and SuccessFactors are delivered via SaaS. Those vendors have traditionally been delivered through SaaS. But they are much more straightforward applications than an ERP system. However, S/4HANA Cloud is not delivered through SaaS to any substantial number of companies or any companies of substantial size. The larger the company, generally the larger and more complex the requirements, and the more need for customization, which moves the company away from being able to use SaaS ERP applications, which includes S/4HANA Cloud.

  • Any level of complexity and customization can be supported by hosting the ERP system or what is called a private cloud.
  • But then almost all the advantages of SaaS are lost. All that is done that differentiates this from on-premises is the hardware switches locations from the customer to the vendor.

No Customization a Foundation for SaaS

SaaS customization was first reviewed above in the section on multi-tenancy (i.e., One Code Base — Multi and Single Tenancy). SaaS’s underlying data model and system architecture are not customizable. “No Customization” allows the SaaS software vendor to spend less time dealing with various platform patching, compatibility issues, and individual upgrades.

In fact, a true SaaS vendor is supposed to upgrade a single instance, which then updates all customers simultaneously. This should then imply less support expense.

The Reality of No Customization of And ERP System

SaaS applications tend to predominantly be simple applications that are not customized for each client. The fertile areas of SaaS tend to be applications such as bill of materials management, CRM, HRMS, travel and expense, online meetings and email.

However, the current trend indicates that software vendors are increasingly moving more complicated applications, which have a long history of being customized, to the cloud.

That being said, we do not foresee that the need for customizations will abruptly come to an end just because applications move to the cloud.  For example, SAP’s ERP system, called ECC, is either highly or moderately customized in 92 percent of instances.  SAP’s replacement for ECC, called S/4HANA, will be made available in the cloud.

However, serious questions remain concerning customization and how these customizations will be ported to a SaaS environment as proposed by S/4HANA Cloud. In fact, such questions are already starting to emerge.

Example

For example, the following excerpt from a recent review of S4 HANA Cloud shows these questions arising:

“I’m examining the degree of “SaaSiness” within the scope of S4 HANA – I’m not using it as a standard in comparison to other non-SAP SaaS applications. There are definitely other “purer” SaaS applications in the market but such a comparison isn’t the focus of this piece. Although there are theoretically pure “Private” and “Public” versions of S4 HANA, company-specific manifestations will probably emerge that combine various characteristics of each extreme.

For example, one SI may allow greater customizing for customers at the expense of a weaker SLA or at a higher cost.  Furthermore, a company/SI could have multiple S4 HANA-related offers to meet the needs of different customers/business requirements.” – Diginomica

In my view, this industry expert is granting SAP SaaS status before SAP has proven this capability. This expert even states that he is not focusing on how pure S/4HANA is for SaaS because it is not the focus of his attention. However, he is assuming S/4HANA Cloud is SaaS or presenting it as such. I do not see who would care what the focus of his attention is or isn’t. Something either meets a definition of a term or it does not.

Will SAP Be Actually Providing the Hosting?

In most cases though, SAP will not be doing the hosting. There may be cases where the instance is hosted by a firm such as AWS. (In that case, it is also not multi-tenant.) This expert points this third-party hosting capability out in a different part of his article:

“However, there is no reason why a partner couldn’t duplicate this offer for its customers – even exploiting HANA’s multi-tenancy feature included as part of SP9.”

S/4HANA is currently going through a rapid development cycle, with new functionality being released each quarter. The S/4HANA Cloud version lags the S/4HANA on-premises version. It is likely that even when this cycle slows, there will be SAP customers on different versions of this ERP system.

Can S/4HANA Be a Cloud/SaaS Application?

S/4HANA will, in most cases, be implemented with customization requirements. This precludes S/4HANA from being a true SaaS application. SAP also does not follow most of the other SaaS characteristics, and this categorizes S/4HANA as a non-SaaS application. Only the smallest customers will be able to use S/4HANA in a non-customized way. However, S/4HANA is a Rolex watch regarding cost and complexity. ECC had the highest TCO of any ERP system.

See details on the TCO of ECC in the online TCO calculators at this link.

A Top Cloud ERP Vendor’s View on Customization and SaaS

I wanted to get another viewpoint on this conflict between customization and SaaS delivery and S/4HANA Cloud, and the normal requirement for customization in the ERP software category. So I reached out to Rushabh Mehta who leads ERPNext and whom I happen to know has quite a few customers on SaaS delivery for their software. He had this to say on the topic.

“The problem of mass customization, which seems intractable from a pure SAAS point of view, is solvable with a plug-in architecture. An Cloud ERP does not have to be pure multi-tenant, but multi-tenancy can be built on basis of virtualization so you can technically run a multi-tenant cloud with each customer in a separate VM running own set of plug-ins. This would still be some kind of a hybrid “cloud” as long as all customers get upgraded simultaneously. I think it is possible, though I have no idea how “pluggable” is the S/4HANA architecture is.”

Pluggable means that extensions or add-ins from outside vendors can be easily added to the core product. The S/4HANA architecture is not pluggable. It is, in fact, the exact opposite of pluggable.

This is a critical distinction to understand because SAP has for years made it difficult to connect applications to its software. This is used to create a barrier to entry to push customers back to using other non-ERP SAP applications. Software companies develop integrations to SAP ERP, but these are not plug-ins, so that is a different topic.

ABAP Customization of ECC

Customization is written in ABAP to pull in functionality from pre-existing applications the company wrote, or enhancements to ERP. These are one-off and are not shared or at least very little shared between clients.

Let us get back to another quote from Rushabh:

“From the other side, I don’t think any vendor has been able to fix this problem, even for small businesses. The reason in my view is that the incentive for revenue is stacked up in the favor of large-scale customization (emphasis added). So from the SAP point of view, even if they could pull of a common code-base across the cloud with a really cool plug-in architecture, their heart can never be in it, because it’s a recipe to kill their revenue. Companies can spend ~1% of their annual expense on their ERP system and SAP wants to collect all of that tax/rent.”

Is SAP Going to Open Up?

SAP will often give lip service to opening an allowing more interoperability with other vendors. For instance, they talked a good game with SOA. They talk a good game about partnering with software vendors. However, they undermined those partnerships and tried to get companies not to buy from their “partners.” I covered this topic quite extensively from the perspective of something called indirect access in many articles, one being How SAP is Now Strip Mining its Customers.

“That is the core of the problem – not only for SAP but also the entire ERP industry – There is just too much money on the table (esp for large companies) and they see no reason to push for mass customization when customers are ready to pay for re-inventing the wheel every single time.”

SAP does not make much money from customizations, but the SAP consulting companies do.

My take is a bit different from Rushabh’s here. My view is that SAP can only bring out so much functionality, and it cannot (obviously) meet all requirements. To Rushabh’s earlier point, SAP has no plug-in architecture to allow other companies to come in and develop add-ons to ECC/S/4HANA. The approach with SAP been one-off customizations.

Conclusion

SAP’s strategy with S/4HANA Cloud, or delivered by SaaS does not make any sense. It is not working currently and is unlikely to work in the future. The strategy appears to have been hatched by SAP marketing to appeal to Wall Street and to seem leading edge, without consideration for what makes an actual SaaS solution beneficial over a hosted or private cloud.

We predict that SAP will continue to pretend it has a viable “SaaS” option available, but will merely end up hosting/private cloud managing S/4HANA for some companies because the benefits of doing so will be to continue to obtain a higher multiple for their stock price.

See our The S/4HANA Implementation Study. for real story and details on actual S/4HANA implementations.

SAP’s Inaccurate Messaging on S/4HANA as Communicated in SAP Videos

Fact-Checking SAP Information on S/4HANA

This video is filled with extensive falsehoods. We will address them in the sequence they are stated in this video.

SAP Video Accuracy Mesurement

Appleby's StatementAccuracy % of the CommentExplanationLink to Analysis Article
S/4HANA is what allows key processes to be digitized.
0%
ECC was already fully digitized and digitized across key business functions.The Problem with Using the Term Digital Transformation on IT Projects
HANA is a Platform
0%
HANA is not a platform, it is a database.How to Deflect You Were Wrong About HANA
Fiori is a major advantage for S/4HANA.
10%
In S/4HANA implementations Fiori is infrequently used when S/4HANA. How Accurate Was SAP on the Number of Fiori Apps?
Fiori is far more efficient than what came before.
10%
In testing Fiori and S/4HANA, Sven Deneken's statements did not hold up. There was a particular weakness in actually making changes after noticing something needed to be changed, and we found the efficiency below that of ECC with of course SAPGUI.
S/4HANA is innovative as it brings "real time inventory."
0%
Sven Deneken brings up the topic of "real-time capabilities," however there is nothing particularly real-time or different in terms of a reaction than ECC. Whenever you make a change in ECC or any other ERP systems for that matter, the entry is real-time. Sven Deneken states that "the physical inventory is the same as the digital inventory." However, under what system would this not be true?What Happened to the Term Perpetual Inventory?
S/4HANA is innovative because it allows access to supplier information.
0%
Sven Deneken states that information about the supplier is "just a fingertip away." Sven Deneken may be familiar with ECC, where supplier data is also a fingertip, or say mouse click away. It called the Vendor Master in ECC.
Sven Deneken says that the cycle could be changed to daily or sub-daily.
0%
Why would that occur? This is a very strange scenario that is being laid out.
S/4HANA is innovative because it allows MRP to be rerun interactively for a product location.
0%
Sven Deneken is extremely confused when he states that S/4HANA allows a fresh MRP run to be performed for a specific product location and that this is a differentiator for S/4HANA. For a single product location, there is no ERP system that cannot run MRP for a single location. Secondly re-running MRP does not remove uncertainties. MRP can be re-run when something changes. For example, when the forecast changes.Performance Problems with HANA and MRP
Sven Deneken states this demo shows SAP has reimagined inventory management.
0%
However, all of this functionality, save for several of the graphics shown in the video have already been available in ECC for many years, in fact, decades.

The Problem: A Lack of Fact-Checking of S/4HANA

There are two fundamental problems around S/4HANA. The first is the exaggeration of S/4HANA, which means that companies that purchased S/4HANA end up getting far less than they were promised. The second is that the SAP consulting companies simply repeat whatever SAP says. This means that on virtually all accounts there is no independent entity that can contradict statements by SAP.

Being Part of the Solution: What to Do About S/4HANA

We can provide feedback from multiple HANA accounts that provide realistic information around S/4HANA — and this reduces the dependence on biased entities like SAP and all of the large SAP consulting firms that parrot what SAP says. We offer fact-checking services that are entirely research-based and that can stop inaccurate information dead in its tracks. SAP and the consulting firms rely on providing information without any fact-checking entity to contradict the information they provide. This is how companies end up paying for a database which is exorbitantly priced, exorbitantly expensive to implement and exorbitantly expensive to maintain. When SAP or their consulting firm are asked to explain these discrepancies, we have found that they further lie to the customer/client and often turn the issue around on the account, as we covered in the article How SAP Will Gaslight You When Their Software Does Not Work as Promised.

If you need independent advice and fact-checking that is outside of the SAP and SAP consulting system, reach out to us with the form below or with the messenger to the bottom right of the page.

Financial Disclosure

Financial Bias Disclosure

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

S/4HANA Implementation Research

We offer the most accurate and detailed research into S/4HANA and its implementation history. It is information not available anywhere else and is critical correctly interpreting S/4HANA, as well as moderating against massive amounts of inaccurate information pushed by SAP and their financially biased consulting ecosystem.

Select the description that best matches you.

Option #1: Do You Work in Sales for a Vendor?

See this link for an explanation to sales teams.

Option #2: Do You Work for an Investment Entity that Covers SAP?

See this link for an explanation for investment entities. 

Option #3: Are You a Buyer Evaluating S/4HANA?

For companies evaluating S/4HANA for purchase. See this link for an explanation to software buyers

Search Our Other S/4HANA Content

References

https://www.informationweek.com/private-clouds-take-shape/d/d-id/1070793?

https://en.wikipedia.org/wiki/Cloud_computing#Private_cloud

https://www.cnet.com/news/just-dont-call-them-private-clouds/

https://www.erpnext.com

https://www.informationweek.com/cloud.asp

https://diginomica.com/2015/05/18/white-boarding-sap-s4-hana/

The Risk Estimation Book

 

Software RiskRethinking Enterprise Software Risk: Controlling the Main Risk Factors on IT Projects

Better Managing Software Risk

The software implementation is risky business and success is not a certainty. But you can reduce risk with the strategies in this book. Undertaking software selection and implementation without approximating the project’s risk is a poor way to make decisions about either projects or software. But that’s the way many companies do business, even though 50 percent of IT implementations are deemed failures.

Finding What Works and What Doesn’t

In this book, you will review the strategies commonly used by most companies for mitigating software project risk–and learn why these plans don’t work–and then acquire practical and realistic strategies that will help you to maximize success on your software implementation.

Chapters

Chapter 1: Introduction
Chapter 2: Enterprise Software Risk Management
Chapter 3: The Basics of Enterprise Software Risk Management
Chapter 4: Understanding the Enterprise Software Market
Chapter 5: Software Sell-ability versus Implementability
Chapter 6: Selecting the Right IT Consultant
Chapter 7: How to Use the Reports of Analysts Like Gartner
Chapter 8: How to Interpret Vendor-Provided Information to Reduce Project Risk
Chapter 9: Evaluating Implementation Preparedness
Chapter 10: Using TCO for Decision Making
Chapter 11: The Software Decisions’ Risk Component Model

Risk Estimation and Calculation

Risk Estimation and Calculation

See our free project risk estimators that are available per application. The provide a method of risk analysis that is not available from other sources.

project_software_risk