Cost-Benefit Analysis of SAP S/4HANA Migration

The ERP landscape continues to evolve rapidly, and SAP S/4HANA is now the prime focus. With more than 400,000 organizations currently using SAP ERP systems worldwide, these systems are known for speeding up and improving core business processes. However, as with everything, it is important to conduct a Cost-Benefit Analysis of SAP S/4HANA migration. This article helps you get started on that.

The Push to Upgrade: Why it Matters?

While SAP’s legacy systems served reliably for many years, they quickly became considerable barriers to growth and innovation. Migration to SAP S/4HANA provides obvious benefits, from real-time data processing to seamless integrations with advanced technologies like AI and IoT, which are key elements often left in the shadow when considering competitiveness. This transition, if delayed further, could lead to missing such integrations and make it far more challenging to catch up in a setting that supports agility. It is here that the significant stakes are factored into the equation, and thus, the Cost Benefits of SAP S/4HANA start manifesting in detail.

A 2021 study by IDC on infrastructure adoption trends for SAP HANA and S/4HANA revealed that over 50% of North American firms with investments in SAP applications view these environments as crucial to their operations. Another third acknowledged their significant impact, while a striking 8% admitted that without SAP, their business would be at risk of failure. This highlights that companies investing in SAP’s suite of ERP solutions are surviving and thriving by leveraging these systems to maintain stability and competitive advantage.

Why Migrate to SAP S/4HANA?

Research has shown that more than 85% of Fortune 500 companies rely on the solution provided by SAP.

There’s a reason why. Here are some of them:

1. Real-Time Insights and Decision-Making

With SAP S/4HANA, the design caters to real-time data processing needs for swift, informed decision-making—facilitating strategic pivoting and operational improvement.

2. Streamlined Operations

SAP S/4HANA simplifies complex workflows. Unlike legacy systems with cumbersome data structures that slow processes, S/4HANA’s lean architecture ensures faster processing with minimal data redundancies, saving time and resources.

Did you know: Over the past five years, SAP clients have enjoyed a 15% cut in IT costs—proof that investing in smarter tech isn’t just a power move; it’s a wallet-friendly one.

3 . Enhanced User Experience

SAP Fiori, the contemporary interface of S/4HANA, is easy to navigate and includes interactive dashboards, simplifying training and increasing productivity. This plays a crucial role in the Cost-Benefit Analysis of SAP S/4HANA migration.

Did you know: Businesses experienced around 20% hike in operational efficiency after moving to SAP S/4HANA.

How Much Does it Cost to Migrate to SAP S/4HANA?

The important question is: what does SAP S/4HANA migration cost? Investments range from $250,000 to several million dollars for large organizations, covering software, consulting, training, and potential downtime. While initial costs may seem high, this investment is like choosing a high-speed train over continuous repairs to an old scooter. The Cost-Benefit Analysis of SAP shows that these investments pave the way for substantial long-term benefits, like reduced operational inefficiencies and enhanced data capabilities.

However, delaying migration can prove more costly in the long run. According to HFS Research, extended reliance on outdated systems may compound expenses as legacy technology maintenance costs climb. Conducting a thorough cost-benefit analysis of SAP migration ensures that these expenditures are justified and strategic.

Types of Migration Approaches and Cost-Benefit Impact

Choosing the right migration approach can feel like deciding between a road trip and a direct flight—it’s all about speed, cost, and comfort. There are generally three main approaches:

Greenfield Implementation: This “clean slate” strategy involves starting fresh with SAP S/4HANA. It’s the most comprehensive but also the most expensive approach. The Cost Benefits of SAP here lie in having a fully optimized and customized system minus legacy baggage.

Brownfield Migration: Think of this as renovating your old house. You upgrade to SAP S/4HANA but keep your existing structure. This is a middle-ground approach. It balances costs and benefits by enabling quicker transition.

Hybrid Approach: A blend of greenfield and brownfield strategies, where certain system parts are revamped while others are preserved. This method allows for incremental improvements without blowing the budget. In a thorough Cost-Benefit Analysis of SAP, hybrid models often show flexible results tailored to specific business needs.

Risks and Challenges of SAP S/4HANA Migration

Migrating to SAP S/4HANA isn’t all sunshine – it comes with its fair share of risks. One big challenge is potential business downtime, which could impact operations and revenue. Then there’s data migration complexity—think of moving your digital mansion without losing your prized data heirlooms. Proper planning and employing skilled SAP consultants mitigate these risks and add to the Cost Benefits of SAP by preventing costly mistakes.

Another often overlooked risk is change management. Employees comfortable with legacy systems may resist the new kid on the block. Here’s where a well-orchestrated training plan and strong leadership are pivotal in the Cost-Benefit Analysis of SAP S/4HANA migration.

Real-World Examples

Companies that have leaped SAP S/4HANA often see ROI in unexpected ways. Here are the results from a study conducted by Forrester:

Increased Revenue: Companies saw a revenue increase of $156 million (+5.8%) over three years due to new capabilities enabled by SAP S/4HANA, including new business offerings. A significant 37% of respondents experienced a 3.2% average revenue increase​.

Customer Retention: SAP S/4HANA’s transparency and improved processes reduced customer churn by 4.1%, valued at $8.4 million. This contributed to better customer relationships and Net Promoter Scores​.

End-User Productivity: Reduced run times led to $2.1 million in productivity gains for business employees, with 53% of respondents seeing reduced run times. This saved 100 minutes per week per employee, with 50% of that time being redirected to other tasks​.

Avoided Costs: Companies saved $524,042 in avoided software and hardware costs, retiring $200,000 in licenses by year two and an additional $400,000 by year three. This savings began in the second year after migration​.

IT Organization Productivity: SAP S/4HANA migration led to a productivity boost worth $442,971 for IT staff, with 62% of companies seeing a 5% gain in employee efficiency. This improvement freed up time for more strategic tasks​.

Accelerated Cash Flow: Simplified order processes sped up customer shipments from 14 months to just two, resulting in an additional $2.6 million in revenue. Quicker customer payments drove faster cash flow​.

Improved Collections: Simplified accounting processes reduced outstanding accounts receivable days from 117 to 101, saving $1.1 million. Faster invoicing and fewer errors contributed to these improvements.

Key Considerations for a Successful Cost-Benefit Analysis and How Fingent can Help

The Cost-Benefit Analysis of SAP migration underscores one crucial point: it’s an investment in future-proofing your business. To make the transition successful, consider aligning your business objectives, choosing the appropriate migration path, and preparing for potential challenges. Fingent can assist you in every phase of this process, offering knowledge to reduce risks and enhance the cost benefits of SAP. Whether you opt for greenfield, brownfield, or hybrid projects, Fingent’s assistance allows your business to transition confidently and effectively.

Connect with our experts and strategize your SAP S/4HANA Migration journey today!