The aim of this article is to provide SAP customers with a thorough understanding of S/4HANA in 2023.
It will outline the different S/4HANA options that SAP customers can choose from, including S/4HANA Cloud and RISE with SAP, and discuss the potential advantages and disadvantages in relation to differing customer needs. As ECC support and maintenance will end by 2027 and with S/4HANA on-premise no longer receiving new innovations it’s crucial for SAP customers to know the available choices, including the possible drawbacks and benefits of each option. This knowledge will help SAP customers effectively plan their transition or explore alternatives in time for the deadline. If you would like to know more about what S/4HANA is, we have previously written an SAP S/4HANA overview article available here.
There are several ways to deploy SAP S/4HANA which cater to diverse customer ERP positions and demands. SAP customers can choose from the following options to align their ERP transformation with their organizational goals:
- S/4HANA on-premise
- S/4HANA Cloud, public edition
- S/4HANA Cloud, private edition
- RISE with SAP
Let’s look at each option in more detail.
Remain on ECC (Third Party Support)
SAP has set 2027 as the end of support for ECC, with an optional extension to 2030. This was extended from 2025 however SAP’s CEO, Christian Klein, has communicated consistently that this will not be extended again. This leaves customers with the question of whether to migrate to S/4HANA or explore alternative solutions.
Customers can remain on ECC and opt for Third-Party Support, which is support provided through an external supplier. Customers should carefully consider the implications of taking this route as it may result in limited access to new features. However, Third-Party Support provides some key benefits in terms of being able to expand the lifespan of legacy products and in most cases a lower cost alternative that provides cost relief in annual fees. By opting for Third-Party support customers can also have peace of mind that their legacy products will continue to receive security updates and bug fixes.
In order to terminate SAP’s Support Agreement, customers are required to provide three (3) months’ written notice before the end of the Initial Term or prior to the start of the subsequent renewal period. Even after terminating the Support Agreement, there remains a risk of software license audits. Therefore, customers should continue to ensure their software usage remains compliant with licensing agreements to avoid financial consequences. After the Support Agreement ends, customers might face licensing management challenges. They’ll need to align their software licenses with their chosen support option, which could involve adjustments and negotiations to ensure compliance and cost optimization. However, customers should be aware that they may return to support provided by SAP at any point but they may be required to pay for the backlog of maintenance they would have paid if they remained, along with potential reinstatement fees.
S/4HANA On-Premise (Contract Conversion)
SAP S/4HANA on-premise represents the traditional ERP implementation approach, empowering customers with complete control over system customization and maintenance. SAP announced a maintenance availability commitment for SAP S/4HANA until 2040, guaranteeing a long-term support strategy for the next generation of SAP software. However, SAP also announced they will be focusing innovation on S/4HANA Cloud only. So, while S/4HANA on-premise will still have support until 2040, it won’t have significant new functionality.
Customers can undergo an S/4HANA Contract Conversion by terminating their entire existing contract and replacing it with new S/4HANA licenses and terms & conditions. A contract conversion allows customers to continue using Business Suite/ECC Software until the completion of their S/4HANA transition, along with their new S/4HANA licenses. This can be beneficial to customers as it allows the opportunity to repurpose unused software. When terminating the current agreement, SAP customers are also eligible for a credit of the value of their existing software.
Previously, the credit for the conversion was capped at 90% of the new S/4HANA maintenance base. The maintenance base is the value of all the SAP software owned by a customer. However, as of July 2023, SAP has made changes to the credit policy for customers transitioning to SAP S/4HANA on-premise using the Contract Conversion. The credit limit has been reduced to 80%, and further adjustments are planned to reduce this further. It is important that SAP customers are aware of the diminishing credit opportunities to plan their transitions accordingly.
Example 2023 Credit Conversion Calculation
- A customer has a maintenance base of $1,000,000 on Business Suite/ECC Software.
- The new S/4HANA contract has a value of $1,200,000.
- They will receive a credit of up to 80% of the $1,200,000 = $960,000.
- The credit of $960,000 is applied towards the purchase of the SAP S/4HANA on-premise software, which means the customer only pays the remaining $240,000.
As a general rule, S/4HANA software tends to be 10% more expensive and SAP does not allow for the reduction of the maintenance base. This means customers should be prepared to see a minimum increase of 10% to their maintenance base with no provision to reduce it and also be prepared to pay at least 20% of the new contract up-front.
Overall, S/4HANA on-premise provides control and customization for customer’s ERP systems, backed by a commitment to support until 2040. SAP customers should be aware of diminishing credit opportunities and lack of new functionality over the coming years if they choose to migrate to S/4HANA on-premise. Note that customers who migrate to S/4HANA on-premise still have the option to later migrate to S/4HANA Cloud.
S/4HANA On-Premise (Product Conversion)
SAP previously offered Product Conversion, which was an option that offered step-by-step migration of existing licenses to equivalent S/4HANA solutions. However, as of Q2 2023 SAP stopped offering this option. This means that the only way to migrate to S/4HANA on-premise is to perform an S/4HANA Contract Conversion.
S/4HANA Cloud, Public Edition and Private Edition
SAP S/4HANA Cloud, public edition, introduced 2017, caters to net new as well as existing customers in search of a basic cloud-based ERP solution. The public cloud option offers core ERP functionality for a range of industries in 42 countries. S/4HANA public is considered the standard cloud deployment option, while the other option S/4HANA Cloud, private edition offers different scopes of service, with the latter having a broader scope and more flexibility.
S/4HANA Cloud, public edition offers a limited set of features and minimal customization possibilities. As a result, customers might find themselves with fewer features and products to choose from. Prospective customers must also be aware that opting for public cloud means relinquishing control over support, as well as having access to a limited selection of languages and industries. S/4HANA public cloud includes the following solution areas; manufacturing, professional services, sourcing & procurement, HR, sales support, and financial services.
Additionally, the deployment of the public cloud necessitates a greenfield implementation, which involves building a new system or project from scratch, without being constrained by existing technologies or processes. The shared infrastructure of the public cloud might not align with the strict security concerns of certain customers. Therefore, customers should carefully evaluate their specific needs and security requirements before choosing this option.
For existing SAP ECC customers looking to transition to the cloud while retaining configuration and extensions, SAP S/4HANA Cloud, private edition is an option to consider. Upgrades have a similar approach as on-premise solutions, which gives customers the control over the upgrade pace. Extensibility options allow businesses to adapt the ERP solution to specific needs.
The choices for deploying S/4HANA private cloud are diverse. Customers can opt for a ‘lift & shift’ strategy when moving from SAP S/4HANA to the cloud. This involves shifting the SAP system without altering the software or its version. Existing ERP systems have two approaches: “brownfield” for those meeting current and future data and structure needs, and “greenfield” for a complete redesign of data and structures. Additionally, a selective data transition is available, particularly beneficial for redefining master data and structures. It’s important to mention that the last option is often provided as a consulting or service package. For customers that seek a more secure environment, S/4HANA private cloud may be better suited as it is not shared with other customers, alleviating security concerns.
|S/4HANA Cloud, Public Edition||S/4HANA Cloud, Private Edition|
|Purchase Options||RISE with SAP / GROW with SAP||RISE with SAP / RISE with SAP, tailored option|
|Hosting||SAP||SAP, Hyperscaler / Customer, Hyperscaler|
|Conversion||Greenfield||Greenfield/ Brownfield/ Selective Data Transition/ Lift & Shift|
|Releases||Quarterly (automatic by SAP, mandatory)||Annual (must be upgraded every 5 years)|
|Environment||Multi – tenant||Single tenant|
|SaaS||SaaS ERP solution||Not a SaaS product|
|Tools||SAP Learning Hub/ SAP Enable Now/ SAP Cloud ALM||SAP Learning Hub/ SAP Cloud ALM/ SAP Launchpad service and mobile start app/ SAP Readiness Check & Custom Code Migration/ SAP Enable Now|
|LoB Coverage||Standardized business processes covering selective LoB and industry scenarios.||All 25 industries like SAP S/4HANA on-premise|
The decision between S/4HANA Cloud, public edition and S/4HANA Cloud, private edition hinges on individual business requirements. For those starting anew or seeking streamlined implementation with regular updates, the public cloud would be a choice to consider. On the other hand, existing ECC customers that seek customization and retaining extensions may find the private cloud option more suitable. In either case, customers should undertake careful analysis and ensure alignment with long-term goals. These are essential considerations for a successful ERP transformation journey.
RISE with SAP
RISE with SAP is an offering that streamlines the migration to SAP S/4HANA cloud, public or private, enabling customers to take a quick and efficient single-step approach. This option is suited for customers dealing with outdated technology platforms, existing ECC customers facing unlinked systems, and those lacking in-house expertise in S/4HANA Cloud.
RISE with SAP offers a quick and effective way to update and shift data to the cloud in just one step. For existing ECC customers who have disconnected systems, RISE with SAP provides a direct path to move to S/4HANA in the cloud, skipping the need to consolidate on-premise systems first. Moreover, RISE with SAP assists companies lacking in-house S/4HANA know-how by allowing them to outsource crucial roles like SAP BASIS and infrastructure support. This ensures a seamless transformation with expert help. However, these customers could also explore outsourcing S/4HANA expertise from a third party, which could be more budget-friendly, especially if the earlier scenarios don’t fit their situation.
Organizations considering RISE with SAP must carefully evaluate its impact on overall SAP running costs and assess the need for upskilling or acquiring new skills to manage the new SAP environment. Additionally, evaluating the shift from a traditional CapEx to an all OpEx model, understanding SAP’s services and operation scope, and negotiating commercial terms are vital steps in making informed decisions about RISE. It’s crucial to be aware of the commitment level required for this type of environment and assess whether RISE aligns with the company’s long-term goals before making the decision. By considering these factors, businesses can secure a competitive and successful deal while embarking on their cloud migration journey with SAP RISE.
It is also worth noting that SAP may apply pressure for RISE adoption, offering highly unfavorable pricing and commercial terms related to S/4HANA on-premise license arrangements to encourage the move to S/4HANA cloud through RISE. SAP customers should explore alternatives to reduce costs during the transition. It may require consulting third-party expertise to ensure customers have an in-depth understanding of their migration route.
SAP HANA Database
Regardless of the S/4HANA deployment option SAP customers choose, they should also be prepared for a transition to a HANA database. This transition adds more time, cost, and complexity to the migration process. For on-premise, SAP customers can select either the Runtime or Enterprise edition of the HANA database, and each edition has its own advantages. The Runtime license lets SAP customers use licensed SAP applications on the database, but with some limitations on how data is integrated. On the other hand, the Enterprise version offers more flexibility though is usually more expensive. It allows both SAP and non-SAP applications to use the HANA database and provides better data integration capabilities. It’s important to note that customers considering S/4HANA on the public and private cloud don’t need to go through this transition. This is because S/4HANA Cloud comes with its own dedicated SAP HANA database.
Customers have various migration options, such as contract conversion for on-premise solutions, S/4HANA Cloud, public and private editions for cloud-based ERP solutions and RISE with SAP for additional services linked to the S/4HANA Cloud transformations. Cost-wise, migrating to S/4HANA on-premise typically results in a minimum 10% increase in maintenance costs, with no option for reducing it and customers must be prepared to pay upfront at least 20% of the new contract. For S/4HANA Cloud migration, the OPEX spend will increase significantly and customers must be prepared for the corresponding costs.
Customers may opt for an alternative ERP provider as implementing a new contract and system like S/4HANA inevitably involves significant investment of time, money and resources. Some customers may find switching suppliers might be more cost effective or an equally priced option to consider.
Each migration option caters to specific scenarios and business requirements, making careful analysis and alignment with long-term goals crucial for a successful ERP transformation. By leveraging the improvements in S/4HANA and making well-informed decisions, customers can maximize their SAP investments and gain a competitive edge in the years to come.
When undertaking the decision-making process, customers should weigh up the implications of staying on ECC for an extended period. Such as the support deadline and the absence of innovations in S/4HANA on-premise. Customers should also consider potential drawbacks, including implementation complexity, the migration to SAP HANA and challenges related to customized environments that might affect the migration.
The shift to S/4HANA can be considered inevitable for most SAP customers and implementing S/4HANA represents a significant and fundamental change. Planning, expertise and robust strategies are necessary to ensure a successful migration, as well as allowing customers to fully harness the capabilities and benefits of S/4HANA for future operations.