SAP S/4HANA projects are being canceled at an alarming rate. The question arises: why is this happening? Moreover, what steps can one take to prevent a similar outcome? This is the topic of discussion for today.
Many of our clients have opted for S/4HANA implementations, and several have successfully deployed S/4HANA in the past. Furthermore, our expertise is not limited to this; we assist numerous clients with other software vendors, guiding them through their digital transformations. A recurring trend we observe, particularly with S/4HANA implementations, is that an increasing number are encountering difficulties. Some are even failing, being delayed, or completely canceled. When we assess our client base and the array of technologies we aid in deploying, it's the S/4HANA implementations that stand out as the most problematic. In comparison with Oracle, Microsoft D365, NetSuite, Workday, Epicor, and other technologies, S/4HANA has the highest incidence of troubles amongst our clientele. Indeed, we've witnessed more cancellations of S/4HANA implementations than any other technology deployment.
The purpose of this discussion is to delve into the reasons behind the failure or cancellation of S/4HANA projects. More crucially, we aim to highlight the strategies one can adopt to sidestep the pitfalls that many organizations currently face.
It is beneficial to first understand the trends in the marketplace concerning S/4HANA implementations. As alluded to earlier, the failure rate of S/4HANA implementations surpasses that of other systems, particularly within our client demographic. Of significant concern is the rapid rise in clients choosing to cancel their projects entirely. This situation presents both positive and negative implications. The obvious negative is the termination of a project after significant investment. However, on a positive note, it suggests companies are recognizing the need to cut losses and possibly strategize a different route forward, implying there could be worse outcomes. This increase in project failures and cancellations marks a noteworthy trend.
Broadening our perspective beyond just our clients and examining global trends reveals a similar story. A simple online search about S/4HANA implementation failures yields numerous articles highlighting recent setbacks. High-profile companies like Spar Retail Group in South Africa, Haribo, a European-based candy company, and Lidl, a supermarket chain headquartered in Germany, have encountered challenges in their digital transformation efforts centered around S/4HANA.
Why Are S/4HANA Projects Being Canceled
The observed trends prompt an inquiry into the reasons behind the cancellations of S/4HANA implementations. Several factors contribute to an organization's decision to terminate their project:
Lack of Functional Maturity: S/4HANA does not have the maturity level of older SAP products such as ECC or R3. These legacy products have been supported by SAP for decades. Given that S/4HANA has only been in existence for a few years in comparison to the long-standing R3 and ECC, it's reasonable to assume a disparity in maturity. The extensive research and development poured into legacy products haven't been instantaneously replicated in S/4HANA. Although this discrepancy will likely diminish with time as S/4HANA benefits from both the functionality of legacy products and technological advancements, presently, the product is in a transitional phase striving for maturity.
Complexity: Despite its relative immaturity compared to its predecessors, S/4HANA remains a complex product, in line with the legacy SAP products. By design, SAP products offer extensive capabilities, making them robust systems. This intricacy, although a testament to its comprehensive offerings, can be a challenge during implementation.
Mandated Migrations: SAP has been assertive in transitioning its customers to S/4HANA, setting a 2027 deadline for organizations to switch from their legacy SAP products. This directive has induced an artificial surge in demand for implementations. This has two primary implications: Firstly, organizations might embark on implementations before they are adequately prepared. Secondly, the amplified demand strains the SAP ecosystem, leading to potential skill and labor shortages.
These outlined reasons provide insight into the current project cancellations. For a more detailed exploration of the causes of S/4HANA implementation failures, one can refer to additional resources, such as specific video discussions that elaborate on the complexities of SAP implementations.
How To Avoid Failure
The pertinent query arises: how can organizations prevent failure in their S/4HANA implementations and avoid the unfortunate scenario of cancelling the project after substantial investment both in terms of finances and time?
Setting Realistic Expectations: It's essential for organizations to maintain realistic expectations throughout the project. Understanding accurate resource requirements, the duration of the project, and the potential budget can often mean the difference between success and failure. Organizations with unrealistic expectations are more prone to encountering project failure or feeling compelled to cancel due to the misalignment of initial expectations with actual progress.
Understanding the Complexities and Limitations: To navigate an S/4HANA implementation successfully, organizations must grasp the system's intricacies and potential limitations. It's not only about appreciating the robustness of S/4HANA but also recognizing its limitations, particularly in comparison to legacy systems like R3 and ECC. Identifying these risks and gaps is crucial, not to deter the team, but to strategize effectively. Solutions might include extending deployment time, customizing the software, or even incorporating third-party integrations.
Project Ownership: Successful implementations often involve a strong sense of internal ownership. Building an internal team's capabilities around S/4HANA and ensuring the organization is at the helm of the project is paramount. This includes not only developing technical proficiencies related to S/4HANA but also refining the broader skills required for efficient project management.
Recognizing When to Reevaluate: While no organization commences a project with the intention of cancellation, there are scenarios where halting or resetting might be the more pragmatic approach. Abandoning a project midway can sometimes be less detrimental than persevering towards an ill-fated conclusion. Organizations need the discernment to identify when a project is veering off course and the agility to reconfigure their strategy. Whether this involves momentarily putting the project on hold, revising plans, or reconsidering strategies, it's imperative to act with foresight to ensure the project remains on a successful trajectory.
SAP S/4HANA Best Practices
Understanding how to avoid failure in implementations is vital, but it is equally important to familiarize oneself with best practices to ensure project success. Let's delve into actions and strategies that can prevent a trajectory towards failure, cancellation, or a problematic implementation.
Fit-Gap Analysis: Begin with a comprehensive fit-gap analysis to deeply understand S/4HANA's capabilities. Organizations might be familiar with SAP's legacy products, such as ECC, and possess certain assumptions about SAP's capabilities. However, it's essential to recognize that what applied to older systems might not hold true for S/4HANA. Therefore, an objective and comprehensive understanding of the strengths and weaknesses of the product is necessary. Engaging an unaffiliated entity, like Third Stage, can provide an unbiased view in this respect.
Constructing a Realistic Plan: Developing a realistic plan rooted in accurate expectations is imperative. Your strategy should encompass not just the technological deployment but also vital components like integration, data migration, change management, leadership alignment, and process improvements. It's worth noting that many initial plans proposed by SAP or its partners might not fully encompass these elements. Prioritizing these activities from the outset can set a firm foundation for your SAP project.
Maintaining Project Ownership: Retaining control of the project is pivotal for success. This ownership ensures that the project trajectory aligns with the organization's needs and not solely the perspectives of SAP or its implementation partners. Some strategies to uphold this ownership include:
Engaging technical consultants with S/4HANA expertise that resonate with the organization's needs.
Incorporating technology-agnostic resources, partners not affiliated with SAP or its system integrators, to represent the organization's interests.
Ensuring that program management, governance, and decision-making stem from the internal team. Relying heavily on third-party vendors can result in an externalized project, diluting the organization's influence and control. Hence, a balanced approach, where the organization steers the direction, is recommended.
We trust that these insights will prove instrumental in guiding your implementation journey.
I would enjoy brainstorming ideas with you if you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, so please feel free to contact me at eric.kimberling@thirdstage-consulting.com. I am happy to be a sounding board as you continue your digital transformation journey.
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
Third Stage Consulting Group is a global thought leader in business transformation, ERP software systems, operational change management, and business advisory. Let us take your organization’s digital transformation to the Third Stage.
