The Importance of IT Application Consolidation in SAP S/4HANA ERP Transformations

Background – Understanding the ‘Snowball’ Effect

Let's explore the common reasons why organizations develop diverse and often unintegrated technology stacks.

Organizational growth and expansion often lead to a sprawling tech landscape. New applications and technologies are added frequently to address immediate needs or modernize operations, but without a strategy to retire older systems or consolidate overlapping functionalities.

Mergers and acquisitions further complicate matters. Integrating acquired companies often results in redundant technologies coexisting, sometimes for extended periods. Complex organizational structures and decentralized decision-making contribute to this expanded IT footprint.

Human factors also play a significant role. Resistance to change, driven by comfort zones, can prevent the decommissioning of familiar technologies. Organizations are also often reluctant to retire homegrown or heavily customized applications, even if outdated, due to their deep integration with business processes.

Financial constraints and budget limitations can lead to accumulating technical debt. Compliance and regulatory requirements, often specific to regions or business units, can also force organizations to maintain a wide range of systems.

Without a strategic approach to IT development, systems become fragmented, integrations become complex, shadow IT emerges, and visibility across the technology stack diminishes, hindering real-time issue detection and resolution.

This cascading ‘snowball’ effect drives up costs, complicates tech stack management, hinders adaptability, and increases risks.

What is IT Application Consolidation or ‘Platform Unification’?

IT Application Consolidation or Platform Unification is the process of carefully reviewing the existing IT footprint, evaluating target IT platforms for consolidation, and reducing the number of IT applications & infrastructure. It accomplishes this by eliminating redundancies, merging overlapping systems, and integrating essential functionalities into the well-evaluated, streamlined & cohesive technology stack.

IT Consolidation is built on the premise that more isn’t always better. Think of IT Unification as a form of spring cleaning - it clears out the clutter that accumulates unnoticed and establishes systems to keep it from returning. This brings simplicity, clarity, and intentionality to your tech environment, allowing you to easily visualize and understand it as a cohesive whole.

Here are the top 10 benefits of IT consolidation or unification:

1. Reduced Total Cost of Ownership (TCO): Consolidation leads to significant cost savings.
2. Simplified IT Landscape: A leaner IT footprint improves visibility and understanding of your technology stack.
3. Single Source of Truth: Eliminates data silos and reduces reliance on manual processes.
4. Streamlined Infrastructure: Fewer IT infrastructure components to manage.
5. Simplified Integrations: Reduces the complexity and cost of integrating different systems.
6. Improved Security: A consolidated environment can be easier to secure and manage vulnerabilities.
7. Reduced IT Staffing Needs: Fewer Full-Time Employees (FTEs) are required for IT administration and management.
8. Optimized Vendor Management: Reduces the number of vendors and vendor managers needed.
9. Simplified Contracts: Fewer contracts to negotiate and manage.
10. Accelerated Modernization and Automation: A consolidated environment provides a better foundation for modernization and automation initiatives.

Managing a complex, disorganized IT Landscape is incredibly difficult, like trying to herd cats. It requires immense effort to implement changes effectively, and inevitably, some elements are overlooked, leading to further complexity. Conversely, a well-organized and manageable technology stack responds predictably to changes. When you have clear visibility and control over all components, you can strategically plan and confidently execute updates. IT unification offers a manageable footprint, providing clarity, control, and ease of modification.

For organizations struggling with outdated and unmanageable legacy IT systems, IT unification is a valuable solution. It provides a structured approach to consolidating and modernizing these older technologies. By leveraging the agility and adaptability of cloud-based technology, unifying your environment in the cloud empowers your organization with the flexibility to pursue any future direction.

Ultimately, IT Unification results in cost efficiencies. While it might seem like a paradox to pay less for more value, the reality is that a consolidated, but a strategic IT Landscape is more effective than a large but haphazard one, full of duplicated, unused, and incompatible resources.

IT Unification Opportunities during an SAP S/4HANA ERP Transformation

Whether your organization is migrating from SAP ECC to S/4HANA, implementing S/4HANA for the first time, or simply considering a move to SAP's cloud-based ERP, this transformation presents a prime opportunity for IT unification.

SAP S/4HANA, a leading cloud ERP, offers comprehensive industry and business process coverage, with built-in intelligent capabilities like AI, ML, workflow automation, predictive analytics, and citizen developer platforms. Industry or function-specific add-ons within the S/4HANA stack further address diverse enterprise application needs.

While migrating to a single cloud platform is a key IT unification strategy, SAP's cloud application portfolio also provides Line of Business (LOB) solutions for CRM, commerce management, HCM, talent management, supplier and spend management, master data and security governance, and even sustainability management. These solutions offer native integration with S/4HANA or with each other via SAP BTP Integration Suite, an API-driven middleware that also connects with non-SAP or legacy applications.

SAP's Business Transformation Management (BTM) portfolio, including SAP Signavio, SAP LeanIX, and SAP WalkMe, simplifies IT management. Furthermore, all SAP applications offer extensibility, either in-app or via side-by-side extensions on SAP BTP.

SAP, like other top-tier cloud application suites, provides integrated applications covering approximately 80% of most organizations' LOB application needs.

Instead of focusing solely on immediate ERP requirements, organizations should take a holistic view of their IT landscape. Engaging with SAP or a system integrator to assess the entire application portfolio can identify which capabilities can replace existing legacy or third-party systems within S/4HANA, its add-ons, and LOB applications, maximizing IT unification.

During an SAP S/4HANA transformation, several "easy wins" or readily achievable opportunities exist for application consolidation:

• Financial Consolidation: Leverage SAP S/4HANA Group Reporting for streamlined and automated financial consolidation.
• Human Capital Management: Implement SAP SuccessFactors Cloud HCM Suite for HR, talent, and learning.
• Supply Chain Management: Utilize SAP Digital Supply Chain, SAP Business Network, and SAP IBP for planning.
• Customer Experience: Employ SAP CX Suite and Emarsys for customer service, CRM, commerce, and marketing.
• Supplier Relationship Management: Implement SAP Ariba Sourcing and Spend Management Suite.
• Data Management: Establish a robust data fabric with SAP Datasphere.
• Analytics and Planning: Use SAP Analytics Cloud for planning, analytics, and visualization.
• Transportation Management: Implement SAP S/4HANA Transportation Management.
• Compliance: Streamline compliance reporting and e-invoicing with SAP Document and Compliance Reporting.
• Integration: Utilize SAP BTP Integration Suite for middleware and integration.
• Digital Payments: Implement SAP S/4HANA Digital Payments.
• Invoice Automation: Automate vendor invoices with SAP Business AI and Build Process Automation.
• Receivables Management: Manage collections and disputes with SAP S/4HANA Financial Supply Chain Management (FSCM).
• Development and Automation: Leverage SAP BTP Suite for integration, AI, process automation, and custom development.
• User Adoption: Drive organizational change management and user adoption with SAP WalkMe DAP.

Not only is SAP S/4HANA Transformation an opportunity for IT Application or Platform Unification, it comes with a plethora of opportunities, such as:

• Data Unification & Harmonization – Consolidate Data Sources, Standardize Data Models, Central Master Data Governance
• IT Infrastructure Modernization – Cloud Migration, Hardware Consolidation, Performance Optimization
• Process Optimization & Standardization – Business Process Redesign, Implement Best Practices, Process Automation
• Security & Compliance Redesign – Unified Security Framework, Improved Access Control, Compliance with Regulations & Industry Best Practices

By strategically planning and executing IT unification during your SAP ERP transformation, you can create a more efficient, agile, and secure IT environment that supports your business goals.

The Golden Roadmap for IT Application Consolidation during SAP S/4HANA Transformation:

1. Evaluation and Planning

• Leadership Buy-in: Run internal workshops with decision makers to get a buy-in on IT Unification. Highlight the benefits of the Unification exercise and prepare organization mindset for letting go some legacy IT platforms for a better tomorrow. Identify change management areas and build a strategy to address the change.
• Inventory and Analysis: Conduct a thorough assessment of your existing IT landscape. Identify all applications, hardware, software, and services in use. Analyze their functionality, dependencies, and redundancies.
• Define Objectives: Clearly define the goals of IT platform unification. What business outcomes do you want to achieve? (e.g., cost reduction, improved efficiency, enhanced security). List down you IT modernization & automation goals as well.
• Prioritize and Scope: Determine the scope of the unification project. Which systems or applications will be included? Prioritize critical systems and focus on areas with the highest potential for improvement.
• Develop a Roadmap: Create a detailed roadmap with timelines, milestones, and resource allocation. Outline the phases of the project and how they will be executed. Define the roles & responsibilities between your organization, SAP and the SAP System Integrator.
• Collaboration: Foster collaboration between IT teams, business units, and vendors.
• Skills and Resources: Ensure that you have the necessary skills and resources to execute the project successfully.
• Budget: Develop a realistic budget and secure funding for the project.

2. Design and Architecture

• Target Architecture: Define the desired future state of your IT platform. Work with SAP and your SAP System Integrator to get an insight into the SAP S/4HANA Core native capabilities, add-ons, LOB solutions and the integration architecture. Which SAP applications are suitable for your business? Understand IT Infra and additional needs to meet the goals. Work with respective OEMs and System Integrators to assess 3rd party application compatibility with SAP S/4HANA and the SAP LOB applications in scope.
• Technology Selection: Understand SAP product licensing and scaled-up license pricing models. Choose the right SAP functionalities and applications that align with your business needs and target architecture. Consider factors like scalability, flexibility, security, and cost.
• Integration Strategy: Develop a comprehensive integration strategy and architecture inclusive of replacing your middleware with SAP Integration Suite. Identify the interfaces needed between the SAP applications in each phase, the interim interfaces for applications retiring in future phases, and the permanent interfaces for the applications that wont be migrating into the SAP platform.
• Security and Compliance: Design security and compliance into the unified platform from the beginning. Ensure that the new SAP environment meets your organization's security and regulatory requirements. Evaluate the implementation of SAP GRC and / or SAP IAG to meet your organization's requirements on the target SAP platform.

3. Implementation and Migration

• Phased Approach: Implement the unification project in phases. Start with smaller, less complex systems to gain experience and refine your approach.
• Data Migration: Plan and execute data migration carefully. Ensure that data is migrated accurately and securely into SAP by leveraging SAP recommended data management tools and / or System Integrator assets and accelerators.
• Testing and Quality Assurance: Conduct thorough testing to ensure that the unified platform works as expected. Identify and resolve any issues before going live. Consider the implementation of an SAP test automation platform and maximize the capabilities available from SAP’s Cloud ALM solution.
• Change Management & Learning: Communicate changes effectively to users and stakeholders. Provide training and support to ensure a smooth transition. Engage your SAP System Integrator to include organization change management (OCM) professionals as part of the transformation team. Consider implementation of a learning management platform like SuccessFactors Learning and a user adoption platform like SAP WalkMe.

4. Operations and Optimization:

• Monitoring and Management: Continuously monitor and manage the unified SAP platform. Track performance, identify potential issues, and make necessary adjustments. Leverage SAP LeanIX for managing your SAP Enterprise Architecture.
• Automation: Automate routine tasks and processes in SAP by leveraging embedded intelligent capabilities and SAP BTP, to improve efficiency and reduce manual effort. Monitor processes using SAP Signavio BPM Suite.
• Continuous Improvement: Regularly review and optimize the unified SAP platform. Identify areas for improvement and make adjustments as needed. Sign-up for a managed services engagement with your SAP System Integrator to include Business Process Mining and Continuous Improvement as part of their Managed Services deliverables. It is also important that organizations monitor the adoption of the SAP platform on a continued basis and plan for training / re-training / new user onboarding type activities, to ensure that the SAP platform is giving you the intended outcomes.

In Conclusion

By focusing on the SAP platform as the central hub for integration, organizations can leverage SAP's robust integration capabilities and pre-built connectors to streamline the unification process. This approach also ensures that all integrated systems are aligned with SAP's data model and business processes, maximizing the value of the SAP investment.

Despite the clear benefits of IT unification, many organizations miss the chance to streamline their IT application stack and reduce total cost of ownership when implementing SAP S/4HANA.

While achieving complete unification during the initial SAP S/4HANA core ERP implementation phase may be unrealistic for most, a well-structured, phased unification plan focused on the SAP platform is essential for organizations using SAP S/4HANA as their core transactional system.

Furthermore, a phased unification plan allows organizations to adapt to evolving business needs and technological advancements. As new technologies emerge and business requirements change, the unification plan can be adjusted to incorporate these changes, ensuring that the IT environment remains agile and responsive.