Plenty of attention has currently being given to the new S/4 HANA, a business suite that is built on SAP’s proprietary operational database system and in-memory computing platform called SAP HANA. The buzz may be coming from your IT colleagues, your SAP connections or your treasury peer group. But what’s in it for treasury? Can treasury just ignore S/4 HANA till the software is more mature? Or should you plan to migrate?
This article is the second in two-part feature. It will focus on the drivers for treasury to migrate to S/4 HANA. In the previous article looked at the general status of S/4 HANA and migration strategy.
Migration strategy and the involvement of treasury
As S/4 HANA is available for some time now and SAP has announced that the development on SAP enterprise resource planning (ERP) will be stopped by the end of 2025, it has become more relevant for corporates to define a migration strategy. Moving to S/4 HANA is a major release change, in fact it is a re-implementation of the SAP software, therefore it should be high on the agenda of the SAP system owner (e. g. the head of IT or the CFO). Based on the company’s strategy and the derived IT strategy, a roadmap and business case should be developed. One of the first steps should be the creation of an internal project team that creates the roadmap and business case. As the upgrade to S/4 HANA will be a big and costly project the business case should also contain the evaluation of alternatives. It depends on your IT strategy how far you want to go with the investigation of the alternatives. For example, do you have a single/global ERP approach or a multiple/decentralised approach? Or do you aim for integrated general ledger or a best of breed approach?
In general implementation of new technologies should be driven by the business (pull of technology), but with the current developments in IT and finance (e.g. blockchain, fintech, big data), the technology itself becomes more and more the driving force (push of technology). This applies also to treasury. All the more reason for treasury to be part of the internal project team that creates the strategy, roadmap and business case.
S/4 HANA drivers for treasury
Next to the technical arguments to move to S/4 HANA (e.g. faster processing times or simplified database structures) and strategic arguments (e.g. readiness for future developments), there are also treasury drivers. These drivers for treasury can be grouped by process.
- Cash management and liquidity planning. These functionalities have already been rebuilt in S/4 HANA. In SAP ERP the modules Cash Management and Liquidity Planner are separate modules, with separate database tables. In S/4 HANA the two processes are joined and are using the same database tables (which SAP calls “One Exposure”). As SAP states: “One Exposure, serves as the foundation for new cash management by integrating different business processes and supporting data from both local and remote systems”. This saves database memory and therefore processing is quicker. Based on Fiori new and more flexible position and exposure reports have been build. Due to the integration the reconciliation of line items is not needed anymore. These arguments could be a driver for treasury to move to S/4 HANA. Although some clients may still require more functionality than S/4 HANA currently has to offer and still need third party tools. In S/4 HANA 1610 there are 65 CM Fiori apps available.
- Bank account management (BAM). This functionality has been developed in S/4HANA and offers new functionality in comparison to SAP ERP. BAM offers centrally managed bank account management, including workflow based governance on opening, closing, changing of accounts. In also includes a bank hierarchy view and bank account group view, a signatory process, overdraft limits and a bank account review process. The new functionality in this area could be a driver for treasury to move to S/4 HANA. BAM is a component of SAP Cash Management in S/4 HANA, but without buying the license a BAM Lite version is available.
- Treasury management. When SAP supports the treasury management processes with TRM (treasury and risk management) there are no drivers to migrate at this point. This functionality has not yet been migrated to the S/4 HANA environment. In case the company moves to S/4 HANA, TRM will be running on a HANA database, but without optimized data-structures and the same functionality as in ERP 6.0. In the current version, S/4 HANA 1610, there are 87 TRM Fiori apps available.
- In-house banking. When SAP supports the in-house banking processes with IHC (In House Cash) there are no drivers to migrate at this point. This functionality has not yet been migrated to the S/4 HANA environment. In case the company moves to S/4 HANA, IHC will be running on a HANA database, but without optimised data-structures and the same functionality as in ERP 6.0.
Beside the drivers mentioned above, another, more general driver could be the cloud installation possibility of S/4 HANA. This could provide better support quality and better manageable costs, in general, but also for treasury specifically if IT costs are internally charged.
In release 1709 SAP is planning to maximize the Fiori experience and innovations in the area of predictive analytics, machine learning and blockchain. For treasury SAP is planning innovations related to machine learning with SAP Cash Application Integration and Financial Planning. Also, the functionality Foreign Currency Hedge Management and Accounting is planned to be delivered and integration of SD (Sales and Distribution) into Trade Finance. In the area of cash management the planned changes are: Bank relationship management including bank fee analysis, improved integration with Bank Communication Management, and In-House Cash clearing of incoming bank statements with machine learning. This will enable treasury to be more in control and to have better auditability over the treasury and cash management processes. It will also increase the quality of the treasury processes, for example through a higher level of straight through processing (STP) and bank statement reconciliation. And it will give treasury a strategic advantage as it will be ready for future developments or the integration of best of breed solutions.
If treasury is currently using a third-party treasury management systems (TMS) solution S/4 HANA might be a reason to migrate all or certain processes in SAP. If treasury is currently using both, CMtre and TRM, there are arguments to move to S/4 HANA (e.g. cash management), but also arguments to stay on the current environment (e.g. the TRM). In a more detailed assessment, as part of the IT (SAP) roadmap and business case the criteria for how and when to migrate to S/4 HANA should be defined.
Should treasury wait until S/4 HANA is mature?
Some Treasurers may just want to ignore S/4 HANA until the software is mature and there are more reference clients. It requires effort, time and finances to move to S/4 HANA and corporates may not be convinced of the benefits (yet). But it is recommendable to define an IT strategy which contains, together with other topics, the strategy and roadmap for SAP including S/4HANA. A (SAP) IT strategy and roadmap will maximize the chances of realizing your strategic goals. Leaving the decision for later without having a clear SAP strategy will affect your business today and in the future. For example, certain functionalities will only be developed within S/4 HANA and not in SAP ERP anymore, or a best of breed solution may not be easily connected to the current version. If corporates fear that the current maturity level of S/4 HANA is too low, it should be included in the roadmap and business case. This way the acceptance criteria for the future decision has been defined and it can be evaluated periodically. Once the software maturity level has reached the acceptance level the business case can be finalized.
S/4 HANA can still be seen as software in an early adoption phase. A corporate treasurer may just want to ignore S/4 HANA to avoid the risks attached to being an early adaptor. But the company’s IT strategy should contain a vision and roadmap regarding SAP. At a certain point, this should lead to a project team responsible for creating the business case for S/4 HANA. This project team should include a treasury representative. In the creation of the business case the benefits of S/4HANA should be weighed against the costs (time, money and risk). The benefits for treasury may lie in the areas of cash management, liquidity planning and bank account management at this moment. In areas like TRM and IHC no major benefits exist yet. But that may change quickly due to current developments of SAP, hence the importance of an IT (SAP) strategy and roadmap. Creating an IT (SAP) roadmap including the dot on the line at which point treasury will migrate, will justify if treasury is an early adopter, a laggard or anything in between when it comes to S/4 HANA.