What is S/4HANA? SAP’s latest ERP system explained

What is S/4HANA?

S/4HANA is SAP’s latest iteration of its flagship enterprise resource planning (ERP) system. The successor to SAP ECC, S/4HANA is built on an in-memory database and is designed to enable real-time data processing and analysis for businesses. It is available both in a cloud-based SaaS and an on-premises version.

The abbreviation S/4HANA sounds cryptic but fits seamlessly with its predecessors. In the 1970s, five former IBM employees developed programs that enabled payroll and accounting on mainframe computers. Instead of storing data mechanically on punched cards, they relied on an online dialog via keyboard and screen. As a result, they called their solution a real-time system, which is what the “R” in the product name “SAP R/1” stood for.

SAP R/1 was designed as standard software that could be offered to other companies. In 1979, the successor product, SAP R/2, was launched. This also ran only on mainframe computers and included the functional areas:

• Financial accounting
• Cost accounting

• Materials management
• Production planning and control
• Maintenance
• Human resources management
• Distribution

When SAP launched R/3 in 1991 as a solution for midsize businesses and a complement to R/2, they designed the solution for IBM AS/400 systems. However, R/3 was too much for these systems, so SAP had to resort to UNIX workstations and Oracle databases, thereby requiring a client-server model. This principle was so successful that R/3 almost completely replaced the R/2 software package.

In 2008, SAP developed the SAP HANA architecture in collaboration with the Hasso Plattner Institute and Stanford University with the goal of analyzing large amounts of data in real-time. In 2010, SAP introduced the HANA database. Five years later, SAP introduced S/4HANA, which was based entirely on the simplified data model of SAP HANA. “S” stands for “simple,” “4” for the fourth product generation, and “HANA” for the proprietary relational in-memory database required to use S/4HANA.

How S/4HANA works

While previous versions also worked with relational databases from other vendors, S/4HANA works exclusively on the SAP HANA database. SAP HANA is a relational database system that stores entries directly in the main memory and the associated cache, rather than row by row. Storing data in the main memory allows queries to be executed very quickly (in real-time). This technology eliminates the more complex and slower process of first extracting and consolidating data from multiple database tables using queries before displaying the results, as was the case with the previous version.

Another advantage of the HANA data model is that data doesn’t need to be aggregated for every transaction, as was the case with previous disk-oriented, relational databases. Whereas before data had to be reaggregated for each query, the HANA data model enables a dataset to be output based on various criteria, providing greater flexibility and improved throughput times.

The name S/4HANA isn’t the only thing that reflects the close integration of the new ERP system with the database. The entire architecture of S/4HANA is tightly integrated and coordinated from a software perspective. Not only has the data model been simplified, but the graphical user interface (GUI) through which users access processes has also been redesigned. Instead of the SAP GUI optimized for transaction processing, the role-based SAP Fiori was introduced. This reduced the number of screens and screen changes, and thus the number of fields required for a role or the execution of a process. With SAP Fiori, end users are presented with the same interface regardless of the device they are using, simplifying working on different devices.

By completely changing the underlying architecture and incorporating an in-memory database, an intelligent data model, and a simplified interface, SAP has created with S/4HANA what the company calls a “real-time ERP suite for digital business.”

SAP Business Technology Platform: Extending and enhancing S/4HANA

The SAP Business Technology Platform (BTP) is an integrated offering for extending and enhancing S/4HANA. It includes a range of technology capabilities, including:

• Artificial intelligence (AI)
• Application development and automation
• Integration
• Data, analytics, and extended planning
• Foundational services

With BTP, SAP has embraced a trend pioneered by Salesforce and Microsoft: the cloud-based application server, which is no longer focused on “a single installation” but rather on data and apps for displaying and processing data. The SAP Business Technology Platform offers in-memory processing, agile services for data integration and application extension, as well as embedded analytics and intelligent technologies. The API-based open architecture also enables partners and customers to flexibly and continuously expand their IT landscape.

The aim is to provide users with flexible options for gaining an understanding of SAP S/4HANA data and processes and for converting this data into business value using the services offered. To achieve this, operational data such as costs, clicks, and revenue are collected and linked, as are experience-based data such as customer satisfaction. The results and insights from the resulting analyses are directly translated into actions or fed back into the processes. This enables companies to connect processes and experience-based data and drive optimization and innovation.

S/4HANA Cloud

With S/4HANA, SAP has also taken a new approach to its operating model. S/4HANA can now be operated not only on-premises but also leased as a cloud version.

The S/4HANA Cloud Edition is offered as software-as-a-service. Custom programming is not possible with this version. Customers are forced to use the processes provided by SAP and work according to them. On the other hand, customers don’t have to worry about server capacity or maintenance. Furthermore, implementing S/4HANA in the cloud can be carried out much faster than with the on-premises version, as the cloud version is provided as a preconfigured system in a standard variant. Furthermore, the S/4HANA Cloud Edition promises faster access to innovations, as SAP has established a quarterly innovation cycle for this, compared to a one-year innovation cycle for the on-premises version.

As an alternative, SAP offers the HANA Enterprise Cloud (HEC). This essentially corresponds to a hosting principle, where each customer has their own server with their own system at SAP, but does not maintain it themselves. HEC thus corresponds to the private cloud model. In contrast to the public cloud, SAP provides infrastructure-as-a-service, meaning SAP provides the entire system landscape, including all applications, based on an SAP reference architecture. Because HEC is a private cloud, the system can be adapted to a customer’s needs through programming.

Through its RISE with SAP offering, SAP gives customers a rapid transition to the cloud. This offering combines SAP S/4HANA Cloud with complementary SAP services to support companies in their digital transformation. This transformation takes place in three steps: redesigning processes, technical migration, and building the intelligent enterprise.

S/4HANA On-Premise

With SAP S/4HANA On-Premise, the customer manages the S/4HANA system, the HANA database, applications, data center, operating systems, middleware, and network on-premises. The customer is also responsible for maintenance and development. This allows for maximum flexibility. In this variant, the customer is responsible for adapting the software to company-specific requirements, controlling the frequency and scheduling of upgrades, and installing support packages.

S/4HANA Hybrid

In principle, a combination of S/4HANA Cloud and S/4HANA On-Premise is also possible. This is referred to as a hybrid approach. Companies can run selected processes, such as core processes, locally on their own servers with SAP S/4HANA On-Premise. Other processes that do not require individual adaptation can be outsourced to the cloud.

SAP S/4HANA features and solutions

While in the past, SAP ERP was always referred to as modules that were deployed, SAP itself refers to SAP S/4HANA as processes that cover the entire business and are coordinated with one another. The current version of SAP S/4HANA covers the following functional areas:

• S/4HANA Sales & Marketing
• S/4HANA Finance
• S/4HANA Manufacturing
• S/4HANA Supply Chain
• S/4HANA Service
• S/4HANA Asset Management
• S/4HANA R&D / Engineering
• S/4HANA Sourcing & Procurement
• S/4HANA Human Resources

With the new structure of S/4HANA, the vendor has also introduced a partially new licensing model. Functions contained in the so-called Digital Core, “SAP S/4HANA Enterprise Management,” are licensed per user. In contrast, the functionalities contained in the SAP S/4HANA Line-of-Business Solutions or the Suite LoB Solutions must be licensed separately. The Suite LoB Solutions differ from the S/4HANA LoB Solutions in that they are installed separately from S/4HANA. The “double” licensing of solutions, where a user must have an SAP user license for the LoB Solutions and also license the solution, is eliminated in the new licensing model.

SAP has already developed best-practice solutions for various industries. With S/4HANA, the vendor offers intelligent technology-based solutions for best-practice business processes for the following industries:

Energy and natural resources:

• Building materials
• Chemical industry
• Metal, wood and paper industries
• Mining
• Oil and gas industry
• Utilities

Service sector:

• Freight transport and logistics
• Construction, plant and shipbuilding
• Media and entertainment
• Tourism and leisure industry
• Services
• Sports and entertainment
• Telecommunications

Consumer goods industry:

• Agricultural industry
• Consumer goods
• Fashion
• Life sciences
• Retail
• Wholesale

Manufacturing industry:

• Aerospace
• Automotive
• High-tech and electronics
• Machine, device, and component construction

Financial services:

• Banking
• Insurance

Public service and administration:

• Internal and external security
• Cities of the future
• Healthcare
• Universities and research institutions
• Public sector

S/4HANA migration: 4 approaches

Since SAP has announced that it will discontinue maintenance and further development of legacy products such as the Business Suite in 2027 (extended maintenance is available for an additional charge until the end of 2030), many SAP customers will face the challenge of migrating to SAP S/4HANA in the coming years. Various technical and conceptual migration approaches are available. The options range from a complete reinstallation of the system to the conversion of individual SAP systems to selective migration. The most appropriate type of migration depends on various criteria, such as:

• Customer’s initial configuration
• Existing IT system landscape
• Operating model (cloud or on-premises)
• Strategic objectives
• Existing know-how
• Organizational structures

The fundamental redesign of the S/4HANA architecture and structure makes the migration of existing SAP installations a highly complex process. SAP describes the changes to be considered in detail in a more than 1,000-page simplification list.

Greenfield approach

The greenfield approach describes a complete re-implementation of the SAP suite, as the name suggests, “from scratch.” The company abandons its existing systems and replaces them with SAP S/4HANA. The data from existing SAP or non-SAP systems can be gradually migrated to the new system with appropriate adaptations and conversions. The greenfield approach offers the company the advantage of replacing the ERP systems that have been customized over the years with a new standard version of SAP S/4HANA. The company essentially starts afresh with its ERP suite and is freed from legacy burdens.

Brownfield approach

The brownfield approach follows the concept of a gradual conversion and migration of existing SAP ERP systems to SAP S/4HANA. The existing systems receive a kind of upgrade. Customizations are retained, if desired. Solutions such as the Software Update Manager (SUM) and the Data Migration Option (DMO) provide technical support for the migration. The advantages of the brownfield approach include the ability to retain individual processes and integrate them into the existing system landscape while simultaneously modernizing, standardizing, and consolidating the overall system.

Bluefield approach

The bluefield approach is a combination of the greenfield and brownfield approaches. It begins with the creation of an empty target system — the shell — without any data. Master and transaction data are then selectively selected using tools from various providers and migrated to the empty target system. Historical data, however, is archived. Processes and functions can be adopted from the legacy system or redesigned.

Landscape transformation

The focus of transforming the SAP landscape is not to convert the entire system. Rather, the transformation of the SAP landscape is intended to migrate selected data to SAP S/4HANA or consolidate business processes with a global system. This approach also means initially selecting the processes that offer the greatest and fastest ROI when migrating to S/4HANA, for example, in the area of ​​S/4HANA Finance.