Hansa Iyengar — Practice Leader, HFS Research[00:19]
Hello everybody, and welcome to another episode of Unfiltered Stories. Today’s conversation focuses on the gap between a technically successful SAP S/4HANA migration and a transformation that delivers measurable business results. And this gap is where most programs fall short. Joining me to talk about this topic today is David McQueen, EY Global SAP Consulting Managing Partner. David, it’s nice to have you here today.
David McQueen — Global SAP Consulting Managing Partner, EY[00:46]
Hansa, it’s fantastic to be here. Thanks for hosting me.
Hansa Iyengar — Practice Leader, HFS Research[00:50]
Before we kick off, I’d like to mention that HFS has recently published its SAP S/4HANA Transformation Services Horizon, where EY was recognized specifically for its ability to connect the technical execution of these programs to the business outcomes side that clients actually care about. Congratulations on being positioned in Horizon 3 on this report, and for your capabilities, David.
David McQueen — Global SAP Consulting Managing Partner, EY[01:15]
Yeah, listen, I appreciate it, Hansa. It’s obviously a very important recognition. We’re proud of it on behalf of all of our 30,000 practitioners globally across 150 countries. We’re all thankful for the time spent with HFS, and with you in particular.
Hansa Iyengar — Practice Leader, HFS Research[01:32]
It was my pleasure. To kick off, my first question, David: you’ve been doing this for a long time, and we often see that large transformation programs, including S/4HANA transformations, struggle because of data debt, process debt, and rework that compounds right before go-live. So how is AI impacting that? How are things changing? This is a very exciting time we’re operating in, as far as the technology world is concerned. How do you see that working in your space?
David McQueen — Global SAP Consulting Managing Partner, EY[02:07]
Yeah, it’s a great question, Hansa. Number one, I think what AI has brought to the table is an opportunity to accelerate aspects of SAP as well as larger ERP programs across different platforms. And there are probably three main things that AI actually highlights that have kind of been true for a number of years. So I’ll highlight a few of those.
Number one, we often advise our clients that the concept of data from day one has to be important. One of the longest poles in the tent is getting master data clean. And for those clients of ours and others that have been using ERP for a number of years, typically the data has not been governed properly. And so it becomes a huge amount of effort to get data clean into your new system. We often say that this is a once-in-15-or-20-year opportunity for our organizations to use data as the new oil. And with AI on top of bad data, it really does highlight the fact that data has become even more important in this age of the agentic enterprise.
Number two, one of the things we always struggle with is making sure we have the right people on the program — putting the A team, as we call it, from our clients. If we’re going to identify processes, we need to understand those processes from an end-to-end perspective, and not focus on the functional area, but look at things like order to cash or procure to pay end to end, and make sure we’re identifying the right processes. And we need the people who have the experience to do it. The example I use all the time is that it’s easy to identify, say, an AP clerk — but is that the right area to apply AI, such that you go from having a fairly low-cost resource to a tokenization of AI that drives organizational cost through the roof? So having that institutional knowledge is important.
And the last piece here, which is probably the most important: these programs are really human-centered. What I mean by that is this is an opportunity to drive real change in an organization. So not just focus on training and education, but have an end-to-end change management program that is robust and that has senior leadership support. If you focus on those three areas, that’s where we see technology programs be successful, because they truly become business programs. We know the technology works, but it’s the human side that sometimes falls down.
Hansa Iyengar — Practice Leader, HFS Research[04:34]
Well, that’s an interesting point you made. And the fact is we’ve been talking about data being the new oil ever since the digital revolution began. We talked about it during automation, we talked about it during the AI and ML wave that took over. What is genuinely different today, and what are the remaining big pain points that organizations need to solve for?
David McQueen — Global SAP Consulting Managing Partner, EY[04:58]
Yeah, I think the tooling that’s available, Hansa, is what’s different. And so whether you’re using AI to do it, or a variety of other tools that help with the technical migration of data, the ability to rapidly clean data and then load it and test it is something we’ve never seen before. In the past this was a highly manual task, which took just throwing FTEs at it. Now we can change the production function, leverage more technology than labor, and spend more time in the testing, so that we can expose the data in the context of business processes, and not just wait till the end of a program to say, “Okay, we’re finally getting a data load, we have a go-live coming up, and we need to move forward without having robust testing.” So it allows us to trust and verify what’s actually happening in the context of the software.
Hansa Iyengar — Practice Leader, HFS Research[05:47]
On one side, we’re talking about this technical migration. On the other side, we’re talking about outcomes, which are becoming more and more of interest to enterprises. Everybody wants to understand what kind of value they’re going to get out of their technology investments, and commercial structures built around outcome-linked models are becoming prevalent, especially in the SAP space. And I know EY has its own flavor of this. So what are you committing to, and what should organizations be looking for when a vendor comes to them and says, “Hey, we can do outcomes”? How does that actually look in a contract?
David McQueen — Global SAP Consulting Managing Partner, EY[06:24]
Yeah, so I think it starts at the beginning. Gone are the days where most of our clients are running full force into signing an end-to-end program right out of the gate. We have this concept at EY around phase zero. And outside of getting the functional and the technical scope correct, it’s actually understanding what are the value levers that the organization is trying to accomplish.
There are areas today which we call brownfield, where this is really a technological debt play, where you’re moving from one platform to the other. Where we really focus — and you mentioned this at the outset — is around value creation. So through our Transformation Realized platform, we can identify all of those areas that will drive incremental value. And when you get that in a phase zero, which is a very small, contained program, you can set up commercial arrangements to say, we want our design to focus on hitting all of these elements of transformation, making sure it’s actually driving either top-line or bottom-line impact for an organization. And as you do those contracts, you can then tie acceptance criteria and tie outcome-based pricing into those programs.
I think most of our clients are now on the second or third wave of ERP. And what they’ve realized, if they’ve done this a few times, is that there typically is asymmetrical information, where systems integrators or consultants have better information, because we do this every single day. So where we try to focus is to put our client hat on and say: what are the things we would want to deliver and achieve if we were in their shoes? I think that’s being highly realized in the market, and our clients appreciate that, no doubt.
Hansa Iyengar — Practice Leader, HFS Research[08:05]
Okay. And value is a moving thing, right? As transformation changes, as organizations change, as they progress on the path, what they assign value to evolves with it. So how do you define the “done” — that okay, this is where we have delivered value? Or is it also a moving target that you have to work towards and continue on a continuous journey with your customers?
David McQueen — Global SAP Consulting Managing Partner, EY[08:32]
Yeah, so that’s an interesting point, Hansa. I think we’re in probably the most disruptive part of technology that we’ve ever seen in the last 30 to 40 years. And so while you get into a program and you need to deliver on whatever that program set out to achieve, the way that software is evolving and technology is evolving in the market, you constantly have to have this concept of value realization built into the operation and management of systems in the context of what the business is trying to achieve.
And that’s why — I mentioned this before — our Transformation Realized platform is something that is a continuous evolution, where businesses change, competition changes, new entrants, divestitures, acquisitions happen on a very regular basis, and so the needs of the business have to change also. With the advent of SaaS software, the number of enhancements being brought to market to add additional value continues to be released on a quarterly basis, so we need to take advantage of those. And that’s why getting to some principles like clean core for SAP is very important, because that allows our clients to take advantage of all the R&D that SAP is putting into the market, but also additional alliance partners like Microsoft, like Snowflake, like Databricks, like ServiceNow and NVIDIA. This is a total package where we need to look at the whole ecosystem to take advantage of all of the new technologies being delivered.
Hansa Iyengar — Practice Leader, HFS Research[09:53]
But when you’re talking about outcomes and value delivery, contracts are not, unfortunately, structured that way. Procurement, legal and finance are still a roadblock that most programs hit, because they are running processes the way they were run 30 years ago. So how do you resolve that conflict?
David McQueen — Global SAP Consulting Managing Partner, EY[10:13]
Yeah. So look, procurement is set up to drive savings for the business in realized terms at contract. And I think the conversation has to be elevated outside of procurement, to a business conversation, coming back to those value levers. Because if all it is, is driving savings from a time-and-materials or a fixed price within signing a contract, a lot of value is leaked through the procurement and commercial process. So it’s having the bravery to have that conversation.
And look, not all clients are going to contract like that. Certain regulated industries have to run processes in a certain way. But in my experience, travelling the globe over the last number of years, clients are starting to become a lot smarter around how they contract, and pushing their procurement, their legal functions, their IT functions to think broader about how you create those symmetrical incentives, such that a systems integrator cannot succeed without the client succeeding. And I think that’s an important point to make.
Hansa Iyengar — Practice Leader, HFS Research[11:15]
Well, okay, that’s fair. But there are several areas where even businesses need to up their game, whether they still keep running old processes, or they have scope that keeps changing and expanding. Governance is an issue. So you cannot just put the blame solely on the provider — the enterprise is equally complicit. So what are some of the failure modes you have seen on the customer’s side, and what do you think they should be focusing on to fix it? Because you have seen this and done this so many times — what kind of perspectives and best practice advice can you give to our listeners?
David McQueen — Global SAP Consulting Managing Partner, EY[11:53]
Yeah. So look, if we follow the thread that we do these short sprints, phase zeros, to understand the scope as well as the value that can be delivered, I think making sure that the business shows up in a cross-functional way during design — that’s one of the most important phases, such that the business understands end to end what’s actually going to be delivered, and putting together a project plan that goes after all of those aspects of value.
In a lot of cases, it’s not technology. It’s changing things like the operating model that needs to adjust to changing business conditions. And so having that perspective of true advice going into this, where some organizations just can’t handle that level of change, but the ones that are being most innovative are looking at all aspects of the business. And it’s not just about SAP. We live in a heterogeneous environment where you have to integrate multiple applications. And so looking at where are the ones that are truly going to drive additional value for the business — I think that’s the advice I would give to a client.
And making sure they have the fortitude from their senior leadership, down into management and down to the team, to understand the real nature of the change and why this is all very important. Because look, Hansa, decisions get made at the team level day in and day out. Thousands and thousands of decisions get made on projects. And this is where what gets delivered on a project is typically not what gets designed up front. And so putting — to your point — the governance in place to say, look, if we’re going to deviate, we need to have a business case that meets a certain hurdle rate in order to get approved. Otherwise, we default to what we agreed in the upfront phases of the program.
Hansa Iyengar — Practice Leader, HFS Research[13:38]
Yeah. And you mentioned a great point, that there are thousands of decisions made at the project level, and that knowledge is often lost. So what do you recommend in terms of being able to capture that knowledge and encapsulate it for future reference? Because oftentimes ideas and innovations just come out of that on-the-ground problem solving that has happened behind the scenes.
David McQueen — Global SAP Consulting Managing Partner, EY[14:03]
Yeah. And look, I think we’ve been doing this for a number of years, having the concept of a requirements traceability matrix, so that decisions get made in the context of a very detailed report as to why they got made, what processes they impact, and so on. But also, with the advent of fairly new process mining tools, there are ways before you go live to actually understand what’s the current state versus the to-be. And using either AI or process mining tools to do that, you can highlight very quickly where the deviations are from what we were supposed to be doing versus perhaps what was built.
Hansa Iyengar — Practice Leader, HFS Research[14:45]
Okay. Given all the technology and all the AI and the tools that we now have in hand, if you had to change one thing about how large SAP transformations are structured, what would that be?
David McQueen — Global SAP Consulting Managing Partner, EY[14:59]
Well, look, it’s a great example of the innovative ways that we can do work today. I think what COVID taught us particularly is that you don’t necessarily have to have the entire team onshore. And so not only leveraging technology, but leveraging global delivery centers to do functional work, not just technical work, to accelerate the ability to scale the change. In a lot of cases, clients still want people on site, and I understand that from a change management standpoint. But more and more, the ability to deliver work in a global fashion has increased over the last number of years as a result of the pandemic. And so I think that would be one area I would always encourage clients to think about: what’s the nature of the on-site versus offshore, but also making sure that we’re leveraging all of the available technologies to replace people in the context of technology.
Hansa Iyengar — Practice Leader, HFS Research[15:50]
Wonderful. If you had to give one piece of strategic advice to the enterprise leaders who are listening to this videocast, what would you want to leave them with?
David McQueen — Global SAP Consulting Managing Partner, EY[16:01]
Yeah, look, I think I mentioned this a little bit before. These are business projects. They’re not technology projects. The technology works. It’s been proven. SAP’s been around for 50 years. It’s evolved over time, but fundamentally the core platform is there. So if you really want this to be successful, it has to be led by the business and then supported by IT.
Hansa Iyengar — Practice Leader, HFS Research[16:22]
Wonderful. Thank you, David. It was a pleasure speaking with you, and I look forward to hosting you again on Unfiltered Stories.
David McQueen — Global SAP Consulting Managing Partner, EY[16:28]
Well, listen, thank you, Hansa. It’s a pleasure to be with you today, and I look forward to seeing you again soon.
