2020/08/25

Cloud-First Strategy and Two-Tier Approach

- in Preparation for Digital Transformation?
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by Alena Preuß

More and more companies are recognizing the benefits of cloud-first strategies: increased efficiency, profitability, flexibility, and enhanced business productivity. Detecon has also arrived in the cloud. In this article, we want to show how large companies and corporations can also employ the two-tier approach to exploit the added value of the cloud and master digital transformation.

Cloud computing is one of the topics to have drawn significant attention in both the personal and business lives of many people. We more and more frequently take advantage of the available opportunities offered by the cloud, whether to back up our data, to access the stored information in real time at any time using any device, or other activities. But the use of cloud services is becoming common practice in business as well as in our personal activities. The use of the data cloud has gone far beyond its original function as a driver of IT strategies with the consequence that various service models have become established on the market. A distinction is made between the forms infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS). These cloud service models have progressed to such an extent that their use is regarded as the prerequisite for the digital transformation that is indispensable for every company. The so-called cloud-first strategy – i.e., the use of a cloud solution instead of an on-premise solution when implementing a new platform, infrastructure, or application – represents a key factor for the success of many companies. One important topic in the technological environment and, according to the Lünendonk study, a key driver for the growing importance of the cloud-first strategy is the SAP product S/4HANA Cloud, which provides a response to the demand for a revolutionized form of ERP systems. But just how much added value does this product really offer for the success of a digital transformation and to what extent does this ERP system align with the varying cloud strategies and challenges of specific companies?

Digital transformation as a key factor for companies’ future competitiveness

The competitiveness and future viability of a company will be determined to a major degree by its willingness to take the steps in the direction of digital transformation that are called for today. Mastering this digital change demands applications and services that meet the requirements of high agility, scalability, and flexibility. The cloud plays a key role here as it provides the appropriate tools and information such as big data or infrastructure scalability. According to the Lünendonk study, one in five of the companies surveyed is pursuing a cloud-first strategy. Above all, companies are seeking to take advantage of the perceived benefits from the optimized exchange of data and simplification of work processes such as increased operational efficiency, agility, and transparency and the automatic availability of new functions and cost reductions through “pay-as-you-go” models.

The choice of the right cloud strategy to cover company-specific requirements

The choice of the right cloud model is critical for the determination of the best cloud strategy for any given company. Before the transformation itself can be initiated, an assessment must determine which product best covers the company-specific requirements. Will it be the Essentials Edition (ES – formerly Public), the Extended Edition (EX – formerly Private), or Hybrid Cloud? All three cloud variants offer flexible and scalable “as-a-service” models: IaaS, PaaS, and SaaS. While startups recognized the advantages of the Essentials Edition of Cloud early on and small and midsize companies are increasingly discovering the usefulness of Cloud in the ES form, the results of the Lünendonk study reveal that large companies in particular are skeptical when it comes to SAP S/4HANA Cloud ES. Their primary reservations relate to the high degree of standardization and the consequent lack of opportunities for customer-specific adaptations, the concern for adequate data security, and the challenge of consolidating various ERP systems and interfaces. According to the study, 58 percent of large companies and corporate groups surveyed have more than ten ERP systems in use. The willingness of these companies to consolidate and modernize their ERP systems, however, varies widely. While 50 percent of the responding IT managers are open-minded about a consolidation of ERP systems or have already completed one, the other half do not see any added business value in such a step or, in 38 percent of cases, the modernization of IT systems is limited to certain business divisions and does not encompass the entire enterprise.

The two-tier approach as a model for large enterprises during cloud transformation

Wanting to address the aforementioned challenges that large companies in particular see in the use of Cloud ES, Gartner introduced the concept of bimodal IT in 2014. This concept is based on two different modes: Mode 1 covers the stable and traditional areas of business processes while Mode 2 supports the innovative aspects of the business that require agility. The two modes coexist side by side and can generate enormous benefits for digital transformation. Taking this concept as a foundation, SAP also follows the so-called two-tier approach. The approach can be used in three different situations: parent company (Tier 1) to subsidiary (Tier 2), extended supply chain of the company (Tier 1) to suppliers, dealers, and subcontractors (Tier 2), or for line of business-specific processes, i.e., one accounting area operates on-premise while the second operates in the cloud. SAP’s two-tier approach offers companies the opportunity to standardize end-to-end business processes across multiple levels. For instance, customers can implement S/4HANA Cloud ES at Tier 2 and enjoy the benefits of software as a service (SaaS) such as the reduction of costs and ancillary IT costs from preconfigured solutions while continuing to use an on-premise solution at Tier 1. Tier 2 can be fully integrated in the approach so that Tier 1 can (for example) access financial data for consolidation and use the BPC (Business Planning and Consolidation) functions such as planning, budgeting, and financial forecasting.

Digital efficiency through the implementation of S/4HANA Cloud ES at Detecon

This two-tier approach has also been adopted at Detecon International GmbH, a subsidiary of T-Systems and a member company of Deutsche Telekom. As is possible when the parent company–subsidiary model is realized, Detecon decided in favor of a cloud strategy and introduced S/4HANA Cloud ES as a new ERP system while the parent company continues to use an on-premise solution for its operations. Thanks to the introduction of S/4HANA Cloud, Detecon as well as T-Systems and the parent company Deutsche Telekom will benefit from the advantages of this cloud transformation at Detecon. This approach enables Detecon to switch to more efficient and innovative solutions (the ERP cloud solution in this case) more quickly than would be possible as part of an overall ERP transformation throughout the corporate group. Moreover, the regular release upgrades in SAP’s S/4HANA Cloud ES mean that the latest technologies and developments can always be tested and activated whenever needed. The real-time tracking of data in S/4HANA Cloud that is possible heightens transparency within the company and provides performance forecasts and information that are updated daily. Simultaneously, the high degree of standardization and automation reduces long-term operational tasks so that previously tied-up resources can be used for new tasks. The go-live of S/4HANA Cloud at Detecon International GmbH has been successful and the country rollout to the subsidiaries is currently underway. All companies are aligning their processes to one template and the number of different IT systems and interfaces is being reduced. As the number of interfaces declines, the remaining interfaces to the corporate group will be used more efficiently; for example, automated financial processes are being implemented and an interface to SAP BCM (Bank Communication Management) in the corporate group will be realized (see the article xx for further details). Furthermore, Tier 1 benefits from the experience of Tier 2 during a S/4HANA Cloud implementation. When the processes in the subsidiary are automated as part of a cloud transformation, the action can be used to test the added value of these innovations and, after successful verification, they can also be implemented throughout the group. Lessons learned from this pilot project can be used for the determination of actions for even more extensive cloud strategies and for mastering the challenges of the overall digital transformation of a corporation.

Detecon an experienced partner for companies on the road to digital transformation

As Detecon is a management and technology consulting company, its introduction of S/4HANA Cloud ES secures its pioneering role on the market and the consultancy is driving forward digital transformation both within its own ranks and in its group. The transformation project demonstrates that, despite the challenges posed by the numerous interfaces between the group and its subsidiary, a cloud-first strategy makes good sense and that an increase in digital efficiency can be achieved through transparent and automated processes. The two-tier approach used here is simultaneously a best-practice approach and one that larger companies and corporations with a heterogeneous system landscape can use to align their business processes with a cloud strategy, raising the level of their digital efficiency and ensuring long-term corporate success.

Since there is no one cloud strategy that fits every company, however, we recommend that companies seek individual advice from experienced partners and collaborate with them to develop a tailored general concept. Detecon’s consultants have had comprehensive experience in the implementation of S/4HANA Cloud at both Detecon itself and at external companies in the following areas:

  • Road map creation – especially when comparing the time of implementation with the actual availability of the functions
  • Use of the activate method
  • Conduct of fit-to-standard workshops
  • Adaptation of interfaces
  • Topics such as migration, testing, and rollout
  • The organizational change management required to create the necessary cloud mindset in the organization

They can use the expertise acquired during the in-house work to train clients in the skills the latter require for their own road map creation and subsequent implementation of S/4HANA Cloud and guide them on their journey to digital transformation and digital efficiency.

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