Issue

In Syensqo's current ECC systems, many companies are created as company codes in the system irrespective of whether the company code is fully operational or not. This added to the complexity of configuring and maintaining the system for IT resources with additional month-end/year-end activities performed by business users which may have lead to inefficient use of resources across the organization.

Recommendation

Based on the analysis performed, it is recommended to go with 'Option B: Create Company for all Syensqo entities but Company Code only for selected entities meeting defined governance rules'. Company Codes and companies will only be created based on clear guiding principles defined to govern the setup of new company codes and companies in the S/4 HANA system.

Efforts will also be made to prevent the creation of reporting entities in the operational S/4 HANA system wherever this is technically possible to keep the company code structure in the system aligned to SAP Best Practice recommendations of having a single company code for each legal entity.

This will keep the core SAP system cleaner and allows the teams involved in the day-to-day as well as period-end processes to focus on core business entities and value-creating activities throughout and especially towards the end of each financial period. For entities out-of-scope from S/4 HANA, direct uploads of the required Financial data into the consolidation systems will be the direction going forward with a streamlined, intuitive and optimized process to realize further time-savings at period-end. 

Company codes and companies will be set up such that there is sufficient room to grow for Syensqo as a dynamic organization operating in a rapidly changing business environment. Companies can also be converted easily from non-operational entities into operational S/4 HANA entities in the future without a need for re-numberings while still retaining their unique identification as former out-of-scope entity which may be required for historic reporting. At the same time, the setup of each Syensqo entity as a 'Company' in S/4 HANA paves the way for future consolidated, single-system group reporting out of the new consolidation system introduced as part of the transformation program.

Background & Context

A company is a structure within S/4 HANA used to facilitate legal and management consolidation within the consolidations system. In SAP source systems, it is also used to differentiate intercompany transactions from external transactions with the aim of facilitating typical month-end consolidation activities such as I/C reconciliations and eliminations. 

A company code is an organizational unit used in Financial Accounting representing a reporting entity at which fully compliant and complete Financial Statements can be generated out of the system.

In Syensqo's current ECC systems, many companies are created as company codes in the system irrespective of whether the entity is operational or not.  The presence of non-operational company codes adds unnecessary layers of design and configurations to financial processes, complicating the overall system management and potentially leading to business inefficiencies during critical financial reporting periods such as period-ends.

Furthermore, technical entities such as reporting entities exist in the current ECC systems which is not in line with SAP's best practice recommendation to keep the company codes in the operational SAP system aligned with the legal entity structure of the organization. 

Lastly, no clear governance rules are currently documented on company code and company setup in the existing ECC systems which makes the company code structure appear incoherent and imposes challenges on streamlining master data and process designs.

Assumptions

• New consolidation system deployed as part of transformation program provides ability for direct Financial data uploads from non-SAP systems into the consolidation engine.
• Current non-SAP accounting systems can stay in place for managing day-to-day Financial operations in less complex entities with period-end submissions directly into the consolidation system. If there is a material cost-benefit advantage of managing them out of SAP, the entities should be converted to operational S/4 HANA entities.

Constraints

• None identified at the time of writing.

Impacts

The following impacts are expected:

• Data Conversion and Migration: Data from the As-Is systems need to be mapped based on the proposed to-be company code structure and logics.
• Integrated Systems (Upstream/Downstream): There will be an impact on all integrated systems and applications that use the company code for identification purposes. There needs to be a one-time remediation or mapping exercise undertaken to identify all impacted systems and respective mitigation strategies need to be worked out during detailed design.
• Codification Logics for Finance Account Assignment/Master Data Objects: The new company code numbering needs to be considered in the design process of the respective master data objects.

Business Rules

Please refer to the Business Rules in the below section under 'Options Considered'.

Options considered

The following two options were considered:

Option A:  Create Company and Company Code as per as-is practice in S/4 HANA

As a part of this option the company and company code is created for all the entities that are in scope for consolidation in S/4 HANA.

Option B: Create Company for all Syensqo entities but Company Code only for entities meeting defined governance rules

As part of this option, company codes in S/4 HANA are created based on the governance and business rules shown in the below matrix table:

Evaluation

Outline why you selected a position. The best format could be a pro/con table (sample below), but is up to you as the author. You must consider complexity, feasibility, cost/effort to implement, but also ongoing operational impact and cost. You must consider the program principles and explain any deviations in detail. This is probably as important as the decision itself.

	Option A: Create Company and Company Code as per as-is practice in S/4 HANA	Option B: Create Company for all Syensqo entities but Company Code only for entities meeting defined governance rules
Complexity and Cost Considerations	Con: Many entities do not require a full-fledged setup of an operational S/4 HANA entity with sub-ledger accounting, cost accounting, logistics integration, etc. to meet their reporting requirements. They may be dormant or entities with very little business activities that simply require a trial balance submission at period-end for consolidated group reporting, for example.  Con: Higher maintenance efforts for IT to setup and sustain company code configurations in the SAP system. Pro: Number of additional accounting systems in use across the organization can potentially be reduced.	Pro: Company codes are only set up for entities which necessitate a full-fledged SAP setup for operational purposes. Pro: Lower implementation and maintenance efforts/costs for S/4 HANA system. Con: Additional maintenance/licensing may be required for non-SAP accounting systems in use across the organization.
Period-end Closings / Process Harmonization	Con: Separate period-end close task lists have to be created and maintained for non-operational entities leading to non-harmonized global process designs.  Con: Catering to the needs of non-operational entities in S/4 HANA may bring about additional complexity to master data, configurations and process designs as processes must be kept simple and intuitive to not jeopardize time-critical activities such as period-ends.	Pro: Supports streamlined setup and harmonized process designs for all entities operating out of S/4 HANA and allows for a simple yet intuitive process design for submission of Financial results from non-S/4 HANA entities for consolidated group reporting directly into the consolidation system. Pro: Allows for a more efficient use of time and resources within the Finance teams involved in the day-to-day operations and period-end processes. More time can be spent on value-adding activities.
Future Compatibility	Con: Setting up a company code in the system for non-consolidated entities with limited business activities in the interim may pose compatibility problems in the longer run as the company grows and evolves. Critical settings such as company code currency can not be changed once a company code is in use. The functional currency of an immature business might change as it matures though. Such a change in the system would require complex data migration efforts.	Pro: The company code will be created as an operational S/4 HANA entity only when it reaches a certain degree of maturity/materiality for Syensqo as a group. With an increased level of maturity in the Financial operations, chances for major shifts in critical Financial decisions in the business (e.g. definition of functional currency) are substantially reduced.

See also

Insert links and references to other documents which are relevant when trying to understand this decision and its implications. Other decisions are often impacted, so it's good to list them here with links. Attachments are also possible but dangerous as they are static documents and not updated by their authors.

Change log

Workflow history