When to walk away from your existing SAP contract?

Over the past two decades, SAP customers have steadily migrated, amended and generally complicated their contracts/entitlements with the software giant.

At some point, with a fresh look you may well come to the conclusion the evolution of these contracts no longer will serve your organization well. Walking away from the existing contract and starting fresh with SAP may be a more viable option than you at first think.

Reasons for this include:

• Contract modifications over the past decade or two have steadily widened the definition of who the “users” are, increasingly exposing you to indirect usage compliance headaches
• Many enterprises signed contracts which were heavily slanted towards professional license types but received a “special” up-front discount in the range of 80%+. Realistically, only a small portion of these users actually need a professional license. The annual maintenance costs on each professional license is based on the list not purchase price and can often cost around $1,500. The total cost of ownership is more reflective of the ongoing maintenance charges than the actual up-front purchase price.
• Many enterprises used to have 4-5 different license types/categorizations, but it became seemingly impossible to manage on a practical basis, so they renegotiated new contracts with fewer more capable license types to assure compliance, but at a higher annual cost. With over 130 different license types, there may be merit in exploring a richer selection of license types.
• Companies experience dramatic shifts in their license requirements over long period of time. We recently came across an enterprise that had one contract that allowed them to redeploy excess SAP licenses in the overseas operations, reducing costs by millions. Most SAP contracts have not adequately integrated these “flexibility” requirements. Enterprises should strive to be able to shift licensing globally, and to exchange shelf-ware towards more strategic needs. This is increasingly possible with SAP’s public accommodations of “horse trading”.

We have entered a new era of License Optimization and Management for SAP

Given the highly advanced Software Asset Management tools for SAP now available, such as Snow Optimizer for SAP® Software, software can continuously monitor the activity of each user and constantly “custom-fit” user license types based on actual science, not speculation.  While this was not technically feasible five years ago, today it’s a matter of clicking a single button and having this optimization performed automatically on a weekly, monthly or quarterly basis.

Some Reasons for walking from your current SAP contract may make sense

While it may not make economic sense to walk from SAP software licenses already purchased, at some point the TCO (total cost of ownership) makes sense to start anew.  Some reasons why an enterprise should consider starting with a fresh piece of paper are:

• SAP is increasingly willing to renegotiate – It’s no secret that SAP is facing challenges making their business model flourish today.  They have missed their most recent financial numbers and guided Wall Street’s expectations lower.  Despite spending billions of dollars acquiring cloud-based products, the revenue ramp on those businesses cannot make up for the stall in their $24 billion-per-year core ERP business.  So SAP has become more receptive to different contracts that better match the customer’s actual needs with the hope that this will lead to more SAP investment down the road.
• The world has changed, and managing compliance is a LOT easier with advanced tools – Monitoring virtually all activity of each user, and then using that historic “big data” to tailor fit SAP license types for each user is now feasible today.  Software has been developed to extract, aggregate and analyze very millisecond of CPU time and every transaction executed to better understand real activity and behavior.
• It’s all about the ongoing operational costs – Enterprises are increasingly getting more sophisticated about procurement of license, and now have specialists and consultants helping them make better decisions.  The TCO (Total Cost of Ownership) is a more compelling metric that is used to judge the deal than the steep up-front discount on the initial license purchase.  The ability to “trade-back” excess licenses is a mandatory requirement that is needed in all contemporary contracts.  It is often the case that the five-year TCO would be lower with a better negotiated agreement.
• It changes the dynamic of the negotiation – SAP is the most mission-critical vendor a large enterprise has. Because of this, there has been serious reservations about pushing back against SAP’s constant escalation of annual costs.  By proposing to “walk away” from the existing contract and starting with a new blank sheet of paper, the negotiation dynamics are radically different.  By using highly advanced tools and deep domain expertise, the tables become slanted finally in favor of the customer who has a significant information advantage that up to now has not been exploited well.

Conclusion

SAP remains one of the most significant and strategic investment an enterprise can make. 

Enterprises continue to make more investment in SAP software but their tangled-web of existing contracts may not suite them well in getting the most value from their forward spending.  Advances in Software Asset Management software for SAP have made it dramatically easier to monitor and manage compliance with more “custom-designed” contracts. 

With the click of a mouse tens of thousands of users can have the exact license type they need based on their past activity, something that was not readily available years ago.  Additionally, SAP has found more flexibility in assuring the customer has a good fit between their purchases and requirements. 

This convergence of all these factors now all make it more reasonable to consider walking from the existing contracts with SAP and renegotiating from a fresh sheet of paper.

Learn more about the science of negotiation with SAP Download our new free 10 Minute Guide on how to get the best contract for your SAP licensing and learn more about why and how you can drive a more cost-effective deal.