To get insight on preparing for an SAP S/4HANA migration, I recently interviewed Dr. Michael Sandmeier, an expert in the field of SAP licensing. Dr. Sandmeier has spent the last fifteen years advising companies on how to prepare for complex SAP investments. His company, Sandmeier Consulting, is the market leader for SAP license consulting and management in Germany.

Q: Before embarking on the migration, what is the first thing that customers should do?

Dr. Sandmeier: The first step should always focus on the past and present, not the S/4-future. It is important for customers to have full insights into what they are contractually allowed to use and what they are using. In our experience, customers are not fully aware of this. Typically, this is because they have many SAP contracts and personnel fluctuations. It is important to start with a contract analysis to set the baseline and identify potentially important special agreements between the customer and SAP. When we evaluate the actual usage based on the contracts, we can define the perfect fit. The next step would be to evaluate the S/4 potential and compare it to the optimized ECC licenses, as in the example below.

Q: I have heard that S/4HANA licensing is based on authorizations. How is this different from previous licensing and what challenges will that present?

Dr. Sandmeier: That is correct. In the past, licensing was based on actual usage. So, every person needed a license to match their usage. SAP is unable to verify the actual usage but counts the number of used licenses. This was and is a huge advantage for customers. With the adoption of the S/4HANA model, authorizations become relevant for licensing. The related issue is that a user can only use what they’re entitled to in the SAP system. The authorized functionality is always significantly more extensive than the functionality used. Measuring the authorizations always leads to an increase in price. Today, SAP is unable to track authorizations, but they plan to do so in the future. This is unwelcome news for the customer. Even if a user does not use the full set of transactions they’re entitled to, all authorizations still must be licensed. Think about a minibar in a hotel. Normally, you get billed if you pick a drink from it. Based on the authorization concept, you would be billed for the entire contents of the minibar even if you did not drink anything! In the future, this means customers should challenge their authorizations and cut them down to mirror their exact requirements.

Q: Customers have a choice to go with either a contract or product conversion. What are the main differences and how should customers decide which one to choose?

Dr. Sandmeier: It is all about choosing by numbers. Firstly, a customer should build a business case for a product conversion and compare it to a contract conversion. To be honest, it is a little bit more difficult than it sounds. The main difference is that a product conversion means that all Line of Business solutions (Engines) switch to S/4HANA Line of Business solutions, but the users stay the same. A contract conversion means that licensed users and Line of Business solutions are both switched. Generally speaking, a product conversion could be cheaper if the customer just wants to use the S/4 system like their existing ECC system. A contract conversion could be better if the customer plans to invest in new scenarios, take advantage of innovative technologies or get rid of shelfware. However, the decision is always highly individual.

Q: Should customers look to move to S/4HANA now or should they wait until closer to 2027?

Dr. Sandmeier: 2027 is not that far away, especially when a complex migration is necessary. We would not advise waiting until 2027, but also, we would not advise acting rashly. You must bear in mind that we’re talking about a contract that replaces 20 years of SAP licensing. The conversion should take the history into account and, of course, the authorizations. If a customer wants to switch to S/4HANA now, there must be a defined transition period with rules. During the migration period, the customers also should redesign their authorizations based on the SAP license types. This could be a considerable task. If you’re planning to invest in SAP software in future years, it could be beneficial to use that investment to cover a contract conversion, particularly as contract conversions are the mostly heavily discounted.

Get more expert advice on preparing for an SAP S/4HANA migration

In the second part of this interview series with Dr. Sandmeier, we get his expert thoughts on RISE with SAP.

You’re also invited to join us for a live webinar on October 20, 2022, where we will be discussing licensing challenges in greater depth with Dr. Sandmeier.

SAP is the trademark or registered trademark of SAP SE or its affiliates in Germany and in several other countries.

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Unfortunately, the implementation of SAP S/4HANA or RISE with SAP won’t stop the time-consuming yearly SAP system measurements or the extended audits. On the contrary, the way these new systems are being measured and audited are changing, and this may come as a surprise to SAP S/4HANA customers.

To fully grasp the new reality for SAP system measurements and audits, SAP customers first need to appreciate that there are two key factors that influence the measurement:

• The kind of contract
• The type of installation

The contract

At the beginning of every system measurement or audit, the contract(s) and respective price and condition lists of SAP, should always be the starting point. This is the single source of truth where all information about entitlements, terms and conditions can be found. There are different options organizations may choose when migrating to S/4HANA. The S/4HANA contracts will differ depending on whether the migration has been via a “product” or “contract” conversion.

Product Conversion – Phased Approach

Contract Conversion – For Customers Already Committed to S/4HANA

The contract includes details about the “User Licenses” (product conversion) or “Use” (contract conversion), inclusive of any special agreements.

It also describes which SAP engines or add-ons are licensed. This is relevant for contract conversions as S/4HANA add-on users don’t usually require “Use” licenses; as with S/4HANA, the add-ons are licensed separately. The contracts may additionally contain any agreements regarding indirect usage or digital access. As the contracts form the basis for any SAP system measurements and possible extended audits, it is vital that customers know and understand the content.

The installation

The second differentiator is the installation type. This distinguishes between a classic on-premises installation (which might also run in the cloud), an S/4HANA public cloud installation and an S/4HANA private cloud installation.

1. SAP S/4HANA on-premises installations are measured like any other SAP Business Suite system, with the support of USMM and LAW.

Customers must set the right “User” or “Use” licenses, according to their contract. But there are two details customers may not be aware of:

The “Use” licenses need to be set according to the respective role and authorization a user has and not to their actual usage (e.g., used transactions). This could have a massive impact on the amount of required expensive Professional Use licenses. The only way to avoid any over-licensing is to clean up and take away unnecessary roles and authorizations.

The HANA database is not measured automatically with the USMM; this has to be done manually. The HANA database measures itself and produces a measurement report and exports to an XML file. It only measures the maximum usage quantities, which leads automatically to the highest costs for their customers. Customers also need to be aware that SAP has a new tool in which the HANA Runtime licensed databases are being checked for full use. This tool is in the pilot phase.

2. SAP S/4HANA private cloud installations are also measured with the support of USMM and LAW.

Again, there are two bits of information customers may need to know:

SAP requires consistent user names for the user consolidation. In the past, users could also be consolidated based upon first and last name or e-mail address. This won’t be possible anymore within the SAP S/4HANA private cloud installation.

SAP has been talking about implementing monthly automatic measurements and an automatic consolidation with the dashboard in SAP LUI.

3. For SAP S/4HANA public cloud installations, SAP came up with a new measurement.

The measurement will be by assigned roles, with the help of a business catalog and the respective role classification according to the SAP S/4HANA service description. The minimum amount of required full-use equivalent licenses (FUEs) will be automatically calculated according to the highest classification (e.g., Developer Use, Advanced Use, Core Use, Self Service Use). 

• 1 x Developer Use = 2 FUE 
• 1 x Advanced Use = 1 FUE 
• 5 x Core Use = 1 FUE 
• 30 x Self Service Use = 1 FUE

Finally, customers need to consider indirect use and digital access. While SAP is still not capable of measuring the number of indirect users, they are very able to identify any possible indirect use. With support of the SAP passport, SAP can now measure the number and kind of digital documents created in a digital way. The measurement will be done with the support of the USMM. The calculation starts after the implementation of the SAP passport, and it’s worth noting that a full calculation will be available to SAP a year after that.

With all the different system measurement changes occurring, it is crucial for customers to have a complete in-depth understanding of exactly what they have entitlements for, what they use and what they truly need in this new, multifaceted S/4 world.

Learn how Snow Software can support you through the transition to S/4HANA and help you prepare for the next system measurement and audit, whether this is for your legacy, hybrid or new landscape.

_{* According to a joint survey by the Americas’ SAP Users’ Group (ASUG) and the German-speaking SAP User Group (DSAG) in April and May 2021, 24 percent of participating ASUG and DSAG members said they are already live with S/4HANA, while a further 21 percent (ASUG) and 20 percent (DSAG) are currently going through the transformation process. Approximately 37 percent of DSAG members (30 percent of ASUG members) are planning a relevant project, but have not yet started it. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate company) in Germany and other countries. All other product and service names mentioned are the trademarks of their respective companies.}

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