Preparing your Negotiation of a S/4HANA Contract

Preparing your Negotiation of a S/4HANA Contract

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With SAP ECC falling out of support in 2025 SAP customers will have to plan the migration of their SAP landscapes to S/4HANA. This is an excellent opportunity to renegotiate and clean-up your SAP contract – an opportunity that does not arise frequently with SAP. Our advice to SAP customers is: take time to prepare adequately to take advantage of this opportunity and maximize the ROI on your SAP investment.

In the following article, we enumerate some of the most important items you need to take care of before negotiating with SAP. Be prepared and be better informed than your SAP account manager and you can maximize value from the negotiations process.

Evaluate your actual SAP Bill of Materials

The first step to take is to understand your SAP contract history; what have you purchased over the years, which licenses are active today, which of them make 80% of the total contract value, which are the risky or conflicting metrics in your contract

Evaluate usage and shelf ware

Once you know what licenses you own, find out which of them are in use. Interview the application managers of each business area to understand their actual and future need, their project portfolio and dentify what licenses need to be decommissioned or exchanged.

Estimate Digital Access risk exposure

Digital Access is SAP´s new license model for use of non-SAP applications connected to your ERP system. This model does not fit for every enterprise. Companies with different ERPs in place, Warehouse Management Systems or Transport Management Systems that are not from SAP are in big risk of having to pay large amounts for Digital Access. If organisations prepare themselves, understand their exact needs and lead a proper negotiation with SAP it is possible to adapt the model to the needs of the business, control licensing costs and mtigiate future non-compliance risks.

Optimize user licenses with the help of a Software Asset Management tool

User Licenses may still form up to 35-45% of the total SAP contract value. As such it is important that SAP customers take the time to understand what user licenses fit the needs of the business. By using a SAM tool like samQ by VOQUZ Labs, customers can forecast their future named user licensing requirements in S/4HANA and negotiate a user license inventory that will better serve the needs of the business – both now and well into the future. Customers should also use the opportunity to optimize their SAP licenses in order to make best use of existing assets and maximize the value return in the negotiation of the new agreement.

HANA runtime or HANA Enterprise? Backup? Disaster Recovery?

The database starts at 15% of the total SAP Application Value (Metric HSAV) and may grow by 20% or more in the next 3-5 yeras. Don’t forget about backups, disaster recovery, and parallel processing requirements, which should all be factored into your buying strategy. HANA runtime has limited functionality, which may be enough for many clients and for others not. (Short explanation: Run time only gives you rights to run the licensed applications on HANA and limits level of customization and connectivity with other applications). Speak with your SAP architect to define your requirements and understand if Runtime or Enterprise edition is the best solution for your business.

Negotiate the right to exchange licenses until 2025

Your planned bill of materials for S/4HANA will be based to some extent on estimations, project plans and assumptions. It is only a plan, so treat it as that in your contract. Reserve the right to make corrections in the future, at least until end of support for ECC. The way to do that? Include a clause in your contract for license exchange rights, which will give you the right to flex between the quantities of different license quantities. This felxibility could save you significant money in the future and avoid buying quantities of licenses that are not required or at least not to the same licensed level as previosuly planned.

Make sure you convert 100% of your licenses, even if they are parked or inactive

For many SAP organisations, and sometimes even for SAP themselves, it is difficult to understand and peice together the contract history of 20 years. Internal attrition, different account managers, hange in IT leadership, different client representatives are all factors that can make understanding SAP contracts today a challenge. Take the time to investigate your contract history, licenses purchases, cancellations, exchanges, and understand what licenses you have in your portfolio and what you are able to exchange for S/4HANA licenses.

Compare contract conversion vs. product conversion

SAP offers two different approaches to convert your ECC contract to an S/4 contract. Your specific situation will dictate which one is the most suitable and you need to set up financial scenarios and total cost of owenership models (TCO) that corroborate your choice of a conversion model. Exchanging 100% of your licenses (contract conversion) sounds attractive, but SAP won’t do this without implications.

Make sure your discount level has increased instead of decreased

SAP is rewarding early adopters and contract conversions. Do an accurate assessment of your past discount levels and assess what scope there is to improve them especially if you are offering SAP additional contract volumes and revenues. Understand SAP´s pricing and calculation methods and be sure to obtain line item prices that allow you to understand how good your proposal is in reality. An SAP licensing consultant can help you understand how your offer stacks up against what else is happening in the market place and with your competitors. Remeber, S/4 HANA contract negitations can run into the millions. It really does pay off to seek help from a third-party, like VOQUZ Labs, who can add real value to the process.

Francisco Hansen

Francisco Fernández Hansen has been Head of Advisory at VOQUZ Labs since 2019. He is responsible for sales in the USA and Latin America. Francisco leads the team and the offices in New York and Mexico City.

Francisco Hansen

Francisco Fernández Hansen has been Head of Advisory at VOQUZ Labs since 2019. He is responsible for sales in the USA and Latin America. Francisco leads the team and the offices in New York and Mexico City.

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