As one of the world’s leading providers of ERP and business management software, SAP’s ecosystem of solutions is constantly evolving to keep pace with enterprise needs. However, as its offerings evolve so do the complexities of purchasing them, making effective SAP contract negotiation more challenging than ever.
SAP’s cloud focus, expanding solution portfolio, and push to move customers to its S/4HANA digital business platform has made it increasingly hard for enterprises to stay on top of changing product use rights, licensing/subscription options and pricing. The SAP estate is renowned for being difficult to manage from both a time and cost perspective, and the risk of overspending is high.
Fortunately, there are several steps customers can take prior to and during an SAP purchase or renewal to minimize this risk. Below are several ways to help you cut costs during your next SAP contract negotiation.
Navigating SAP License Negotiation: What it Involves
When it comes to negotiating SAP licenses, a thorough understanding of the intricacies involved is paramount for striking a favorable deal. Here's a closer look at what SAP License Negotiation entails:
Understanding Business Needs: Effective negotiation depends on grasping your business's needs. Identifying key functionalities shapes a tailored licensing agreement aligned with your objectives.
Cost Optimization: Securing optimal pricing and terms is essential. This involves exploring pricing models and leveraging bargaining power to maximize value within budgetary constraints.
Flexible Licensing Terms: In a fast-paced business world, flexible licensing terms to accommodate changes and growth are vital. Negotiating for scalability and adaptability ensures your agreement stays aligned with evolving needs.
Audit and Compliance Assurance: Clear audit processes and compliance procedures are essential. Establishing transparency minimizes risks and promotes compliance, protecting your organization from adverse consequences.
Support and Maintenance Agreements: A robust support and maintenance framework is crucial for SAP solutions. Negotiating the right level ensures timely assistance, safeguarding your operations.
Agreement Sustainability: Anticipating future changes is vital for a lasting licensing agreement. Incorporating flexibility ensures alignment with long-term goals.
Risk Mitigation: Identifying and addressing risks upfront is key for safeguarding the agreement. Proactively mitigating risks protects your organization from challenges.
In essence, SAP License Negotiation requires a comprehensive approach aimed at aligning licensing arrangements with your business objectives. By strategically navigating these dimensions, organizations can secure agreements that not only meet their current needs but also position them for future success in the ever-evolving SAP ecosystem.
How to Mitigate Overspending Risk During Your Next SAP Contract Negotiation
SAP purchase and renewal optimization is a complex process and highly specific to the customer’s unique current and future-state technical and business requirements. However, there are certain steps most any customer can take before and during SAP contract negotiations to reduce the risk of overspending.
1. Ensure right-size licensing/subscriptions before negotiations begin.
If it’s been a while since you inspected your SAP licensing and subscription choices for optimization opportunities, now is the time. Many enterprises miss the important step in ongoing SAP cost optimization, leading to overpaying for SKUs that are no longer the best option for their requirements.
One great way to eliminate overbuying and over-licensing is to routinely perform license/subscription optimization across your SAP estate. A License Position Assessment can provide excellent insight into what you actually use versus what you “own” and any delta that exists between the two. In some cases, customers may identify the need to get rid of unused licenses or subscriptions, or liberate that license currency to be used elsewhere. In other cases, customers may find they’re under-licensed and at risk for being found out of compliance. Both scenarios are grounds for significant cost savings and avoidance, and are foundational for your next SAP contract negotiation.
2. Don’t overbuy support and stop paying maintenance on shelfware.
Companies routinely overpay by purchasing more SAP support than necessary. Companies often opt for a premium support package versus a more standard alternative – even on underutilized products – or fail to evaluate less expensive third-party support alternatives.
The complexities of cloud migration only exacerbate this issue. Double payment for support is not uncommon as customers pay SAP professional services to handle unanticipated customizations while also paying for in-house support resources to handle lower-tier troubleshooting. It’s important for customers to determine the best-suited level of support for their unique SAP requirements (including the evaluation of third-party options) to ensure they’re paying only for what the need. Additionally, customers should perform price benchmark analysis for support costs to ensure they’re paying equal to or better than best in market.
3. Understand SAP’s changing indirect access policies for certain solutions.
In April 2018, SAP introduced a new pricing model to address growing concern around indirect access. the vendor also announced significant organizational and procedural changes to the way it handles software license audits. For many customers, this is a step in the right direction towards transparency – but only if the changes are fully understood.
Confusion around new definitions and licensing requirements have led many customers towards compliance risk. For that reason, customers should be clear on how SAP’s updated indirect access policies impact both compliance and cost across their SAP estate.
4. Perform price benchmark analysis.
As we alluded to earlier, price benchmark analysis allows you to determine if you’re paying a fair price for your SAP purchase or renewal. At NPI, we define “fair” as paying equal to or better than best in market pricing. How important is it? Our data shows if you fail to perform IT price benchmark analysis there is only about a 5 percent chance you are paying a fair price for any given IT purchase or renewal.
5. Proactively assess compliance risk.
SAP is known for aggressive software license audits, and this is not without reason. Noncompliance fees have become a major revenue stream for SAP and other software vendors. As you plan for your next SAP purchase or renewal, be sure your team assesses and proactively remediates any compliance risk. A license position assessment is a great place to start.
Strengthen Your SAP Contract Negotiations with NPI
If you are seeking effective measures to lower your SAP expenses, whether it's through cost reduction, renewals, or optimizing a new SAP purchase, NPI is here to offer valuable assistance. Through our comprehensive suite of services, including price benchmark analysis, license optimization, and software license audit expertise, we have consistently achieved remarkable results for our enterprise clients, leading to substantial six and seven-figure savings. Our proven track record and data-driven approach enable you to eliminate overspending across your SAP estate, right-size your investment, and drive substantial savings.
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