Tips for SAP Licensing Negotiations

According to a recent Forrester Research report, SAP does more than 40% of its licensing business in the last quarter of the year.  Since it’s that licensing time of the year again, experts are offering advice on getting the best deal from SAP.  Chris Kanaracus of IDG News Service has consulted several experienced SAP negotiators and Thomas Wailgum of ASUG News has reported on Duncan Jones’s Forrester Research report mentioned above for a fresh perspective.

Have a Strategy

According to Wailgum, the key to getting the best results from negotiating with SAP is strategy.

The one overarching message that is critical for customers’ success with SAP is one that Jones mentions at the end of the report: to actually have a strategy for how your company will approach SAP decisions and licensing negotiations.

In order to develop a sound strategy, it’s necessary to reach a consensus on how important SAP is to the business. Another important component of such a strategy is determining how many software packages and licenses your company currently needs and will need in the future.

If you find you currently have more licenses than you need, Ray Wang, a veteran SAP contract negotiator interviewed by Chris Kanaracus, offers some advice.

It might be possible to drop some licenses, although it’s undoubtedly more advantageous to build that option into the original contract. A second alternative would be to move unused licenses to some other application that might actually provide value for your business, Wang said.

Thomas Wailgum passes along two tips from Duncan Jones to avoid spending money on software that will sit on the shelf, unused.

First, [Jones] implores SAP customers to limit enterprise deals to what your company can actually consume—many customers he has spoken with “regret making multiyear deals,” Jones writes.

Second, Jones suggests that SAP customers secure some “protection” against SAP in case the vendor alters its product direction. “The same clients [mentioned above] also found that they now owned worthless package licenses for products that were now obsolete because SAP had replaced them with new developments or acquisitions,” he writes.

For example, Jones notes that many companies that included SAP’s XI integration solution in their enterprise deal “had to hand over more money to get its successor, PI,” he writes. “However, some savvy buyers had negotiated contract amendments that allowed them to swap products in their bundle for any new products with equivalent functionality, thereby mitigating the obsolescence risk.”

Align Incentives for Mutual Success

One suggestion that Chris Kanaracus reports that can help avoid shelfware and ensure that you get the most out of your software investment is to give your SAP sales team the right incentive.

You want an account manager focused on ensuring your success and solving problems, not searching for new revenue opportunities… So make it part of the deal that SAP reflects aspects such as product adoption in the account team’s compensation.

If new software fits in with your strategy, early adoption might be a good idea. Ray Wang explains why buying the beta version offers mutual benefits.

“If you have money to buy new software it makes sense to jump in on the beta because you can shape the product, despite the headaches,” Wang said.

In addition, SAP wants to showcase successful early customers of its new products and accordingly, it helps them out with services. Beta users can also gain favorable pricing terms, Wang said.

Don’t Cry Wolf

According to Ray Wang, threatening to abandon SAP does not provide any leverage in negotiations.

Salespeople at SAP are used to customers threatening to leave their company for another vendor, but such tactics only work if they’re not an actual bluff. “I don’t mean to be Dr. Phil here, but to get out of a contract you need to be ready to leave,” Wang said.

Also, if a customer’s relationship with SAP has gotten bad enough that a breakup is possible, it’s not likely to be truly repairable, he added.

“At the end of the day, you still pay them. You’re in control. You’re never truly captive. It is your own destiny,” Wang said. “But the first rule is don’t get into a relationship with a vendor unless you believe they’re going to deliver on their promises.”

Finally, here is a jocular tip from Jamie Oswald:

Always bring some donuts to a negotiating meeting. Never underestimate the bargaining power of a good food coma.