The CIO’s playbook for managing an SAP relationship

CIO Playbook

Part 1 of this series, Understanding the Baseline, shows how CIO's are challenging their organization to baseline and assess their SAP relationship well in advance of a negotiation.

My father was a second-generation plumber and he believed it was important for all of his children to learn the basics of the various trades.  I recall my first lesson coming from my experience painting.  I remember being very eager to engage and grabbed the roller. He laughed, and preceded to hand me a scraper, sheet of sand paper and a putty knife.  I quickly learned my place and came to understand a job well done begins with detailed preparation. 

My childhood painting lesson proved to be invaluable.  It has been a guiding principle for how I have supported various CIOs in the management and negotiation of key IT relationships over the past 15 years.  My experiences supporting these executives further validated that a significant contributor to a positive IT relationship and effective commercial negotiation begins with detailed and well-timed preparation.       

Too often I have witnessed companies prematurely forced into a negotiation as a result of an event created by SAP (e.g. audit) or their company (e.g. merger).  These organizations are compelled to operate in a reactionary manner, and challenged to fully understand their existing relationship with SAP, resulting in uncertainty and doubt.  In most cases, these situations result in below market commercial agreements, increased risk and strained relationships, both internally and with SAP.

On the other hand, I have also partnered with IT executives who recognize the need to anticipate such events and proactively undertake a detailed baseline and assessment of their SAP relationship well in advance of entertaining a commercial discussion.  In our experience, these executives assemble cross-functional teams comprised of Business, IT, Finance, Procurement, Legal and experienced third party advisors to assess the following:

1. Relationships:

  • Internal Stakeholders:  Companies have come to understand their stakeholders extend beyond the CIO and business transformation leaders to the CPO, responsible for Ariba, to the head of HR responsible for SuccessFactors.   These organizations engage with all stakeholders to determine individual objectives, risks and opportunities across the entire SAP relationship. 
  • SAP Stakeholders:  Driven primarily by SAP’s acquisitions, companies recognize that SAP’s organizational structure and executives responsible for product and service lines are changing and that new relationships must be forged.
  • SAP Governance:  Proactive organizations come to understand the benefits and structure associated with being designated as an SAP Anchor Account or adopting SAP’s Customer for Life relationship management model.

2. Agreements:

  • Agreement Inventory:  For some organizations, this is an extensive exercise that requires a detailed summary of SAP’s on-premise agreement and appendices, as well as SAP Cloud services agreements for Ariba, Concur, Fieldglass, Hybris, SuccessFactors, etc.
  • Commercial Assessment:  Organizations are well advised to conduct an independent mark-to-market assessment of current business and financial terms.  In addition, they understand the importance of identifying terms and conditions that may be expiring or require renegotiation.  
  • Contract Assessment:  An undertaking to be conducted by procurement and legal, team members must identify the legal, security, and regulatory revisions to be addressed as part of the next commercial negotiation.  Clients are also advised to understand SAP’s Cloud GTC terms in comparison to legacy Cloud agreements.

3. Compliance: 

  • SAP Audit Scope:  Organizations have become aware that an SAP audit extends beyond the traditional LAW reports and reporting on metric based solutions. They understand audits may also extend to an assessment of third party software interfacing with SAP software.  
  • SAP’s Audit Strategy:  Organizations have started to recognize that SAP’s audit strategy extends beyond protecting IP, driving a sales event and revenue.  In many instances, the audit is intended to marginalize best-of-breed competition (leveraging cost associated with an indirect access claim) and enhance positioning of SAP solutions like Hybris.
  • SAP Self-Assessment:  Understanding the implications of SAP’s audit strategy, many organizations are engaging with specialized third-party advisors to proactively undertake self-assessments. The purpose is to assess the application environment, quantify  financial risk and assess the contractual provisions SAP may leverage to justify its claims in advance of an SAP audit.
  • SAP Audit Resolution:  Organizations will become educated on the avenues to (i) resolve a compliance issue commercially, (ii) modify existing agreement to remove ambiguity and (iii) understand the scope of the release SAP is willing to provide as part of a resolution.   

4. Optimization:

  • Entitlements:  Organizations are generally positioned to identify users and metric entitlements; however, they come to understand that quantifying SAP’s view of the list license fee value of software entitlements is a prerequisite to maximizing their total investment via software exchange rights. 
  • Utilization:  Organizations will quantify the users and engine use in comparison to their entitlements and identify optimization opportunities.  They will also extend this exercise to include alignment with their future state roadmap in order to identify additional optimization opportunities.
  • Flexibility:  As part of the optimization assessment, organizations will evaluate their agreement and determine if they have the contractual right to optimize prior investments via (i) termination, (ii) software exchanges or (iii) park and suspend provisions.
  • HANA Licensing:  Organizations will also come to understand that SAP prices HANA as a percentage of the application software value of all licensed software.  They recognize there could be an inherent premium associated with HANA if they are underutilized.  
  • Oracle DB to HANA:  Organizations with Oracle licenses purchased via SAP that are contemplating a move to HANA come to understand there is an opportunity to rationalize their Oracle licenses for the purpose of offsetting the cost associated with a migration to HANA.   

5. Demand:

  • Roadmaps: Organizations will mobilize to develop an SAP roadmap in the context of their business priorities. These organizations are collaborative; however, they manage the timing associated with engaging SAP. 
  • Projected Demand: Organizations will create transparency by business unit and identify potential capital funding associated with projects that may require SAP investment.  Some will recognize the opportunity to partner with Finance to assist with driving this process.
  • Unbudgeted Demand: Organizations will account for potential events (e.g. M&A, Divestitures) as part of formulating their demand profile.  They also recognize certain projects not contained in the approved capital plan are inevitable and estimate this demand into their forecast.
  • Forecasted Investment:  Organizations that truly understand their environment will take a holistic view of their (i) compliance exposure, (ii) optimization opportunities and (iii) projected new demand to determine their net incremental spend required with SAP.

Over the course of my professional career, I have been encouraged to manage my enthusiasm and prepare before running head long into a project.  Executives that encourage their teams to put down the rollers (typically presented in the form of an SAP proposal) and pick up scrapers, sand paper and putty knives, are positioning their team for success.  The alternative is deploying a team with great enthusiasm and the best of intentions that is at risk of hastily painting over an SAP relationship in need of fundamental improvement.

I look forward to publishing Part 2 – “SAP Negotiation Preparation” in the future. 

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