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SAP Licensing: 5 Tips to Keep Your Calm

Do your software contracts make you want to swear?

Many SAP customers currently find themselves at a crossroad. SAP has announced end of support dates for SAP Business Suite, meaning customers will need to move to SAP S/4HANA or an alternative solution by 2027, or by 2030 if willing to pay extra for customer-specific maintenance. There is also a strong push to SAP RISE. These changes have created an impetus for SAP clients to re-evaluate their ERP strategies, and there are many questions that need to be answered when doing so.

Should I keep using SAP and move to S/4HANA? If yes, do I use it for all of my existing business functions or a sub-set? What are my other ERP options? Do I have any contractual limitations associated with changing solutions? Should I move to Software-as-a-Service (SaaS), stay with perpetual licences, or use a combination? If I’m perpetually licensed, should I move to Infrastructure-as-a-Service (IaaS)? If I go down the IaaS path, should I consider SAP RISE or leverage my own hyperscaler agreement?

Take one wrong turn and it could have business impacts and lead to cost blow-outs, resulting in the use of many expletives. With data-driven and informed decision making, this crossroad can provide an opportunity for SAP clients to reassess and optimise their ERP and licensing footprint. Invictus Partners’ specialty is to help our clients explore their options, looking through a software selection and licence optimisation lens in the context of their broader business and IT strategy.

Here are our top 5 tips to help SAP customers avoid any “Oh $#!?” moments and keep your calm: 

1) Don’t let the “C word” get you down

COVID has been exceptionally challenging on many levels, for businesses and individuals alike. One of the key learnings for many companies has been that systems deployed decades ago (such as large monolithic ERPs) may no longer be fit for purpose in the current operating environment. There is a growing need to enable more agility and flexibility with IT architectures, that allow organisations to quickly pivot when the unexpected happens.

SAP is pushing a move from its now legacy  ERPs to SAP S/4HANA, which may offer some level of increased agility, but is generally considered a technical upgrade with a forced migration onto the SAP HANA database. SAP S/4HANA is still a large and complex system that will require a risky and expensive implementation project. This may or may not be the best path forward.

Now is the right time to develop an ERP and IT strategy that is better aligned to future business strategy and enables the business to be more fluid and capable of change at any time, yet also takes into account the significant complexities around selection, scoping, deployment and running of a completely new ERP system.

2) Do your own independent analysis

SAP and its partners may kindly offer to give their advice on your ERP strategy, however, recognise that they will also have a vested interest in what they are selling you. Don’t just accept what SAP, its resellers and consulting partners tell you. It is imperative that you engage a company that is going to bring true independence to the ERP selection process, as these are decisions that will impact your organisation for decades.

Although features and functions are an essential part of any ERP assessment, there are many other factors that should be considered when making a decision on the right solution for your business. When developing a business case, the upfront costs, as well as the ongoing operational costs, need to be carefully considered, as these can vary widely. 

Experts in the ERP industry, like Invictus Partners, can provide strategies and support on how best to select and negotiate with vendors, including software costs and contractual clauses that can help safeguard your implementation and optimise ongoing support fees.

3) Talk to a licensing expert BEFORE diving in

If SAP S/4HANA is part of your organisation’s future ERP strategy, before diving headfirst into this migration there are some key things to consider. 

First and foremost, an SAP-specific licensing strategy will be dependent on whether you are planning to deploy SAP S/4HANA on-premise, running on a hyperscaler platform, and/or contracting with SAP via their RISE offering. When building the business case and evaluating the ROI of a move to SAP S/4HANA, consideration of the licensing implications is equally important as the implementation and stabilisation costs. Current SAP licensing structures are generally not reflective of future requirements. Getting the estimates even slightly wrong can create compliance risk or cause unnecessary overspend, destroying the credibility of the business case.

This is why it’s critical to get a thorough understanding of present position and future software licence requirements, the actual negotiation value of software assets, along with budgetary and compliance implications. The combination of mixing on-premise and SaaS, adding new applications and even vendors into the mix, plus the general opaqueness of SAP licensing models, adds a significant layer of complexity. 

Organisations that understand their software assets and costs before taking the plunge into new technologies often emerge as clear front runners in the race to evolve and grow their business. These organisations can move forward with the confidence that they are spending their money wisely and will be more agile than their competitors. They have better clarity on what is needed to extract value from their existing investments and to move forward with the architectural changes required in a digital world.

4) Don’t assume Cloud-based licence management is easier or cheaper

Before embarking on replacing SAP Business Suite with best-of-breed SaaS solutions, or migrating workloads to the Cloud (via SAP RISE or a hyperscaler), it is imperative to have a thorough understanding of the implications of such a shift. A move to Cloud can trigger compliance clauses and additional costs could rapidly accrue.

Whilst on the surface SAP SaaS solutions appear to be lower cost and easier to consume and manage, there are numerous factors (e.g., user numbers, newer licensing models and functionality) that will impact the actual cost of running these solutions. It is common for business cases not to be achieved. It will likely pay dividends to understand the business requirements and then purchase and consume a solution to match. 

When moving to a SaaS model there is a significant shift, from the organisation owning the software assets, to the vendor owning the assets. This may impact the ability to quickly pivot, or consider options like third party support. SaaS solutions also limit process flexibility, which has pros and cons. If the solution is not a good fit, this can create significant challenges within  your business. Given this complexity, it’s really important to do your due diligence on a product-by-product basis.

As organisations look to leverage Cloud infrastructure offerings for existing workloads and business applications (primarily with the goal to reduce Data Centre footprints and costs), the reality of this being a perceived “lift and shift” is far more complex and risky. Cloud infrastructure consumption-based cost models often displayed as fractions of cents, can lure the unprepared into thinking that significant savings are coming their way. The reality is that these costs quickly add up and often run into higher dollars than running on-premise Data Centres. Detailed understanding of compute usage and operational best practices are essential to a successful migration.

If done right, a shift to the Cloud provides the opportunity for organisations to reassess and optimise their software and licence requirements. Invictus Partners recommends working with experts to understand the challenges and considerations associated with a migration to the Cloud. 

5) Stay compliant before, during and after 

Changes over time, either within your organisation and/or on the SAP side, can have a material impact on enterprise software licence compliance. Having a clear understanding of contractual obligations at any point in time is critical, particularly if there have been multiple contract amendments, changes to organisational structures, acquisitions, divestitures or implementations of new solutions that may impact access and usage (for example, Indirect Access in the case of integrations to the SAP core).

Software licensing is dynamic and ever-evolving and the possibility of SAP issuing an audit is ever-present. As businesses increasingly transition to more digital-enabling technology, licence footprints and management can easily grow in complexity. The result can either be overspend on software, or punitive fines from over deployment. It's a delicate balance between paying too much on software that doesn’t get used, or having to pay fines from overuse. 

If you don’t have the in-house resources or expertise to proactively track and manage your ongoing licence compliance, assess the value of your assets as you go into a negotiation, or develop your own independent business cases, there are independent and objective advisory organisations that can assist you. Know your compliance position along with the value of your SAP assets, and consider using independent Software Asset Management (SAM) processes, tools and trusted advisors.