The Top 3 Risks in SAP Deals

The SAP sales strategy is designed to lock in perpetual risk and continual cost increases, featuring tactics that eliminate the customer’s ability to switch solutions or reduce annual spending. Although there are many sales tactics that present customer risk, the most pernicious three are (1) the SAP’s lack of pricing transparency, (2) its unique set of confusing licensing metrics, and (3) the issue of indirect access.

Pricing Transparency

Customers need product details to validate cost competitiveness, but these are not readily available from SAP. By design, the vendor bundles proposals so there is little line-item transparency into product SKUs and descriptions, list pricing, discounting, licensing metrics, achieved unit rate and applicable tiers. When asked for this information, SAP claims that the company does not provide it, or that de-bundling a solution will cost more. These claims are not true and are intended to dissuade buyers from obtaining data they could use to benchmark pricing.

Line-item transparency can eliminate significant risk, and it also establishes precedent pricing that can be used to evaluate future pricing. Further, customers with legacy SAP solutions that came bundled in a single fee will have a tough time determining if SAP is offering a fair credit as they make the move to S/4HANA.

In short, without pricing transparency, a customer has no idea how each product or metric is contributing their costs. If they want to convert or exchange licenses, then they are unable to verify that the SAP is honoring the fees paid for the specific line item that’s being converted or exchanged.

What you can do

In fact, SAP does provide line-item transparency when customers have leverage, which is predicated on a business case that conveys why transparency is needed. For example, one could state that the internal finance team requires line-item transparency in any agreement, to forecast how license growth will affect budgets going forward. Customers are advised to bring a valid business case to the table to get the vendor to provide transparency in its proposals.

License Metrics

SAP products are governed by over 80 licensing metrics, each of which can impact how costs are calculated and how licensing should be allocated. It is easy to fall out of compliance with SAP licensing, because the numerous and confusing metrics make it so hard to understand how to purchase and deploy licenses accurately.

In addition to creating compliance issues, the metrics provide SAP with a tool to inflate demand. The complexity of the metrics makes it difficultly to track usage, which prevents customers from optimizing their purchases. For example, one metric determines costs based on how much anticipated customer revenue will flow through their internal system. SAP makes customers commit to enterprise-wide revenue in fee calculation, even if specific business units are using the solution and have a small amount of revenue processed through the platform. Should the customer be unaware of this practice, they could easily fall victim to over-purchasing based on the definition of this metric in the SAP contract.

What you can do

The best way to protect the organization is to conservatively forecast with SAP, and request clear definitions and price holds for each metric. There are tools that help track SAP licensing metrics, such as the SAP Passport, but unfortunately, many organizations lack the specialized resources needed to use them, or do not fully understand their limitations. In these instances, clients are encouraged to bring in third parties with SAP license expertise.

Indirect Access

Indirect access happens whenever a company’s SAP system is accessed or queried through a third-party application, interface, gateway, middleware, or automated process (bot/RPA). In these situations, a single user account could actually represent hundreds of users that require SAP licenses.

To explain the requirements, SAP published a set of rules known as “Digital Access” to bridge the compliance gaps. To remain compliant with SAP, customers must constantly monitor their indirect usage, and true-up using the Digital Access licensing metrics whenever an overage happens.

However, tracking and controlling access to an SAP solution is not easily accomplished, even with SAP tools in place. When customers can’t track their indirect access with a specific, document process, it poses the risk that SAP will inflate audit findings in its favor.

What you can do

The SAP Passport is a helpful tool but will not mitigate all indirect exposure. To accurately assess their SAP environment, clients must conduct constant indirect access reviews and determine how end users are interacting with the SAP solution. This practice can be done by an internal software asset management (SAM) team – if they are equipped with SAP licensing expertise – or by a qualified third party.

For a look at our chart that covers SAP digital access calculation, or to discuss which solutions (such as CRM and RPA bots, which require third-party application integration) are not covered in older SAP contracts and present significant compliance exposure, contact a member of the ClearEdge Compliance team, or download our guide titled Top 3 ‘Gotchas’ in an SAP Agreement.