Many customers, including Snow customers, rely on SAP to run their businesses. It is a critical part of their operations and the SAP S/4HANA migration will have a fundamental impact on all of them, whether they’re getting accustomed to a migration that’s already occurred or they’re dedicating significant resources to their upcoming move. According to SAP’s website, companies that have made the move to SAP S/4HANA are seeing significant results including double-digit revenue boosts and noticeably improved productivity.
To get insight on preparing for an SAP S/4HANA migration, I recently interviewed Dr. Michael Sandmeier, an expert in the field of SAP licensing. Dr. Sandmeier has spent the last fifteen years advising companies on how to prepare for complex SAP investments. His company, Sandmeier Consulting, is the market leader for SAP license consulting and management in Germany.
Q: Before embarking on the migration, what is the first thing that customers should do?
Dr. Sandmeier: The first step should always focus on the past and present, not the S/4-future. It is important for customers to have full insights into what they are contractually allowed to use and what they are using. In our experience, customers are not fully aware of this. Typically, this is because they have many SAP contracts and personnel fluctuations. It is important to start with a contract analysis to set the baseline and identify potentially important special agreements between the customer and SAP. When we evaluate the actual usage based on the contracts, we can define the perfect fit. The next step would be to evaluate the S/4 potential and compare it to the optimized ECC licenses, as in the example below.
Q: I have heard that S/4HANA licensing is based on authorizations. How is this different from previous licensing and what challenges will that present?
Dr. Sandmeier: That is correct. In the past, licensing was based on actual usage. So, every person needed a license to match their usage. SAP is unable to verify the actual usage but counts the number of used licenses. This was and is a huge advantage for customers. With the adoption of the S/4HANA model, authorizations become relevant for licensing. The related issue is that a user can only use what they’re entitled to in the SAP system. The authorized functionality is always significantly more extensive than the functionality used. Measuring the authorizations always leads to an increase in price. Today, SAP is unable to track authorizations, but they plan to do so in the future. This is unwelcome news for the customer. Even if a user does not use the full set of transactions they’re entitled to, all authorizations still must be licensed. Think about a minibar in a hotel. Normally, you get billed if you pick a drink from it. Based on the authorization concept, you would be billed for the entire contents of the minibar even if you did not drink anything! In the future, this means customers should challenge their authorizations and cut them down to mirror their exact requirements.
Q: Customers have a choice to go with either a contract or product conversion. What are the main differences and how should customers decide which one to choose?
Dr. Sandmeier: It is all about choosing by numbers. Firstly, a customer should build a business case for a product conversion and compare it to a contract conversion. To be honest, it is a little bit more difficult than it sounds. The main difference is that a product conversion means that all Line of Business solutions (Engines) switch to S/4HANA Line of Business solutions, but the users stay the same. A contract conversion means that licensed users and Line of Business solutions are both switched. Generally speaking, a product conversion could be cheaper if the customer just wants to use the S/4 system like their existing ECC system. A contract conversion could be better if the customer plans to invest in new scenarios, take advantage of innovative technologies or get rid of shelfware. However, the decision is always highly individual.
Q: Should customers look to move to S/4HANA now or should they wait until closer to 2027?
Dr. Sandmeier: 2027 is not that far away, especially when a complex migration is necessary. We would not advise waiting until 2027, but also, we would not advise acting rashly. You must bear in mind that we’re talking about a contract that replaces 20 years of SAP licensing. The conversion should take the history into account and, of course, the authorizations. If a customer wants to switch to S/4HANA now, there must be a defined transition period with rules. During the migration period, the customers also should redesign their authorizations based on the SAP license types. This could be a considerable task. If you’re planning to invest in SAP software in future years, it could be beneficial to use that investment to cover a contract conversion, particularly as contract conversions are the mostly heavily discounted.
Get more expert advice on preparing for an SAP S/4HANA migration
In the second part of this interview series with Dr. Sandmeier, we get his expert thoughts on RISE with SAP.
You’re also invited to join us for a live webinar on October 20, 2022, where we will be discussing licensing challenges in greater depth with Dr. Sandmeier.
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