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SAP Indirect Usage – Is SAP Changing the Nature of its Relationship with Customers?

Written by Matt Fisher On the 0 Comments

Software giant SAP seems to have taken the love/ hate relationship with its customers to new heights recently. In February 2017, a UK court ruled in its favor against one of the world’s largest drinks companies, Diageo, in which it claimed £54 million (US $70 million) in unpaid fees for Indirect Usage of SAP systems by third-party applications.

More recently, Anheuser-Busch Inbev (AB Inbev) publicly announced that SAP is pursuing an arbitration process for up to $600 million in license and damages costs from direct and indirect usage.

Only this week at SAPPHIRE NOW, Bill McDermott, CEO of SAP, acknowledged customer anxiety around Indirect Access and announced that it would tackle certain pricing scenarios in attempt to clarify the situation. However, confusion still reigns.

We have previously covered the topic of Indirect Usage, what it is and how it comes about, there’s some ‘new’ ground to cover – we’ll look at why SAP has been doing this and what it might mean for the future of SAP’s customer base.
 

Who’s at risk?

Arguably, any SAP customer organization that has indirect access set up in their SAP environment is at risk of receiving similar treatment from SAP. However, the smart money seems to be on organizations with complex supply chains, such as those in the Consumer Packaged Goods (CPG) industry as these operations lend themselves to higher volumes of Indirect Usage. In very simple terms, the bigger and more complex your supply chain and partner network, the more of a target you are likely to be.

Audit is the last resort?

In the past, aggressively auditing the customer base has often been the last throw of the dice for a software vendor in its final death throes (Attachmate, anyone?). But this isn’t the case for SAP. Instead, perhaps it is a reaction to the slower-than-desired take-up of new technologies like S/4 HANA.

In fact, we’ve seen several instances where SAP has used S/4 HANA as a solution to fix customer licensing issues. It’s a commonly adopted tactic that many large vendors adopt to push their strategically important products.

But the recent court cases feel somewhat different; almost as if SAP is trying to suggest to customers that using competitive third-party solutions (perhaps using Salesforce instead of SAP CRM) comes with a penalty that makes sticking with SAP across multiple applications a more financially attractive proposition.

SAP = indispensable?

You only need to read the contents of AB Inbev’s public statement (page 154) to see its reliance on SAP systems. The language of the statement makes it clear that, while they intend to ‘vigorously defend’ the claim from SAP, they are not going to risk SAP having any cause to refuse to support their core systems.

Most of SAP’s larger users are long-term customers that have increased their investment in SAP systems year on year, in many cases for decades. Basically, their businesses are (as SAP’s advertising claims) built on SAP. Rip and replace is simply not a viable option.

And SAP must know this. Replacing an organization’s SAP systems with a different ERP system would be like uprooting the said organization’s offices and warehouses all at once. So, SAP knows that customers are about as locked-in as it’s possible to be in the software world.

Therefore, it can play hardball (with a sprinkling of empathy).
 

Building a career on SAP

Just as organizations have built their businesses on SAP, so many IT professionals have built their careers on it. When you know a company needs your expertise to implement, configure, customize and administer the monster that is SAP in the Enterprise, you are very likely to continue down the path of maintaining and feeding the monster.

In some cases, they’ve even built a lifestyle on it, enjoying the status and even perks that sometimes come with multi-million dollar annual software agreements.

In other words, rocking the status quo isn’t in their interests. Continued investment in SAP systems helps cement their position in the organization, adopting new technologies keeps the job interesting and a happy SAP rep makes life easier.

By all accounts, the relationship between many customers and SAP is just that – a relationship.

A step towards a clearer future?

This week’s SAP’s CEO, Bill McDermott, acknowledged customer anxiety and announced its first pricing scenarios to tackle indirect usage, linking it to SAP’s “empathy” towards its customers. For these new models, value is to be measured on outcomes. However, this is not a clear-cut fix: organizations must look carefully at their own circumstances to verify if these new proposals represent a reasonable licensing measure for the purposes of their business; modeling these scenarios without an automated solution will be particularly challenging and uncertainty still lingers around other indirect usage scenarios not covered by these initial proposals.

“Anxiety” reaches further up the chain

The problem for SAP is that exposing customer organizations, no matter how large, to the risk of an extra (and unbudgeted) $600 million for software licenses is kind of a big deal. The kind of big deal that can’t be muted by acknowledgements of anxiety in a keynote. The sort that gets the attention of not only the CFO and the CEO, but mostly likely the board.

While CFOs and CEOs of a large enterprise would agree that SAP is mission critical to their operations it’s very doubtful that they would agree that this should be “whatever the cost”. The heart of the problem may be, however, that the true scale of the overall SAP licensing cost is still an unknown.

Because SAP adoption has typically expanded over many years, as organizations have grown and merged, there is often no single owner of all SAP investments. This is especially true in multinational enterprises. The resulting lack of centralized clarity of spend has sometimes meant that the SAP spend has, in effect, been beyond scrutiny.

CFOs have been forced to accept (sometimes reluctantly, sometimes not) that SAP bills just get bigger each year as the organization increases its reliance on the software. And the opportunity to optimize or seek to reduce spend is too complex and political to bother with.

With its actions against Diageo and AB Inbev, SAP may have just turned the tables on itself. Now the nagging pain has become an excruciating abscess that must be lanced.

The nature of the relationship can’t help but change as customers around the world wake up to the risks surrounding Indirect Usage on (and beyond) their own networks.

The dawn of the ‘SAP Tsar’?

In the early 2000s, it became fashionable for Governments around the world to appoint ‘Tsars’ for areas of policy – trade, crime, information security – that urgently needed reform. A single figurehead that was empowered to make tough decisions and able to operate outside the bureaucracy of government red-tape.

Perhaps the time has come for large SAP customers to appoint their own ‘SAP Tsar’ or SAP task force to fully understand the organization’s reliance on, and exposure to, SAP costs? One figurehead to bring together the disparate SAP stakeholders and teams (and cost!) from across the organization. A figurehead to promote cross-functional working and to identify key areas of exposure, not least of which is now indirect access costs.

Given the recent developments, together with the push towards the increasingly-complex licensing terms associated with cloud and internet of things (SAP’s Leonardo program, for example), it is our opinion that SAP contracts must now come under more legal and financial scrutiny than ever before, as customer organizations seek to protect themselves against possible future action from SAP for usage that today seems innocuous.

While CFOs are often personally involved in SAP contract negotiations, we believe an SAP Tsar (who may be the CFO, another board member or even a board-appointed independent) must take a more active role in demanding more detailed information from the SAP teams to understand the current licensing situation and map the entire SAP system architecture to uncover indirect usage risks and potential future causes for concern.

A simple “it’s all in hand, trust us” from the SAP teams will not be sufficient.

The SAP Tsar and their task force will demand facts and figures, just as CFOs do with other parts of business expenditure.

The smart SAP teams will change their focus and realize quickly that their number one priority is to provide that information, together with insight about how to optimize spend to the SAP Tsar’s office.

There has to be a strong argument that whatever ‘special relationship’ SAP may have enjoyed with its customers in the past is now just that – a thing of the past. Suddenly, SAP customers around the world are wary of what the software giant’s next move will be. The assumption that SAP has their best interests at heart has been shattered and SAP has revealed itself as ‘just another software vendor’ more interested in short-term revenue than long-term customer success.

Time to take control

Snow Optimizer for SAP® Software reports on communications to and from external third party systems to identify the originating user in the third-party system, highlighting the users who are indirectly querying SAP and through which system. The solution reconciles third-party users against named users within the SAP system. It also enables customers to measure other licensing metrics such as orders, providing clarity around the proposed new pricing scenarios.

Through this functionality, Snow Optimizer for SAP Software provides comprehensive data about Indirect Usage which enables the organization to significantly reduce financial exposure and to highlight risk in the future.

If your organization uses third-party applications, or employs Business Analytics platforms to access data held in the SAP environment, you have a major SAP indirect access risk that needs to be addressed today. Please download a complimentary copy of the Garner report: Customers Must Resolve SAP Indirect Access Risk When Investing in SAP Functionality by clicking on the image below.

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