Negotiating With SAP — Weighing Different Advice on Tactics for Q4 Smack Downs (Part 1)

Earlier this month, Forrester's Duncan Jones published a detailed SAP sourcing op/ed in the form of a research brief titled Three Key tips to Optimizing your Commercial Relationship With SAP -- Encourage SAP to Adapt to Current Licensing trends Forrester subscribers can access the research here. Even though we're not SAP (or even more broadly speaking IT negotiation and sourcing experts) here at Spend Matters, the topic is worth discussing given the substantial percentage of readers it affects. Duncan frames his argument, saying "many sourcing and vendor management professionals are currently facing tough negotiations with SAP, which does over 40% of its license business in the fourth quarter." He then frames the challenge that companies face in preventing rising maintenance costs while budgets and value delivery decrease, achieving an appropriate price level on license purchases and resisting unreasonable non-compliance claims. All in all, Duncan's work represents an opinionated primer on a topic that certainly goes past SAP in much of its general advice.

Yet I wanted even more direct insight from Duncan -- so I reached out to him, and here's what he shared. Duncan believes "SAP as an organization and as a leadership team has a big dilemma. On the one hand, the financial markets expect them to be like Oracle, taking advantage of their invulnerable position to milk the installed base of maintenance revenue. Yet on the other hand, they want to be a sexy software company selling great new products to eager customers. But they can't be both. Because the customers they're stiffing on the one hand by overcharging for maintenance, a lot of it on shelf-ware that isn't delivering value, aren't going to buy the new products from them, however good they are."

Further, "by definition, to customers who have all the ERP users they'll ever need, the only way SAP can get license revenue is by moving into new functional areas, which it doesn't understand. And why would you buy, say, an SXM product from SAP rather than a more focused, smarter, more customer friendly, SaaS competitor such as Emptoris or Zycus?"

How should you engage with SAP from a contracting and renewal/maintenance perspective? Here, Ducan's advice to SAP customers is "to get as high as possible in SAP's organization, so you're speaking to SAP execs that can listen, and hear your concerns, and do something about them. Then make it clear to the SAP execs that the relationship is at a fork in the road. Either they can continue as a good customer buying SAP products in preference to alternatives, in which case they'll want as good if not better treatment than they get from niche vendors, or they'll start their controlled exit strategy involving no new money and gradual reduction of the maintenance stream (or even defection to RiminiStreet). Either get closer, with a more balanced commercial deal based on real partnership, or start to get away."

In Part 2 of this post, we'll offer another perspective from a former colleague of Duncan's.

Jason Busch

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