What Are Major Stumbling Blocks When Negotiating With SAP?

ByShaun Snapp

Executive Summary

  • This article addresses one of the most critical factors for obtaining the information necessary to negotiate against SAP.

Introduction

It is crucial to consider the problems inherent in negotiating with SAP. For each of these issues, we will discuss a solution.

Negotiation

To begin let us review a definition of negotiation.

Negotiation is a dialogue between two or more people or parties, with the intention of reaching a beneficial outcome with respect to one or more issues where a conflict exists.

Negotiation is an interaction and process between entities who aspire to agree on matters of mutual interest, while optimizing their individual utilities. – Wikipedia

Issue #1: The Information Imbalance Between SAP and the Software Buyer

There is a significant information imbalance between SAP and the software buyer. Part of this information imbalance is that the software buyer does not know what parts of what SAP says is true. IT departments do not negotiate with SAP, procurement departments do, and they are not experts in either IT or SAP. Sometimes the IT department works well with the procurement department, but in most cases that we have seen, these departments work more in silos. We will address this topic more in Issue #2.

The Problem With the Information Coming from SAP Sales

As is usually the case with software vendors, the information from SAP does not come from people with significant domain expertise but instead comes from SAP salespeople. Even though they are constantly in contact with both new and existing SAP customers, SAP salespeople know surprisingly little about the reality of SAP implementations. They know close to nothing about SAP technology, aside from what they repeat from other sources in SAP.

Naturally, SAP salespeople have access to various resources internally, but that does not mean they understand what their resources tell them. And in our experience, they often do not.

Secondly, SAP sales do not provide entirely or even mostly accurate information to prospects. SAP sales do not tell customers the real history of implementation success of each product or a host of other important information that would improve the customer’s decision making.

The Solution to This Issue?

The solution for the information imbalance is access to accurate information on SAP. Everything the SAP salesperson says can be taken as necessarily true.

Issue #2: Procurement’s Incentives

Procurement departments are very focused on reducing the purchase price. Vendors often take advantage of this by providing a discount, making it appear as if the procurement department has done its job. Procurement relies upon the need statement from the IT department. However, the IT department has not vetted the software bill of materials from SAP in many cases. This means that generally, in SAP deals, a number of the products purchased by the customer are not required. Some of the SAP products pushed may not work, or if the customer knew more about them, they would not want to purchase them. However, if products are removed from the bill of material, the discount is retracted. However, the addition of unneeded products increases the base deal cost before the discount is applied.

Overall, it is very odd that SAP customers think that a procurement department is sufficiently experienced to negotiate against SAP. For most procurement departments, software is the most complex item they purchase. Having worked with several procurement departments, it is quite apparent that they require much more support than IT departments can offer in negotiating with SAP.

The Solution to This Issue?

IT departments do not maintain a research capability, and the research that IT departments purchase, such as from Gartner or Forrester, has financial conflicts with SAP and from other vendors.

The solution is to obtain information about SAP that is knowledgeable on the topics and independent from SAP.

Issue #3: The Different Type of SAP Negotiation Support Which is Available

Type 1 Negotiation Entities: General SAP Consulting Firms

Companies that perform SAP implementations like Deloitte, Accenture, or Infosys like to present to be independent advisors. However, each of them has long-standing partnerships with SAP. They are recommended to new customers or clients through SAP, and SAP can choose which consulting company to reward, and therefore has a great deal of power over its consulting partners. All SAP consulting firms value their relationship with SAP more than any individual client.

SAP consulting companies try to “lightly advise” companies and generally stay out of the way. Less they are viewed by SAP as working against SAP’s interests.

Therefore, software buyings that rely on SAP consulting firms end with nothing but fake negotiation support. SAP consulting firms are always aligned with SAP interests over their client’s interests.

Type 2 Negotiation Entities: SAP Software Licensing and Negotiation Firms

These firms focus on negotiating software deals and sometimes do consulting work.

These companies usually focus not on the technology but on getting the best price for what is agreed upon to be purchased. Their specialty is knowing the counts of the licenses needed by the client and then optimizing them and optimizing their price. In a dispute between a customer and a vendor, they can use software to determine how many licenses are being used and compare them to how many licenses were paid.

We have subcontracted to these companies in the past, and they try to present our research as their own. However, as they don’t know our area, it is a bad value for the client. Their focus is primarily on reducing acquisition costs, and some of these companies are paid a percentage of the costs that they save the client. These companies are not qualified to know if the software buyer requires different parts of the software bill of material. Therefore, the support that they provide is entirely one-dimensional.

Overall Options for Negotiating With SAP Support

  • The options for negotiating with SAP support are not good.
  • The reality is that most SAP deals are sold without the SAP customer being properly appraised on SAP or how to get a reasonable deal from SAP.

The Solution to This Issue?

The companies that offer support in negotiating with SAP either have financial conflicts or overfocus on reducing the acquisition cost.

About SAP Software Licensing Usage Analysis

  • There is frequently deliberate “stuffing” of software bill of materials by vendor sales teams.
  • Often the software vendors position themselves between being a salesperson (which is what they are) and being a “trusted advisor.” They will correspond with their customers by saying they “recommend” a certain number of software products and licenses without ever acknowledging that they are incentivized to sell as many products and as many licenses as possible.
  • This stuffing of the software bill of material with what ends up being unused licenses is typical, particularly among the most prominent software vendors.

Providing excellent software license consulting support for usage analysis means understanding the implementability of the purchased systems and the objectives of the software buying company.