Selling and Negotiation

7/29/2019 Selling and Negotiation

1/24

SELLING AND NEGOTIATION


2/24

Introduction

What is ERP?

What is the problem?

Our requirement Strategy Selection

Negotiating

Finalizing

Implementation

Conclusion


3/24

INTRODUCTION

Panda Retail - rapidly growing chain of retail

outlets.

Requirement - To integrate various business

processes, make them centralized and

stimulate growth.


4/24


5/24

ISSUES WITH ERP

ERP software represents a major financial and operational

investment for any organization implementing such systems.

Given the long-term impacts of an ERP purchase, license and

pricing negotiations with an ERP vendor take on real

significance, and should be handled with the care reserved for

other large, capital purchases.

ERP

Major financialand operationalinvestment

Purchase, licenseand pricing

negotiations needto be handled with

care.

Long-term impacts


6/24

Effective SAP Pricing And Licensing

Negotiation

EXECUTIVE SUMMARY

Sourcing and vendor management professionals involved in negotiations with SAP feel caughtbetween their managers' expectations and the vendor's dominant negotiating position. However,vendor managers can win significant savings and protect their enterprise's future interests byemploying a smart negotiation strategy. The discount level is important, but there are other licenseneeds and risks that could be worth more in the long term than a few extra discount percentagepoints. Software sourcing managers should do thorough research, working with different colleaguesand external advisors, to assess the possible future impact of relevant IT and corporate strategies.

They then need to analyze this to define the risks they want to mitigate via their license agreement.Purchasers also have to understand the strength of their negotiation position by analyzing the threedistinct purchase types: initial purchase, license extension, and maintenance renewal. Bringingthese two dimensions together, buyers can better prioritize what they want to get from SAP andplan how to get it.

TABLE OF CONTENTS

SAP Pricing Vagaries Make Negotiation A Challenge

Successful SAP Negotiations Go Beyond The Discount Level

Prioritize Goals And Identify Levers To Plan An Effective Negotiation Negotiation Best Practices For The Three-Stage SAP Relationship Life Cycle

WHAT IT MEANS

Sound License Agreements Let Enterprises Optimize Their Use Of SAP

Related Research Documents


7/24

The report suggests that buyers look beyondgetting SAP to discount a few percent off theinitial license purchase. Instead, Forresterrecommends buyers evaluate their strategy, and

potential risks, to negotiate a deal reflectinglonger term business goals. To accomplish this,buyers must understand their own requirements,while remaining aware of SAPs strategies and

goals. The report describes some of the dynamicsdriving SAP when they sit across the table duringa license negotiation


8/24

SAP PRICING VAGARIES MAKE NEGOTIATION A CHALLENGE

An enterprise-wide ERP system represents the top one or twotechnology investments that an organization will make over a 10-year period, and the ongoing maintenance consumes a significantportion of the annual budget. CFOs expect their vendor managers

to keep these costs under control, yet they often have a weaknegotiating position. A buyer cannot realistically threaten to switchto another vendor or cancel maintenance if SAP knows it is thecustomers strategic platform. Adding to the complexity and fuelingcompanies angst, SAP does not offer a published price list, sobuyers are left second-guessing themselves as to whether or not

they got a good deal. The most common complaint we hear frominterviewees is that SAP pricing is complex and opaque.


9/24

INSUFFICIENT FORESIGHT LEAVES FIRMS HAVING TO WRITE BIGCHECKS DOWN THE LINE

The complexity increases throughout the software ownership lifecycle, given that firms must live with the application for tens ofyears changes to the business over that time directly impact the

number of users and the scope and validity of the licensingagreement. 2 Most of the licensing problems weve heard fromclients could have been avoided if theyd foreseen the risk andaddressed it during the original negotiations. Complaints to usoften start with the phrase, I would have thought that . . . Buyersoften make incorrect assumptions about how SAP will handle future

situations. By the time they find out the licensing implications of abusiness change, it may be too late: The buyer has a much weakernegotiating position after the initial sale and may struggle to getany more concessions.


10/24

SUCCESSFUL SAP NEGOTIATIONS GO BEYOND THEDISCOUNT LEVEL

While most companies naively focus all their bargainingenergies on getting the best purchase price, the problems

described above could cost an enterprise far more than thefew extra percentage points of discount that they extract.Unfortunately, successful risk mitigation is far less visiblethan the headline discount percentage. Many of ourinterviewees had bought SAP licenses worth more than $5million at list price and had obtained an extra discount of

up to 10% on licenses, which would be worth $500,000. Instark comparison, contractual issues could easily createliabilities for an additional 25% of the license expense,which would cost $1.25 million.


11/24


12/24

ERP contract negotiations, with SAP or any

other vendor, should always address both

short- and long-term considerations. Seek a

fair and reasonable deal based on diligentadvance preparation, keeping in mind that

fair and reasonable means just that; it

doesnt mean getting screwed by your vendor.


13/24

SAP Maintenance

Standard offering (17%)

Technical Support and Rights to New Versions

2 Early Watch checks and either SAP GoingLive Check, SAP GoingLive Functional Upgrade Check, or

SAP OS/DB Migration Check.

Max-Attention Service Level offering (20%)

Guaranteed response time for very high priority incidents Safeguarding for up to 2 mission critical projects and named contact in SAP support services

Max-Attention OnSite offering (23%)

Above plus two full-time on-site consultants


14/24

User Vendor

Ramped or stepped

maintenance disappearing

Selected versions not included in

maintenance

Maintenance policy changing at vendor

will

Vendor cancellationfor convenience

Shortened support periods

for prior version

Increased maintenance fees

Maintenance starts day the license is signed

Separation of technical support from rights

to new versions

Removal of technical support during

warranty period

Decreasing level of service in standard

offerings

Software Maintenance Trends


15/24

Maintainance


16/24

M i t R i t t t F


17/24

Onerous term and condition:

If you drop maintenance, but after a year, want to re-start it,you are subject to whatever we want to charge at the time,and you will have absolutely no leverage.

Likely way presented in SAP agreement:

In the event Maintenance is declined for some period of time,and is subsequently requested or reinstated, SAP will invoiceLicensee the accrued Maintenance Fees associated with suchtime period plus a reinstatement fee.

Example of solution (not legal advice):Licensee can resume software maintenance for lapsed periodsby paying an amount no greater than the support fee that wouldhave been due if software maintenance had been continuedover the lapsed period.

Maintenance Reinstatement Fees:Maintenance Is Forever?

SAP Li T t N ti t


18/24

License Model

Choice of e-business platform = all SAP applicationsor solutions = CRM, or other single application.

Fee for three role-based, named users.

Automated B2B transactions charged via software engines based

on sales and purchase orders.

Maintenance: 17 - 23 percent

Top Five Terms to Negotiate:

Full 100 percent credit for R3 investment, and for future conversionfrom mySAP ERP to mySAP Business Suite if required.

On larger deals, minimize uplifts outside

Euro-zone countries Understand indirect access: Specify exactly when licenses for

external systems accessing SAP software are required, beparticularly careful with BW (OpenHub)

Right to outsource

Rights to custom-developed code

SAP License Terms to Negotiate:For Your Eyes Only


19/24

Charges for Changes in Technology

Example of onerous term and condition:If the licensee decided to change from one supporteddatabase to another supported database, the cost fordoing this will be horrendous.

Likely way presented in the contract:Database: Oracle (or any other specific database listed)

Example of solution (not legal advice):

Licensee may transfer this software, at no additional cost, toany hardware platform, software operating system, ordatabase that the vendor supports for this software.

M i t R i t t t F


20/24

Onerous term and condition:

If you drop maintenance, but after a year, want to re-start it,you are subject to whatever we want to charge at the time,and you will have absolutely no leverage.

Likely way presented in SAP agreement:

In the event Maintenance is declined for some period of time,and is subsequently requested or reinstated, SAP will invoiceLicensee the accrued Maintenance Fees associated with suchtime period plus a reinstatement fee.

Example of solution (not legal advice):Licensee can resume software maintenance for lapsed periodsby paying an amount no greater than the support fee that wouldhave been due if software maintenance had been continuedover the lapsed period.

Maintenance Reinstatement Fees:Maintenance Is Forever?


21/24

Increased discounting, but new

customers treated better than

installed base

Only 25% of installed base has

converted to mySAP licenses.

These were larger customers with

strongest rationale to upgrade.

Believe the next 25% will take more

convincing

Time of year (Year end December)

Portal deals

Size of deal (average deal size in

2002 approx Euro 420,000)

Credible competition

Industry vertical (processknowledge)

Geography/Mid Market (reference

account)

ego a ng evers:Never Say Never, Again


22/24

Pay-as-You-Go Agreements vs Buying

everything up-front...

Evaluate against buying exactly what is needed

Establish minimum licenses to be retained after contract term

Ensure that licenses are transferable without limitation

Include new functionality and products in agreement

Build in flexibility to accommodate business change

Negotiate full credit for existing licenses


23/24

Whats in a Suite...?

XI for non-SAP apps

Master Data management

Industry Solutions

xApps

mySAP

Business Suite??


24/24

Six Steps of Preparation for Licensing with

SAP

1. Establish a negotiating team with representation from all participatingbusiness units.

2. Define requirements over two to three years with focus on fundedprojects.

3. Perform a physical inventory of SAP licenses and existing contract terms;

understand new models and terms. Compare with new proposal.4. Determine whether purchase can be made under existing agreement.

Weigh re-licensing benefits against loss of favorable terms.

5. Balance additional discount with potential shelfware.

6. Leverage competition.