Evaluating S/4HANA? Don’t let SAP omit these financial items


Many dollars bills in a mousetrapOne year has passed since SAP announced S/4HANA, SAP’s next generation business suite architected with a new code line and powered by HANA, its most advanced in-memory platform. Some of the key innovations emphasized by SAP’s new flagship product include faster analytics and reporting, smaller total data footprint, fewer process steps, and higher throughput. In a recent blog, UpperEdge discussed the latest innovations including the “Materials Management & Operations” functionality brought by S/4HANA latest update.

While you might be trying to build a business case for migrating to S/4HANA, keep in mind you will have to switch your existing relational database for SAP HANA in-memory database to utilize S/4HANA ERP Suite and its upcoming features. By making HANA the required database to run S/4HANA, SAP is cutting competing database providers out of the picture and taking market share.

SAP is completely committed to its HANA strategy and is aggressively approaching the market.  Therefore, organizations should expect to be presented with an S/4HANA proposal sooner or later and prepare as to how to evaluate SAP’s proposal and identify some key financial issues to address with SAP.

Based on UpperEdge’s experience, the following is a list of key financial considerations we recommend addressing with SAP as part of your evaluation process.

A. Request Full Pricing Transparency

While discussing the S/4HANA pricing structure, Swen Deckensen, SAP SVP of Product Management recently stated: “There will be incentives and pricing and we will communicate those”. SAP has yet to provide any details. However, SAP has identified an initial set of licensing editions as follows:

SAP S/4HANA, On-Premise Edition
SAP S/4HANA, Public Could Editions:
ο SAP S/4HANA, Cloud Enterprise Edition
ο SAP S/4HANA, Cloud Project Services Professional Services Edition
ο SAP S/4HANA, Cloud Marketing Edition

  • We recommend requiring SAP to provide your organization with complete pricing transparency on all options, including pricing metrics and associated list prices per metric, as well as identifying current and planned future functionality for each option.

Once your organization migrates to S/4HANA, switching to another solution in the future is generally not a viable option. Therefore, it is critical that organizations’ have a complete picture of the upfront and downstream financial costs in order to make a well informed decision. Additionally, as an early S/4HANA adopter and taking into account the strategic benefits to SAP highlighted above, organizations have considerable leverage to negotiate highly competitive discounting and other commercial terms.

B. Request SAP to Provide Migration and Training Credits as an Investment in the Relationship

There are considerable costs associated with migrating from your current ERP environment to S/4HANA regardless of your database. Until SAP and system integrators develop templates and tools for data transfer, code conversion, and user retraining, you can expect initial costs to be substantial. If your current ERP environment is not running on HANA, you first must acquire a HANA runtime license for an ongoing fee of 15% of HSAV (“HANA SAP Application Software”).

  • Request SAP to cover the migration and training costs required to move to S/4HANA as an investment.

Considering the financial benefit to SAP and burden to your organization in migrating to S/4HANA, it is appropriate for SAP to reduce your burden by bearing some of the financial costs. Keep in mind that the more custom programs you have running on SAP today, the more code you will be required to remediate to migrate to the S/4HANA new code line.

C. If Applicable, Request an SAP Accounting Powered by HANA License Credit

S/4HANA Finance is not a net new solution. SAP Accounting is the core of SAP S/4HANA Finance with built-in harmonization of financial and managerial accounting reports, and synchronization capability with Ariba. While it will surpass SAP Accounting functionalities, S/4HANA Finance in its current form merely represents a repackaging of SAP’s ERP finance module. UpperEdge has seen SAP confirm that S/4HANA Finance includes the functionality for SAP Accounting powered by SAP HANA. Additionally, SAP has recently confirmed that all customers with an SAP Accounting powered by SAP HANA license will get a corresponding credit for upcoming purchases.

  • Therefore, if applicable, we recommend requesting SAP provide a credit for your prior SAP Accounting powered by HANA license towards your purchase of S/4HANA Finance. Also, ensure this credit results in a corresponding maintenance fee reduction going forward.

Regardless of your termination rights, UpperEdge has seen SAP make certain concessions in support of their strategic roadmap.

  • Ask SAP the right to terminate or transfer your maintenance associated with SAP Accounting and any related products being migrated to your new S/4HANA licenses.

Thus far, customers have not been rushing to adopt S/4HANA for a number of reasons. One component being, the license and migration cost uncertainty. Since SAP is primarily focused on closing deals based on the potential value of S/4HANA, it is imperative that customers build their own business cases and require SAP to provide the appropriate level of financial transparency to enable customers to make an informed, educated decision.

We would love to receive your feedback and thoughts so please do not hesitate to post a comment. If you would like to learn more about developing leverage in your negotiations with SAP, please contact UpperEdge or email Erwann Couesbot at ecouesbot@upperedge.com .

 

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