In anticipation of future negotiations with SAP, many of UpperEdge’s customers are proactively conducting a baseline assessment of their SAP relationship. A critical part of the baseline assessment is an optimization assessment, which proves to be extremely valuable in uncovering costly underutilization in the SAP environment and building a plan to reduce the expense of future SAP licensing events.
How Does Underutilization Occur?
Based on our experience, a majority of SAP customers are underutilized. In some cases, we have found customers to be significantly underutilized by as much as 50% of their investment. Our experience indicates underutilization is primarily attributable to customers not being able to fully deploy well-intended roadmaps because of dynamic strategic and organizational changes. Another common scenario is unnecessary enterprise level agreements or large, upfront SAP bills of material for an overly broad base of users, applications and products that are unlikely to be deployed. This pattern of overbuying is always driven by SAP’s sales tactic of luring customers into larger volume transactions with higher discount levels and more competitive commercial terms. These scenarios are then exacerbated because there is a lack of mature SAP software asset management tools that can accurately track end-to-end utilization and then monetize the underutilized SAP investments on a line-item basis so the customer can determine how best to rebalance its portfolio.
What is the Financial Impact of Underutilization to your Company?
Underutilization of SAP has a troubling financial impact on capital expenditures, operating expenses and any potential plans for licensing HANA.
As mentioned earlier, underutilization is typically a byproduct of purchasing more SAP licenses than necessary, meaning there were unnecessary capital expenditures. Depending on the magnitude of underutilization, this can equate to millions in net license fees over the course of your SAP relationship.
To make matters worse, these millions in net license fees have a detrimental long-term effect on your go-forward annual operating expenses. This can end up costing your organization hundreds of thousands or even millions of dollars on an annual basis. Companies on the border of SAP’s Product Support for Large Enterprises (PSLE) threshold should be very diligent in assessing the reality of fully deploying the go-forward demand that would be required to achieve the lower PSLE maintenance factor.
If you are considering HANA, the pain associated with underutilization continues as the cost of HANA is dependent on the HANA SAP Application Value (“HSAV”) which is the total net license fees for all users and products that contribute to the HSAV. Companies that are underutilized will be leaving significant money on the table and ultimately paying a higher HANA tax if they cannot figure out how to rebalance their SAP portfolio prior to migrating to HANA.
How to Leverage Underutilization to Reduce Future Licensing Costs?
Even though you may have uncovered costly underutilization in your SAP environment, it can actually be used as a leverage point with SAP to reduce future licensing costs. This may come as a surprise, but SAP has been receptive to customer concerns around underutilization and the need to realize the full value of your SAP investments.
With commercial terms like exchange rights, organizations are able to reduce the expense of future licensing events like audits. For audits, SAP’s energy is usually focused on traditional (line-item user and engine compliance gaps) and indirect access audit exposure. Bringing up concerns around underutilization changes the conversation and takes a more holistic view of audits, potentially allowing customers to exchange underutilized products to address any compliance gaps related to direct and indirect use of the SAP software.
Beyond audits, SAP looks at road mapping discussions as a revenue generating opportunity. For these discussions, SAP is usually focused on future demand and gauging customer interest in net-new products for their SAP environment. Broaching the topic of underutilization at this time changes the conversation, as SAP may potentially allow customers to exchange underutilized products for future demand attributable to those products already licensed.
Ideally, every SAP customer wants to be fully deployed and optimized. Unfortunately, many SAP customers do not ultimately know where they stand, and even worse, companies that have determined they are underutilized are not fully leveraging their findings to develop an engagement strategy with SAP that will allow them to reduce future costs and expenses while also rebalancing the portfolio so their investment in SAP is fully optimized.
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