Ava Smith, Global Chief Information Officer of Heavy Equipment Corporation (“HEC”) sits in her office on a Friday morning putting the finishing touches on the company’s strategic IT roadmap for supporting global market expansion. She makes her final edit, leans back in her chair, pauses, and then does her best Lt. Colonel Frank Slade impression, “this is damn good…hoo-ahhh!”
It’s about 7:30 in the morning when the phone rings. Ava glances at the phone and sees that it is her SAP account executive, Tunistic Benjamins, calling. She is in a great mood and figures, “what the heck, I’ll pick up”. After some small talk, Mr. Benjamins gets to the point. “Every now and then SAP takes a closer look at our customer environments to see if our solutions are being fully leveraged and optimized. As part of those reviews, sometimes we uncover use case scenarios which indicate potential indirect use of our software which may require licensing of additional users. At this point, it probably makes the most sense for us to dive deeper into this issue and find a way to get you properly licensed without necessarily bringing in our compliance team from California.”
SAP claims of license noncompliance as a result of indirect use is a serious matter and deserves the full attention of the offices of the CIO and CFO as it can materialize into substantial unbudgeted fees.
Calls similar to the one made by SAP account executive Tunistic Benjamins are starting to occur on a more regular basis. SAP customers that fit our SAP indirect access risk profile are most likely to receive a call on this issue. Traditional SAP software license sales have experienced growth challenges over the last three quarters. From UpperEdge’s perspective, this will further compel SAP to investigate, uncover, and enforce indirect use claims. Even though SAP is focused on the continued transformation of its business model to the cloud and taking some near term hits on operating profit, there is pressure from Wall Street to demonstrate top line revenue growth in Q4 – even if by way of indirect use claims.
Now that you’ve received a call from your SAP account executive regarding indirect use of your SAP software, here’s what to expect next.
1. SAP to submit and request completion of its SAP System Architecture Worksheet
SAP will inform you that they have formalized the process of data collection for assessing indirect usage and will send over their worksheet for your completion. The SAP System Architecture Worksheet is quite detailed and will ask you to provide the following information:
- The SAP system that data is being transferred to or from;
- The source and recipient applications that send and receive the data respectively;
- The type of data being exchanged and the format in which the data is transferred;
- The method of data transfer or technology used to transfer the data;
- The business functions and business processes supported;
- The direction of data flow (Inbound/Outbound) and why the data is being sent or received
- The number of users that have access to create/modify or view/interact with the data.
Overall, the SAP System Architecture worksheet is seeking to identify scenarios where data is exchanged between SAP and a non-SAP application in which the processing capabilities of the SAP software are invoked. If processing capabilities are invoked by non-licensed or under-licensed users, this is the basis on which SAP will claim an out-of-compliance issue relating from indirect access.
2. Decision Point on Responding to SAP’s System Architecture Worksheet
Now that you have received the call from SAP on indirect use and have been provided their System Architecture Worksheet, you have a decision to make. Do you contractually have to fill out the worksheet? If not, should you fill out and respond to the worksheet anyway? By responding to the worksheet, are you indirectly acknowledging the concept of indirect use? By responding, are you agreeing that there is an indirect use compliance issue?
In case you are wondering, SAP already has its preapproved search warrant to obtain such information. The “Verification” or “Audit Rights” clause in your SAP license agreement grants SAP the right to either request an annual usage report or perform an audit in accordance with SAP standard procedures.
Most organizations ultimately decide to respond and turn over the requested information after reviewing their license agreement, seeking the advice of inside and outside counsel, and running out of delay tactics. Remember, it is much easier from a negotiation standpoint to cooperate with SAP the first time around, as there will be plenty of debate and discussion once you receive SAP’s proposal. If your SAP account executive has to turn the matter over to the compliance team, there is little room for negotiation if you are found to be out-of-compliance.
3. Assessment of Worksheet Information and Submission of Proposal
With worksheet in hand, SAP will make several calls to your primary point of contact in order to seek clarification on many different use case scenarios in order to fully assess the magnitude of indirect use. Once SAP has internally aligned on all the different use case scenarios, they will label all use case scenarios as either a licensing event or a non-licensing event. In UpperEdge’s experience, SAP has not been 100% consistent across its regions and territories as far as how it labels the same or similar use case scenarios. We’ve seen SAP emphatically call out a particular scenario as a licensing event in one account and then label the same scenario as a non-licensing event in another account. Seeking 3rd party advice and market intelligence is critical to ensure you are being treated fairly.
Once SAP has all the information it needs, you should expect them to submit a proposal which looks like the following:
- PowerPoint presentation – high level in nature
- Inclusive of definitions of use from your license agreement and indirect access scenarios from SAP’s System Measurement Guide
- Identification of the number of users (professional and other) and supplementary products required to become compliant
- Quantification of the fees based upon SAP’s current list prices and inclusive of back maintenance fees calculated from the date of non-compliance
- Quantification of the fees based upon SAP’s one-time discount for resolving the compliance issue and executing within the current quarter
- Inclusive of a timeline and schedule for contract closure
The overall tone and message of SAP’s proposal communicates the following:
- We have every right to enforce indirect access as a use case requiring additional licenses
- You have been deemed to be non-compliant in the scenarios indicated and per our “Verification” and “Audit Rights” provisions. You should consider yourself fortunate that we are not charging you list prices given we are entitled to for discovering out-of-compliance scenarios
- If you want my one-time, special, relationship acknowledging discount, you need to sign this quarter
4. Analyze Verify, and Negotiate
SAP’s proposal will likely set you back on your heels. No one likes to deal with unbudgeted fees no matter the time of year. If you find yourself burdened with an SAP indirect access use claim, follow these steps to ensure you are not taken advantage of and are able to move forward with clarity and direction.
- Seek the counsel of an unbiased 3rd party to help you verify SAP’s position on each indirect use scenario and then develop counter positions with supporting rationale
- Understand negotiation boundaries and the range of possible outcomes
- Identify all options, alternatives, and leverage points
- Design a negotiation strategy and approach that maximizes your leverage
- Engage at an executive level and do not stop negotiating until all ambiguity has been eliminated.
If you found this article insightful, please share with someone else who might find it useful. If you find yourself in a situation where SAP has raised potential non-compliance scenarios by way of indirect access or simply want to learn more, contact UpperEdge to discuss how we can help with your indirect access claim or any other SAP licensing issues.
Also, please check out our SAP Indirect Access Risk Assessment.
Email [email protected] for any questions and concerns about indirect access or simply call 617-412-4335 for a confidential consultation.