SAP’s S/4HANA Migration Incentives – Carrots Now and Sticks Later?

With many SAP customers still contemplating when to move to S/4HANA, we are frequently asked for our predictions on how the tables may turn if customers choose to wait until closer to 2025 to make the move.  Right now, SAP is certainly incentivizing its customers to migrate through several commercial ‘carrots’, but those carrots will start to look more like sticks as 2025 approaches.

If You Plan to Move to S/4HANA Now, Expect Carrots

SAP knows that companies have approximately six years to make the move to S/4HANA before their ECC instance is no longer supported.  Those planning to migrate now or in the near future will certainly see signs from SAP that customer leverage is high.

  • Conversion Credits

The first concession you will receive from SAP when you express interest in migrating to S/4HANA now is conversion credits, which they have been willing to provide to current ECC customers to make the initial tranche of investment more palatable. If this is you, we recommend pushing for full conversion credits as you migrate, transparency into how SAP is performing the calculations, and lastly, other considerations for your migration, like transition use rights for your ECC instance.  However, ensure conversion credits are not the only item you are positioning to make the initial tranche of investment more palatable when other levers do exist.

  • Discounting

Beyond competitive credits, SAP has also been willing to provide discounting to customers to incentivize a move today. They blatantly show what those discounts will look like today compared to what they will look like if you make the move even in the near future (e.g., 2020).  If this applies to you, come armed with your historical discount history and current market intelligence to ensure that your agreement is competitive and that you are receiving a fair deal for re-committing to SAP for the foreseeable future.  If you don’t, SAP will leverage this opportunity to meet their sales goals and accelerators as well as set a lower expectation on what you can expect in terms of discounting for the future.

  • Investments

SAP is specifically invested in understanding your current landscape architecture, transformational initiatives, and ultimately your roadmap. Therefore, it doesn’t come as much surprise that the first investment they will make in your company is that of time, in helping you determine your SAP roadmap and ultimately your bill of materials.  However, this isn’t all that SAP is willing to provide for their most strategic customers who have specific business needs.  If you have a compelling need like additional MaxAttention support at no cost, position it in the right light and get it on the table while leverage is high.  However, ensure that SAP’s investment will not be only to their benefit and to drive only their own sales agenda.

  • Audit and Indirect Access Resolution

With leverage high, many SAP customers are choosing to self-audit for traditional compliance exposure as well as accept SAP’s Indirect Access business practice and take Indirect Access resolution head-on during S/4HANA negotiations. While SAP has been amenable to resolving traditional compliance gaps and Indirect Access altogether, they have also been taking aggressive postures on how much exposure customers have, and as a result, how much it’s going to cost customers to come to resolution.  SAP customers need to come to the table educated on their risk, strategize on when to put Indirect Access on the table, and negotiate based on their actual exposure — which is typically not aligned with SAP’s aggressive posture.

If You Plan to Move to S/4HANA Later, Expect Sticks

If you don’t plan on moving to S/4HANA now or in the near future, SAP’s commercial carrots may appear to look more like sticks.  The company has already started making announcements that will impact those not planning on making a move to S/4HANA soon, and we expect that they will continue to incentivize you to make the move as 2025 approaches.

  • 3rd Party Database Maintenance Ending in March 2019

Briefly mentioned, and maybe even missed by most during their year-end earnings call, SAP discussed the fact that maintenance agreements for third-party legacy databases are ending in March 2019, making way, of course, for SAP’s own database, HANA.  This means that if you haven’t already made the transition from a third-party legacy database such as Oracle Database or IBM DB2, you will be directly affected when SAP no longer supports third-party legacy databases under your maintenance agreements.  In addition, when you make new investments in SAP applications, third-party legacy databases will no longer be offered to you by SAP and you will be compelled to buy HANA.

  • Discontinued Support for Certain SAP Applications Soon

Almost everyone in IT is aware that SAP announced discontinued support of ECC applications in 2025, however, many SAP customers wrongfully assumed this would be for all ECC applications.  Some customers have been getting informed that some of their critical ECC applications would no longer be supported much sooner than that, like in 2019.  The options you have are to pay a premium for non-standard support for these ECC applications no longer supported under standard support on a case-by-case basis, or the alternative — find a replacement, like an S/4HANA equivalent.

  • Traditional and Indirect Access Audits

If you aren’t solving for traditional compliance exposure and Indirect Access, there are still commercial issues to be dealt with in the future. While we have heard Bill McDermott and others talk heavily about “trust,” SAP audits and Indirect Access are still a thing, and audits are still happening.  Many customers are still receiving audits like clockwork, and if customers are not putting the Indirect Access issue on the table, it is only a matter of time until SAP will.

  • Decreased Leverage, Discounting, Conversion Credits and Investments

As 2025 approaches you can expect decreased leverage with SAP as they will no longer feel compelled to incentivize you with the discounting, conversion credits, and investments like they are offering today. In terms of discounting, we have seen SAP be as bold as to position what deals will look like today and what they will look like in the future.  In terms of conversion credits and investments, we would also expect SAP’s appetite to offer these incentives will diminish as 2025 approaches and they will be reserved for the most strategic deals or taken off the table altogether.

What to Do Now?

At the end of the day, each company should approach the migration from ECC to S/4HANA on a case-by-case basis.  However, factored into the determination of whether to make the move now or wait until closer to 2025 should go beyond carrots and sticks.  In our experience, conducting a full assessment of your relationship with SAP is the only way to ensure that your strategy is holistic, and you are approaching the negotiation from an offensive position.  This includes assessing your relationship, agreement, optimization opportunities, compliance exposure and future demand.  These points of view give you the ability to see the forest through the trees instead of being focused simply on the S/4HANA migration at hand.

Comment below and follow UpperEdge on Twitter and LinkedIn.

Related Posts:

Leave a Comment

Your email address will not be published.