A Roadmap to Negotiating SAP Indirect Access Fees
A Solution For Everyone
The SAP indirect access stories are proliferating.
In the unfolding saga of SAP indirect access, cool heads and logic are sorely lacking. CIOs are feeling exploited by SAP’s software licensing fees, and SAP is frustrated that the market doesn’t appreciate their new empathetic perspective. Why are both parties frustrated with what’s going on? Because they’re engaged in a zero-sum negotiation. SAP feels entitled, and customers feel abused.
Does SAP have a right to be reimbursed for the use of their intellectual property? Yes.
Is SAP’s proposal fairly priced, delivering value and easily explained? Not quite.
Let’s move this conversation away from the battleground. Let’s get back on friendly terms and look for a win-win solution. That’s the purpose of this article. Whether you work for SAP or an SAP client or an SAP partner, you’ll walk away from this article equipped with a win-win framework for your indirect access negotiations.
But first–both parties need to understand and agree on the other side’s needs. Both must realize that they have a shared interest in finding a solution. That’s essential to a successful win-win negotiation.
The CIO’s problem: No BATNA
To date, CIOs at SAP clients have not had a good BATNA (best alternative to a negotiated agreement). Getting off SAP in the next 5-10 years has been their only option, and that’s unsavory. This article will equip CIOs with a new BATNA that can push the ball forward on indirect access negotiations.
SAP’s need: Fair compensation for IP use
SAP should get paid for the use of their IP. SAP knows that suing their clients, as they did earlier this year with Diageo and inBev, is not a sustainable business model. In the long term, happy customers are better for SAP than angry, divorced customers. Our solution will equip SAP sales reps to offer clients real value in SAP licensing.
Can you imagine a solution that satisfies both parties?
We can. We’ll illustrate it by way of a thought experiment called the Virtual CSR (vCSR)–a CSR equivalent that does the workload of a CSR without being physically present. While it was developed for e-commerce and the Order to Cash process, the logic behind the vCSR license type can be adapted to any licensing situation that incurs indirect access.
Even better, this Virtual CSR thought experiment is airtight. It requires no licensing innovation on the part of SAP. It’s based on the conventional SAP professional license type that are already a part of every SAP standard contract. Companies that engage this solution can innovate without worrying about SAP licensing infractions and adding CSR salaries, and SAP gets the full licensing value that they would receive through CSR licenses providing equivalent value to the client.
In a moment, we’ll help you calculate a fair licensing cost based on the vCSR concept. But first, we’ll illustrate the solution with a parable–or you can skip to the calculations now.
The Parable of Outraged Industries
The Stalemate at Outraged Industries, and a Solution 25 Years out of Date
On a rather average Monday, Mark Baffled, CIO of Outraged Industries, sat down to puzzle over the biggest problem of his career. For months, he had planned to implement a third-party e-commerce software solution that interfaced with SAP. One that would finally bring his company into the 21st century’s way of doing business. Recently, he had found out from his SAP Account Manager, Joe Underpressure, that the proposed solution would incur massive indirect access fees. The charges were so exorbitant that he had to put the project on hold. He simply couldn’t make the business case to the Board of Directors.
Sadly, his best alternative to a negotiated agreement, or BATNA, was a solution twenty-five years out of date. He would depend on manual data entry to get orders out of his third-party software system and into SAP.
The concept had come to him in a nightmare. In a dark overseas office, a bank of printers spit out e-commerce orders. He tried to catch the orders and fling them across the room to his CSRs–but the process was fraught with error. Multiple-sheet orders exploded in a shower of paper. Some CSRs couldn’t catch a single sheet. Others crumpled the paper the moment they got it, destroying critical information. Mark had woken from the dream in a cold sweat. The whole next week, he agonized over the problem day and night.
That morning, he decided to stop deliberating. He would have to take his nightmare and make it a reality. Rather than letting software automation take orders and post them to SAP, he would hire overseas CSRs, buy a license for each one, and have them rekey orders into SAP.
While he was puzzling over the problem, he got a call from Joe at SAP.
“I wanted to see if we could move the ball forward on indirect access,” Joe said.
Mark sighed. “I still don’t get what I’m paying for. This is coming at me out of the blue. You’re not giving me any alternatives, so I feel bullied. On top of that, it’s way too expensive. What value am I getting out of indirect access? Nothing!”
“Indirect access provides plenty of value,” said Joe. “You get to exercise all the intellectual property in SAP ERP–”
“I came at this wanting to do e-commerce, but now you’re impacting my entire supply chain,” Mark interrupted. “And for what? Is SAP recruiting e-commerce customers for me? Is SAP merchandising for me on the e-commerce site? Is SAP providing a responsive mobile experience to my eCommerce customers? No. But your Indirect Access fees are priced as if you are which leaves me no choice but to hire an overseas call center to rekey orders into SAP. That’s the only way I can get around these indirect access fees and afford to move this project forward. It’s stupid, but it’s still my BATNA.”
“But that’s so inefficient!”
“Yup. But indirect access costs me more. I can’t believe it’s come to this. We have the integrated organization. We have the integrated supply chain–you excel at providing that. But everything comes screeching to a halt with indirect access.”
“But Leonardo, Ariba, hybris and our other cloud apps can solve all of those problems,” Joe began. “And don’t forget S/4Hana, which will become the foundation of your digital strategy!” Joe continued.
Mark sighed. “To be honest… not really. I get that SAP has purchased all these peripheral systems over the last few years as feeder platforms to your core product. But they just aren’t a fit for my business. Believe me, I’ve evaluated them. That was the first step I took. But now I’m being penalized for not choosing them? Really? How is that not extortion? That’s how I end up at my BATNA.”
“Wow, I didn’t realize how much this was impacting you,” said Joe. “You would really do that, just to avoid the fees?”
“So help me understand,” said Joe. “You’re saying SAP shouldn’t extract cost from the value that the 3rd-party e-commerce app provides?”
“Exactly,” said Mark. “But I get it. I get that you’re saving me re-keying, and that looks like value to SAP.”
“It does,” said Joe. “But you’ve opened my eyes here.”
“Hey, I’m a career SAP guy,” said Mark. “I’ve always loved SAP. But this issue is forcing me to rethink everything. You guys are sunsetting ECC, which is forcing me onto S/4 HANA in the next 5 years. That is a huge journey for us. As the CIO, I’m the advocate for our ERP system. I take that to the Board and make a case. You want me on your side. You know what? I’m having a hard time making the case for SAP.”
“Right,” said Joe. “We definitely want to work with you–”
“Listen,” said Mark. “I’ll hire CSRs to key in orders. But do you really want to be the driver of de-innovation for your clients? The fees that you’re asking for indirect access are more than we originally paid for all of our SAP licenses, AND they’re more than the cost of the 3rd-party e-commerce solution we wanted to implement. How can that be? If you guys priced indirect access according to the value I get out of it, it might make more sense…”
“I’ll be honest,” said Joe, “I can’t do anything about this on my own. But let me escalate this to my management team. I want to make this work.”
For better or worse, Mark focused on Joe’s “can’t” and heard “won’t.” Joe always seemed able to negotiate when push came to shove. Why was this issue so different? Maybe it was the pressure to sell those SAP cloud products for which the market still hadn’t shown a strong preference.
The line went silent.
“Can we touch base later in the week?” asked Mark. “I need to think this over.”
“Sure thing,” said Joe. “That will give me a chance to take this up the chain.”
The call ended better than Mark had expected, but he still felt angry. He didn’t get the win. He continued to waste time and energy on a problem that shouldn’t exist. It was clogging his arteries. Weren’t there enough enemies out there?
He sighed and went to the lunch room, needing some kind of important destination.
A Salesman Goes To Bat For His Client
When Joe got off the phone with Mark, he sat and stared at his monitor. Two friends had just sent him separate articles on LinkedIn that addressed the topic of SAP indirect access. The first, in Computer Weekly, discussed the troubling impact of indirect access on third-party applications. The second, from Diginomica, argued that SAP faced twin challenges of trust and relevance in its target market.
Every account he’d called in the last few weeks had gone lukewarm on SAP’s cloud apps. Maybe it was indirect access. Maybe they were just as frustrated as Mark but couldn’t bring themselves to speak up. Usually, his accounts committed to an S/4 HANA upgrade and didn’t raise moral objections. He had never complained when a client was willing to pay for an upgrade, and neither had his Director of Sales. In fact, he led his division, both in number of deals and total sales value.
He had gone into sales because he loved people–loved listening, understanding their needs, and delivering value that surprised and delighted them. He had never imagined himself here, pedaling unwanted products through backhanded licensing tactics.
He had leverage–his boss respected his achievements in sales. Perhaps he was being called on to use that leverage to fight for a client.
He didn’t relish that thought, but he wasn’t going to back down. He sent a quick email to his boss and asked if they could discuss an issue that had come up with an account.
He didn’t smoke, but after sending that email, he got up for the first smoke break in his thirty-eight years.
Enter the Knight in Shining Armor and his Holy Grail–the Virtual CSR!
The time had come to formally present his BATNA to SAP. Mark called a meeting between himself, his CFO, an independent SAP licensing consultant, and three representatives from SAP: Joe Beleaguered (Mark’s SAP sales rep), Joe’s sales manager, and the regional VP from SAP. Everyone arrived on time–except for the SAP licensing consultant, who said he’d had a wardrobe malfunction.
At last, a Knight in Shining Armor showed up at the Outraged Industries front desk. Literally, a medieval knight! He was carrying a Holy Grail with him—a big silver cup that looked important. The receptionist blinked at him, but once the Knight explained that he was here for the SAP meeting, she sent him clanking back to the conference room.
Mark and the others gave the Knight blank stares as he entered the room. Nonplussed, the Knight slammed the massive Holy Grail onto the table and stood with his hands on his hips, grinning.
“My friends,” he cried, “we can take Mark’s manual data entry BATNA off the table. Allow me to present… the Virtual CSR!”
Everyone peered into the giant silver cup. “There’s nothing in there,” said Joe from SAP.
“Precisely,” said the Knight. “Remember, this is simply a thought experiment. This CSR is entirely virtual, so the cup is empty. A Virtual CSR does all the SAP work that a human CSR does without any of their human limitations. No keyboard mistakes, no bathroom breaks, no vacations, no Facebook or Amazon distractions.”
“Wait a minute,” said Mark. “Are you selling me some new software here? Maybe artificial intelligence that replaces a human CSR?”
“No!” cried the Knight. “Au contraire, I am simply taking existing SAP licensing and suggesting a new way to apply it. Right now, SAP licenses real humans. Why not offer to pay SAP license fees for virtual humans or virtual CSRs? If we then substitute passing manual orders to real CSRs with electronically passing orders to virtual CSRs, we have the makings of our indirect access solution. In that case, Mark doesn’t have to fall back on his manual-ordering-processing BATNA, and SAP gets compensated for however many virtual CSRs are required to process those orders!
“Tell me more,” said Mark.
“This solution is airtight, because it’s based on the conventional CSR license cost that you’ve already negotiated with SAP. You get to process orders without adding CSR salaries, and SAP gets the full licensing value that they would receive through CSR licenses if you hired CSRs to input the same quantity of orders into SAP. We’re solving the Indirect Access license by funneling all of the non-licensed SAP users and their interactions with SAP through a licensed Virtual CSR. The only things remaining are to agree to the capacity of this Virtual CSR and the volume of interactions we’re looking for them to handle. Allow me to present this spreadsheet.”
The Knight whipped a spreadsheet out of his pocket and threw it on the table. Everyone bent over it and stared in amazement.
“Astounding,” cried Mark.
“I never thought of this!” cried Joe.
“Will it work?” asked Mark.
“That, my friends, is up to you,” said the Knight. “I am simply the mediator. Let’s go through the calculations.”
Using the Virtual CSR in Real Life
Virtual CSR calculations are actually quite simple. There’s no need to codify the vCSR concept in a 120-page manual and send CIOs to chapter and verse. The calculations (see below) will help CIOs answer four high-level questions.
- How many line items can your best CSR process annually?
- How many line items do you want to take via e-commerce annually?
- How many conventional CSR licenses are required to process that number of line items?
- What is your existing annual CSR license cost?
These calculations will lead you to a Virtual CSR licensing cost that’s reasonable for your company. Even better, this Virtual CSR license type is airtight, because it’s based on the conventional CSR license cost that you’ve already negotiated with SAP. You get to innovate with the money you save by not having to hire more CSRs, and SAP gets the full licensing value that they would receive through CSR licenses if you hired CSRs to input the same quantity of orders into SAP.
Sounds like a win-win!
Here are the calculations:
So what will you do with the labor savings accrued by hiring your vCSRs?
- Throw a party
- Buy everyone sit/stand desks
- Spend it on sales and marketing to generate more business in order to fill up your VirtualCSR’s capacity.
- Invest in your ecommerce solution
Everyone in the SAP community is feeling pushed into a corner. They haven’t had a BATNA to indirect access. We’ve provided that today. We hope SAP clients will feel empowered to go out, negotiate, and move forward with innovation. We hope SAP will take note and innovate with new licensing schemes that please everyone involved.
Whatever your role is in the SAP community, we hope that this parable has given you food for thought. For more information, please visit the Corevist website, at https://www.corevist.com/.