Business Solutions with SAP

3 Keys to Reduce SAP TCO & Move to SAP ROI

June 26th, 2011 by
Building an SAP Center of Excellence

SAP Business Convergence

I only have a couple more posts in my series on overcoming vendor sales tactics so I thought I would provide a brief distraction and look at a few key areas for SAP organizations to move to “excellence.”  This post focuses on some of the considerations for SAP Total Cost of Ownership (TCO) and SAP Return on Investment (ROI).

One key to achieving SAP ROI is through convergence or integration of the SAP staff into the business.  I’ve started down this path as part of a follow-up to the recent ASUG Atlanta conference presentation I did on “Beyond Business to IT Alignment – Creating Convergence in the SAP Enterprise.”  Those materials are now available online.  The first part of them consists of a two-piece resource kit, and the Roadmap Builder, can help to transform your enterprise and business prospects.

Preparing the SAP and IT Organization for a Center of Excellence

This post will provide an overview of ways to achieve business benefit, reduce costs, and achieve ROI.  While I would like to go into detail for each of these components it is best to leave them in a list format.  To expand on them would create a 20 or 30 page document.

Your goal is to drive business innovation and marketplace differentiation

So, to keep things simple I will condense this down into a bullet-point list covering the 3 key topic areas of

1) Engaging the Business,

2) Reducing Complexity, and

3) Delivering Excellence.

The SAP Organization Must Engage the Business

  • Converge IT and Business efforts
    • Regularly convene a senior business representative steering committee
    • Facilitate business and IT planning sessions
    • Use business resources to help manage the project
  • Develop dotted line IT staff to business organization relationships
    • Assign one or more IT staff to each business area
    • Have IT / SAP resources work in the business areas on a regular basis
    • Ensure they perform some of the routine tasks in the business area
    • Develop improvements, solutions, or ideas in conjunction with business users
  • Create Service Level Agreements (SLAs) for post production activities
    • New feature or functionality requests
    • System performance and uptime
    • Issue escalation and resolution
  • Build Technology Solution Roadmaps
    • Define and prioritize technology requests
      • Need
      • Want
      • Market impact
      • Strategy impact
      • Business area(s) impacted
    • Perform cost / benefit analysis
    • Evaluate alternatives

The IT and SAP Staff Must Reduce Complexity

  • Consolidate
    • Hardware
    • Applications
    • Network infrastructure
    • Application delivery infrastructure
    • Interfaces
  • Decommission legacy systems
    • Reduce license management
    • Reduce technical support costs
    • Reduce interfaces
    • Improve data consistency
  • Reduce custom solutions – clear custom development

The SAP and IT Organization Need to Deliver Excellence

  • Lean implementation
    • Use SAP Solution Composer
    • Use SAP Solution Manager
    • Employ ASAP methodology
    • Leverage vendor templates where they are useful
  • Optimize performance
    • Make use of automated batch jobs for repetitive transaction tasks
    • Use performance and monitoring tools
    • Create additional database indexes where useful
  • Use QA processes to ensure Quality results
    • Ensure all project code is QA checked
    • Perform project QA’s at key milestones
    • Ensure deliverables are complete and useful (if they are not value added they are a waste of time)
      • An example of a wasted deliverable is something that serves only administrative “reporting” functions.
    • Ensure testing is thorough and challenge testing is performed
  • Employ proper IT Governance Principles
    • Ensure proper standards are created and then followed
    • Evaluate, review, and escalate as necessary
    • Ensure key decisions are time bound
    • Be prepared to transition to support at go-live
    • Create issue and risk management processes
  • Ensure knowledge transfer
    • Make sure that company IT or business staff can support the solution
    • Ensure end user training is thorough
    • Send IT or business support staff to SAP courses (pay now or you will pay far more later)
    • Use post production learning and improvement sessions

Conclusion on Reducing SAP TCO While Realizing SAP ROI

Customers who are either considering or undergoing an SAP project must perform due diligence to ensure they get what they are paying for.  Not only do you have to evaluate cost savings, but the cost of ownership (software, ongoing support, and maintenance costs).  Together with that it is important to ensure you get some business value from your SAP investment.  More than just promises it is important to define, develop, and then measure success criteria after the SAP implementation.

To make things even more complicated your SAP and IT support staff must work to become directly integrated into the business.  Your goal is to drive business innovation and marketplace differentiation.

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Overcome SAP-ERP System Integrator Sales Tactics 7

June 20th, 2011 by
Business software negotiations - licenses and maintenace

Business software negotiations

As we get close to wrapping up this series we will take a short look at ERP and business software licensing.  There are a lot of things to consider here and a number of strategies you can use in negotiating your licenses.

One thing to keep in mind here is that there are two revenue streams for the software provider.  The first is the license sale and the second is the maintenance agreement.

ERP – SAP – Business Software Licensing Negotiations

One negotiating tip I learned a long time ago is to always, always, always ask for more than you really need or want.  And I don’t mean in the form of the number of licenses or the amount of maintenance.  What I mean are the concessions you want the vendor to provide.  These are your negotiation “bargaining chips.”

It is always easier to give something up than it is to take something back so if you start from a position where you have several “throw away” items you will find yourself with a decent bargaining position.

  • Software is licensed, not purchased.
  • Determine “End Game” strategy for licensing
    • This Starts “Hard” Negotiations
    • Time is on Your Side – end of fiscal year and end of quarter negotiations are best because of pressure to meet sales goals
    • Use a “give and take” approach, or a “good cop, bad cop” approach on the vendor(s)
    • Carefully evaluate their sales approach
      • Telegraph to the vendor your willingness to “walk away” from the deal if the right agreement cannot be reached
  • What are the different payment terms?
  • Consider “tiered” licensing options
    • License “stage” commitments – # of initial licenses for developers / system users during setup, and then additional # of users at actual go-live only to be paid for when the system goes live.
    • Ask vendors for interest free licensing options
  • Down payment requirements?
  • How are software modifications addressed in the license?
  • Sticker shock?

ERP – SAP – Business Software Maintenance Negotiations

Software maintenance fees can be a real challenge to negotiate.  This is one area where many software providers have a number of tactics they use to maximize your long-term payments to them.  One large vendor will just about give their software away, and even entice you with a one or two year, low maintenance fee agreement, and then “let you have it” just as the business and software have started to stabilize.  Right at the peak of your dependency on them they will suddenly balloon maintenance fees into the stratosphere.

  • How much is the annual maintenance fee?
    • What are the maintenance options?
    • What if you go off maintenance?
    • Is technical support included?
    • What kinds of technical support and how frequent (Phone, e-mail, fax, online messages, etc.)?
  • Negotiate any maintenance percentage of the software at the price you purchase it for, not at the list price.
  • Link fee increases to standardized economic indicators like the Employee Cost Index (ECI), Consumer Price Index (CPI), Factory Orders Report, Purchasing Managers Index (PMI), etc.  If you expect an inflation spike or economic downturn the PMI or Factory Orders would likely provide the best hedge here.
  • Lock in the rate for the entire duration of the contract to avoid “shock increases” as time goes on.
  • Require free license upgrades to any new version(s) of software as part of your maintenance.
  • What about Source Code?
  • Even after you make the final software selection decision, consider license negotiations with both of the top finalists to use as “buy down” leverage against the real selection
    • Try to negotiate contract language with caps or limits on how much or how quickly fees can increase.
    • Every publicly traded software vendor has strong market incentives at the end of their quarter to make any deal they can to increase revenue (often times regardless of the margins) so be patient!
      • At quarter ends the larger software vendors may resist cutting maintenance percentages but may be much more inclined to provide great deals on licensing.  As long as the maintenance is tied to the negotiated license cost then this is the same as getting a maintenance discount.
    • Seriously consider hiring a professional consultant who specializes in software negotiations.

    Final Thoughts on SAP – ERP – Business Software Negotiations

    Make sure your contract agreement does not contain “penalty” language if you decide to discontinue and then renew maintenance.  For example some contracts include provisions that if you stop maintenance and then re-start you will have to pay some amount of “make up” maintenance for the period you discontinued.

    Probably the most important component of your negotiation strategy is patience.  You ALWAYS have the option of walking away and pressing for serious concessions if the vendor wants your business.  Believe me, you CAN wait them out.  Be willing to wait as long as it takes to get the terms that are right for you but it is also important to be reasonable and fair. In the end everything is negotiable.

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    Overcome SAP-ERP System Integrator Sales Tactics 6

    June 13th, 2011 by
    ERP software selection process and criteria

    ERP software selection

    This week’s post in the series deals more directly with the software selection rather than vendor selections.  As we move toward the completion of this series there are a few more things to consider.

    Picking the wrong ERP business software package can be one of the factors that contribute to the failure of your ERP project.

    Aside from evaluating the product fit to your business processes you will also have to carefully consider hardware, third-party software, development tools, scalability, and other factors that affect a long term fit for your business.


    ERP Software Selection Criteria

    • What Hardware is Recommended?
    • What Network is Recommended?
    • What Systems / Network Software is Required?
    • What Database is Required?
    • Application scalability
    • What Additional or Add On Hardware is needed / suggested?
    • What Implementation Method and Tools?
      • Examples of Actual Resources and NOT Just Descriptions or Assurances – EVERYTHING throughout the entire process must include a “show me” component or it should be scored as non-existent.
    • Seriously Consider Intangibles and “Gut Feelings”
      • You may be right
    • Include the Total Cost of Ownership (a FEW suggestions)
      • Application license costs
      • Additional software license costs (Server, DB, EDI, etc.)
      • Third party software needed for operations
        • Fax
        • E-mail integration
        • Tax software
      • Any need to upgrade end user hardware (like new computers, printers, etc.)
      • Technical infrastructure and hardware needs for the primary application(s)
      • Maintenance fees and maintenance alternatives
    • Revisit Implementation Issues
      • Be sure to understand the vendor’s formal implementation approach
        • Ask for early access to any tools, resources, and templates
        • Ask for the tools, templates, and resources to be demonstrated to you during the proposal.
    • Evaluate reporting functionality and options.
    • Find out what support options and methods are available
      • Cost
      • Access methods (Web support, phone support, on site, other options)
      • Quality and quantity of documentation
    • Development and automation tools

    Conclusion on Selecting Your ERP Business Software

    When considering your ERP software selection process it is important to evaluate the field of vendors available to implement the solution.  That is why this series, from start to finish, addresses both the ERP business software but also the vendor selection.  This post focused on just the software because much of the academic literature identifies the software selection and fit as one of the critical success factors for ERP software implementations.

    Next week we will go through Software Licensing options and the various things to consider.  I’m sure those of you considering an ERP package purchase, whether it is SAP or some other ERP solution will find that post interesting and informative.

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