Business Solutions with SAP

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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    Overcome SAP-ERP System Integrator Sales Tactics 5

    June 6th, 2011 by
    SAP vendor selection, RFI, and RFP success criteria

    SAP success criteria

    You’ve made it through the RFP and vendor presentations, you’ve narrowed your final selection down to the final 2 or 3 SAP or ERP vendors that you will hire for the engagement.  What are the important things to verify that will help you understand if you will achieve benefit?

    Every integrator who has been in business for any period of time will have a few great references.  Just because they have a few customers who will give them a glowing reference does NOT translate into them reproducing those results for you.  The ONLY thing that translates into real results for your SAP implementation are the consultants who come to your project (for more information, please see FIXING Stupid SAP Vendor – Partner Selection RFI – RFP Processes ).

    To avoid being taken advantage by so many of the system integrators the real focus should be on who the vendor will provide to implement your SAP solution.  The background “success” checks should come directly from the clients those consultants have worked on before.  Think about it, just because a vendor can provide a customer reference, if none of those consultants will be working on your project what difference does it make?

    There are several things to look for in the consultant references.

    SAP Vendor Selection and Consultant Skill Verification

    Every one of the key project control areas is directly influenced by your consultants:  Scope, Schedule, Cost, and Performance.

    1. How well was scope first defined, and then managed?
    2. How was the schedule adhered to (was it realistic and were the correct adjustments made at the right time?).
    3. Was the budget adhered to or did the budget start to “balloon” out of control?
    4. Were there good metrics for the project and for the business to gauge whether or not you achieved business benefit from your implementation?

    Think about it, during the sales cycle those sales people have NO direct influence over any one of those critical areas for managing your project for success.  Your vendor evaluation should center on how the consultants, who will deliver the solution, impacted or affected those 4 key criteria.

    After the sales people leave you will pay the consultants to deliver on the sales promises

    SAP Scope, Schedule, Cost, and Performance Evaluation

    • What is important to you (Performance) – what is important to your company or your SAP implementation?  Once you determine the critical success items you can ask the right kind of questions from references.
    • This is NOT a “people” visit (Scope, Schedule, and Cost) – the whole idea behind the verification is to understand whether or not the SAP vendor is providing you with the talented resources you need to be successful on YOUR project.  So it is important to understand how well the consultant(s) performed and what they did.  Just because a consultant or a vendor built a great relationship with the customer does not mean they are the right fit for you.  Often these “great relationships” are because the vendor avoided helping the customer through some of the harder decisions that make for great implementations but can stress the vendor – customer relationship at times.
    • How was this implemented? (Scope and Schedule) – Gain some basic insight and understanding around the implementation issues.  What type of project (rollout, big bang, etc.).
    • Find strengths / weaknesses (i.e. lessons learned – in hindsight how would they have done it differently? Performance)
      • What worked well / what didn’t
      • Look for specifics that include objective evaluations, not how the vendor made them “feel” about their “success”
      • Beware of reference customers who receive vendor “awards” because these can be ways the vendor plays on their ego about how great they are to hide the real potential problems.
    • Don’t worry if “everything” isn’t up (Scope and Schedule)
      • Be concerned if nothing is up
      • Scope, schedule, cost, and performance means that at times some things may change depending on a company’s actual requirements.  Ask questions related to:
        • How well was scope initially defined (were lots of things added or removed from the original expectation?)
        • How close was the project timeline and schedule?  Did the project go over time?  If so, by how much?
        • Was the proposed cost within a reasonable limit of the original budget (any large ERP project, like SAP, WILL have some fluctuation from the original estimate).  Many companies may build in a 10% contingency.  If it is more than this then that might be cause for concern.  Estimates should be fairly accurate but every business is different and there will be some adjustments.
        • How smooth was the transition at go-live?  Were there serious issues that came up when you went live that could have been more adequately prevented by more thorough testing, better development, greater project coordination, etc…
    • Consultant verifications (this one covers them all, Scope, Schedule, Cost and Performance).
      • Ask for resumes of the ACTUAL proposed project team as part of the final RFP proposal.
      • Do not accept the “PowerPoint” resumes often provided but ask for the fully detailed resume each consultant maintains, with detailed project experience and customer information defined.
      • Demand that the system integrator provide e-mail addresses, at the consultant’s last 3 clients, on that client’s domain name to verify experience claims.  This should be non-negotiable, there are WAYYYYyyyy too many fakes and frauds in the marketplace.

    By performing the due diligence around consultants provided by an SAP or ERP system integrator you will end up with better results.  The focus on the consultants an ERP vendor provides for your project cannot be overlooked.  After the sales process is over it is the SAP or ERP consultants who will deliver the solution.  After the sales people leave you will pay the consultants to deliver on the sales promises.

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