SELLING AND NEGOTIATION

Introduction What is ERP? What is the problem? Our requirement Strategy Selection Negotiating Finalizing Implementation Conclusion

INTRODUCTION
Panda Retail - rapidly growing chain of retail outlets. Requirement - To integrate various business processes, make them centralized and stimulate growth.

WHAT IS ERP?
SAP ERP collects and combines data from the separate modules to provide the company or organization with enterprise resource planning. If SAP ERP is implemented correctly an enterprise can go from its old calculations system to a fully integrated software package. Potential benefits include: efficient business process, inventory reduction, and lead time reduction

ISSUES WITH ERP

ERP software represents a major financial and operational investment for any organization implementing such systems. Given the long-term impacts of an ERP purchase, license and pricing negotiations with an ERP vendor take on real significance, and should be handled with the care reserved for Purchase, license other large, capital purchases. and pricing
negotiations need to be handled with care. Major financial and operational investment Long-term impacts

ERP

Effective SAP Pricing And Licensing Negotiation

EXECUTIVE SUMMARY Sourcing and vendor management professionals involved in negotiations with SAP feel caught between their managers' expectations and the vendor's dominant negotiating position. However, vendor managers can win significant savings and protect their enterprise's future interests by employing a smart negotiation strategy. The discount level is important, but there are other license needs and risks that could be worth more in the long term than a few extra discount percentage points. Software sourcing managers should do thorough research, working with different colleagues and external advisors, to assess the possible future impact of relevant IT and corporate strategies. They then need to analyze this to define the risks they want to mitigate via their license agreement. Purchasers also have to understand the strength of their negotiation position by analyzing the three distinct purchase types: initial purchase, license extension, and maintenance renewal. Bringing these two dimensions together, buyers can better prioritize what they want to get from SAP and plan how to get it. TABLE OF CONTENTS SAP Pricing Vagaries Make Negotiation A Challenge Successful SAP Negotiations Go Beyond The Discount Level Prioritize Goals And Identify Levers To Plan An Effective Negotiation Negotiation Best Practices For The Three-Stage SAP Relationship Life Cycle WHAT IT MEANS Sound License Agreements Let Enterprises Optimize Their Use Of SAP Related Research Documents

 The report suggests that buyers look beyond getting SAP to discount a few percent off the initial license purchase. Instead, Forrester recommends buyers evaluate their strategy, and potential risks, to negotiate a deal reflecting longer term business goals. To accomplish this, buyers must understand their own requirements, while remaining aware of SAPs strategies and goals. The report describes some of the dynamics driving SAP when they sit across the table during a license negotiation

 SAP PRICING VAGARIES MAKE NEGOTIATION A CHALLENGE An enterprise-wide ERP system represents the top one or two technology investments that an organization will make over a 10year period, and the ongoing maintenance consumes a significant portion of the annual budget. CFOs expect their vendor managers to keep these costs under control, yet they often have a weak negotiating position. A buyer cannot realistically threaten to switch to another vendor or cancel maintenance if SAP knows it is the customers strategic platform. Adding to the complexity and fueling companies angst, SAP does not offer a published price list, so buyers are left second-guessing themselves as to whether or not they got a good deal. The most common complaint we hear from interviewees is that SAP pricing is complex and opaque.

 INSUFFICIENT FORESIGHT LEAVES FIRMS HAVING TO WRITE BIG CHECKS DOWN THE LINE The complexity increases throughout the software ownership life cycle, given that firms must live with the application for tens of years changes to the business over that time directly impact the number of users and the scope and validity of the licensing agreement. 2 Most of the licensing problems weve heard from clients could have been avoided if theyd foreseen the risk and addressed it during the original negotiations. Complaints to us often start with the phrase, I would have thought that . . . Buyers often make incorrect assumptions about how SAP will handle future situations. By the time they find out the licensing implications of a business change, it may be too late: The buyer has a much weaker negotiating position after the initial sale and may struggle to get any more concessions.

 SUCCESSFUL SAP NEGOTIATIONS GO BEYOND THE DISCOUNT LEVEL While most companies naively focus all their bargaining energies on getting the best purchase price, the problems described above could cost an enterprise far more than the few extra percentage points of discount that they extract. Unfortunately, successful risk mitigation is far less visible than the headline discount percentage. Many of our interviewees had bought SAP licenses worth more than $5 million at list price and had obtained an extra discount of up to 10% on licenses, which would be worth $500,000. In stark comparison, contractual issues could easily create liabilities for an additional 25% of the license expense, which would cost $1.25 million.

 ERP contract negotiations, with SAP or any other vendor, should always address both short- and long-term considerations. Seek a fair and reasonable deal based on diligent advance preparation, keeping in mind that fair and reasonable means just that; it doesnt mean getting screwed by your vendor.

SAP Maintenance
Standard offering (17%)
Technical Support and Rights to New Versions 2 Early Watch checks and either SAP GoingLive Check, SAP GoingLive Functional Upgrade Check, or SAP OS/DB Migration Check.

Max-Attention Service Level offering (20%)

Guaranteed response time for very high priority incidents Safeguarding for up to 2 mission critical projects and named contact in SAP support services

Max-Attention OnSite offering (23%)

Above plus two full-time on-site consultants

Software Maintenance Trends

User Vendor

Increased maintenance fees Maintenance starts day the license is signed Separation of technical support from rights to new versions Removal of technical support during warranty period Decreasing level of service in standard offerings

Ramped or stepped maintenance disappearing Selected versions not included in maintenance Maintenance policy changing at vendor will Vendor cancellation for convenience

Shortened support periods for prior version

Maintainance

Maintenance Reinstatement Fees: Maintenance Is Forever?

Onerous term and condition: If you drop maintenance, but after a year, want to re-start it, you are subject to whatever we want to charge at the time, and you will have absolutely no leverage. Likely way presented in SAP agreement: In the event Maintenance is declined for some period of time, and is subsequently requested or reinstated, SAP will invoice Licensee the accrued Maintenance Fees associated with such time period plus a reinstatement fee. Example of solution (not legal advice): Licensee can resume software maintenance for lapsed periods by paying an amount no greater than the support fee that would have been due if software maintenance had been continued over the lapsed period.

SAP License Terms to Negotiate: For Your Eyes Only

License Model Choice of e-business platform = all SAP applications or solutions = CRM, or other single application. Fee for three role-based, named users. Automated B2B transactions charged via software engines based on sales and purchase orders. Maintenance: 17 - 23 percent Top Five Terms to Negotiate: Full 100 percent credit for R3 investment, and for future conversion from mySAP ERP to mySAP Business Suite if required. On larger deals, minimize uplifts outside Euro-zone countries Understand indirect access: Specify exactly when licenses for external systems accessing SAP software are required, be particularly careful with BW (OpenHub) Right to outsource Rights to custom-developed code

Charges for Changes in Technology

Example of onerous term and condition: If the licensee decided to change from one supported database to another supported database, the cost for doing this will be horrendous.
Likely way presented in the contract: Database: Oracle (or any other specific database listed)

Example of solution (not legal advice):

Licensee may transfer this software, at no additional cost, to any hardware platform, software operating system, or database that the vendor supports for this software.

Maintenance Reinstatement Fees: Maintenance Is Forever?

Onerous term and condition: If you drop maintenance, but after a year, want to re-start it, you are subject to whatever we want to charge at the time, and you will have absolutely no leverage. Likely way presented in SAP agreement: In the event Maintenance is declined for some period of time, and is subsequently requested or reinstated, SAP will invoice Licensee the accrued Maintenance Fees associated with such time period plus a reinstatement fee. Example of solution (not legal advice): Licensee can resume software maintenance for lapsed periods by paying an amount no greater than the support fee that would have been due if software maintenance had been continued over the lapsed period.

SAP Negotiating Levers: Never Say Never, Again

Increased discounting, but new customers treated better than installed base Only 25% of installed base has converted to mySAP licenses. These were larger customers with strongest rationale to upgrade. Believe the next 25% will take more convincing Time of year (Year end December)

Portal deals Size of deal (average deal size in 2002 approx Euro 420,000) Credible competition Industry vertical (process knowledge) Geography/Mid Market (reference account)

Pay-as-You-Go Agreements vs Buying everything up-front...

Evaluate against buying exactly what is needed

Establish minimum licenses to be retained after contract term Ensure that licenses are transferable without limitation

Include new functionality and products in agreement

Build in flexibility to accommodate business change Negotiate full credit for existing licenses

Whats in a Suite...?
Industry Solutions

mySAP Business Suite???

Master Data management

xApps

XI for non-SAP apps

Six Steps of Preparation for Licensing with SAP

1. Establish a negotiating team with representation from all participating business units.

2. Define requirements over two to three years with focus on funded projects.
3. Perform a physical inventory of SAP licenses and existing contract terms; understand new models and terms. Compare with new proposal.

4. Determine whether purchase can be made under existing agreement. Weigh re-licensing benefits against loss of favorable terms.
5. Balance additional discount with potential shelfware. 6. Leverage competition.