Don’t become SAP’s next multi-million pound target for indirect usage

By Matt Fisher | 26 May 2017

Many customers have a form of love/ hate relationship with their software providers. While they love the functionality and how it empowers their company to operate and even gain competitive advantage, everyone grumbles about the rising costs.

This is certainly true for SAP, which has long been a business-critical piece of technology for many organisations, and is often perceived as a necessary evil for CFOs forced to manage its growing cost. But now the company appears to be taking its relationship with its customers to a new level.

For even the most 'audit ready' organisation, cost should no longer be the CFO's top concern with regards to SAP.  The software provider is now targeting companies for what it claims are unpaid fees relating to indirect usage, whereby SAP systems are accessed or queried through a third-party application, such as SalesForce.com or Workday. 

In February 2017, a UK court ruled in favour of SAP against Diageo, one of the world’s largest drinks companies, for £54 million (US $70 million) in what it claimed were unpaid fees for indirect usage. While just this month, Anheuser-Busch Inbev (AB Inbev) publicly disclosed that SAP is pursuing an arbitration process of up to $600 million in damages and license costs from both direct and indirect usage.

What is indirect usage?

In the past, licensing reviews and system measurements for SAP focused on direct usage of an organisation’s SAP environment. Direct usage on an individual level is described as one user accessing SAP data directly through the SAP interface. Whereas, a simple example of indirect usage is when an SAP system is accessed or queried through a third-party application.

But it’s more confusing still, as the SAP definition for “indirect usage” changes from customer to customer, with the need for additional licences hinged on whether the interaction originates from users’ actions and whether data is manipulated or changed within the SAP system.

This is causing great confusion amongst the SAP user community – and now SAP is cracking down.

Are you at risk?

Arguably, any SAP customer that has indirect access set up is similarly at risk of receiving similar treatment as Diageo and AB Inbev. However, organisations with complex supply chains or partner networks, such as in the Consumer Packaged Goods (CPG) industry, are at greater risk as their operations typically involve higher volumes of indirect usage.

The risk is also greater, in terms of impact, for SAP’s larger users, most of whom have been long-term customers that have increased their investment in SAP systems year on year, and – in many cases – for decades. And as its advertising claims, many of these businesses are built on SAP, so rip and replace is simply not an option.

Replacing SAP systems with a different ERP system would be comparable to uprooting an organisation’s offices and warehouses all at once. You only need read AB Inbev’s public statement (page 154) to see their reliance on SAP systems, which makes it clear that while they intend to ‘vigorously defend’ the licence and damages claim, they will not risk SAP having any cause to refuse to support their core systems.

The challenge of replacing it is further aggravated by the number of IT professionals that have built their careers on SAP, their expertise comprised on how to implement, configure, customise and administer the monster that is SAP when deployed in the enterprise. Rocking the status quo isn’t in their interests, so most continue down the path of maintaining and feeding the monster.

Time for a ‘SAP Tsar’?

At this week’s SAPPHIRENOW, CEO of SAP, Bill McDermott, announced its first pricing scenarios to tackle indirect usage. For these new models, value is to be measured on outcomes. However, this won’t be a clear-cut fix: organisations will need to look carefully at their own circumstances to verify if these new proposals represent a reasonable licensing measure for the purposes of their business; and uncertainty still lingers around other indirect usage scenarios not covered by these initial proposals.

So, how can customers ensure they don’t become SAP’s next target for indirect licensing?

One solution may be following in the footsteps of a trend from the early 2000s, whereby governments around the world appointed ‘Tsars’ empowered to operate outside the bureaucratic red tape and make the tough decisions on policy that urgently needed reform, such as trade, crime, and information security.

Perhaps large SAP customers appoint their own ‘SAP Tsar’ to help understand the organisation’s reliance on and exposure to SAP costs. By bringing together disparate SAP stakeholders and teams from across the company, the figurehead could promote cross-functional working and to identify key areas of exposure, not least of which is now indirect access costs.

The recent developments and new complex licensing terms have led us to believe that SAP contracts must come under greater legal and financial scrutiny than ever before, as customers seek to protect themselves against possible future action for usage that currently seems innocuous.

CFOs tend to be involved in SAP contract negotiations, but we believe that an SAP Tsar (whether the CFO, or another appointed board member or independent) must demand that SAP teams provide more detailed information on the current licensing situation and map the entire architecture using the SAP system to uncover indirect usage risks and potential future causes for worry.

What do you know?

Knowing how the SAP system is being used in an organisation – both directly and indirectly – is the first step for any SAP Tsar or risk conscious CFO to reconcile the threat of future action.

Software Asset Management tools that can identify both communications to and from external third party systems will help highlight which users are indirectly querying SAP and through which third party system. This functionality provides comprehensive data about Indirect Usage, which will prove crucial to significantly reduce organisations’ financial exposure and highlight risk in the future, helping  the CFO breathe easy again..

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