Do everything right! - Tips for your SAP S/4HANA contract conversion

SAP is heralding the end of its successful R/3 software. Standard maintenance for this software ends in 2027. By the end of Extended Support in 2030 at the latest, every SAP customer must also have converted their license contracts for the successor product S/4HANA. This involves a contract history that often spans decades and must be processed.

To salvage the investments already made in SAP software, SAP offers its customers two paths: Product Conversion and Contract Conversion. Which path is best for whom? How do I set the right course for the future?

Product Conversion - Contract Conversion "light

Product conversion is the easiest way to transfer your existing licenses to the S/4 world. The "S/4HANA Enterprise Management for ERP Customers" product must be purchased for this purpose. This means that all old usage contracts for SAP software remain valid in the S/4HANA environment. SAP even grants a "dual-use right" for the entire migration period. This means that you can use the licenses up to the licensed scope in both the R/3 environment and the S/4 environment.

A conversion to S/4 licenses is only necessary for those products for which there are no equivalents in the new world. For example, the R/3 product "SAP EHS Management, product safety" is converted to the new product "SAP S/4HANA for product compliance".

The paid contract price is credited for the licensing of the new product to 100%. Here it is important to negotiate the discount for the successor products so that no additional costs are incurred.

Tip 1: If the S/4HANA successor product does not bring you any additional benefit, insist that the discount for this product means that you do not have to pay anything extra.

This form of contract conversion is advantageous for all customers who use a large number of "inexpensive" user types. Many user types for limited use of the SAP system, such as Worker User, Project User, Logistics User, no longer exist in the S/4 price list. With a product conversion, you can continue to use these and also relicense them. All contractually granted special rights are also retained with the Product Conversion.

Tip 2: Analyze your contract history including all side agreements for important special rights. If you do not want to lose these, conclude a product conversion or ensure that SAP grants you these rights even after a contract conversion.

With regard to the "indirect use" of the SAP system, your legal position with regard to Product Conversion does not change. You are not obliged to accept the "Digital Access" license model. On the one hand, this leaves you with the uncertainty of the extent to which SAP is entitled to demand license fees for indirect uses of the system, e.g., through interfaces to suppliers, service providers, or customers. On the other hand, you can still defend yourself against these demands and conclude other agreements with SAP to secure specific usage scenarios under licensing law.

Tip 3: Review your risk regarding indirect use and determine your current and future licensing needs for the "Digital Access" model. On this basis, develop a negotiation strategy to license indirect use as cost-effectively and future-proof as possible.

Contract conversion - many risks, but also many opportunities

The Contract Conversion is actually the hard cut with the contract history. All old contracts are terminated with this agreement and replaced by a new contract. This contract consolidation can also be performed as part of the Product Conversion, but this step is a prerequisite for the Contract Conversion.

With contract conversion, the contract prices paid for the old products are first added together. The sum is then offset 100 percent against the purchase price of the new S/4HANA products. The advantage of this process is that unused legacy products are also taken into account, allowing "shelfware" to be exchanged for useful products.

A major challenge in Contract Conversion is the definition of the new S/4HANA bill-of-material. The functionalities used in the R/3 world have been distributed to different products in the S/4HANA price list. A detailed analysis of the requirements is necessary to define the right configuration. If functions are overlooked here that can only be mapped by additional products, the cost calculation can change dramatically.

Tip 4: Involve the using departments in the contract preparation in time to get a complete picture of the required functions and thus the S/4 products to be licensed.

There is one additional condition to be observed with this conversion. The old products are only credited to a maximum of 90% of the new contract amount. This means that the maintenance base must increase by at least 10% with the contract conversion. This contract conversion therefore rarely makes sense for customers who are not planning to expand their SAP commitment.

The contract conversion also changes the available user types. Only four types are now available for Named User licensing: Professional Use, Functional Use, Productivity Use and Developer Access. Previous conversion projects have shown that the new user types lead to higher license costs, as many inexpensive user types are no longer available and Professional Use is then often required.

However, since the end of 2020, the rights for "Display Use" and "Approval Use" have already been included in the cheapest user type "Productivity Use". SAP customers who use many users who only have read-only access or carry out approvals in the SAP system can expect considerable savings here.

Tip 5: Analyze the usage behavior of your SAP users and estimate as accurately as possible how many licenses you need per user type from the S/4HANA price list. The use of a simulation tool can provide valuable assistance here.

With contract conversion, SAP also wants to help the "Digital Access" license model achieve a breakthrough. Since many customers did not want to implement contract conversion for this reason, SAP is prepared to waive it in individual cases. The old rules for indirect use will then apply.

Whoever licenses "Digital Access" contractually agrees that SAP has the right to charge additional license fees for each document (each document line) that was not created via an SAP dialog. Only documents transferred from other SAP applications (Concur, CRM, Ariba ...) are excluded. The license obligation also arises if the document was created in the third-party system by a user who has a valid named user license.

So far, there are only inadequate and error-prone ways of determining the number of documents subject to licensing. This makes it difficult to estimate the current and future costs for "Digital Access". The list prices for "Digital Access" are abstruse and SAP has always granted discounts above 90%.

As a customer, you also have little influence on document growth. Digitalization in particular will lead to more and more processes communicating with SAP systems via interfaces, meaning that exponential growth can be expected.

Tip 6: Try to determine the number of "digital documents" subject to licensing using suitable tools. Secure high discounts for this product and limit the possibility of price increases after the discount agreement expires. Contractually define how the number of documents is determined as long as SAP cannot guarantee reliable measurement. Ensure you have cancellation clauses for this product in case courts object to the licensing of indirect use.

What is the ideal way to switch contracts?

1. Analysis of old contracts
   (products, contract prices, special rights)
2. Determination of future requirements in the S/4 price list (new user types, engines, digital access)
3. Definition of the negotiation objectives for a. Contract Conversion, b. Product Conversion
4. Negotiating with SAP

If no acceptable offer for a Contract Conversion can be negotiated, a Product Conversion can be concluded. At any point in time, the Contract Conversion can still be performed later. Sometimes important demands can be better enforced at a later point in time. With the experience of many conversion negotiations SAMtoa is happy to support you on your way to S/4HANA.