SAP Licensing Pitfalls for CIOs – Failing to Engage Business Early
CIOs face a critical SAP licensing pitfall: failing to engage business units early in the licensing decision-making process.
When IT plans SAP usage in isolation, without input from departments such as HR or Procurement, organizations risk unlicensed usage (e.g., copying SAP data into non-SAP systems), which leads to compliance violations and unexpected costs.
Proactive cross-functional collaboration is crucial to avoid unexpected audit penalties and maximize the value of SAP licenses.
Read Top 10 SAP Licensing Pitfalls for CIOs.
Pitfall Overview: IT-Only License Planning
One common mistake is treating SAP licensing purely as an IT issue.
Failing to involve business stakeholders early means CIOs might miss how various departments use SAP data. For instance, HR or Procurement might deploy new tools or processes that interact with SAP without IT’s knowledge.
If those interactions aren’t licensed, the company can unknowingly violate SAP’s rules.
In an enterprise setting, licensing can’t be handled in a silo – business units often drive requirements that directly impact license needs.
Not aligning with them from the start creates blind spots where unlicensed activities breed.
- Business Silos Create Blind Spots: When departments operate independently, they may launch projects that utilize SAP data without considering the necessary licensing.
- Lack of Early Input: Without early input from HR, Finance, Procurement, and other relevant departments, IT may purchase the wrong mix of SAP licenses or overlook key integration use cases.
- Unintentional Non-Compliance: These gaps often surface only during an SAP audit or true-up, when it’s too late to negotiate or budget properly.
Read SAP Licensing Pitfalls for CIOs: Rigid Contracts With No Flexibility.
Siloed Decisions Lead to Compliance Gaps
Departments such as HR, Procurement, and Sales often utilize SAP data in ways that IT may not anticipate.
Siloed decision-making leads to scenarios where, for example, Procurement exports SAP materials data into a third-party supply management app, or HR integrates employee info from SAP into a cloud HR system – all without proper licensing.
These well-intentioned actions can create indirect usage of SAP software that isn’t covered under existing licenses.
- Disconnect Between IT and Business: If Procurement purchases a tool that extracts data from SAP, or HR implements a SaaS solution that integrates with SAP HR modules, they may assume that existing SAP licenses cover it. CIOs often discover later that every external access can require its own SAP license.
- Unlicensed Integrations: Common cases include third-party analytics platforms, supplier portals, or CRM systems accessing SAP. Each integration is a potential compliance gap if not licensed, as SAP considers data exchange with non-SAP systems to be “use” of its software.
- Redundant or Costly Purchases: In siloed environments, Procurement might unknowingly purchase unnecessary SAP licenses (or too few of them), while IT might deploy solutions without leveraging existing entitlements, leading to both overspend and compliance risk.
Why HR and Procurement?
These departments manage systems intimately tied to SAP data (employee records, purchasing, vendor info). Engaging them early uncovers planned integrations or data flows.
For example, when HR plans to implement a new recruiting system, they must inform IT if it will read or write SAP employee data, so that any necessary SAP Named User or interface licenses can be secured in advance.
Without coordination, such a system could go live with hundreds of employees indirectly using SAP – a compliance issue waiting to happen.
Indirect Access: The Hidden License Time Bomb
One of the biggest risks from poor early engagement is indirect access. SAP defines indirect access as any scenario in which users or applications interact with SAP through a third-party system, rather than directly logging into the SAP system.
In practice, this means if SAP data is copied or exposed to another application, any user of that application might need an SAP license. This catches many CIOs off guard.
Consider the following scenario: Your sales team utilizes a Salesforce CRM that displays order status from SAP. The salespeople never log into SAP directly, but the CRM pulls data from an SAP database.
From SAP’s perspective, those salespeople are indirectly using SAP. Without proper licensing, this seemingly harmless integration violates the SAP contract.
It’s a time bomb because it often goes unnoticed until an audit reveals thousands of unaccounted-for document transactions or users.
Key points about indirect access:
- Broad Definition of “Use”: SAP license agreements typically stipulate that any individual or system accessing SAP functionality or data, regardless of the interface used, must be licensed. Simply viewing SAP-originated information in another app can count as usage.
- Copying Data Triggers Liability: If SAP ERP data (such as a materials list or financial information) is exported into a non-SAP system for employees to view or process, those employees may be required to have SAP user licenses. Alternatively, SAP offers a “SAP NetWeaver Foundation for Third-Party” license or a Digital Access license to cover such scenarios, but these must be purchased proactively.
- Evolving Rules (Digital Access): In response to customer backlash, SAP introduced a Digital Access model, where you license the documents (business objects, such as sales orders and invoices) created or accessed by external systems. For example, instead of 100 extra user licenses, a company might license a block of, say, 50,000 document creations. This can be cost-effective in some cases, but only if you are aware of it early and accurately measure your usage. If you engage business units late, you are likely to have not implemented Digital Access or other arrangements, and indirect use will accumulate unmonitored.
Common Indirect Use Cases:
- Third-party customer or vendor portals reading/writing SAP order data
- E-commerce websites interfaced with SAP inventory/pricing
- Business intelligence tools aggregating SAP data for reports accessed by non-SAP users
- Robotic Process Automation (RPA) bots extracting SAP data and populating external apps
Without a holistic view from the outset, CIOs often underestimate the importance of these interactions. Indirect usage is a leading cause of compliance gaps because it resides in the gray area between technical integration and legal licensing.
Engaging departments early helps inventory all such touchpoints and decide on the right licensing model (users vs. documents vs. engines) before usage grows.
Real-World Consequences: Audit Surprises and Costs
Failing to address this pitfall can result in significant financial exposure. SAP licensing compliance isn’t just a paper exercise – it’s been enforced in high-profile cases.
If a CIO discovers unlicensed usage only when SAP’s auditors come knocking, the business could face back-charges for years of use, as well as penalties and maintenance fees.
Case in Point:
Global drinks company Diageo learned this the hard way. Diageo connected a Salesforce-based customer portal to its SAP ERP, enabling thousands of clients and sales representatives to interact indirectly with SAP data. In a 2017 UK court ruling, those 5,800 external users were deemed to require SAP licenses.
The result: Diageo was found liable for over £50 million in license and maintenance fees for indirect use. The shockwave from this case alerted many CIOs that indirect access is not a theoretical issue – it has real costs.
SAP also pursued a similar indirect usage claim against the brewer Anheuser-Busch InBev, initially seeking approximately $600 million in arbitration (the case was settled confidentially).
These examples illustrate how a lack of upfront coordination on how systems utilize SAP can result in multimillion-dollar exposures.
To illustrate how costs can mount, consider the following examples of unengaged business decisions and their fallout:
| Scenario | Unlicensed Usage | Potential Financial Impact |
|---|---|---|
| HR integrates a cloud HR system with SAP HCM | 5,000 employee records accessed via non-SAP application | Needs 5,000 SAP named-user licenses (e.g. $1,000+ each) = $5M+, or equivalent document licenses to cover HR data views. An audit would enforce retroactive fees. |
| Procurement launches a supplier portal outside SAP | Suppliers create purchase orders that feed into SAP | Each supplier or order might count as an indirect use. Could require a SAP Platform license (costing hundreds of thousands) or thousands of incremental user licenses. Non-compliance could trigger 7-figure back-charges. |
| Sales team uses a third-party mobile app for orders | App generates sales orders in SAP via API calls | Each order is an SAP document. 50,000 orders/year might be $50K+ under document licensing. If unlicensed, SAP could demand full named-user licenses for all app users plus maintenance (far exceeding $50K). |
| Finance exports SAP data into a reporting tool | 20 analysts view SAP financial data in PowerBI | Those analysts technically need SAP licenses. At say $3,000 each = $60K, plus 22% annual support fees. An audit would impose these costs retroactively if not licensed. |
In each case, the root problem is that the business acted without understanding the implications of SAP’s licensing. The “sticker shock” typically occurs during an SAP license audit or when true-ups reveal significantly more usage than the entitlements cover.
At that point, companies have little leverage – they must pay the fees for past use (often at list price with backdated maintenance). Additionally, unbudgeted compliance costs can significantly impact IT finances for the year.
Soft Costs: Beyond direct fees, such surprises strain vendor relationships and internal trust. CIOs may find their credibility challenged by CFOs or boards if a preventable licensing oversight incurs a massive bill. It’s far better to invest time upfront in cross-functional planning than to pay millions later due to a compliance miss.
Early Engagement Strategies for CIOs
The antidote to this pitfall is early and frequent collaboration.
CIOs should view SAP license management as a company-wide governance issue, rather than just an IT task. Bringing business units into the conversation from the start surfaces hidden use cases and aligns technology plans with licensing policies.
Strategies to Engage Business Stakeholders:
- Cross-Functional Licensing Team: Establish a governance team or steering committee for SAP licensing that includes representatives from IT, Procurement, HR, Finance, and Legal. This team should meet regularly to review upcoming projects (e.g. new software implementations, process changes) for licensing impact.
- Requirements Workshops: Before any major SAP project or contract renewal, hold workshops with business process owners. Discuss how each department uses SAP data and any third-party systems in play. This ensures license requirements are identified early. For example, suppose marketing plans to connect a campaign platform to SAP customer data. In that case, IT can plan for an API user license or digital access license rather than discovering it later.
- License Education for Business Users: Educate non-IT stakeholders in basic SAP licensing concepts. Provide simple guidelines, like “If you plan to extract or input data from SAP into another tool, involve IT first.” By raising awareness, business units are less likely to unknowingly create compliance issues.
- Transparency of Entitlements: Maintain an accessible inventory of current SAP licenses, usage metrics, and contract terms to ensure transparency. When business leaders understand what the company owns (e.g., X number of Professional Users, Y engines, etc.), they can better assess whether a new initiative might require additional licensing. Procurement can reference this during any software purchase discussions.
- Early Vendor Dialogue: If a department intends to use a non-SAP solution that interfaces with SAP, engage with SAP (or a licensing expert) early to clarify how such usage can be licensed. In some cases, SAP might offer a specific license type or advise using the Digital Access model. Early negotiation can secure better pricing or clarifications in the contract, whereas after the fact, you have little negotiating power.
Leveraging Modern Licensing Options:
CIOs should also stay informed about SAP’s evolving models, such as the Digital Access Adoption Program (DAAP), which allows a one-time conversion of some old user licenses into digital document licenses. Engaging with SAP provides a clear view of your business’s integration needs, opening discussions on tailored licensing arrangements.
For example, some enterprises negotiate specific indirect use clauses (like excluding certain B2B scenarios from license counts) – but this is only possible if you raise these needs during contract talks, not after an audit has begun.
By collaborating early and often, IT and business leaders can bake compliance into the design of processes and systems.
The goal is to never be surprised by how a department is using SAP.
When everyone is on the same page, the organization can optimize license spend (avoiding both under-licensing and over-licensing) and prevent compliance crises.
Recommendations
- Involve Business Units from Day Zero: Include HR, Procurement, Finance, and other key departments in all SAP licensing discussions and planning sessions. Early input prevents costly surprises later.
- Map Out Integration Use Cases: Create a comprehensive diagram of all systems (SAP and non-SAP) and data flows. Identify where SAP data is accessed or replicated. Proactively license those integration points (via named users, engines, or document licenses) as needed.
- Educate and Train Stakeholders: Provide training to business and IT teams on SAP licensing basics, especially indirect usage rules. Ensure everyone understands that any system or user touching SAP data must be accounted for under the license.
- Conduct Internal License Audits Regularly: Don’t wait for SAP’s auditors. Conduct your annual review, ideally with a cross-functional team, to verify usage against entitlements. This will catch unlicensed activities (like that rogue spreadsheet or interface) early, when you can still correct course.
- Leverage Tools for Transparency: Use SAP’s License Administration Workbench (LAW) or third-party SAM tools to monitor license consumption. These tools can help flag unusual usage patterns or indirect access counts, giving CIOs data to act on before it becomes a compliance issue.
- Negotiate Indirect Use Terms: When negotiating SAP contracts or renewals, explicitly address indirect access. Seek clarity or special provisions for known third-party integrations. Consider adopting SAP’s digital access model if it aligns better with your usage, but negotiate a predictable cost structure (e.g., via the DAAP program).
- Centralized License Management: Treat SAP licenses as a shared corporate resource. Have a central team or owner responsible for license allocation, tracking, and compliance, who regularly communicates with all departments. This central oversight ensures siloed projects don’t slip through the cracks.
- Plan for Organizational Changes: If the business is growing, merging, or introducing new services, revisit your SAP license needs. Early engagement during organizational change, such as mergers and acquisitions (M&A) or the introduction of new product lines, enables you to adjust licenses proactively rather than reactively.
- Document and Archive Agreements: Keep a well-organized repository of all SAP contracts, use rights, and correspondence. If a question arises about whether a scenario is allowed, you can quickly find what was agreed. Clear documentation also helps educate new project teams on what they can or cannot do with SAP data.
FAQ
Q1: What is an example of “failing to engage business early” in SAP licensing?
A1: It refers to IT not consulting business departments before making licensing decisions. For example, if the IT team purchases SAP licenses without knowing that HR is implementing a new recruiting app that connects to SAP, they might miss licensing the integration. Engaging business units early would surface that need and prevent unlicensed usage later on.
Q2: How can copying SAP data into a non-SAP system create a license violation?
A2: SAP considers any access to its data as use of the software. When you copy or export data from SAP into another system for users to view or process, those users (or the external system itself) are indirectly using SAP. If they aren’t covered under your SAP license agreement, it’s a compliance violation. Essentially, moving data out of SAP doesn’t avoid licensing – it often extends it to the users of the new system.
Q3: Which business departments should CIOs involve in SAP license discussions?
A3: At a minimum, involve HR, Procurement, Finance, Sales, and Legal. HR is aware of employee-related systems (e.g., payroll or talent management) that may interface with SAP HR data. Procurement handles software purchasing and ensures contracts align with SAP licensing requirements. Finance can forecast the budget for licenses and flag financial systems linking to SAP. Legal ensures that contract terms (such as indirect usage clauses) are understood. Sales or other units might be using CRM or other tools connected to SAP. Their input helps identify all use cases to license properly.
Q4: What steps can we take to detect unlicensed SAP usage early?
A4: Conduct regular internal audits and cross-functional meetings. Use tools like SAP’s License Audit Workbench or third-party monitoring to track how SAP data is being accessed. If an unofficial integration or data export is occurring, these audits can reveal additional users or document transactions. Also, establish an internal process: before any system connects to SAP or any mass data export occurs, it must be reviewed by the central license management team. Early detection may simply come from open communication, encouraging teams to request IT approval when they want to use SAP data elsewhere.
Q5: What are the consequences if we’re found non-compliant in an SAP audit?
A5: If SAP finds you’ve been using more licenses than purchased (including indirect use), they will issue an audit report requiring you to purchase the necessary licenses retroactively. This often means a large one-time payout for all unlicensed use (possibly at list price, which is expensive), plus backdated maintenance fees (typically ~20% of license cost per year). In severe cases, it can run into millions of dollars. Moreover, you’ll need to immediately correct the licensing shortfall (buy more licenses or stop the unlicensed activity) to avoid breaching your contract. It can also damage your negotiation position with SAP going forward, as you’ll be seen as a higher risk customer.
Q6: How does SAP’s Digital Access license help with indirect usage?
A6: The Digital Access model enables companies to license SAP based on the number of documents (such as sales orders, invoices, etc.) created or accessed by external systems, rather than by the number of named users. This can simplify licensing for indirect scenarios – for instance, covering an e-commerce site’s interactions via a document count rather than needing a license for every web customer. It can potentially reduce costs if you have a large number of occasional external users. However, you need to estimate your document volumes carefully. Engaging business units is critical here too: you must know how many orders, invoices, or other documents their external systems will generate. With that insight, you can negotiate a fair package under Digital Access and avoid overpaying or under-licensing.
Q7: What should a CIO do when a business unit wants to adopt a new non-SAP software that will connect to SAP?
A7: The CIO should proactively become a partner in that initiative. First, discuss how the new software will use SAP data (read, write, how often, how many users). Then, review your SAP license agreements to determine what is allowed. Likely, you’ll need to budget for additional SAP licenses (either user licenses for those new users or a more suitable license type for the interface). It’s wise to involve your SAP account manager early — sometimes they can offer advice on the most cost-effective way to license the planned usage. By addressing this issue before the new software goes live, you can often negotiate better terms or, at the very least, ensure compliance from the outset.
Q8: Can engaging business units save money on SAP licenses?
A8: Absolutely. When business and IT plan together, you can optimize license allocations. For example, Procurement might reveal that 200 supplier users only require limited portal access – perhaps a lighter license or a more cost-effective indirect access approach exists. Without that knowledge, IT might over-purchase expensive full-user licenses. Conversely, if a department isn’t consulted, they might go hire 50 contractors who use SAP under someone else’s account (a compliance risk) rather than telling IT to license them properly. Engaging everyone allows you to right-size licenses, eliminate unused ones, and choose the most economical licensing models for each scenario. In short, it prevents both overspending and penalties – a double win.
Q9: How do we handle SAP licensing when data is on the cloud or in hybrid environments?
A9: In hybrid landscapes (mix of on-premise SAP and cloud services), engaging business units is even more important. Data can flow from SAP ECC on-premises to cloud analytics or from S/4HANA Cloud to third-party applications. Each connection point needs a licensing review. SAP’s rules apply regardless of where the system is hosted. If HR exports data from SuccessFactors (SAP’s cloud HR) to another application, that could still be considered indirect use. Make sure your team understands the licensing model of each SAP cloud product (some are subscription-based with different metrics). Align with business units on how they utilize cloud and on-premises SAP, and consult with SAP or licensing experts to ensure compliance in both realms. Often, cloud services might include certain integration rights, but never assume without confirmation. A coordinated approach prevents gaps when bridging on-prem and cloud ecosystems.
Q10: What is one sign that we may be underestimating SAP licensing needs?
A10: A red flag is when business units are handling SAP data informally – for example, an analyst writes a script to pull SAP data into Excel for a team, or a department clones SAP data into an Access database for convenience. These “small” actions indicate the business needed a solution outside SAP, and they might not realize it could violate licensing. If you hear about any such workarounds or side systems, it’s a sign that IT wasn’t engaged early. It’s time to investigate and either bring that usage under proper licensing or provide an alternative supported solution. In general, surprises during quarterly reviews or project meetings (like discovering a marketing tool is plugged into SAP) suggest the early engagement process needs improvement.
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