SAP S/4HANA Product or Contract conversion | Huge Money Saver
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22 July 2020 
in S/4HANA

SAP S/4HANA product or contract conversion : what is the optimal change to S/4HANA?

SAP S/4HANA product or contract conversion : what is the optimal change to S/4HANA?

Roadmap to SAP S/4HANA: Save money with the right decision on license conversion

SAP S/4HANA Product or Contract conversion

For many companies, the switch to SAP S/4HANA increases their anxiety about high costs. According to the Lünendonk study “With S/4HANA into the digital future – status, goals and trends with the implementation of S/4HANA in German-speaking countries” (September 2019) over 62% of companies don’t yet know what their exact license needs are and are therefore unsettled by the implications of the change.
In all probability, a significant shortcoming here lies in how the new license model is communicated and in a lack of understanding about exactly how it works. Therefore, it is self-explanatory that 73% of IT decision-makers polled expect their partners in the area of license management to have expert knowledge of this field to remove any doubt. SAP ECC users have until 2027 to make the change but they should be thinking hard now about how they want to organize this change.
With its specialist unit in the area of SAP licenses, Scheer GmbH has many years of experience with SAP license models, and in the following article will take away any fears you may have about the switch to S/4HANA.

To convert your system over to S/4HANA, you have two options:
1) Product conversion or
2) contract conversion.

Product Conversion

Where product conversion is chosen, customers using SAP S/4HANA Enterprise Management for ERP buy the right to use the software. The original SAP ERP contract remains, for the most part, valid and is made “SAP/S4HANA-ready “by the additional purchase of S/4HANA license components only and the transition to the SAP HANA database:

The SAP HANA database license needs to be purchased. Most customers elect to buy the Runtime edition, and the price is calculated from the current HANA software application value (HSAV) of the SAP licenses. Costs for AnyDB (e.g. MS-SQL, DB/2, Oracle) are not included.

The SME seldom consider the choice of a full-use SAP HANA license. The current database is also de-coupled technically from the SAP HANA database to avoid doubling up on maintenance payments.

Costs for the SAP HANA database are calculated at 15% of the former software application value (exclusive the last database).

Also, the foregoing licenses must be converted. Currently, and with payment of a so-called flat fee, SAP is offering the possibility of buying user rights for SAP S/4HANA based on the existing ECC licenses. This way, the current SAP ERP licenses are converted into SAP S/4HANA licenses.

The existing maintenance arrangements and the users and the commercially neutral solutions (meaning traditional solutions not “replaced” by S/4HANA, such as SAP single sign-on for example) remain in place. For each traditional product there is a S/4HANA successor that replaces it (e.g. “SAP Incentive & Commission Mgt. for Insurance” is replaced by “SAP S/4HANA ICM for Insurance”).
The engines alone – the LoB (Lines of Business) and SAP’s industry solutions such as Cash Management, Enterprise Product Engineering, and Advanced Available-to-Promise, and so on, which are not included in the S/4HANA core system – are excepted from this principle and must be separately licensed. But here also, credits may be possible.

Be prepared for end-of-support of SAP ECC

The “old” solutions from the world of SAP ECC may only continue in use under SAP S/4HANA up to the 31st December 2025. The maintenance extension for ECC to 2027 does not carry the rights of use for the compatibility packs with it, as whatever happens the rights of use for these packs end on 31st December 2025.
For most solutions, an equivalent SAP S/4HANA successor has been defined and designated, along with information on when it can be implemented. Should this not be the case for one of your solutions, you should regularly refer to the SAP roadmap for details on its development.

Contract Conversion

A contract conversion involves the complete conversion of the contract. It offers the customer a unique opportunity to put a pure S/4HANA contract in place, along with an update of the commercially neutral products.

In the past, changes in company structure or in strategy may have led to over-licensing, which has, in the meantime, resulting in unnecessary costs (e.g., maintenance). As you cannot merely exchange or return licenses with SAP, a contract conversion offers a one-off opportunity to unburden yourself of unused SAP licenses (so-called “shelf-ware”) and to include products in a new contract that you need, both today and in the future.

From Named users to User Matrix Model
The new license model no longer uses “named users “as the basis for its calculation. Rather it uses “User Metrics“. User metrics covers the number of active users working with your licensed system.
SAP uses the so-called “milkshake approach” for the conversion process. You could describe it metaphorically as all the old licenses are mixed in a single “cup” and subsequently replaced by a new license agreement. A sort of BOM (Bill of Material) represents the new license agreement and this covers the licenses you need now and in the future.

At this point, any worries you have about high costs can be taken away as the costs of the newly aggregated license list offset the existing licenses, with only the difference in both totals to pay. The current license inventory can be offset by up to 100%.

When to select a Product or License conversion to make the move to SAP S/4HANA?

The choice between Product Conversion or  Contract Conversion is made mostly at the end of the decision-making process when all your exact needs have been identified. This is also part of the preparation of each SAP S/4HANA roadmap and must be looked at individually for each customer. The right choice will not only significantly optimize your use of the SAP software but may also result in significant cost savings. Scheer can help you in your search for the optimal solution.
Our team of experts is available to you at any time should you have any questions. Please contact us for a no-obligation consultation.

SAP License Management: Optimal and risk-free management of your SAP licenses.

Please contact Izabela Baldi – Head of Sales SAP Licence & SME
Scheer GmbH
Uni-Campus Nord
D-66123 Saarbrücken
T +49 68196777-0

About the author
Ferry fulfills the role of strategic advisor in the field of digitizing and improving business process management with SAP solutions. Particularly through his project approach, defining the right scoping and supporting the change path, he ensures that projects are successful.