SAP Commissions
Contract pitfalls

After the acquisition of by SAP in 2018 it’s only natural that the flagship Incentive Compensation Management product, dubbed now SAP Commissions, is getting a full architecture rewrite to core SAP technologies (and will be called SuccessFactors Incentive Management).

The previous architecture, based on Oracle, won’t be supported beyond 2026 and the customers face a choice of either upgrading to HANA on Google Hyperscalers or moving to a different ICM/SPM platform vendor.

Every time a migration (whether to HANA or to another ICM/SPM system) is considered, there are quite a few things that can make the project fail from the start. The writing is literally on the wall (or – in the contract) and here is a suggested approach to score the SOW:

Scorecard for the contract

All vendors and SI promise to deliver projects on time and within budget, but the reality is that during the sales cycle you’ll get the world, while the reality is in the SOW.

In the end, “we talked about this during a call or two” loses dearly vs “here’s the contractual statement”.

To measure risk of the project not finished on time and within budget, you may want to deliver a scorecard (an example is provided below) to consider the following factors:

Type of project

One of the most important considerations is the type of project. Some vendors are going for T&M option only, others are very comfortable with Fixed Price.

That factor alone tells you much about chances of staying within project budget…

Vendors know that Fixed Price is an extremely important factor, so they put strange clauses in SOWs to cover for the fact, that SOW is in reality T&M.

Look for typical clauses like these:

  • The estimate is on a Fixed Price basis and will be validated at each phase of the project (…) through further detailed conversations in the requirements phase, parties will refine the project timeline and budget.
    • That basically means that the vendor does not have full understanding of the scope and the budget is not guaranteed
  • The estimated Fixed Price fees are (…) USD excluding travel and expenses (…). The vendor will stop work when (…) USD in Service Fees have been incurred
    • This is pure Time and Material, because the budget is charged on Service Fees, which are T&M

There are many more ways of writing that a Fixed Price contract is in reality a T&M, so take a big magnifying glass when reading the SOWs!

Cost of migration

Some vendors agree to cover the cost of migration – but as always, you need to take it with a pinch of salt.

Something you may find in the SOW is that the cost of migration is indeed covered, but the migration is on a T&M basis.

That basically means that the vendor may be actually interested to extend the timeline, despite verbal promise that it’s otherwise.

Data storage cost

One might think that the cost of data storage is irrelevant – and one would be making a great mistake.

Some vendors make their storage very expensive, not only that, there’s no way of telling how much storage the system will consume!

Do ask yourself a question: if the storage allowance is not only for the input data volume, but for all intermediate storage the system will produce, what influence will you have to modify the system’s behavior and reduce storage consumption?

Why is the vendor charging you for everything that the system will produce, instead of only for the data you’ll load?

If you translate this scenario, what you get in reality is: “it’s a black box, you need to pay for everything it does – but we don’t know how much.”

Of course, in the course of sales calls, you’ll get a lot of statements like that from vendors:

  • The system compresses the data very well, the storage we offer initially is more than adequate.
    • If so, why does the vendor charge for intermediate storage in the first place?
  • We don’t know your business scenario, so we can’t guarantee that you won’t need to buy more storage, but we’re sure you won’t need to do it.
    • Sounds reasonable? I think not, I mean who makes the recommendation, and who’ll pay in case of overage?
  • We can’t charge for input data storage, only because we don’t know how much data the system will produce when calculating commissions.
    • If the vendor is not sure of it, how can you be?

Data storage cost can produce significant charges in case of overages, so vendors that charge you only for the input data volume tend to be a much safer choice in terms of running cost.

Knowledge of your business

That one looks like a no-brainer – if the vendor/SI knows your business already, they sure will have an advantage over other implementation partners. As always, things are more complicated than this:

  • If the SI/vendor is already doing business with you, do they tend to deliver projects on time and within budget?
  • ICM/SPM systems are more complex and require significant experience to implement efficiently. Does the SI that operate in your enterprise have existing/certified staff that know the system to implement? If not, then maybe it’s a good idea that they partner with another SI?
  • ICM/SPM vendors and SI should have a track record of implantations done on time and within budget. Do ask for references.
  • When talking to an ICM/SPM vendor or SI, do they get your scenarios quickly and talk your language, or do they provide generic presentations and not grasp your business concepts?

Parallel license cost

This one can get costly – it’s only natural, that for a period of time there will be two systems running: the old one (SAP Commissions) and the new one.

Please consider the following:

  • Even SAP will most likely charge you for both systems (SAP Commissions and SuccessFactors Incentive Management), which seems quite absurd. I mean – you’re forced out of SAP Commissions, so this really should be covered by SAP.
  • Other vendors may be negotiated to either postpone first year charges or reduce them significantly, o alleviate the pain of two systems running at the same time.
  • Some vendors are more reasonable in this area than others, which is yet another indication that a vendor is more serious about doing business with you.

Example scorecard

Here’s an example scorecard that you may want to use – the weights can be adjusted to your specific needs:

Area Vendor 1 Vendor 2 Description
Project type 3 10 1 for T&M, 3 for capped T&M, 10 for Fixed Price
Cost of migration covered by vendor 5 0 0 if not, 5 if partially, 10 if fully
Storage 2 5 1 for limited with risk of overage, 2 if limited with low risk of overage, 5 if unlimited
Margin/Uro changes included 0 5 0 if not included (additional cost will apply), 5 if included
Client-specific implementation partner 0 5 0 if little knowledge of Client commissions or known of delays, 5 if client commissions knowledgeable partner with no/little history of delays
Parallel testing includedd 0 3 0 if not included, 3 if 2 months, 5 if 3+ months
Reduced parallel license cost 0 12 0 if no mitigation, 3 if mitigated for 3 months, 6 if mitigated for 6 moths, 12 if mitigated for 12 months
Total 10 140

A few practical hints from Sands Partners:

  • Vendors try to obfuscate the picture with small print, so be very diligent when going through the SOWs and verify twice whatever’s you’re told on sales calls!
  • While data storage cost may seem irrelevant, in many cases the cost of storage was a significant portion of running cost!
  • Parallel license costs can become expensive– but there are ways around it.
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