Executive Licensing Series Are your Microsoft True Up negotiations leaving money on the table? Explore Plan Execute Support This document is the Explore report for the Licensing Toolkit. For more in depth information on planning your strategy, consult the associated Planning Guide. The execution focused ROI Scout TM will provide you with guidance on executing your plan. The optimization focused ROI Optimize TM will help you follow through once execution has been completed.
Are your Microsoft True Up negotiations leaving money on the table? A review of the key elements in a Microsoft True Up negotiation and how traditional negotiations tactics leave money on the table. by James Tyler July, 2015 WHY READ THIS REPORT For most organization s we ve worked with, this chart paints a painful yet true picture. While cost containment and budget control remain a priority on every CIO and organizational agenda, spend on Microsoft software continues to grow relatively unchecked. In fact, while research firm Gartner reported a modest 1.9% growth for IT budgets in 2014, Microsoft s fiscal 2014 reported an 11% growth in its Cloud and Enterprise business, outpacing IT budgets growth by a whopping 9%. Microsoft True Ups are the route by which organizations annually acquire new software under their Enterprise Agreement (EA). And while most organizations put significant efforts into negotiating their Enterprise Agreement renewals every three years, very little focus on negotiating their annual true ups. This report, part of the EA True Up Negotiations Toolkit explores the common pitfalls of EA True Up negotiations. Its is important to note that while True Ups must be negotiated annually, the foundation for a solid True Up structure is in the negotiation of the EA itself. A substantially different topic for which we ve dedicated an entire Licensing Toolkit. Table Of Contents Treating Microsoft negotiations as a one off event Not being clear on current entitlements Negotiating on price not total cost Misreading Licensing Service Providers and Microsoft Sales Teams Starting out too late Final Word Don t let your true up trigger an audit Notes & Resources The information in this report is focused on customers with a current Microsoft Enterprise Agreement. Licensing options will differ materially under other licensing programs such as Open or MPSA. All prices quoted in this document are based on Microsoft Open License Estimated Retail Price list and are indicative prices only. EA pricing will vary substantially. Related Content Licensing Report : Understanding the Microsoft True Up is Key to Cost Containment June 5, 2015 Licensing Guide : Negotiating Your Upcoming Microsoft True Up August, 2015
2 TREATING MICROSOFT NEGOTIATIONS AS A ONE-OFF EVENT While the signature or renewal of a Microsoft Enterprise Agreement typically garners a flurry of activity within an organization, including orchestrated efforts from IT, Procurement, Legal and executives, the team quickly gets disbanded immediately after the agreement is signed. Yet, while the players on this team are going back to their daily routine, Microsoft account teams are already busy planning their next revenue generating activity the True Up which is a mere 12 months away. While 92% of CIO s reported being involved in Enterprise Agreement renewals, only 24% reported being involved in annual true ups. The premise is, true up pricing has already been locked for the next 3 years and the exercise is merely one of counting additional licenses deployed and reporting them. And while this may be partially true, having IT and procurement executives out of the picture leads to an unchecked growth in spend and leaves opportunities for additional concessions on the table. NOT BEING CLEAR ON CURRENT ENTITLEMENTS, SOFTWARE REQUIREMENTS AND ORGANIZATIONAL STRATEGY While operationally and contractually the True Up may appear as a vehicle for acquiring missing licenses, each anniversary represents the opportunity for an organization to redefine its relationship with Microsoft. Yet, most organizations we speak to, come to the table grossly underprepared to make the most of this important opportunity. To start with, an organization must be extremely clear on its current licensing entitlements. While this may seem self evident, due to a lack of established Software Asset Management (SAM) processes, it is rarely the case. Often, contract information is scattered across multiple systems and emails; the individual who negotiated the original agreement has moved on or changes to licensing metrics have had an impact on license entitlements. Without this clarity, establishing an Effective Licensing Position (ELP) which determines what the organization is entitled to and what it owes Microsoft becomes virtually impossible, putting Microsoft in the drivers seat of ensuring the organization maintains license compliance and step #1 in growing the value of the true up. A lack of clarity on software requirements is the next big failure in the negotiation strategy. Software requirements aren't solely based on an entitlement vs. current usage equation. Rather, the evolution of technology and ever growing demands of business units inevitably leads to net new requirements. Changes to licensing metrics for existing products may affect requirements either positively or negatively and, as regularly seems to be the case for most organizations, there s the inevitable surprise of items that weren't licensed, or licensed incorrectly at agreement signing and need to be corrected at true up time. Sound familiar? Your Microsoft account team is now in first gear.
3 Organizational strategy and the associated technology roadmap are usually the biggest areas that gets overlooked in negotiations with Microsoft. A Microsoft account team will always try to position the latest and greatest software at every true up. Make no mistake about it that s what they re paid to do. Microsoft is a software company; selling new software and upselling features on existing is its lifeblood and it has made sure that the compensation of account teams depends on it. And while there is often substantial value in these new offerings, there are many times where these offerings may not align to organization strategy or, as is frequently the case, offer value but not at the quoted price. At a minimum, the technology roadmap should be used to compare Microsoft s technology path with that of the organization to gain insight on which software releases will and which wont provide benefit. With less than a quarter of CIO s being involved in annual true up exercises, it s no wonder that this exercise is rarely aligned organizational strategy, opening the door for the procurement of unnecessary software that gets approved by executives in the mad dash to approve the true up and avoid missing a compliance deadline. Second gear. Organizational strategy has the potential to play the biggest role in the true up negotiation process. While aligning commitments to products and services to organizational strategies helps ensure the right platforms are in place to help drive desired business outcomes, activities such as mergers, acquisitions, layoffs and expansion can have a significant impact on the True Up process. In cases where these activities lead to the acquisition or recognition of additional revenue, our experience has been one of true partnership, with Microsoft account teams providing real support in building business cases and securing concessions that can positively impact an organizations bottom line. However in cases such as layoffs or corporate rightsizing, where there is the potential for revenue loss, our experience is that Microsoft account teams have been much less responsive and organizations have been able to best resolve these situations by relying on expert 3rd party support.
3 FOCUSING ON PRICE AND LEAVING VALUE ON THE TABLE Contractually speaking, True Up prices for both Enterprise and Additional Products 1 are fixed at the signing of the Enterprise Agreement. More specifically, prices are fixed for products that are part of the Enterprise Agreement. Any product not currently selected to be part of the EA will not have its True Up prices fixed. Firstly this means that prices for additional products, not currently part of the Enterprise Agreement are up for negotiation at the time they are first purchased. For example, an organization with an Enterprise Agreement signed in July 2014 without Microsoft BizTalk Server, who later chooses to purchase the product as part of its July 2015 annual True Up can and should negotiate any quoted price. For an added bonus, remember to ensure that any discount negotiated isn't just applied to this year s purchase of a new product, but to all future True Ups (referred to as Future Pricing) of that same product. Second It means that broadly speaking, True Up prices for products already part of the Enterprise Agreement are fixed and final as part of the contract. While there are exceptions to every rule, discounting True Ups is beyond Microsoft field empowerment and is an exception not a norm. 2 Unfortunately, without clarity on their IT roadmap, most organizational negotiations continue to focus solely on reducing the unit price of particular SKUs missing additional elements of value that are more readily available to Microsoft field sales teams and their partners such as deployment funding, business investment funding and support services. By broadening the negotiation playing field, an organization can readily expect to receive anywhere from 10% to 20% in additional value from Microsoft and it s partners. It goes without saying that any and all concessions agreed on during the negotiations should be well documented. While Microsoft is known for its compliance and policies against side agreements, it s the organization s responsibility to ensure all the documentation is in place. NOT KNOWING YOUR MICROSOFT ACCOUNT TEAM AND LICENSING SERVICE PROVIDERS In their book Getting To Yes, Roger Fisher and William Ury introduced the concept of Best Alternative to a Negotiated Agreement (BATNA) - the course of action that will be taken by a party if the current negotiations fail and an agreement cannot be reached. With the correct view of current entitlement, a clear assessment of software requirements and a solid understanding of the underlying contracts most organizations in a compliant state will be able to produce a solid BATNA. But what about the other parties? An organization s BATNA is only half of the playing field and, for the most part, with their better understanding of the terms and conditions of the Enterprise Agreement, the organization s BATNA will be visible to the Microsoft account team. 3rd Gear. 1 For a detailed explanation on Enterprise and Additional products and their respective role in the Microsoft Enterprise Agreement please refer to our Licensing Report : Understanding the Microsoft True Up is Key to Cost Containment 2 More details on Microsoft field empowerment levels is available in the associated True Up Negotiations Planning Guide.
4 Microsoft account teams have a fair amount of flexibility in how deals get structured and so, to understand Microsoft s BATNA, an organization needs to understand how Microsoft account teams and LSPs are compensated and evaluated. In no particular order, Microsoft teams are evaluated on: What gets sold Although Microsoft account teams are ultimately accountable for the all up value of their deals, like all other sales organizations, there is always specific emphasis within the compensation scheme on specific products, also known as strategic products. Having these products as part of your True Up increases your negotiation leverage. When it gets sold Increasingly Microsoft is putting additional pressure on its account teams and channel partners to improve revenue forecasting and enforce on-time renewals. In some cases, more than half of a channel partner s commissions are tied to forecasting metrics not actual revenues. Microsoft account teams value clarity dearly. Having an open and honest dialogue with your Microsoft account team around when you expect the deal to close and what you ll need to get it to close can be your single biggest negotiation lever. Use that. How much it gets sold for Microsoft has always been relatively conservative with its discount practices. That said, Microsoft s field empowerment model varies greatly between different products groups and licensing models. For example, new products, especially in the area of cloud services will usually be easier to discount than established products such as an Enterprise desktop. Additionally, Microsoft LSPs operate on a unified, cost plus pricing model. This means that Microsoft will provide the SAME cost price to all qualified channel partners who then add their mark up and provide the quotation to the customer. Without visibility on how Microsoft s field empowerment model and how these numbers are calculated, it becomes nearly impossible to put together an effective negotiation strategy. 3 Compliance As a company, Microsoft has an ever increasing focus on compliance. Increasingly, account teams are being moved to have any and all concessions reviewed by legal and corporate affairs teams and licensing business desk. This includes items such as proper underlying licensing for Windows OS, deferring license acquisitions and ensuring any non-compliant organizations are duly reported. Compliance is a non-negotiable at Microsoft and knowing that can have a significant impact on understanding your account team s BATNA. 3 For a detailed understanding of the Microsoft channel pricing mechanics, consult the associated True Up Negotiations Planning Guide.
5 STARTING THE PROCESS TOO LATE As outlined in the previous section, coming to the True Up negotiation table unprepared is the single biggest reason why organizations continue to leave money on the table. And while the effort required in preparation will pay for itself a number of time over, it s clear that these preparations can be effort intensive and time consuming. And while a well managed Software Asset Management (SAM) program can dramatically cut down the preparation time for these negotiations, the adoption in SAM throughout the Middle East still lags significantly behind other regions. Until such a time when an organization implements a solid SAM practice or reach out for specialist third party support, starting the True Up preparation process early is the largest determining factor in the success of a Microsoft True Up negotiations. Our recommendation for most organizations embarking on the True Up process alone and following this expanded process for the first time is to start the preparation activities 4 months prior to their EA anniversary. 4 The timing of the negotiation itself also plays a major factor in the outcome. As mentioned earlier, Microsoft account teams and channel resellers are increasingly under pressure to forecast revenues accurately. And while timing may be on your side as the forecast timeline (usually the same month as your Enterprise Agreement anniversary), end of quarter or end of fiscal year (June 30 th ) approaches, negotiations that extend beyond these critical milestones may actually harm the negotiations and in some extreme cases, lead to unwanted license compliance actions. FINAL WORD DON T LET YOUR TRUE UP TRIGGER AN AUDIT Correct and timely reporting of annual True Up numbers is a contractual obligation under the Enterprise Agreement. As THE major source of revenue for it s enterprise business, Microsoft takes true up compliance very seriously. With the recent surge in LCC Audit and SAM activities across the region, a clear link seems to be forming between True Up and compliance related activities. These include: Zero Usage True Ups: As stated earlier, reporting an annual True Up is a contractual obligation. This holds true even in cases where there has been no change to the quantities of products deployed since the last anniversary. In this situation, an organization is required to submit what s known as a zero usage order indicating that it has not deployed an additional software since it s last annual true up. We are now seeing a direct correlation between license compliance activity and zero-usage reporting, especially in the enterprise space. And while reporting a zero-usage is a perfectly legitimate activity, we strongly advise that the organization is very clear on its current software usage and entitlement prior to submitting the report. Missed True Up Deadlines: Like all other businesses, Microsoft operates on a timeline of fiscal quarters and accountability. To do that, they rely on the timeliness of events like True Ups as defined in their software contracts. It therefore goes without saying that missing or delaying an annual true up raises quite a few alarm bells wherever it is that LCC Audits and SAM activities get decided. If starting early is key to a smooth true up, missing a deadline is an absolute no-no. If for some reason an organization does need to delay the reporting of its annual true up, this should be done in conjunction, with the buy in of and documented in writing by the respective Microsoft account teams. 4 According to the Microsoft Enterprise Enrollment, the true-up order must be received by Microsoft between 60 and 30 days prior to the Enrollment anniversary date. Refer to the Microsoft True Up guide, available for download on www.microsoft.com for more information.
6 The annual True Up is a major milestone in every Enterprise Agreement. Managed carefully its an event that can help organizations contain costs while ensuring compliance. Unfortunately however, the interests of Microsoft and Microsoft resellers do not always align with that of the customer organization. Additionally, as noted in our frequent engagements across the GCC, resellers do not fully understand the terms of the agreements they are selling or administering. For those reasons, we strongly recommend consulting with an experienced third-party before turning over any True-Up information.
About PLAN{X} Reducing cost and ensuring compliance. At PLAN{X} that s what we re all about. As ex-microsoft Blue-Badge employees, not only are we an authority on software vendors and their licensing practices, we also know the region, negotiation styles, rules, culture, priorities and programs first hand. Through our engagements, we bring our knowledge, insight and experience and support to help level the playing field in your software negotiations, delivering measurable results every step of the way. We ensure your success by providing: Licensing advisory & Optimization Asset Management Process Audit & Consulting Audit and SAM Defense Contract Negotiation Support Software Asset Management As A Service Organizational Training & Development For More Information To find out how PLAN{X} can help you ensure organizational compliance, deliver savings on software contracts and maximize utilization of existing software assets, please visit us at www.planxme.com. Or reach us by visiting www.planxme.com/contact-us. PLAN{X} Focuses on Supporting Executives Reduce Cost and Manage Compliance