SAP Licensing Basics

SAP software licensing is extremely complex, with over 3,000 items, 24 types of user licenses, and 100 engine metrics. Consequently, many businesses struggle to match their license inventory with their actual licensing requirements. This frequently results in exorbitant SAP application licensing and expenditures. SAP’s system measuring tools are ineffective in this regard, as they just display license usage and are not designed to optimize license selection or reduce expenses.

So how can SAP licenses and SAP software costs be properly managed? Reveal Compliance is an expert in this field. We have compiled the most vital facts regarding SAP and the licensing procedure to assist businesses in overcoming these obstacles.

We describe in detail the three pillars of SAP Licences (Product Selection, Deployment Options, and License Models) and how an in-depth understanding of their role in the SAP Licence contract is essential to understanding your effective licence position, avoiding unnecessary software spending and ongoing maintenance costs, eliminating shelfware, and maintaining licence compliance.

License types and other expense factors

If your organization wishes to optimize SAP expense management, it must first determine the investigational priorities. In addition to so-called named-user licenses, SAP clients pay for engine utilization (industry or line-of-business solutions), basic packages (such as contract mappings, used payrolls, etc.), and even special packages that include an agreed-upon method of payment with SAP. The details provided below also address indirect and digital access licensing.

Named User Licenses for SAP

Named-user licenses account for roughly 40 to 70 percent of the total SAP contract price. Each SAP user requires a named user license. However, there are other types that vary substantially in their scope of authorisation and the functions they offer the user. Table 1 offers an overview of common license types and their respective area of authority.

In general, the greater the number of features, the higher the license cost. Developer licenses and Professional licenses are the most expensive kinds. During licensing measurement, the Professional license, one of the most expensive categories, is set as the default if no license has been granted to a user.

A unique feature is the Limited Professional User license type. In the past, this license was governed by the quantity purchased or a predetermined proportion. 85 percent Professional to 15 percent Limited Professional was a frequent ratio. In the absence of such a clause in the contract, a ratio of 50 to 50 would apply. However, since SAP currently offers numerous new licensing types that cover broad functionality and are less expensive than Limited Professional licenses, it is highly advisable to purchase alternative license types that appropriately match your organization’s usage needs.

Note: Customers with the Limited Professional license type in their portfolios were allowed to define the functional scope of this user type until January 2016, retaining the ability to purchase additional licenses. This license is no longer available to new clients, hence alternative license types are required.

Types of user licenses and their usage definitions

Developer -> Customized feature development with the development tools.
Professional -> General management of operations and system administration
Limited Professional -> Limited operational capabilities or well-defined capabilities which must be validated by SAP.
Use reports and information for personal use. This consists of documentation pertinent to his professional field.
Employee Self-Service (ESS) -> Self-services such as time and attendance records in HR.
Worker User -> Entering production order confirmations, entering product or production information, such as quality inspection results or plant/process/machine data, entering production problems and associated service requests, submitting purchase requisitions for tooling, production equipment spare parts, etc., confirming maintenance messages, entering service requests.
User of Logistics -> Transport management; warehousing

Including, but not limited to, requesting administrative changes with Human Capital Management (HCM) processes and forms, creating requisitions and assessing candidates, performing talent assessments and employee evaluations, scheduling and approving compensation, viewing budget summaries, organizing project management tasks, (vii) performing scheduling tasks, approving travel requests and expenses, and performing Manager’s HR and pr responsibilities.

ERP Core License

To utilize SAP’s fundamental capabilities, your organization must buy a SAP ERP license, such as SAP S/4HANA Enterprise Management for ERP customers.

This license grants access to the SAP ERP core, comprising modules such as accounting, sales management, service management, production planning, project control, and operational procurement, among others.

With a LoB solution, you can obtain additional capability for certain of these components. Thus, you would be able to augment the fundamental operations of the included financial module with the line-of-business solution S4 Central Finance, which offers a significantly broader range of functions.

Licenses for Engine and Package Use (Industry Solutions, Line of Business Solutions)

For numerous SAP applications, businesses can acquire a license for the engine or bundle. These modules are available for purchase in addition to named-user licenses and are subject to a number of metrics, specifically 100 metrics in the real pricing list for 2021. The cost of license usage is determined by an engine- or package-specific characteristic. SAP uses a variety of measures, including “number of employees,” “number of orders,” “annual income,” “annual expenditure volume,” “barrels of oil per year,” “processors,” “cores,” “storage volume in gigabytes,” etc.

Licenses for Indirect Use and Digital Access

Indirect Access happens when persons, devices, or systems access the ERP system indirectly through a non-SAP intermediate software, such as a non-SAP front-end, a custom-solution, or a third-party application. Indirect Access is licensed mostly based on Users. Licensing for indirect order-to-cash and procure-to-pay situations is contingent on the quantity of Sales Orders and Purchase Orders, respectively. Certain indirect access scenarios, such as Indirect Static Read, do not require licensing.

Frequently, businesses access SAP system data indirectly, via third-party applications or web storefronts. In most circumstances, indirect use occurs when SAP data is accessed, created, or modified externally without a valid SAP user license. Even if the imported SAP data is thereafter utilized entirely in a third-party application, it is vital to verify in each case how this use is permitted by SAP. In the past, there was no clear norm; rather, individual requirements were frequently agreed upon and included in the individual SAP contracts. However, indirect use is frequently not agreed and is simply carried out. During a SAP audit, such activities can result in substantial additional payments.

However, it is not simple to identify all third-party systems and decide whether SAP systems are used indirectly. The SAP license measuring tools cannot perform such a comprehensive study.

SAP published a matching definition for Digital Access in 2018 to clarify the situation. Customers can either adopt this definition and create SAP compliance with indirect use, or they can stick with the contract they previously signed with SAP. New S/4HANA clients do not have access to this option and must instead utilize the SAP Digital Access metrics.

Digital Access is an option for indirect usage licensing.

If prompted by external (non-SAP) applications, the creation of nine pre-defined document kinds must be permitted. With this licensing arrangement, all further SAP operations such as data updates, information exchange, and data deletion are free.

SAP Digital Access is not contingent upon the number of users. This means that anyone who writes such papers, whether externally or within SAP using third-party apps, does not require a fee-based license. It is consequently possible to exchange named-user licenses for appropriate document packages when migrating to SAP Digital Access.

How are these documents currently evaluated?

There are two methods for estimating digital access usage:

Digital Access Estimation Repot (SAP Note)
SAP Passport (Program)

SAP has just implemented a tool for the automatic counting of these papers. This application must be installed in the applicable SAP system, and from that point forward, “SAP-Passport” counts all papers that are created in SAP in response to an external trigger.

Customers of SAP are not required to install the Passport application. Once SAP Digital Access is no longer required, there may be old contracts that the firm wishes to continue using. In addition, counting results vary from SAP release to SAP release and are occasionally inaccurate.

SAP Passport

SAP Passport is a relatively new measurement method that was presented by SAP in 2019 and refined through multiple revisions throughout 2020. To use SAP passport, particular SAP versions and upgrades are required.

Passport enhances the precision of your digital access measurement and allows you to eliminate SAP-to-SAP exchanges from the total document count. Once passport is implemented, the system generates specialized tables for digital access measurement, resulting in a more efficient measurement process. After twelve months, you will receive the first appropriate digital access measurement based on your passport.

When SAP Passport is employed, the USMM measurement data are recorded in the USMM log and validated in the LAW log.

An older SAP note (SAP-Note 2644139 for ECC and SAP-Note 2644172 for S/4HANA) must also be installed in order to count these documents using an other method (SAP-Note 2644139 for ECC and SAP-Note 2644172 for S/4HAN This note installs the digital access estimation report, which is based on estimation rather than measurement. It counts all potential digital access documents, regardless of whether they were created internally in SAP, processed with internal batch processing, or originated externally by non-SAP apps. Once the estimation report has been generated, the client must conduct a use case analysis to identify the originators of the counted documents and reject cases that do not require digital access licensing.

Database Licenses for HANA

In S/4 installations, clients must utilize SAP’s HANA database; SQL-Server, Oracle, and IBM databases are no longer an option.

The majority of customers utilize the less expensive HANA runtime version, which is licensed as a percentage of the entire license value. HANA full usage, also known as HANA enterprise, provides a great deal more capabilities and is paid based on the utilised storage volume, a generally more expensive alternative.

Whether a client requires one version or the other depends heavily on questions such as:

Will HANA solely be utilized to support SAP apps, or will additional applications be developed on HANA?

What amount of integration is required with other databases or data lakes?
Are specialized features, such as geodata or parallel processing, required?
Should the client implement disaster recovery?

Software Licenses

Almost every organization has SAP or integrates it with additional purchased or self-developed standard or proprietary apps over the years.

Even if SAP becomes the company’s key, strategic core application, other applications may need to get data from or provide data to SAP. For huge volumes of data or unattended communication activities, typical file import and export processes are inadequate.

Such integrations must be accounted for when developing your SAP application architecture, since they may demand advanced functions such as data transformations, process monitoring, error tolerance, and unattended processing. When such functions are added to the requirements, the possibility of increasing expenses and module dependencies may emerge.

Typical modules in this category include:

Data Services SAP
Process Orchestrator for SAP
SAP Netweaver OpenHub
SAP Netweaver Third Party Application Foundation

SAP DEPLOYMENT OPTIONS

SAP ECC (ERP Center Core) may be deployed in either a client data center or an outsourced data center. With S/4HANA, the number of deployment options has expanded, providing the client with various alternatives – which is, of course, a positive thing, but at the same time complicates the decision-making process from both a technical and a cost comparison standpoint.

When selecting a deployment option, you must take into account the following factors:

Which software version do we require, one with full capability or one with fewer features?
Can we rely on prepackaged software, or do we employ extensive customization?
Do we prefer to subscribe to licenses (pure OPEX) or spend CAPEX for a permanent license?
Do we prefer a SAP-managed, all-inclusive contract mode, or would we rather control and choose the individual components?
Do we require unique service levels, or are SAP’s normal service levels sufficient?

LICENSING MODELS

On the market, we have observed the following contractual models for SAP licenses:

Permanent licenses / CAPEX + 22% OPEX: The company may use the SAP software indefinitely, but must sign an annual maintenance and support agreement. This translates to around 22 percent of the license fee.

Subscription licenses / OPEX only: Payment is made on a recurring basis and includes maintenance and support charges. This offer mostly applies to SAP cloud-based apps.

Licensing depending on consumption. You are charged based on the number of papers utilized, your annual revenue, your annual procurement volume, etc. This category include SAP products such as Concur, Ariba, and Fieldglass, among others.

Unlimited Licensing / UDD: For a specified set of goods or for the entirety of your contract, you agree to a purchase price and an annual maintenance model with SAP. For a limited time, the contract permits you to deploy any number of SAP software (usually limited to select on-premise solutions).

Single metric: the customer agrees with SAP to use a particular set of products and is permitted to install any number of them. The price of the licenses is determined by a single measure, such as income or number of users. SAP costs increase proportionally with income or number of users.

SAP SYSTEM MEASUREMENT

All SAP contracts include an annual audit right that enables SAP to verify a client’s licensing status. SAP executes this audit right in two distinct ways:

Annual system measurement, almost annually required upon SAP enquiry
Enhanced license audit performed around once every three years
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The client performs the annual system measurement using the SLAW (SAP license audit workbench) tool, which is included in the standard ERP.

The enhanced license audit is conducted onsite at the client’s office under the direction of SAP’s GLAC team (global license and compliance). Auditors interview the customer, execute SLAW, and discuss with the client the licensed level and actual usage level. At the conclusion, the auditors generate a SAP audit report that must be signed off on by the customer.

Obtaining accurate information on the company’s SAP license portfolio requires an investment of time and manpower, and all SAP agreements with the company must be adhered to. In small businesses with a modest number of SAP systems and users, the necessary data can still be acquired using Excel tables or the company’s own knowledge of the user base. With several hundred users, however, this is no longer feasible. There is just no precise overview of the existing license inventory in large SAP environments.

Different steps apply based on the SAP product purchased. The measurement is performed annually for ERP applications that are installed on the customer’s premises and account for the majority of SAP applications in the organization. It is to be carried out by the customer, who must utilize the SAP-supplied tools. Transaction USMM is used to collect data, whereas License Administration Workbench (SLAW) is utilized to consolidate the data and submit the results to SAP.

It is advantageous for businesses and other organizations to implement professional license management. Ultimately, every investment in SAP licenses incurs maintenance costs. Therefore, unnecessary licensing purchases must be avoided at all costs.

In addition to automatic assessment, there are also manual analysis methods for various products, such as self-reporting and questionnaires. This is the case with CRM, Business Objects, and HANA, among others. For cloud solutions, SAP does its own measurements.

SAP undertakes formal audits if it suspects a license breach. SAP always focuses on several aspects. In the majority of instances, inconsistencies have been identified or SAP has determined that the organization lacks obvious SAP license transparency.

With the use of SAP license management solutions, audit preparation may be carried out more effectively. The company is licensed in a manner that ensures SAP compliance, has ideally planned license prices, and so does not overpay, and is always transparent about potential obligations. This means that SAP can be approached proactively, the best discounts can be obtained, and SAP has no grounds for disputing the audit findings due to the clarity of the SAP licensing position.

System Measurement Guidelines

Rights and permissions are contingent on the SAP products and license types used by the business and the date of purchase. It is essential that a SAP user’s license corresponds to, or even exceeds, his or her actual SAP activity. If they fall short, his licenses would be excessive. And an opportunity to reduce expenses.

The new USMM 2.0 is a consideration for many SAP clients. SAP advocates licensing based on authorizations and has provided a mechanism in USMM 2.0 for this purpose, in which the licensing based on authorizations criteria can be kept. If a business adopts this method, the licenses are assigned directly and in accordance with the USMM measurement. As a result, a corporation will likely reach a situation of permanent overlicensing, as actual usage is no longer the basis of the assessment and excessive authorizations will surely result in increased expenses.

For successful licensing management, therefore, knowledge of license kinds, costs, and risks is as important as knowledge of current SAP rules. Since things are always evolving, it is advantageous to remain current. In the past, certain criteria were loosened, providing businesses more flexibility to optimize their license inventories.

We can surely assist customers in determining how they can utilize the following wiggle room.

SAP clients…

… can trade in licenses.

… obtain partial refunds for returned licenses. When acquiring new items, unused package licenses are refundable.

… gain incentives to adopt cloud-based services.

Under- and over-licensing of products

Most businesses lack systems or methods for determining exactly how many licenses they possess and how many are required. There is virtually always a mismatch between license inventory and licensing requirements in complicated SAP environments. The two manifestations listed below occur:

Underlicensing = license stockpile minus licenses required.

Frequency: rare

Underlicensing happens when the number of SAP users exceeds the number of licenses acquired, or when a user utilizes capabilities that are not covered by his or her license. SAP is currently concentrating heavily on indirect usage or SAP Digital Access. This is because SAP systems are routinely accessed or supplied with data by third-party applications. Incorrect use of industry solutions, such as SAP Patient Management (IS-H), can also result in claims from SAP, since insufficiently defined or documented licensing metrics and guidelines can occasionally lead to client-SAP disagreements.

Overlicensing equals license supply exceeding demand.

frequency: frequently

Overlicensing is significantly more prevalent than underlicensing. It is defined by the fact that the corporation obtained more licenses than necessary. Frequently, to err on the side of caution, much more expensive license types were obtained, despite the fact that their functionality was underutilized. In addition, if a user has not been issued a license, the costly Professional User category is applied automatically when measuring. When customers over-license, they are not in violation of the SAP contract, but they incur unnecessary annual maintenance costs.

SAP contracts that are over-licensed result in excessive annual maintenance costs. Relevant savings potential is identified when a client assigns his users the most expensive license types unnecessarily.

The usage of alternate licensing types may also result in cost savings. However, because many businesses do not know which licensing type is best for them, they always opt for the costly Professional license.

Caution: overlicensing might be hazardous if existing licenses are inappropriately assigned. This is the case, for example, if a user uses professional functions but only has an employee license, or if a user with an expensive professional license only uses employee functions. The latter is irrelevant to SAP. SAP will demand additional payment, however, if the audit reveals users whose usage exceeds the limits of their license. As a result, despite overlicensing, a corporation may be required to purchase extra licenses. This initially seems contradictory, yet it is not unusual.

You may currently believe that overlicensing negates the need to optimize SAP licenses. But this is not the case. Frequently, new licenses are obtained each year without knowing the precise demand. With the help of a competent licensing management tool, surpluses become obvious, particularly in the expensive license sector, the company is placed in a position to purchase the cheapest licenses when a need arises, and expensive licenses may be swapped for cheaper licenses if necessary.

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Causes of excessive licenses

At first look, underlicensing appears to be more dangerous than overlicensing, given that it almost always results in a penalty payment. This expenditure was not budgeted for. However, the majority of businesses currently spend too much on licensing without realizing it. The phenomena of overlicensing can be related to the two factors listed below.

1) Excessive or pricey named-user licenses.

Purchased too many named-user licenses without understanding the actual number of licenses required per category.

Manually assigning licenses without exact information on the user’s actual usage behavior.
SAP has specified the different license categories in such a way that it is unclear inside the organization which license types can be used.

In the user’s master data, the license type has not been assigned. Consequently, the more expensive Professional category is established as the default for license measurement.
A costly license type was granted to a user, but the user does not fully utilize its capabilities and permissions. A lesser and consequently more affordable license type would suffice. A person has several licenses because he has multiple SAP user accounts, each of which is assigned a license. Former employees or employees who no longer use SAP have not had their licenses canceled.

Employees solely utilize third-party SAP access software, and the organization already has SAP Digital Access licensed. In this instance, these employees do not require a SAP license, as the generated papers are licensed.

2) Insufficient information regarding the consumption of engine licenses or package metrics.

SAP does not specify which of the several parameters are used to calculate expenses.
At the time of system measurement, only the actual consumption may be determined. Proactive management and optimization is only possible with a substantial amount of manual labor or by utilizing SAP license optimization software. samQ helps your organization centrally and automatically to ensure license usage transparency.

License measurement ≠ License optimization

SAP license measurement is predominantly a quantitative review that compares the present status to the licensing agreement’s target status. For this aim, the SAP products USMM for data gathering and License Administration Workbench (LAW) for data aggregation are utilized.

However, judgments on the actual use of SAP programs or the use of specific features are opaque, as the data collection determines only the overall number of all client-assigned user accounts per defined user type. Additionally, duplicate user accounts are not identified and manual repairs are not supported.

Because it does not consider all consolidation cases, law consolidation is always a topic of debate. Therefore, prior to the consolidation of LAW, the anticipated outcome should be known with great precision. Otherwise, it is usual for licenses to be obtained that would have been unnecessary, resulting in frequent instances of duplicate licensing.

In addition, the measuring of engine and package licenses lacks transparency and significance. For instance, SAP does not inform its clients of their license use, but rather of the measured characteristics. However, it is frequently unclear how these factors contribute to deciding consumption. In addition, if you have measured with an out-of-date USMM version and then SAP requests that you measure again, there may be unpleasant surprises. Frequently, one then receives varying measurement findings, which may result in further costs. Therefore, SAP users should ensure that their particular systems always have the most recent SAP Notes installed, as required by SAP for certain SAP versions.

SAP’s license measurement is therefore exclusively a compliance check. The obtained data does not contain any information regarding the usage patterns of the users and so cannot be used to optimize licenses. SAP clients require an alternative option. They require a solution that evaluates how SAP system users operate. Not just numerically, but qualitatively as well, superior tools assess the license inventory. They collect meaningful data that is assessed and presented in a form that is both understandable and useful.

EFFECTIVE SAP LICENSE MANAGEMENT

It is nearly impossible to manually address the reasons of over- or under-licensing. It would require a significant investment of employees, effort, and ultimately funds. Complex SAP landscapes lack a comprehensive overview, which is impossible to achieve without a competent licensing management technology. This program must be able to determine and, if necessary, optimize the license inventory for named user licenses, engine licenses, and package licenses.

Optimization of user-specific licensing
To optimize named-user licenses and avoid unpleasant shocks during engine measurement, the licensing management application must be able to collect and centrally combine the usage statistics and engine values of the individual SAP users. The following inquiries must be addressed:

Which engines and packages are used for billing, and in which SAP systems do they apply?
What functions are employed? Which actions are carried out?
How many licenses has the user been assigned?
Is SAP system access direct, indirect, or both?
For some specific licenses, usage frequency of the SAP system may also be considered.
SAP requires their clients to individually license their personnel based on their actual activities across all billing-relevant systems, and for auditing purposes, this licensing must be accurate.

This consumption information is assessed using a transaction database. This database specifies which licenses are necessary for each SAP transaction. This allows the tool to calculate the best SAP user license type. However, this review of the transactions must be repeated, or else only a snapshot would be created. Since the user’s tasks and work environment (e.g., using a new SAP software) are continually changing, the license inventory must be dynamically adjusted. The tool must be able to recognize new transactions and assess them based on the appropriate license type. Similarly, the program must be able to detect when a user is not utilizing the full functionality of his SAP license or is in violation of the license terms. In any event, the tool must be able to issue the correct license type to each SAP user automatically, without manual intervention, and modify it as required.

The objective is to permanently reduce or eliminate compliance concerns. On the one hand, this is accomplished by comparing gathered usage data with authorization, entitlement, and usage rights. This guarantees that each user has the appropriate sort of license. On the other side, it is of equal importance that the license management solution aids in identifying potential indirect usage or SAP Digital Access in SAP and, if necessary, provides guidance on how to address these results. This is the only option to avoid these users from causing unplanned or excessive SAP license measurement charges.

The SAP Applications department must ultimately be enabled to…

… give the best licensing type to a user automatically.

… Identify unneeded licenses and apply them elsewhere.

… Identify duplicate users and remove them from the system.

… optimizing licensing for indirect usage and SAP Digital Access.

If the SAP contract has any ratio provisions, the solution’s report should additionally provide the ideal number of licenses per license type compared to the number stipulated in the contract. This is especially beneficial when renegotiating contracts with SAP. Customers may be able to overturn the ratio clause if they can demonstrate that the real demand does not match the current ratio.

License optimization for engines and packages

The tool must also enable the optimization or at least the summary of engines and packages from the various SAP systems. Here, optimization does not consist of detecting what is consumed, but rather of centrally consolidating where the important consumptions are and from which systems the relevant data originates. The solution must identify all engines and packages across all SAP systems and take into account the applicable licensing regulations and parameters. On this basis, reports are generated that serve as the basis for calculating consumption. Since engines and packages are frequently distributed across different computers, the tool must have the ability to count parameters across platforms. All information should be gathered in one location, hence minimizing consolidation efforts.

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Enhancement of digital access

As previously indicated, the actual methods available to evaluate indirect usage and digital access are insufficiently precise and require additional inquiry and analysis following the counting of technical documents.

To effectively comprehend your need for indirect usage licensing, you should conduct an examination comprised of the following steps:

Estimation of digital access papers – passport or otherwise
Investigation of the ties that led to these papers
External apps assigned to technical users
Evaluation of the isolated usage scenarios
Documents removed from internal batch processing
Subtracting following documents
Factorizing Material and Financial records
Comparing prices of digital access to indirect usage model
Documentation preparation for SAP audit

CONCLUSION

Consequently, many businesses struggle to match their license inventory with their actual licensing requirements. This frequently results in exorbitant SAP application licensing and expenditures.

SAP’s system measuring tools are ineffective for managing and optimizing licensing expenses because they only track license usage and license assignment. They are ineffective for optimizing license inventories or discovering the correct license assignments.

A suitable license optimization solution must be transaction-based. This means that the tool must collect and analyse valid data on the usage behavior of users and improve the license portfolio automatically based on these findings. This significantly lowers the occurrence of overlicensing and, thus, overpayment.

Similarly, corporations might avoid costly additional payments in the event of underlicensing by acting promptly. Customers of SAP who can determine and document precisely what is used in their organization and to what extent have a much stronger negotiation position with SAP.

SAP lacks a uniform true-up procedure. The client is responsible for proactively managing his software compliance and approaching SAP prior to the annual measurement to acquire required licenses and address potential compliance issues. Once SAP has conducted an audit, it is too late to negotiate from a position of strength. A bad audit result is viewed as a scenario of non-compliance, and SAP will eventually attempt to mitigate the results by increasing license charges or requiring back maintenance.

If you wish to be in a position of authority and oversee strategic SAP software purchases, we suggest that you:

Quarterly evaluate and optimize your license condition.
Resolve your compliance issues in advance of an audit.
Never negotiate with SAP more frequently than annually or, if unavoidable, every six months.
Do not pay maintenance for unused licenses; trade or cancel them.
Plan strategic acquisitions, such as S/4HANA or SuccessFactors, with enough planning and lead time.
Involve licensing experts in the same way you would contract experts in any other technical field when you require their assistance frequently but not every day.