executive licensing series - plan{x}planxme.com/wp-content/uploads/are-your-microsoft-true-up... ·...

Executive Licensing Series Are your Microsoft True Up negotiations leaving money on the table?

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 ScoutTM will

provide you with guidance on executing your plan. The optimization focused ROI OptimizeTM will help

you follow through once execution has been completed.

Explore Plan Execute Support

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

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.

© 2015, PlanX Middle East DMCC. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. All other products and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them. For additional information, go to www.planxme.com.

July, 2015

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

Table Of Contents

The information in this report is focused on custom-ers 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.

Notes & Resources

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

Related Content

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.


Why organizations routinely overpay for their software licenses

For IT and Business Executives

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 Products1 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 Negotiat-

ed Agreement (BATNA) - the course of action that will be taken by a party if the current negotiations fail and an agree-

ment 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 part-

ners 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 30th) 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


executive licensing series - plan{x}planxme.com/wp-content/uploads/are-your-microsoft-true-up... ·...

Documents