Some organisations spend as much as 90 per cent of their IT budget on enterprise software operational and enhancement costs
Organisations, irrespective of size or type, private or public sector, are becoming more dependent on technology. This dependency has recently accelerated, with the ongoing economic and business challenges well into 2021 pushing digital transformation and the adoption of emerging technologies to the top of many corporate agendas.
As a result, organisations are at a crossroads. Enterprises have to plan for investment in digital technologies, embracing new business models and ways of working and thinking. They are also under pressure to reduce costs and improve business processes - effectively to do more with less. Meanwhile, they mistakenly believe they need to hold onto costly and burdensome support agreements with ERP vendors. Replacing existing ERP systems is a very expensive option since these customised platforms are mature, work efficiently and are embedded into the corporate fabric. Current ERP systems typically more than meets business needs for companies today.
Accordingly, many enterprises are stuck with high maintenance fees and a range of additional costs that can lead to some spending as much as 90 per cent of their IT budget on ongoing operational and enhancement costs. However, enterprises now have a real choice when it comes to maintaining existing corporate platforms. It is an option that will save money and improve service delivery. Organisations are turning to independent third-party software support companies to reduce this massive overhead.
A recent Gartner report estimated the third-party enterprise support market will grow from $351m in 2019 to $1.05bn by 2023 - a 200 per cent increase. The report notes the growing "demand from organisations needing lower-cost alternatives to the escalating technical maintenance, support and consulting services offered by the vendors."
For organisations in this predicament, here are three tips to continue to support essential systems while saving budget that can be spent on new technological initiatives.
1. Do the maths! Find out the real costs of keeping the lights on
Most IT and Finance teams know they spend a large percentage of the IT budget on annual software maintenance. However, many are unaware of the total cost of ownership (TCO) of their ERP systems.
In 2020, IDG conducted a global survey of Oracle E-Business Suite licensees to gather data and insights on the challenges faced and strategies applied in adapting to the current Oracle ERP support model.
The research indicates ‘58 per cent of survey respondents are frustrated with high annual maintenance and support fees, coupled with poor support service quality (18 per cent).' The report says costs are a top challenge for organisations. Nearly 83 per cent feel Oracle database costs for support and maintenance are excessive.
Interestingly, Gartner has observed the annual saving of third-party support fees is at least 50 per cent when comparing third-party services costs to vendors' annual maintenance pricing models and policies. As Gartner reports "[A] key benefit of third-party support is that it allows customers to use the savings (of at least 50 per cent in costs) to fund digital transformation projects that they were unable to achieve while stuck in an ever-increasing support cycle."
Organisations should investigate annual maintenance fees for enterprise applications. For example, Rimini Street, where I work, provides a third-party support TCO savings calculator.
2. Regaining control of the roadmap
Many organisations have an evolving business strategy that incorporates digital transformation. Consequently, IT strategy must be aligned with the business strategy. However, part of vendor support policies require customers to follow the vendor's technology roadmap to maintain full support for enterprise systems. That means upgrading or migrating to new platforms when the vendor mandates rather than when it benefits the business. Organisations are increasingly considering whether to continue on vendor-dictated roadmaps or look at alternative better arrangements to their current support and service model.
In recent EBS and PeopleSoft studies conducted by IDG, the majority of respondents running the latest major releases, stay current with their updates and do so primarily for maintenance and /or security reasons, while fewer than half (47 per cent) see strong new innovation delivered consistently. For Oracle Database, 73 per cent of survey respondents do not feel they are getting enough valuable database enhancements; more than a quarter (26.3 per cent) report not receiving any valuable Oracle Database enhancements.
By opting out of vendor support contracts and being able to divert funds to transformative initiatives, many Oracle licensees are rerouting their IT roadmaps. They regain strategic control and set a course driven by business needs rather than vendor timelines.
Organisations should therefore undertake a comparative analysis of their roadmap with the vendor's roadmap, identify any gaps of required components from the vendor's roadmap and evaluate the criticality and costs of those missing components.
3. Keep a finger on the pulse of technology changes
Many other commercial companies have jumped on the bandwagon, developing support service offerings, including consulting firms, systems integrators and other technology providers. More importantly, thousands of enterprises across the globe have embraced third-party support. This has made it less of an unconventional move.
We are also in the midst of the fourth industrial age. Technology is evolving rapidly, with new open source software and best-of-breed cloud solutions regularly arriving on the market. It is expected that in no time, most enterprise customers will have access to even more viable cost-effective alternative solutions quite different from the traditional products used today.
The IDG report found the top Oracle Database strategy among respondents was to reduce their Oracle Database footprint. 41 per cent of respondents were actively doing this, a five-fold increase from a previous 2017 global survey. Sixty-nine per cent of respondents were moving to or considering moving to open source or other non-Oracle Cloud databases. The primary reasons were to reduce costs and avoid licence compliance issues. This is where third-party support can help. Many mission critical applications like ERP for example, cannot run on open-source databases, causing many to investigate third-party support to reduce costs.
Emma Hose is group vice president and general manager EMEA at Rimini Street