ERP Software Maintenance: An Offer You Can’t Refuse?
Turn your back on "the family" (a.k.a. your ERP vendor) when it comes to support contracts, and you're on your own.
Deciphering Enterprise Apps
By Thomas Wailgum, CIO
Without question, ERP vendors have long coveted the ever-flowing revenue streams that spring from their customers’ software maintenance and support contracts: 22 percent fees, per year, on every engagement delivers a pleasing chunk of change to the corporate coffers.
The fees are sacrosanct for vendors: Untouchable for most (remember the SAP flap?) and nearly unmentionable on the part of customers looking for any discount. Well, customers can mention it during negotiations, but they’d have better luck getting a CFO to approve a Mark Hurd expense report than getting Oracle or SAP to discount support.
Cheerleaders of third-party support players TomorrowNow (now defunct), Rimini Street and others have always noted that choice is never a bad thing—especially when millions of dollars and questionable value are involved. (I’ve done my fair share of Rah-Rahing for the concept, no doubt.)
But in a new blog post, an ERP consultant warns that there are consequences for those companies who turn their backs on their ERP vendors, which are not unlike the seminal elements contained in The Godfather trilogy of movies. (Instead of Sollozzos, Barzinis and Tattalgias, however, we’ve got Epicors, Lawsons and Oracles.)
At first, those leaders who make the brave, cost-cutting decision to switch to a third-party provider are treated like heroes, writes Kevin Cahill, a consultant at Panorama Consulting Group.
After all, the big ERP vendors are like casino owners (which, you’ll note, the Corleone family knew was a smart business): The vendors make the chips and the rules of the game. And as much as the vendors talk about “taking care of the customer,” they know the odds are so heavily tilted in their favor that they’re always going to win.
Those execs who bet on third-party support, however, can end up “sleeping with the fishes” if the ERP system needs serious vendor support help—say, bug fixes, regulatory updates or other source-code related hiccups.
“The key to this question is risk,” Cahill writes. “Can you assume all the risks that are associated with having no maintenance and no parachute to fall back on should something happen? You may be the corporate hero when the savings appear, but you will also be the fall guy when your ERP software is unable to ship, invoice or even run a report.”
While customers might view the move to third-party support as “It’s not personal; it’s just business,” Cahill contends it’s quite the opposite for the vendors: a Fredo-like betrayal of the Corleone family.
“If you cancel maintenance, do so knowing that you’ll be on your own. You now live on your own little ERP island and your ERP vendor will simply not respond to your requests for help,” he states. “Your ERP vendor will not be sympathetic in any way. You’ve effectively chosen to sever all ties with the ERP company and you need to realize your ERP vendor will view it as such.”
Those companies that end up dissatisfied with third-party support will find an unmerciful Godfa vendor rep when they renew relations with the former ally: Those maintenance fees will likely be jacked up by the vendor, Cahill says, on an offer that the customer won’t be able to refuse.
The infamous line by Michael Corleone to his brother Fredo might just apply: “Fredo, you’re my older brother, and I love you. But don’t ever take sides with anyone against the Family again. Ever.”
Because we all know what ended up happening to Fredo.
Thomas Wailgum covers Enterprise Software, Data Management and Personal Productivity Apps for CIO.com. Follow Thomas on Twitter @twailgum. Follow everything from CIO.com on Twitter @CIOonline. Email Thomas at email@example.com.