Your ERP apps like Oracle and SAP are the foundation of your business, and they’re becoming even more critical as digital transformation takes off. Chances are you’ve committed to a strong maintenance plan for your enterprise software to be sure it’s always delivering the performance and availability you need. But have you considered how much ERP maintenance is really costing you — and whether those funds can be put to better use?
You typically pay your vendor an annual maintenance fee — perhaps two million dollars for a mid-sized enterprise. But under that fee are hidden costs that you incur over and over again throughout the year. In fact, our research shows that many organizations spend an average of twice their annual support fees on additional maintenance costs every year! Now we are up to about four million dollars every year for our mid-sized organization.
Before you know it, in ten years, you've spent multiple millions of dollars on bells and whistles that simply aren't important to your business — $40 million for the example mid-sized organization. Studies show how maintenance costs can bog down your business. According to Accenture's report, "How Software Maintenance Fees Are Siphoning Away Your IT Budget — and How to Stop It," up to 60 percent of software spend goes toward maintenance.
And our research shows about 89 percent of IT budgets goes to simply keeping the lights on, consuming valuable resources that could be focusing on innovation and business growth.
Most IT departments are familiar with standard maintenance costs of “22 percent of original license fees;” and the ERP vendor’s typical 95 percent profit margins are particularly maddening, with just five percent of maintenance fees spent actually delivering their support. These maintenance fees seem unfair, but they are just the tip of the iceberg. The picture is even worse when you consider all the additional costs that creep in, like self-support, customizations and upgrades.
Are You Stuck on the Forced Upgrade Treadmill?
IT veterans know how costly, time-consuming and disruptive an ERP upgrade can be. If you’re like many organizations, you’re likely to upgrade at least twice or more, every ten years. And smaller but more frequent updates in an enhancement pack or support pack don’t solve the problem but often can make it worse. Dividing the impacts and costs into smaller pieces creates additional overhead and churn.
Suppose a typical ERP upgrade costs $4 million. That’s $800,000 every year (over five years) in annualized upgrade costs. Each upgrade can take six months or more and impact years of valuable customizations that are important for your business.
Your Resources Carry the Load for Custom Code
Customization adds another element to the ERP mix. According to Panorama Consulting, 90 percent of all ERP systems have some degree of customization. But have you ever calculated how much time your team spends trying to solve customization issues, simply because your ERP vendor doesn't cover custom code in your support contract?
Customizations are an essential aspect of your ERP system. They drive workflows, generate reports and help you comply with SLAs. But the staff time you invest in implementing, troubleshooting and optimizing all these customizations can be high when your ERP vendor won’t touch them.
And what if you've performed customizations and encounter issues later? According to our data, 65 percent of all issues are custom-code related. And even if your problems aren't related to your custom code, your ERP vendor's response will probably be "guilty until proven innocent." You can waste hours and days jumping through support escalation hoops to prove your custom code is not the culprit.
Suppose a typical ERP upgrade costs $4 million. That’s $800,000 every year (over five years) in annualized upgrade costs. Each upgrade can take six months or more and impact years of valuable customizations that are important for your business. Yet a large number of companies — possibly yours — put up with this process simply to maintain full support from their ERP vendors. Upgrading simply because it’s required to stay supported is no way to take charge of your ERP strategy.
How Are You Paying for IT?
Think about how you’re paying for ERP maintenance today. The overhead of original vendor support is a huge burden. If the vendor does provide a fix, it might be bundled with other changes that can break other parts of your ERP systems. You might be required to deal with regression testing, QA and other processes that you didn’t expect.
Despite a costly maintenance contract, many customers resort to self-support if their original vendor can’t make the grade. Taking support into your own hands can be more effective than dealing with the original vendor’s support, but it’s far from ideal. Your IT team may have to spend hours on online forums and test workarounds to find solutions, but it’s still preferable to multiple calls and escalation from junior to senior support staff with your ERP vendor.
Self-support can also impose hefty costs to manage vendor patches or engage third-party integrators to augment your overworked IT team. Troubleshooting performance and interoperability issues is another cost, because they’re off-limits in your ERP vendor’s support contract.
Consider how much it costs you, over and above your annual maintenance fee, for self-support just to meet internal SLAs.
Disrupt the Status Quo of ERP Support
If you want to succeed in today’s environment, you need to disrupt. You may be stuck using outdated models like the 89/11 paradigm of IT spend — 89 percent of the budget goes to keeping the lights on, leaving just 11 percent for innovation. Disruptors don’t settle for the status quo. They abandon outdated models to forge innovation that distances them from the competition.
Looking beyond traditional IT approaches can help you take a fresh approach, so you’ll never write a check to a vendor again without getting the value you deserve. There are third-party options available that can be a catalyst for cutting IT costs and bringing the change in IT that you need for business success.
Get the Real Story on Your Hidden Costs
Before you can start saving on ERP maintenance, you need to understand where you are now. Use our calculator to discover how much you’re really spending on your total annual software support costs. You might be surprised by what you learn.
Sebastian Grady, President
Mr. Grady is a 31-year veteran of the enterprise software industry. He has led global enterprise software firms and developed emerging high-growth technology start-ups into successful ventures. Mr. Grady is a frequent speaker at Gartner IT Expo and other leading industry events. Since 2011, he has overseen all revenue operations for Rimini Street worldwide.