Shawn du Plessis, VP-SAP Global Support Services, Spinnaker Support
CIOs traditionally inherit a significant annual support fee upon licensing enterprise software from SAP. This support is especially valuable when initially installing or subsequently upgrading the software. Over time, a value gap surfaces as the software matures. Common concerns relate to lack of support for modified applications, untimely bug fixes, unsatisfactory response times and skill levels, decreasing value, and increasing costs. Third-party support is a proven option that delivers customized services, improved service satisfaction, and lower costs. However, third-party software support is not for every organization. To help SAP software users decide if third-party support is a potential fit, this article provides tips from operational, legal, and financial perspectives.
At most enterprises, software is the first or second largest category of IT spending and consumes 25-40 percent of IT costs in most industries. Accenture recently found that maintenance/support consumes 50-60 percent of software spending, primarily delivered by the larger enterprise software publishers. Within 3-5 years, enterprises spend as much on support as on the original software purchase. While this is a necessary cost of business, Aberdeen and Gartner have found that many enterprise leaders are dissatisfied. Third-party software support typically increases satisfaction and cuts costs by at least 50 percent. Resultant savings enable IT leaders to do more for the business. Furthermore, this option buys time to evaluate longer-term software options from operational, legal, and financial angles.
Operational Considerations: Conventional vs. Third-Party
Self-Service Tools—Software publishers offer content and diagnostic tools that help enterprise customers to help themselves, whereas third parties immediately focus on issue resolution.
Upgrades—Third parties do not deliver future publisher-built upgrades or new releases, so enterprise leaders need to consider if and when to acquire new releases.
Modifications—Third parties usually support issues with modified code. Publishers usually do not, requiring the enterprise to carry that cost or in some cases forego valuable modifications.
Expert First Call Response—Third parties usually dedicate a senior engineer as the primary contact from first call to final resolution. Publishers typically use customer care representatives for the first call.
Legal Considerations: Conventional vs. Third-Party
Third-party support providers need to operate in ways that protect the intellectual property rights of the software publisher. While enterprise software publishers have validated the choice to acquire support services from third parties, the processes followed by some third-party providers has led to litigation. The legal landscape among third-party support providers may change over time. Nevertheless, enterprise buyers should look for providers that (1) protect the software publishers’ intellectual property and thereby are not at risk of costly litigation (2) are not facing legal judgments that could subsequently interrupt or compromise service level.
Financial Differences: Conventional vs. Third-Party
Typical publisher annual costs are 18-22 percent of the original license purchase price. There may be additional charges for premium support, such as SAP’s Max Attention. These fees do not take into account in licenses that are not even in use (shelfware); so many organizations are paying for unused or unnecessary licenses. By contrast, third-party providers will typically tailor a pricing structure around what licenses you are using and the number and types of tickets you are logging on an annual basis. Research shows that organizations typically pay the equivalent of the original license purchase price in approximately three years.
Re-engagement with SAP, after a stint on third-party support, also merits consideration. Relicensing or paying “back” support are standard re-engagement options. In many cases, relicensing ends up benefiting the end-user organization and paying “back” support is negotiable. Organizations use this circumstance to right size their license count and/or purchase a new version at an attractive price. In addition, the end-user will have still saved money while leveraging third-party support.
Is Third Party Support Right For Your Organization?
The best candidates for third-party support share these characteristics:
Stable–Enterprises that operate in more stable or mature environments and have upgrade cycles greater than 36 months can save by skipping new releases or foregoing continual upgrades.
Highly Modified–Enterprises that are operating a highly modified software version can retain full support.
Planned Replacement–Enterprises that are migrating to another application (cloud or on premise) can cut costs leading up to parallel operations and eventual legacy system shutdown.
Duress–Enterprises that are undergoing financial challenge can respond by cutting near term support expenses.
Nevertheless, third party is not for everyone. Enterprises that should continue to acquire support services from SAP have these characteristics:
Initial Deployment of a Major Release–Enterprises that have just purchased or need to acquire a major release typically need access to the SAP’s corrective patches and deployment-related support interactions.
Highly Dynamic Technology Environment–Some enterprises maintain a frequent system upgrade cycle, such as every 18-36 months for a significant refresh. Therefore, having continual access to new releases and patches will be less expensive than switching from and then re-engaging with the publisher.
How To Choose A Third-Party Support Provider
Select–Identify a third-party partner that can satisfy the business requirements for all needed software support services: software support, managed services, and IT advisement capabilities.
Predict–Identify the expected savings. Verify the financial case for switching from SAP support. Ascertain the rules of re-engagement in case you might wish to acquire a future release.
Validate–Confirm that the preferred third party service provider’s delivery practices, processes, and methods do not violate your software publisher’s intellectual property rights.
Third-party support can be a powerful strategy to upgrade service level, lower or redirect IT spend, supplement your IT staff, or to reestablish control of your enterprise software roadmap.