spinnakersupport.com Rethinking Your ERP Support Strategy WHITE PAPER IN THIS PAPER, YOU WILL LEARN: • Why IT professionals are looking to cut costs and where • Why organizations are questioning the value of their current software support provider • TCO analysis of current support strategy vs. a third-party support provider model • Benefits and overview of third-party support model
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spinnakersupport.com
Rethinking Your ERP Support Strategy
WHITE PAPER
In THIS PAPER, You WIll lEARn: •WhyITprofessionalsarelookingto
THE HIGH CoST oF SYSTEM MAInTEnAnCEIt’sanewyear.youhaveanewbudgetandanewsetofpriorities.yourorganizationistaskedwithexecuting initiativesonanever-shrinkingbudget.Challengesariseineverypartoftheorganization,butthepressureonITtoexecuteisgreaterthanever.Todaymorethanever,decisionmakersmustmakethemostofscarceresourcesandatthesametimerespondtoever-increasingdemandsforimprovedperformanceandnewtechnology.
Global MarketsTheglobalizationofworldeconomieshasgreatlyenhancedthevalueofinformationtobusinessorganizationsandhasofferednewbusinessopportunities.Today,ITistaskedwithprovidingthecommunicationandanalytical powerthatorganizationsneedforconductingtradeandmanagingbusinessatagloballevelwithease.To coordinatetheirworldwidenetworkofsuppliers,distributorsandconsumers,organizationshavedevelopedglobalinformationsystemsthatcantrackorders,deliveriesandpaymentsaroundtheclock.Thesupportinfrastructurenecessarytosustainthesesystemsiscostly.
Proving a Returnmaintainingtheseglobalmission-criticalsystemsandinvestmentsisdifficultinthebestoftimes,eventhosewithprovenreturns;butitisnearlyimpossibleinthecurrenteconomicenvironment.Thesecompetingdemandsgeneratesignificantscrutinyofproposalsfornewinformationtechnologyinvestments.asaresult,manyITinvestmentplanningprocessesnowrequiresomeanalysisofthecostsandreturnsexpectedfromthatproposedinvestment.Unfortunately,manytechnologyandbusinessmanagersoftenlackmodelsthatcanguidethemthroughsuchanalyses.evenfewerhavethecapitaltomaketheinvestments.
The High Cost of MaintenanceThedictionarydefinesmaintenanceas,“Theworkofkeepingsomethinginproperorder.”however,this definitiondoesnotnecessarilyfitforsoftware.softwaremaintenanceisdifferentfromhardwaremaintenance inthatsoftwaredoesnotphysicallywearout,butoftengetslessusefulwithage.softwaremaintenanceis moreaccuratelydescribedasasoftwarevendor’sincrementalserviceofprovidingsoftwareupdatesandproductsupporttotheirlicensedusers.
Questioning the Value of Manufacturer Software MaintenanceThequestionmanysoftwareusersareaskingthemselvesmorefrequentlyiswhetherthesehighannualvendormaintenancefeesaredeliveringtheintendedbenefit.Thisquestionhasbecomeparticularlypoignantoverthepast36monthsasexecutivesfacethechallengesofsustainingtheirbusinessesandmanagingprioritiesintheworsteconomyin27years.
• Gaining minimal value in maintenance services mostrespondentsbelievetheyarepayingtoomuchfortoolittle.manyclientshavenotapplied upgradesandpatchesforyears.
• Slowing pace of vendor innovation Thepressuretoinnovatehasincreased.surveyresultsshowan18percentjumpoverlastyearin respondentsstatingthatthepaceofinnovationistooslow.
• Declining plans to upgrade UnlikeQ32009whereworseningeconomicconditionsledtoa27pointincreaseininterestin3Pm,morecustomersnowplantoupgradeandsee3Pmaspartofthisstrategytostabilizetheenvironmentandthenupgrade.
• Expecting better service Unfortunately,expectationsforbetterservicecontinuetodrop.servicecontinuestoplayakeyfactorindecisionstogoto3Pm.morethan20percentofcustomershavegivenuponexpectingbetterservicebetweenQ22011andQ32009.
• Disliking the vendor althoughvendorlikabilityhasincreased,thenumbersstillrepresenthighdisapprovalratingswhichplayafactorinmovingtothirdpartymaintenance.
Source: Software Insider Survey: State of 3PM Q3 2009 n- 51/260, Q1 2010 n=101/241, Q2 2011 n=139/244
46.76%
72.66%
79.86%80.20%
72.55%
60.40%
30.69%
33.66%
64.71%
27.45%
41.18%
44.60%
39.57%
22.30%
96.04%96.08%
94.24%
92.16%
64.71%
25.49%
41.18%
21.57%
13.73%
92.81%
79.14%
41.01%
29.50%
22.30%
10.79%
10.07%
5.76%
88.12%
76.24%
30.69%
34.65%
16.83%
11.88%
10.89%
10.89%
5.88%
15.69%
ERP SuPPoRT STRATEGY WHITE PAPER
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VEndoR MAInTEnAnCE REVEnuES ConTInuE To GRoW3
What are you really paying to support your current ERP software?saP’smaintenancebusinessaccountedforabout60%ofthefirm’soverallrevenueandabout90%onamargincontributionbasis.maintenancerevenueisontheriseassaPaggressivelyincreasessupportcoststo22%oflicenserevenue.
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2001 2011
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Professional services and other service revenue
Subscription and other software-related service revenue
Support revenue
Software revenue
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2001 2011
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Software revenue
Support revenue
Subscription and other software-related service revenue
Total Cost of ownership Software Support Comparisonspinnakersupporthasdevelopedasimple,straight-forwardmodeltohelpitsclientsanalyzetheirsoftwaremaintenancetotalcostofownership(TCO).Thefollowingcharthighlightsafive-yearspendanalysisbasedonanaveragesmBcustomer,whichhasacquireda370-userlicenseforeRPsoftware,utilizingcorefinancial,sales,distributionandmaterialsmanagementmodules.Itrepresentsaconservativeexampleofthecomparativecostswhentheychoosethird-partysupportfromspinnakersupport.
ERP SuPPoRT STRATEGY WHITE PAPER
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2,500,000
2,000,000
1,500,000
1,000,000
500,000
0 Year 1200,000
1,500,000
200,000
400,000
200,000
600,000
200,000
800,000
200,000
1,000,000
200,000
1,200,000
200,000
1,400,000
200,000
1,600,000
200,000
1,800,000
200,000
2,000,000
200,000
200,000
Cumulative Maintenace
200,000Maintenance Cost
400,000
200,000
600,000
200,000
800,000
200,000
1,000,000
200,000
1,200,000
200,000
1,400,000
200,000
1,600,000
200,000
1,800,000
200,000
2,000,000
200,000
1,000,000License Cost
Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
VEndoR CoST (k) Category Year 1 Year 2 Year 3 Year 4 Year 5 Total Costannualmaintenancefees $300 $302 $304 $306 $308Updates/Tools/fixes/CustomCodefees $475 $475 $475 $475 $475 Vendor Support Totals $775 $777 $779 $781 $783 $3,895 AlTERnATIVE CoST (k) Category Year 1 Year 2 Year 3 Year 4 Year 5 Total Costannualmaintenancefees $150 $150 $150 $150 $150 Updates/Tools/fixes/CustomCodefees $75 $75 $75 $75 $75 Alternative Support Totals $225 $225 $225 $225 $225 $1,125 SAVInGS (k) Category Year 1 Year 2 Year 3 Year 4 Year 5 Total Savings Annual Spinnaker Support Savings $550 $552 $554 $556 $558 71% Cumulative Savings $550 $1,102 $1,656 $2,212 $2,770 $2,770
MAInTEnAnCE SuPPoRT CoMPARISon – 5 YR TCo (EXAMPlE onlY)
Is Third-Party Maintenance Right for You?Therearemanyfactorsyouneedtoconsiderwhenresearchingifthird-partymaintenanceisrightforyour company.herearesomecommonconsiderations:
• Mature and Stable Application – Theapplicationhasmaturedtoapointwherethereislittle, ifany,productengineeringeffortspentonbugfixes,productfunctionalityenhancementorother technicalchanges.Theuserhasinfrequentneedsforthevendortoprovidechangestothecore applicationsoftwareotherthanregulatorycomplianceupdates.
• Support End-of-life – Thevendorisnolongerprovidingafullsetofsupportservicesduetoyoursystemreachingitssupportend-of-lifestage.applicationbreak/fixorothersupportservicesmustbepurchased,andtheratesfromathirdpartyareusuallylessthantheapplicationvendor’srates.
Benefits of Third-Party Maintenance• Personalized, Proactive Service – OnesizedoesnOTfitallinathird-partymaintenancemodel. spinnakersupport,forexample,hasmonthlycallswithclientstoproactivelycheckinontheclient’sstatus.Thisisinadditiontotheregularfollow-upofpreviouslyloggedissues.
• Faster Response and Resolution Times – eliminatewaitingdaysorevenweeksforresponsestoyoursoftwareissues.spinnakersupportguaranteesa30-minuteresponsewindowfromanexperton allurgentissues.Third-partymaintenanceprovidestheneededfixinatimelyfashion.Traditionalvendor maintenanceservicesoftenforceyoutouseself-servicetoolsinitiallyandwhenthosefailtoprovideyouwiththerequiredfix,youmustcallintoahelpdesktologtheissuewithatechnicianwhocannotassistyou.Third-partymaintenanceeliminatesallthehoopsyoumustjumpthroughwithtraditionalOemmaintenanceandprovidesyoudirectaccesstothepersonwhocanfixyourproblem.
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• Dedicated Support Engineers – spinnakersupportprovidesclientswithateamofdedicated seniorengineerswhocanbereacheddirectlyviaphoneande-mail.yourtraditionalsoftware maintenancemodeldoesnotallowthistypeofaccess.
• Direct Access to Seasoned Technical Experts – Third-partymaintenanceorganizationsare acommonplacetofindengineerswhohavepreviousexperienceworkingforsoftwarevendors.at spinnakersupport,ourmaintenanceengineersaveragemorethan15yearsworkingwithsaPor JDedwardsapplications.mostweredevelopersandsupportstaffwhohelpedtodesignandcreatetheoriginalsaPorJDedwardssoftwareproducts.Theirknowledgeofolderproductreleasescanbean advantageastheyhaveabetterunderstandingofthehistoryofsoftwarefixesandenhancementsthroughthelifeoftheproduct,includingthenewerreleases.
• Re-deploy Your Internal Resources – Decreaseorrepurposeinternalresourcesthatwere assignedtoapplicationsupportinternallyandputtheirtalentstoworkonotherpressingprojects. ThemostcommonuseofourservicesistoallowITteamstoreallocatetheirbestandbrightestto morestrategicprojectsinternally,andletspinnakersupportresourceshandletheday-to-daytasks.
• Cost-Effective Support – Ouroverheadandreasonablemarginexpectationsenableustodeliversuperiorsupportservicesatagreatlyreducedcost.
• Invest Savings in Other Critical Areas – Re-investyourmaintenancecostsavingsintoothercriticalareasofyourbusiness.Withspinnakersupport’sservices,youpayonlyforsupportandnotnew softwaredevelopment.Thesavingsexperiencedbyourcustomersarethenreallocatedtomorestrategicinitiativesforourclients’businesses.
• Eliminate Forced Upgrades to Unstable Platforms – Traditionally,whenanewsoftwareproductrollsoutitmaytakeayearortwotoworkthroughthebugs.Therehasbeennogenerationalchangeinenterprisesoftware,andthenextisduesomewherebetween2015and2017.andevenwhentheoriginalcodeisfinalized,ittakestimetocompletebetacasestudiesandfortheproductstobeadoptedgloballybytheenterprisemarketplace.somesoftwareprovidersevenchargeyouapenalty(upto20%)tostayoncurrentreleasesinanattempttoforceyoutoupgrade.Third-partysupport allowsyoutomaintainyourcurrentenvironmentwhileyouwaitfornewplatformstostabilize.
• Tax, Regulatory and Legislative Updates – forapplicationmaintenancechangesthatwerepreviouslyprovidedbythevendor(e.g.taxbodyandtaxratechanges),third-partymaintenanceproviders assumetheresponsibilityforidentifyingandprovidingregulatorychanges,alongwithmonitoringotherlegislationthatcouldrequiresystemchanges.
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TAkE THE nEXT STEPTakingacloserlookatthird-partymaintenancecanprovideyouwithamorecompletelookatyourcurrenteRP maintenanceinvestmentandhelpyouassesswhetherornotyouaregettingthevalueyouneedfromyourcurrentprovider.Ifyoudiscoveryouarenotgettingwhatyouneedfromyourcurrentmaintenanceprovider,consider spinnakersupportasyourproviderofchoice.
Spinnaker Support, the global market leader for Jd Edwards and SAP third-party maintenance, co-sourcing and consulting services, helps companies maximize their ERP software investments. Global companies trust Spinnaker Support to deliver cost effective and value driven consulting and support services. Headquartered in denver, Colorado, Spinnaker Support services are delivered globally from our Support operation Centers located in north America, london and Singapore.