Now more than ever, organizations need to seriously prioritize their financial position and sustainability. They need to protect themselves with minimal risk of damaging their organization in the short or long-term.
What is your most significant IT expense?
A significant portion of many larger organizations’ annual IT expenses is Oracle and/or SAP support fees. Organizations purchase applications and databases from Oracle/SAP. These vendors then charge between 17 to 22 percent of their licensing fee to support the purchased products, with annual 4 percent increases. Considering the initial cost and constant increases, it doesn’t take long before organizations are paying a significant amount of their annual IT budget to Oracle/SAP.
Those vendor support fees are only ever going to increase and are never going away. Even if the vendors have left particular products unsupported and no longer provide patches and bug fixes, customers are expected to continue paying for this higher-cost, lower-value service. This expense is often overlooked by organizations but should not be ignored any longer – especially now.
Support Revolution focuses on helping CIOs optimize their Oracle and SAP spends, which is why we have identified three key tactics CIOs are using to endure these challenging times. These tactics are some of the ways in which they’re essentially recession-proofing their budget – before even considering the hidden costs of Oracle or SAP support.
Tactic One: Delaying/scrapping big development projects
In light of the economic slump, organizations are backtracking on their IT modernization plans, delaying or scrapping development projects. The pandemic has led to a reprioritisation of resources. These are the common reasons why:
- Cannot afford large-scale projects
- Don’t have the resources due to staff being furloughed or unavailable
- Already managing enough risk without undergoing an intensive project
- Uncertainty around the future of the business
For example, many organizations using SAP products have delayed their migration to S/4 Hana. Hershey’s, the American confectionary organization, has paused parts of its S/4 project for one year, allowing management to focus on meeting pandemic-related business changes.
Understandably, many organizations are making this decision to pause their roadmaps. Transitioning across to a different ERP provider is an involved process in itself. For many, moving to S/4 is more than a mere migration; it is a full reimplementation. Customers using SAP applications on Oracle Database, for example, will need to move their entire estate onto S/4. That by itself is daunting enough, without additional pressure from the pandemic and recession.
If your organization decides to delay/scrap an upgrade, however, there are three pitfalls to consider:
- Lack of innovation. The price for avoiding upgrades is missing out on potentially beneficial developments. A recommended strategy here is to analyze what benefits and value the new product will bring, if any at all. Compare that against the cost and effort necessary to complete the process. Putting off an upgrade needs to be a strategic decision.
- Lack of support. In addition to new developments, you will also lose out on the vendor-provided support. Vendors have deadlines in place, and by not upgrading you therefore need to consider what to do when they pull support entirely for your product – create your own in-house team or seek a third-party provider?
- Rising costs. As your products get older, the vendor will continue to increase the support costs even if the deadline has passed. In time, you can end up paying excessive amounts on support while receiving very little service in return. Can you justify this expense?
This is why organizations are using third-party support as an alternative service to traditional vendor support. Switching from vendor-provided to third-party support enables organizations to continue receiving support and maintenance for older versions, without the need for an upgrade. In effect, this enables organizations to extend the lifespan of their software indefinitely.
Given the unpredictable nature of the global market, there may never be a good time to undertake these projects in the foreseeable future. The pandemic has proven the fragility of the market and how suddenly – and significantly – things can change. Third-party support can provide appropriate stability for organizations during these difficult times. This is especially relevant for SAP customers who could delay their S/4 implementation not just during the recession, but even past SAP’s own 2027 deadline.
Tactic Two: Going back to negotiate with the supplier
In times of financial hardship, it’s best practice to approach your vendors and suppliers to seek a better deal – or at least more suitable payment terms. We do it in our everyday lives, using comparison websites to lower our bills. We should do the same in a professional setting too.
While this is best practice, many organizations find out the hard way that negotiating with an IT mega-vendor like Oracle or SAP is almost impossible. It’s an unfortunate fact that most of their customers have no leverage over the billion-dollar mega-vendors. Oracle and SAP have the best position – they can impose audits if and when they so choose and increase their support prices.
So, as much as we’d like to think organizations could negotiate with Oracle and SAP – or even work with them to rightsize their estates, remove shelfware and reduce costs – it’s not going to happen.
In a personal setting, to get a better deal, we might threaten to leave for a competitor. With third-party support, however, it’s more than just words. Moving away from vendor support removes you from the support contract. It immediately saves you 50 percent while you continue to receive the same level of service. Once you’re out, you’re in a much better position. Oracle and SAP can still audit you, unfortunately – that is always a possibility while you’re their customer – but you can be much more upfront about what you want and need.
Tactic Three: Downsizing or removing assets
Responding to a recession should also invoke a review of your organization’s assets. What is and isn’t being used by your teams? Are there duplications which can be removed? Are you getting the full use of your investment? Essentially, what can you negotiate to have removed?
You’re more likely to be successful and secure a better deal from smaller vendors – the ones who value your custom and/or can’t afford to lose it – but the mega-vendors aren’t so flexible. They won’t allow you to remove software, even if you’re not using it. Oracle, for example, has previously allowed organizations to transfer the cost of their shelfware towards a cloud investment. This can potentially leave you paying for something you didn’t want, in exchange for paying for something you didn’t need.
Speaking to a great many organizations, there is clear and evident frustration in the market. Organizations are losing money to their vendors over shelfware and/or support not received. However, they still have to rely on vendors’ products to run their businesses. It’s clear to see why organizations use words like ‘trapped’ when talking about their vendors.
Leading a support revolution
After trying and failing to engage with mega-vendors like Oracle and SAP with tactics like the above, more and more organizations are now seeking out third-party support to lower their costs and increase their stability. Unfortunately, in too many cases we’ve already seen organizations commit to the often last-resort cost-saving options: downsizing their units and branches, reducing their staff numbers, or usually both.
For example, Daimler (owners of Mercedes-Benz) has plans to cut 30 percent of its global workforce. LinkedIn has announced its intentions to cut 65 percent of its global workforce. HSBC, Europe’s biggest bank, plans to cut 15 percent of its global workforce amounting to roughly 35,000 people.
Some of the figures we’re seeing have been staggering. Organizations are removing quarters and thirds of their entire workforces, as the effects of the recession have unfortunately forced that process.
That’s why the third-party support industry has grown so fast in recent years. In stark contrast to Oracle or SAP, third-party support focuses on helping organizations from a wide range of industries reduce support costs and ultimately optimize their IT costs. Third-party support is a genuine way for organizations to receive the same service at a greatly reduced price. It’s a rare example of being able to reclaim budget without compromising on quality.