The article below is based on a recent post from Mark Smith, CEO of Support Revolution, who spoke to E3zine about how organisations can better prepare their IT budgets during a recession.
With the global economy in decline and announcements of recession frequently appearing in newsfeeds, implementing cost-cutting initiatives has evolved from a recommended business practice to an outright necessity.
Now more than ever, organisations need to seriously prioritise their financial position and sustainability. They need to protect themselves with minimal risk of damaging their organisation in the short or long-term.
What is your most significant IT expense?
A significant portion of many larger organisations’ annual IT expenses is Oracle and/or SAP support fees. Organisations purchase applications and databases from Oracle/SAP. These vendors then charge between 17-22% of their licensing fee to support the purchased products, with annual 4% increases.
Considering the initial cost and constant increases, it doesn’t take long before organisations are losing 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 considerable expense is often overlooked by organisations but should not be ignored any longer – especially now.
Three tactics to help you reclaim your IT budget from Oracle and SAP
We focus on helping CIOs optimise 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/SAP support.
Tactic One: Delaying/scrapping big development projects
In light of the economic slump, organisations are backtracking on their IT modernisation plans, delaying or scrapping development projects. The pandemic has led to a reprioritisation of resources. These are the common reasons why:
- Cannot afford largescale 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 organisations using SAP products have delayed their migration to S/4HANA. Hershey’s, the American confectionary organisation, has paused parts of its S/4HANA project for one year, allowing management to focus on meeting pandemic-related business changes.
Understandably, many organisations 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/4HANA 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/4HANA. That by itself is daunting enough, without additional pressure from the pandemic and recession.
What are the perceived pitfalls in pausing upgrades?
If your organisation 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 analyse 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.
2. 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.
3. 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?
How to avoid these traps
This is why organisations are using third-party support as an alternative service to traditional vendor support. Switching from vendor-provided to third-party support enables organisations to continue receiving support and maintenance for older versions, without the need for an upgrade. In effect, this enables organisations to extend the lifespan of their software indefinitely.
Third-party providers also lower the cost of support, typically by at least 50%.
Using this indefinite support for half the cost means that organisations can lock their product versions in place for as long as necessary, then potentially return to an upgrade when it makes sense for them. This means that they don’t miss out on potential innovation but can approach it according to their own timeline. They can also return to the option of an upgrade having saved crucial budget with a third-party provider.
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 organisations during these difficult times.
This is especially relevant for SAP customers who could delay their S/4HANA 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 organisations find out the hard way that negotiating with an IT mega-vendor like Oracle/SAP is almost impossible.
It’s an unfortunate fact that most of their customers have no leverage over the billion-dollar mega-vendors. Oracle/SAP have the best position – they can impose audits if/when they so choose and increase their support prices (as they already do, annually).
So, as much as we’d like to think organisations could negotiate with Oracle/SAP – or even work with them to rightsize their estates, remove shelfware and reduce costs – it’s not going to happen.
Is there a way to get more negotiation power?
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% while you continue to receive the same – arguably, better – level of service.
Once you’re out, you’re in a much better position. Oracle/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 organisation’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 like Oracle/SAP 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 organisations 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.
Can you get the same service for less cost?
Speaking to a great many organisations, there is clear and evident frustration in the market. Organisations are losing money to their vendors over shelfware and/or support not received. However, they still have to rely on Oracle/SAP’s products to run their businesses. It’s clear to see why organisations use words like “trapped” when talking about their vendors.
This is why third-party support is so relevant, providing improved service quality at a significantly reduced price. Organisations can pay a fairer price without having to lower expectations.
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 organisations are now seeking out third-party support to lower their costs and increase their stability.
Unfortunately, in too many cases we’ve already seen organisations commit to the often last-resort cost-saving options: downsizing their units and branches, reducing their staff numbers, or usually both.
Daimler (owners of Mercedes-Benz) has plans to cut 30% of its global workforce. LinkedIn has announced its intentions to cut 65% of its global workforce. HSBC, Europe’s biggest bank, plans to cut 15% of its global workforce amounting to roughly 35,000 people.
Some of the figures we’re seeing have been staggering. Organisations 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/SAP, third-party support focuses on helping organisations from a wide range of industries reduce support costs, and ultimately optimise their IT costs.
Using our method of reducing Oracle/SAP bills is a specialised service; we are one tool in a toolbox of cost-optimisation measures. We are an option for any organisation exploring how to reduce unnecessary costs.Mark Smith, CEO of Support Revolution
It may sound too good to be true, but third-party support is a genuine way for organisations to receive the same (if not better) service, at a greatly reduced price. It’s a rare example of being able to reclaim budget, without compromising on quality. A must in the current economy.
Try our free-to-use Savings Calculator and find out just how much you could save.
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Original article published by E3zine on 16 November 2020.