Getting off the support treadmill

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For many years, the large ERP vendors have enjoyed the benefits of a virtual monopoly when it comes to maintenance and support. But with independent maintenance providers such as Rimini Street gathering steam, enterprises in growing numbers are moving to save precious budget dollars on support, to redirect to other areas of investment and innovation. Freya Purnell reports.

 

 

Launched in 2005, Rimini Street faced an uphill battle – trying to convince Oracle and SAP customers to break with the status quo and take their maintenance contracts away from the vendor. Fast forward seven years, and it has built its customer base to more than 500, including 49of the companies on the Fortune 500 list.

One of the factors driving the company’s 40 per cent-plus year on year growth for fiscal 2013 has been an undercurrent of dissatisfaction with increasing support costs and service levels that fail to delight.

In February 2013, when SAP announced it would be increasing its standard support rates on new contracts from 18 per cent to 19 per cent, Forrester analyst Duncan Jones disputed SAP’s claims in a blog post that the increase was necessary to continue high-quality support, and that it would fund increased value through Enhancement Packs (see http://blogs.forrester.com/duncan_jones/13-02-14-saps_maintenance_price_hike_should_concern_sourcing_professionals_and_their_cios). Instead, Jones posited that much of the maintenance revenue would instead be directed towards other key innovations in its portfolio – such as HANA – which are only accessible by customers for further licence fees. He warned CIOs to examine carefully what they were getting for these increased costs, and consider looking further afield.

Likewise, in a report released in 2013, Constellation Research’s principal analyst and CEO Ray Wang urged CFOs and CIOs to, at the very least, consider bringing an independent maintenance provider to the table when undertaking contract negotiations or planning their applications strategy.

“Failure to explore this strategic option may result in higher costs for less value with existing vendors,” said Wang.

The critical challenge for CIOs is that while these support costs expand, budgets may not, and an increasing proportion could end up going towards simply ‘keeping the lights on’, rather than being invested to provide true business value.

David Rowe, SVP and CMO, Rimini Street, says while many CIOs have traditionally renewed vendor-provided support without exploring alternatives, CIOs now have new approaches to managing support costs while still delivering results to ever-more demanding businesses.

“There is some perceived risk, but these are issues that CIOs have to address. You can’t just keep paying the vendor increasing fees and all the overhead that goes with it, because you are not going to move the business forward, and you are going to lose your competitive advantage,” Rowe says.

Far from deserting SAP though, for many customers, freeing up additional budget by cutting their support costs in half, typically, means they can then reinvest with SAP in other areas.

“Our customers love their software. They just want to run it longer, and they want to run the release they have more efficiently,” Rowe says.

He points to the experience of Alexandre Baulé, CIO of Brazilian aircraft manufacturer Embraer, recently named IT Executive of the Year by InformationWeek. He had championed a switch to Rimini Street for support, cutting his SAP costs by millions of dollars a year, avoiding an upgrade and finding other efficiencies.

“He used that money to fund expansion of SAP within Embraer on a global basis, and then also for licensing other products, using the savings to fund innovation,” Rowe says.

Even for customers who don’t end up using an independent support provider, Constellation Research analysis showed that companies that used the option as leverage in their negotiations with Oracle and SAP, received a discount of 13.7 per cent on average.

“It doesn’t sound like a lot, but this would have been impossible a few years ago. So the fact that we are here is impacting positively even for customers that don’t use us,” Rowe says. “We have already seen this happen in Australia.”

Avoiding the pain of an upgrade

Rimini Street can make a fairly compelling case purely on the basis of cost for customers running newer and older releases, but many enterprises are attracted by the ability to support older versions of SAP, thereby avoiding upgrades.

“A number of our customers are running versions not currently supported by the standard support programs or even extended support, so you are into the customer-specific maintenance which can be custom and expensive,” Rowe says. “It’s a fair amount of uncertainty for customers and you are at the whim of SAP in terms of how that’s going to work.”

Andrew Powell, who joined Rimini Street as managing director, Asia Pacific and Middle East earlier this year, says the upgrade issue is particularly relevant in the ANZ market. Many organisations haven’t been able to justify the cost of an upgrade, because of the limited business value it would bring.

“For smaller SAP sites, upgrades could be in the hundreds of thousands of dollars, but for organisations on the larger side, it’s all in the millions. And they are paying millions of dollars in maintenance per year as well. So some of them are happy with the version of SAP they are running, paying millions of dollars in maintenance, and not logging virtually any issues with SAP either,” Powell says. “The only way they have been able to justify [the upgrade] is on the basis of staying under support, and now they don’t need to do that any more.”

Expanding into APAC

Powell joined Rimini Street to help build the company’s presence in the region. While it already had 11 customers in Australia, these were primarily subsidiaries of customers based in the US and elsewhere, such as Jones Lang La Salle and Toys R Us, with around 40 similar contracts in place with customers throughout Asia.

Up until now, Rimini Street has been able to achieve its impressive growth purely focusing on the SAP and Oracle customer base in US and Europe. And while that well is far from running dry, the move into APJ is a strategic one.

“Obviously over time, there are going to be more players that will enter the market, and so it’s important to establish that beachhead and be the number one player in Asia Pac,” Powell says. “There’s some very big maintenance markets here. There are hundreds of millions of dollars being paid in both Australia and Japan to SAP and Oracle, so it’s a big part of the global market.”

Because the company was already providing local support, Rowe says it made sense to get a formal foothold in the market.

“We already had developers here providing service on a global basis, so it was straightforward to add Andrew and build the rest of the business,” he says.

Though Rimini Street still only has a tiny proportion of the overall support market, the company is also working hard to build this by providing better value to customers, through the quality of its service offering.

“When you have a captured market, companies try to minimise the money they put into support. The people on the support desk are sometimes compensated based on how few calls make it through to an actual engineer,” Rowe says.“Really you end up supporting yourself in a lot of respects, because they push you through their internet portal. Oftentimes you have got to prove that it is SAP’s issue or Oracle’s issue, not due to customisations that you may have implemented.”

Rimini Street promises far more responsive service, citing an average callback time once an issue is logged of under five minutes, with support staff having an average of 10 years’ experience. The company also provides support not just for vanilla SAP code, but also for customisations.

“Many Australian organisations have done a lot of customisation over the years, and that’s actually where most of the issues arise now,” Powell says.

With aggressive expansion plans for 2014, Powell says the company has recently signed several new contracts in Australia and Japan.

“One of these new customers is an ASX Top 10 and two are ASX Top 50. Some are attracted to the 50 per cent cut in annual maintenance, some want to avoid upgrades, and others are looking for better service.”

And with every new customer, the independent support story becomes easier to sell.

“Rimini Street is now a proven solution with a nine-year track record and over 500 active clients,” Rowe says. “Today, it’s a lot easier for CIOs to choose independent support because there is a reference in your industry, with your product line and the version of the product you run.”

This article first appeared in the Autumn 2014 edition of Inside SAP.

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