Analysis of Rimini Street’s Presentation on ERP Support

Executive Summary

  • Rimini Street created a presentation on ERP support.
  • We evaluated this presentation for accuracy.

Introduction

Rimini Street wrote the article 10 Telltale Signs of that it is Time to Change in Your ERP Strategy. This is a document that focuses on the history of ERP and ERP support. It seemed worthy of analysis.

Rimini Street Quotes

“In the beginning, your vendor delivered great software and valuable support that helped you troubleshoot issues and optimize your systems. But over time, that model changed. The support partnership between you and your vendor has eroded and software improvements have all but disappeared.”

Brightwork Research & Analysis covered this in a previous article titled What To Do About SAP’s Declining Support.

“89% of the average IT budget is dedicated to keeping the lights on, leaving only 11% for innovative projects*”

This has been known for some time. What SAP and their consulting partners, in particular, have excelled at doing is maximizing their take of the IT budget or the larger companies. This is covered in the article How Vendors and Consulting Firms Parasitized enterprise Software’s ROI.

“In ERP’s early days, annual support was typically 15% of the original license cost. Today, support costs have risen to a standard 22% — a whopping 47% increase over the years. And it’s not because Oracle and SAP have been investing in making support more responsive to customers’ needs. It’s because vendors net up to a 90% profit margin on support revenue, accounting for roughly half their revenue streams, making investors very happy.”

This is consistent with what amounts to changing the terms of the software sale. If the software was initially sold under the concept of a 15% yearly support fee, then that percentage should continue. No doubt one of the logic used by Oracle and SAP is that on software purchased many years back, its support, as it is based upon the list license cost. However, this argument is undercut by the fact that most SAP customers have been purchasing other SAP applications as time has passed. Furthermore, Oracle and SAP have both followed a consistent approach to harvesting their existing customers. Oracle does this with highly punitive audits. SAP has opted instead for indirect access to force companies into purchasing more of their software.

“Before you know it, one small problem has morphed into a big project with regression testing and downtime that costs a lot of money, time and resources. When you get back in touch with support, you’re unlikely to get access to experienced engineers unless you navigate a maze of escalations.”

I have faced this issue myself. Poor quality support undermines the system. Curiously, so much money in IT is spent on system implementations hiring highly expensive and wasteful firms like Deloitte, Accenture or IBM. Still, when it comes to supporting, there is often a desire to reduce the support as much as possible.

“Most ERP implementations are robust and stable. Without compelling new functionality in the pipeline, many enterprises prefer to continue running the current system.”

In the case of SAP, they have tried to alter this truth by proposing that their new ERP system, S/4HANA has a great deal of innovation. Roughly 93% of S/4HANA is simply ECC (the previous version of S/4HANA).

And SAP customers have lost functionality with S/4HANA that came from ECC. SAP has also invalidated the agreement with customers that all new versions of purchased software would be included in the support price. SAP has decided to charge for S/4HANA even for customers that already are running ECC. This is covered in the following article Why SAP S/4HANA Should be Free.

“72% of SAP licensees believe their current release meets business needs*”

This figure is quite interesting. But it may even underestimate the actual benefit of upgrading for customers. This is because many of the business needs of the customer are not in the next release of their ERP system. There are always areas of functionality that the customer would like that is not contained in the ERP system.

“The cost of an upgrade can easily exceed $1 million. And more than 56% of Oracle ERP upgrades take nine months or more.* Upgrades also pose significant risks. Licensees are concerned about testing, staff limitations, maintaining customizations and the possibility of downtime.”

This was one of the most important areas of ERP that Rimini Street along with Nucleus Research highlighted. It was surprising to me when I read their coverage of the topic because:

  • a) it was never an area in which I specialized, and
  • b) it seems not to be mentioned on projects. Instead, upgrades are treated as necessary and responsible.

90% of ERP systems are customized*

* 85% of Priority 1 issues are custom-code related* 65% of all issues are custom-code related*

* 65% of all issues are custom-code related*

This was surprising. In my consulting experience, I don’t recall seeing the customizations cause that high a percentage of the issues. However, following up issues was not mainly what I have done.

“Gradual rollouts of cloud versions of Oracle Fusion and new SAP S/4HANA updates have triggered lukewarm interest from customers. Acquisitions of cloud vendors, such as Oracle’s buy of NetSuite and SAP’s purchase of Concur, have introduced more questions about ERP roadmaps.”

That is certainly true. Extremely few customers are live on S/4HANA. Oracle Fusion’s lack of adoption is renown even for those that do not specialize in following Oracle.

The Problem: A Lack of Discussion and Fact-Checking Around SAP and Oracle Support Costs and Value

Oracle, SAP and their consulting partners, as well as the IT media entities all, have something in common. They don’t want the total costs of support, the margin obtained from support by these vendors or the value of this support provided discussed.

The total costs of Oracle and SAP ERP support are enormous, and they pull resources from IT departments with little commensurate value provided. This is why these entities don’t want these topics discussed.

Oracle and SAP benefit from the lack of quantification or the hidden nature of ERP support costs. Upgrades, many of which cannot add value over their costs, are simply absorbed into the IT budget and considered “business as usual.”

Being Part of the Solution: What to Do About Oracle and SAP Support

The first step is to calculate the total costs of support — not just the 22% base level, but the extra costs with support additions as well as the cost of upgrades, etc. Then to quantify the value provided by ticket closure and determine which applications are actually planned to be upgraded. Paring support costs is not an all or nothing decision, even though SAP and Oracle sales reps make it sound like trimming support costs is close to the end of the world.

If you need independent advice and fact-checking that is outside of the vendor and vendor consulting system, reach out to us with the form below or with the messenger to the bottom right of the page.

Financial Disclosure

Financial Bias Disclosure

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

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Conclusion

This is a quite interesting presentation from Rimini Street. Quite educational actually. This is the type of information that would never come from an SAP or Oracle rep or consulting firm.

Financial Disclosure

Financial Bias Disclosure

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

Search Our Other ERP Content

References

https://www.riministreet.com/Documents/Collateral/Rimini-Street-ebook-10-Telltale-Signs-Change-ERP-Strategy.pdf

The Real Story on ERP

ERPThe Real Story Behind ERP: Separating Fiction From Reality

How This Book is Structured

This book combines a meta-analysis of all of the academic research on the benefits of ERP, coupled with on project experience.

ERP has had a remarkable impact on most companies that implemented it. Unplanned expenses for customization, failed implementations, integration, and applications to meet the business requirements that ERP could not–have added up to a higher Total Cost of Ownership for ERP were all unexpected, and account control, on the part of ERP vendors — is now a significant issue affecting IT performance.

Break the Bank for ERP?

Many companies that have broken the bank to implement ERP projects have seen their KPIs go down— but the question is why this is the case. Major consulting companies are some of the largest promoters of ERP systems, but given the massive profits they make on ERP implementations — can they be trusted to provide the real story on ERP? Probably not, however, written by the Managing Editor of SCM Focus, Shaun Snapp — an author with many years of experience with ERP system. A supply chain software expert and well known for providing authentic information on the topics he covers, you can trust this book to provide all the detail that no consulting firm will.

By reading this book you will:

  • Examine the high failure rates of ERP implementations.
  • Demystify the convincing arguments ERP vendors use to sell ERP.
  • See how ERP vendors take control of client accounts with ERP.
  • Understand why single-instance ERP is not typically feasible.
  • Calculate the total cost of ownership and return on investment for your ERP implementation.
  • Understand the alternatives to ERP.

Chapters

  • Chapter 1: Introduction to ERP Software
  • Chapter 2: The History of ERP
  • Chapter 3: Logical Fallacies and the Logics Used to Sell ERP
  • Chapter 4: The Best Practice Logic for ERP
  • Chapter 5: The Integration Benefits Logic for ERP
  • Chapter 6: Analyzing The Logic Used to Sell ERP
  • Chapter 7: The High TCO and Low ROI of ERP
  • Chapter 8: ERP and the Problem with Institutional Decision Making
  • Chapter 9: How ERP Creates Redundant Systems
  • Chapter 10: How ERP Distracts Companies from Implementing Better Functionality
  • Chapter 11: Alternatives to ERP or Adjusting the Current ERP System
  • Chapter 12: Conclusion