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Posts Tagged ‘lessons learned’

Research Report: Constellation’s Research Outlook For 2011

Published on January 4, 2011 by R "Ray" Wang

Organizations Seek Measurable Results In Disruptive Tech, Next Gen Business, And Legacy Optimization Projects For 2011

Credits: Hugh MacLeod

Enterprise leaders seek pragmatic, creative, and disruptive solutions that achieve both profitability and market differentiation. Cutting through the hype and buzz of the latest consumer tech innovations and disruptive technologies, Constellation Research expects business value to reemerge as the common operating principle that resonates among leading marketing, technology, operations, human resource, and finance executives. As a result, Constellation expects organizations to face three main challenges: (see Figure 1.):

Navigating disruptive technologies. Innovative leaders must quickly assess which disruptive technologies show promise for their organizations. The link back to business strategy will drive what to adopt, when to adopt, why to adopt, and how to adopt. Expect leading organizations to reinvest in research budgets and internal processes that inform, disseminate, and prepare their organizations for an increasing pace in technology adoption.
Designing next generation business models. Disruptive technologies on their own will not provide the market leading advantages required for success. Leaders must identify where these technologies can create differentiation through new business models, grow new profit pools via new experiences, and deliver market efficiencies that save money and time. Organizations will also have to learn how to fail fast, and move on to the next set of emerging ideas.
Funding innovation through legacy optimization. Leaders can expect budgets to remain from flat to incremental growth in 2011. As a result, much of the disruptive technology and next generation business models must be funded through optimizing existing investments. Leaders not only must reduce the cost of existing investments, but also, leverage existing infrastructure to achieve the greatest amount of business value.

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Monday’s Musings: Why Users Must Preserve Their Third Party Maintenance Rights

Published on February 22, 2010 by R "Ray" Wang

Apps Users Seek Third Party Maintenance For Cost, Value, and Service

Updated surveys from inquiries, client conversations, and user group meetings show a 113.8% increase in interest in third party maintenance (3PM) services from Q3 2009 to Q1 2010 (see Figure 1). Key factors stem from (see Figure 2.):

Continuing cost pressures. Budgets continue to be at flat or have been reduced. Organizations must do more with less. Add pressures to innovate, CIO’s must find fat without trimming bone.
Gaining minimal value in maintenance services. Most felt they were paying too much for too little. An 8 point jump reemphasized the issue with a lack of tiered offerings.
Declining plans to upgrade. Worsening economic conditions from Q3 2009 to Q1 2010 led a 27 point increase in interest in 3PM. Expect many respondents to change their point of view (POV) as economic conditions improve.
Expecting better service. Service continues to play a key factor in decisions to go to 3PM. Over 60% of respondents had experienced poor levels of service.
Slowing pace of vendor innovation. Greater than half of respondents believe their vendor has been too slow to deliver new capabilities. These include SaaS deployment options or key functionality in areas such as strategic HCM and social CRM.
Disliking the vendor. About 1/3 of the survey respondents have bad experiences with their vendor. Many times it comes from sales person or support rep experiences.
Delivering self support. Almost 30% of respondents already provide their own support. These organizations have no need to pay maintenance when they are doing all the work.

Figure 1. Interest in 3PM grows 113.8% over 2 quarters.

Figure 2. Cost Pressures, Value, And Decision Not To Upgrade Drive Current Trends to 3PM

Limited Options Exist For Most Enterprise Apps Customers

Of the 101 respondents in Q1 2010 interested in 3PM, Oracle (88.1%) and SAP (76.2%) users expressed the greatest interest in seeking independent services (see Figure 3). Over 80% of the users were from large companies greater than 1000 employees across the globe. Most SAP users surveyed have mixed environments with Siebel, JD Edwards, and PeopleSoft joint installations. Unfortunately, very few public options exist for sole SAP users (see Figure 4). For example, SAP customers can only turn to Rimini Street. Oracle customers on PeopleSoft, JD Edwards, and Siebel also have limited choices with Rimini Street, netCustomer, and Spinnaker among the options. IBM, Infor, Lawson, Computer Associates, Epicor, Microsoft Dynamics, Oracle E-Business Suite and database customers have no options. (Note: This data may not be completely statistically significant given the sample size of 240, but hopefully it provides some directional input.)

Figure 3. Oracle And SAP Users Drive Interest In 3PM

Figure 4. Very Few Public Options Exist For Customers

The Bottom Line For Users – Users And User Groups Must Band Together To Guarantee 3PM Rights. Don’t Take These For Granted!

Although the latest surveys show a 17 point increase in the belief that 3PM is a right, this right is under fire by big vendors such as Oracle who have taken legal actions against 3PM providers for improperly (i.e. TomorrowNow) and allegedly (i.e. Rimini Street) violating intellectual property rights. If providers have violated such laws, Oracle rightfully should defend its positions and those providers be punished. However, there’s a lot of money at stake. For most vendors, maintenance represents 50% to 80% of their revenue stream. Consequently, users and user groups have a responsibility to:

Demand that their contracts include provisions that protect their right to 3PM
Require vendors to work out rules on how 3PM providers can deliver services without violating software IP provisions
Seek anti-trust class action with the US DOJ (i.e. Christine A. Varney) and the EU Compeition (i.e. Joaquín Almunia) against software vendors who hinder 3PM providers from providing services

Users and user groups must vigorously defend their positions in contracts and legal action or lose this right. Failure will result in a continued software maintenance monopoly. Success will ensure market competition and renewed innovation. Attention: OAUG, Quest, and SUGEN leadership your members need your help!

Figure 5. A Growing Body Of Users Believe 3PM Is A Right

The Bottom Line For Vendors – Proactively Address The Issue Or Expect A Groundswell Of Activism

SaaS, subscription pricing, 3PM, and the economy provide a confluence of forces that will continue to attack maintenance revenue streams. Many legal cases have been fought over this issue including IBM vs Amdahl and Geac vs Grace Consulting. SAP’s failed attempt to convince customers on the value of Enterprise Support led to a public relations disaster and a factor in the resignation of their CEO. The result – many vendors considering price hikes held back. In fact, some savvy software vendors retooled and restored the client -vendor relationship by:

Offering more entry points and tiers to support options. The three pillars of software maintenance and support policies still apply. However, several vendors are now offering more tiers of support as lower entry points. Two vendors have finalized plans to offer just the bare bones legal and regulatory updates. Other vendors have made it easier to come back with maintenance amnesty plans.
Providing flexible maintenance policies. Vendors who change rigid policies have experienced success among customers. Some Both Infor through Infor Flex and Micrsoft Dynamics allow like for like swap credits to migrate between existing products.
Renegotiating existing terms. Some vendors are helping clients meet the realities of the current market conditions. Big on the list is helping clients address shelf ware without repricing of contracts. For clients who paid full maintenance on software that’s at least 4 years old, some vendors are offering to reduce up to 20% of the overall licenses not in use. This leads to lower maintenance revenue but engenders good will among key clients. Further, several vendors have allowed clients to apply credit towards another module as an alternative.
Delivering amnesty programs. Several vendors have allowed customers to return to maintenance programs after years of not paying. Such programs play a key role in helping customers upgrade but should be used sparingly as customers may become accustomed to this practice.
Creating better peer forums to share information. Almost every vendor surveyed has a program to improve the online support capabilities. Applying Social CRM use cases, user generated content in peer forums tops the list of initiatives. Other plans focus on sharing data on benchmarks, operational metrics, and best practices.
Assisting with vendor financing. Clients seek access to financing, especially many in the mid-market who’s credit lines have been zapped. Microsoft has led the charge by providing 0% financing for its Microsoft Dynamics ERP and Microsoft Dynamics CRM Customers. Other vendors such as IBM, Infor, Oracle, SAP, Sage also offer vendor led financing programs that include hardware, implementation, training, and other services.
Lowering cost of usage and ownership. Though tops on the list as a conceptual practice, most vendors will need to roll out such initiatives over the next 24 months. A few notable exceptions include Agresso with its VITA architecture which allows customers to rapidly make business and UI changes, Microsoft Dynamics customers who report back significantly lowered implementation and training costs compared to most vendors, and Epicor customers who report significant productivity gains with Service Connect. SaaS customers already experience such gains.

Your POV

Take the new and improved survey on 3rd party maintenance and let us know if you need help with your enterprise apps strategy by:

Conducting an ROI on 3rd party maintenance options
Identifying cost reduction opportunities
Renegotiating your software contracts
Improving innovation via SaaS and other deployment options

Please post or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

Related resources and links

20091008 Deal Architect – Vinnie Mirchandani “Third Party Maintenance Is Really 4 Decades Old”

20071120 News Analysis: Too Early to Call the Death of Third Party Maintenance

20090210 Tuesday’s Tip: Software Licensing and Pricing – Do Not Give Away Your Third Party Maintenance And Access Rights

20090709 Tuesday’s Tip: Do Not Bundle Your Support and Maintenance Contracts!

20090622 News Analysis: Infor Flex Reflects Proactive Maintenance Policy

20090516 News Analysis: Rimini Street Launches Third Party Maintenance for SAP

20090504 News Analysis: Oracle Waives Fees On Extended Support Offerings

20080909 Trends: What Customers Want From Maintenance And Support

20080215 Software Licensing and Pricing: Stop the Anti-Competitive Maintenance Fee Madness

20090428 News Analysis: SAP and SUGEN Make Progress on Enterprise Support

20090405 Monday’s Musings: Total Account Value, True Cost of Ownership, And Software Vendor Business Models

20090330 Monday’s Musings: It’s The Relationship, Stupid! (Part 2) – Stop Slashing The Quality Of Support And Maintenance

20090324 Tuesday’s Tips: Five Simple Steps To Reduce Your Software Maintenance Costs

20090223 Monday’s Musings: Five Programs Some Vendors Have Implemented To Help Clients In An Economic Recession

20081012 Monday’s Musings: 5 Steps to Restoring Trust in the Vendor – Customer Relationship

20100114 News Analysis: SAP Revives Two Tier Maintenance Options

20091012 Research Report: Customer Bill of Rights – Software-as-a Service

20090912 News Analysis: Siemens Cancels SAP Maintenance Contract

20090910 Tuesday’s Tip: Note To Self – Start Renegotiating Your Q4 Software Maintenance Contracts Now!

20090602 Tuesday’s Tip: Now’s The Time To Consider SaaS Software Escrows

Strategy: 5 Lessons Learned From A Decade Of Naught

Published on December 30, 2009 by R "Ray" Wang

I’ve had considerable time to catch up on reading this holiday season. Traditionally, it’s a time for predictions, resolutions, and reflections. But as we close out the last decade, I couldn’t help but dwell on economist Paul Krugman’s Op-Ed from December 27th titled “The Big Zero”. He brings up good points that it’s been an “era best forgotten” and “it was a decade in which nothing good happened, and none of the optimistic things we were supposed to believe turned out to be true”. He dives deep to rant about how we’ve achieved zero economic gains and makes compelling arguments. However, in the world of innovation and adoption of disruptive technologies, it may be safe to say that his point on “our unwillingness, as a nation, to learn from our mistakes”, seems to be less true.

In fact, emerging organizational trends in the next decade can be well rooted in lessons learned through the boom and bust cycle of the 2000′s. Here’s my opinion on five lessons learned from the tragedy of what we call the past decade:

Pace of change moves from constant to constantly accelerating. Quickly evolve or die. Organizations need to find ways to stay ahead of change or risk being obsolesced. Organizations must organize around supporting flexibility and agility. Disruptive technologies play a role in leapfrogging organizational models, business processes, and business models.
Planning switches from static to iterative. Agile is the new poster child for today’s approach. The best plans assume constant iteration. Organizations must expect to reevaluate and assess plans in shorter cycles. 3 to 5 year plans can’t account for or incorporate the entry of disruptive technologies. Iterations move from years to months.
Viability shifts from size to innovation. Size does not equate to viability. Success requires solving pain chains. Mergers and acquisitions will continue out of necessity but must be done strategically. Not only must organizations achieve an economy of scale that reduces overhead, funds innovation, and grabs the largest share of the customer budget, but they must also address pain chains by developing and delivering innovative last-mile solutions that dis-intermediate inefficiencies in existing business models. If size gets in the way, then you must divest.
Success evolves from technology adoption and process improvement to business value and business impact. Benefits should only focus on business impact. After a decade of technology and business process centricity, organizations must start with the business value story. Business processes must be flexible enough to accommodate the pace of change. Technology provides an enabler but not the complete solution. People still matter at the end of the day so make sure the incentives are aligned. Holistic goals such as the total customer experience, beyond real time relationships, and optimal compliance will provide the business drivers for new initiatives.
Collaboration evolves from nice to have to essential. Plain and simple – partnerships count more than ever. No single organization can serve every market, provide every last mile solution, and deliver value in a focused manner. Most organizations can not afford go it alone strategies. Partnerships must be based on an understanding of what each party will not do in order to find the common ground among 4 key dimensions: product road map alignment, service and support coverage, sales coordination, and community engagement.

Your POV.

What have you learned from the past decade? Do you feel it was for naught or were you fruitful in your pursuits? Feel free to post your comments here or send me an email at rwang0 at gmail dot com or r at softwareinsider dot org.

News Analysis: DSAG Project Team Members Resign Leadership of SUGEN KPI Working Group

Published on November 30, 2009 by R "Ray" Wang

DSAG project team and project leader departure could signal disagreement with methodology not SUGEN

SAP embarked on an ambitious program to prove value in its Enterprise Support fee hike last year. As planned, SAP should announce the results for the first set of SUGEN KPI’s in early December. However, two key SUGEN KPI project sponsors (revised 11/30/2009) team members have left from the German SAP user group (DSAG). Confirmed by a spokeswoman to IDG News Service on November 27th, 2009, both project leader Andreas Oczko and project sponsor Otto Schell resigned from their roles on November 18th. Several outcomes may potentially have led to this departure:

The methodology used by the auditing firm (Gartner Consulting) could be quite inconsistent
Teams may not have had enough time to review the data to check for statistical errors.
The KPI’s measured were only the first set, not the complete set.
A few months does not provide enough trending data
SAP’s attempting to announce results prior to when 90%+ of its maintenance renewal occurs in Q4

To be clear, DSAG remains a SUGEN member and has not pulled out of the group or project. The leadership members have just left the project and have been active with the SUGEN group on other projects and issues.

SAP Should Still Be Given Credit For Undertaking A Huge Endeavor

Despite attempting to raise get away with a large (revised 11/30/2009) maintenance fees hike in the middle of one of the worst global recessions, the SUGEN agreement with SAP is a good faith gesture and a step in the right direction. While this is not a legally binding agreement, the deal calls for SAP to limit increases until demonstrable results from the KPI’s have been achieved. This is not an easy challenge but a few props should go out to SAP because:

SAP’s embarking on a risky but unique program to show value
Benchmarking 100 global customers against 10/11 KPI’s creates data consistency challenges
Agreeing to present results in the face of public opinion takes courage

The Bottom Line For Users - Remain Vigilant And Compare SUGEN Results With Your Own

SAP customers should work with their user groups to understand the methodology used and gain access to the underlying data with these 100 customers. Keep in mind SAP’s Value Academy already has benchmarking data for a broader set of customers. The result – selection of the 100 customers by the user groups will significantly impact the outcome. Users should see how their situation fares compared to the benchmarks to gauge their own potential value achieved from SAP’s Enterprise Support

The Bottom Line For Vendors – Provide Customers With Tiered Maintenance Plans

Pressures from SaaS deployments and mid-market competitors will erode the 70 to 80% margins in maintenance fees. Customers will begin to demand third party maintenance options and include such protections in future contracts. Those vendors who keep tiered maintenance based on the life of the product in production will engender the most loyalty by providing customers with the right balance between sustaining maintenance and incentives to upgrade. At the end of the day, customers have to migrate on their own terms. Maintenance fees should reflect the value that customers receive and not be an impediment in the client – vendor relationship.

Your POV.

If you get a chance, let us know:

Which SAP products do you use?
What do you think about the progress on SUGEN KPI’s?
Are you considering alternatives to SAP?
Do you feel SAP is innovating fast, ok, or slow enough?

Feel free to post your comments here or send me an email at rwang0 at gmail dot com or r at softwareinsider dot org.

News Analysis: Siemens Cancels SAP Maintenance Contract

Published on September 12, 2009 by R "Ray" Wang

Potential Announcement of * Siemens cancellation represents a shift in mood by one of SAP’s most loyal customers

What’s been rumored for the past few months has now publicly been confirmed discussed. Golem.de (Babelfish Translation in English) *Wiwo.de,(Wirtschaftswoche the German equivalent of BusinessWeek) (Babelfish Translation in English) reports that Siemens says SAP Tschüß (i.e. ciao, cheers, bye) in its September 12th posting.

According to the translated report, “Siemens is one of the largest SAP customers, reports the business magazine economic week (Wiwo): Over 160.000 Siemens coworkers used the software of SAP. For maintenance, to the support and regular software actualizations belong, require SAP 17 per cent of the license costs. For Siemens costs add up after analysts estimations each year on a middle two digit amount of millions.”

*What should be made clear here is that Siemens appears to have submitted its cancellation papers to SAP. However, the company will most likely not be doing a rip and replace of its core systems. It’s just looking at alternatives for SAP maintenance or even maybe a better counter offer from SAP.

Third party maintenance vendors emerge from the woodwork

Of note, IBM, and HCL have been listed with Rimini Street as contenders for this third party maintenance (3PM) market. SAP’s system integrators traditionally have shied away or have been rumored to be given strong signals not to provide alternative support options for their vendor partners. To date, this has led to just one public offering from Rimini Street. While the process requires significant investment in engineering and support resources, the contenders each bring significant capabilities to the table. And according to some customers, several other providers have already been providing third party maintenance services for SAP in EMEA.

The bottom line – economic pressures will bring more enterprise software customers to consider (3PM)

Almost all SAP customers have end of year maintenance renewal terms. As these organizations review their maintenance contracts going into 2010, it will be important to consider the role of third party maintenance in decisions. Customers seek strategies to free funding up so they can address economic shortfalls and/or invest in innovation. But don’t expect vendors such as SAP to back off without a fight. Beware of some tactics some vendors have used to cut customers off from the third party maintenance option:

Do not give away your third party maintenance rights. Review your contracts with your legal team for such similar anti competitive language. Validate any suspicious terminology with the vendor
Avoid offers by sales reps to bundle contracts. Once bundled, you will lose the ability to choose what parts of the relationship you wish to change
Say “NO” to contracts that tie upgrade rights to current status of maintenance payments. Some blog readers report a new tactic emerging in the field where even after downloading upgrades to a perpetual license, some vendors are claiming you do not have such rights unless you are current on maintenance. This flies in the face of the spirit and intent of a perpetual license.
Eliminate gag rule clauses in your contracts. Make sure you retain the freedom to work with third parties to assist in contract negotiations. You’ll also want to have the right to discuss some benchmarking with peers and other user group members.

Your POV

Is your enterprise software contract up for renewal? How has your vendor treated you to date? Do you need assistance with negotiating such contacts? Wonder why Neelie Kroes and the EU ( yes this is an election year) or the US Anti-trust team have not stood up for your consumer rights yet? What are your user groups doing to assist you? Post your comment here or reach me direct at r at altimetergroup dot com or r at softwareinsider dot org. Put the power of expert contract negotiation advice to work or drop us a line.

Related posts

20090912 Deal Architect – Vinnie Mirchandani “Don’t Cry For Me Germany”

20090912 Irregular Enterprise – Dennis Howlett “Siemens Cans SAP Support”

*Slight changes were made with some factual review input from multiple sources. (18:30 GMT – 8:00)

Tuesday’s Tip: Note To Self – Start Renegotiating Your Q4 Software Maintenance Contracts Now!

Published on September 1, 2009 by R "Ray" Wang

Labor Day (US Holiday) traditionally marks the end of summer BBQ’s, the beginning of the fall conference season, and yes, the time to begin a review of your software maintenance contacts that expire end of year. As clients prepare for this seasonal ritual, a few trends in 2009 should set the stage for negotiations:

Continued weakness in the economy. Vendor revenues continue to decline as new license sales drop and vendors become more dependent on support and maintenance revenues. Customers looking to upgrade or commit to new apps can expect vendors to be more generous on the support and maintenance front.
Dated and inflexible architecture of legacy applications. Change in business models, workplace dynamics, and macro economic conditions apply new pressures to aging systems purchased pre-Y2K. Customers seek paths to upgrade but are limited by economic pressures.
Vendor awareness of customer discontent with existing support offerings. Customers now seek to understand what value vendors deliver in their support and maintenance agreements. Many vendors have proactively responded by improving service or making appropriate concessions.
Growing acceptance of third party maintenance (3PM) options. Vendors such as Rimini Street and Spinnaker have proven to the market that they can deliver 3PM to an array of ERP applications. Cutting maintenance fees by 50% or more can free up funds for innovation or pay for the next upgrade.

Align your apps strategy before negotiating contracts – do your homework

Contract negotiations strategy should be planned in conjunction with an overall apps strategy. Begin the process 2 to 3 months in advance. Make sure the teams have the proper incentives in place. Take the following steps as you prepare for your maintenance renewals:

Assess current usage of maintenance and support
Begin apps strategy planning to determine product adoption road map
Conduct an internal license audit.
Determine extent of shelf ware.
Ensure that maintenance contracts are not bundled
Followup with your sales rep

The bottom line – follow the seven simple steps to successfully negotiating software contracts.

Ensure that the right team is in place
Identify the organization’s key business drivers
Determine the product adoption plan
Consider contract strategy implications of the software ownership life cycle
Align contract strategy with product adoption
Identify leverage points
Prioritize key contract objectives

Your POV

Looking to hear your best practices with software maintenance contract renewals.

Is your maintenance contract up for renewal at the end of the year?
Do you need help putting a strategy in place?
Have you conducted an apps strategy assessment?
Would you like to break free from your vendor but don’t know what options exist?

Post your comment here or reach me direct at r at altimetergroup dot com or r at softwareinsider dot org.

Tuesday’s Tip: How To Properly Align Team Incentives In Software Contract Negotiations

Published on August 4, 2009 by R "Ray" Wang

In the first step of the original seven simple steps to successfully negotiate software contracts, the key is to have the right team in place. To refresh everyone’s memory from the March 8th, 2004 post the details for Step 1 are:

Step 1: Ensure that the right team is in place

Inputs: Organizational chart and agreement on key roles.

Action items: Determine the key roles needed to conduct the negotiation. Business teams include the COO, Division VP’s. Technology leaders include the CIO, enterprise architecture. Vendor management teams include the procurement experts, legal team, etc.

Deliverables: Responsibilities list for each role.

Having the right team in place is important. However, dozens of readers point out the dire need to not only align incentives but improve transparency. Some examples include views such as:

CIO’s. “While the CIO needs to set the technology direction, we often find two types of CIO’s – the buyer and the implementer. Buyer CIO’s get wined and dined during the process, hob nob at events, get all the attention and perks, then leave for another company to do the same thing. Implementer CIO’s get stuck with making the stuff all work, cost overruns, and 100′s of tradeoffs in promised capabilities and all the blame for failure.” – VP of Business Applications, Fortune 100 Company.
Procurement/vendor management teams. “The only thing that our Procurement VP and her staff seem to care about is the discount % and total savings. Despite our need for a product that costs the same, we see her team favor the products that show her the most savings. Its no wonder why vendors keep jacking up prices to create win-wins for companies like ours where procurement teams have considerable influence.” – CIO, EMEA based Financial Services Firm
Line of business execs. “Often the business side of the house fails to consider the indirect and hidden costs of ownership. Some solutions are sexier but cost 3 to 5 times more to integrate, maintain, and staff up for. These guys forget that we pick up the tab when it fails to work well with other systems” – Enterprise Architect, North American Transportation Company

The bottom line – all incentives in the contract negotiations strategy must align with product adoption strategy

Prior to any contract negotiations, the right team should also take the time to align incentives to the overall business drivers. Form must follow function and how the solution will be used should be paramount. Four key criteria:

Define success criteria. Start by determining what success criteria will be utilized. Some metrics include implementation times, return on investment, savings in total account value (TAV), etc.
Create transparency in objectives. Team members should lay out their incentives and how performance in their management by objectives (MBO’s) will be impacted by different scenarios.
Realign incentives for maximum alignment. Once the objectives have been determined, the team should come back with incentives that reflect performance in short, medium, and long term goals .
Codify and communicate metrics. Final metrics and incentives should be made public to all team members and performance objectively tracked by an independent committee.

Your POV.

Got additional suggestions and best practices? Ready for the big maintenance renewal seasons in Q4? If you need assistance with your SAP, Oracle, Infor, Lawson, Microsoft Dynamics, or other enterprise software contract, send me a private mail. We can assist with a contract negotiations strategy that aligns with your apps adoption strategy. Please post your comments here or send me a private email to rwang0 at gmail dot com or r at softwareinsider dot org.

Tuesday’s Tip: 3 Approaches To Return Shelfware

Published on July 21, 2009 by R "Ray" Wang

Declining demand and diminishing output increase the pressure for enterprises to reduce their software license maintenance costs. As part of a larger enterprise apps strategy, shelfware reduction provides an area for significant cost savings. However, shelfware reduction is often hard to achieve because many vendors impose:

Enterprise wide agreements. These “all you can eat” agreements incentivize customers to buy more than they need at a “good” discount. Yet, the end result is the payment of maintenance on non deployed apps (a.k.a. shelfware”).
Repricing clauses. Many contracts contain language that impose list price recalculations when users choose to return their licenses to the vendor.
Bundled contracts. Contractual language often prevents clients from unbundling their software as needed. In addition, vendors have initiated focused programs to bundle licenses.

The bottom line – apply three shelfware maintenance fee reduction techniques

Craft a win-win strategy based on your product adoption requirements and overall contract negotiations strategy. Three proven techniques in order of improving win-win shelfware reduction scenarios:

Return unused licenses. Vendors agree to take back licenses and proportionately reduce maintenance costs. Customers lose future rights to those licenses.
Park unused licenses. Vendors agree to hold unsued licenses and not charge maintenance. Customers still have rights to the licenses and will pay for maintenance when licenses are deployed
Apply credit to purchase of new licenses. Vendors agree to assign a value to shelfware. Credit on used licenses will be applied to future purchses. Customers lose rights to the original software but gain rights to new software and functionality.

Your POV.

Having issues with returning shelf ware? Which approach have you tried? Ready to share with us your experiences to date? If you need help with your SAP, Oracle, Infor, Lawson, Microsoft Dynamics, or other enterprise software contract, send me a private mail and we can assist with a contract negotiations strategy that aligns with your apps adoption strategy. You can post here or send me a private email to rwang0 at gmail dot com.

Monday’s Musings: Why On-Premise Vendors and SI’s Should Go on the Offense with SaaS

Published on July 13, 2009 by R "Ray" Wang

On-premise vendors still see SaaS as a loss leader due to huge ramp up and punishing revenue recognition rules

When it comes to the topic of SaaS, many on-premise vendors appear to be living in denial, hoping that SaaS fails, and/or creating confusion in the market place. These tactics have merit as a shift to SaaS requires plenty of work with minimal return and a destruction – disruption of the current business model. In conversations with 61 vendors and building off of SaaS evangelist Jeffrey Kaplan’s post (July 2, 2009, Seeking Alpha – “From the Vendor’s Point of View: Why SaaS Sucks”), vendors who have made this transition or have started the investment put in heavy lifting in these activities must:

Re-architect apps
Find balance between configuration and optimization of SaaS platform
Design product road map and rollout strategy
Determine SLA’s
Identify a hosting strategy
Craft pricing and licensing policies
Harmonize SaaS pricing with On-premise and other models
Create go to market strategy
Alleviate channel conflict with partners, resellers, distributors

After all this work to be ready for SaaS deployments, vendors also discover that FASB SOP 97-2 software revenue recognition rules prohibit them from immediately recognizing multi-year contracts. Even worse, subscription revenue can only be recognized on a month-to-month basis – leading to a long road to profitability. In fact, vendors such as Lawson, estimated a 7 to 10 year break even period for a full SaaS model. No wonder Harry Debes was fired up on how SaaS could be a fad in his interview with Victoria Ho at ZD Net last year. In private, most software executives also echo such sentiments and wholeheartedly agree with his comments about the business model challenges.

Yet, SaaS adoption moves beyond the Tipping Point in 2009

However, the confluence of recessionary forces, stalled innovation from many on-premise software vendors, and success of early SaaS pioneers such as SalesForce.com and NetSuite has put Software-as-a-Service into the mainstream. Vendors can no longer resist the move to SaaS without negatively impacting their license sales and customer mind share. Additional facts highlight the shift:

Forrester State of Enterprise Software 2009 survey results confirm significant adoption rates from 2008 to 2009. Of 1000 IT executives and decision-makers, 24% were interested/considering, 11% implemented or planning to expand, and 5% piloting SaaS solutions (see Figure 1).
Clients continue to vote with their budgets despite marketing FUD by many on-premise vendors on the perils of SaaS. Success Factors‘ win at Siemens for 420,000 employees, Workday‘s win at Flextronics for 240,000 employees, and Ultimate Software’s win at P.F. Chiang’s for 30,000 employees reinforces how SaaS is more than CRM and SMB.
Concerns over SaaS have dropped significantly over the past year. Successful deployments mitigate concerns and highlight the attitudinal shift towards acceptance. Major decreases include integration issues (43%), total cost (31%), lack of customization (31%), complicated pricing models (30%), performance (23%), can’t find the specific application (20%), security (17%), and lock in with existing vendor (17%) (see Figure 2).

Figure 1: Users expect to increase SaaS adoption in 2009

Source: Forrester

Figure 2. Concerns over SaaS have dropped significantly over the past year

Source: Forrester

Defensive SaaS strategies by vendors miss the opportunity to take market share.

As customer’s continue to demand SaaS solutions for rapid deployment, pay-as-you-go pricing models, and timely innovation, traditional on-premise vendors without a SaaS offering must now explain, defend, or develop their own SaaS story. Concerns about the impact of SaaS have many vendors in defensive mode. Defensive strategies have included:

Creating counter marketing about SaaS and the viability of the market
Responding with hosting options and financing options
Building SaaS options for a limited set of popular SaaS solutions such as sales force automation (29%), strategic HCM (29%), and customer service and support (27%) (See Figure 3.)

At first glance, mega vendors such as SAP and Oracle have started with the first two points and are evolving to the third. They aim to counter the success of Ariba, SalesForce.com, Success Factors, Taleo, Workday, and Ultimate Software with their own offerings. SAP’s OnDemand for LE release and John Wookey’s ComputerWorld UK interview by Mike Simons, confirms that the strategy will include “CRM on-demand and e-sourcing, with expense management set for a 2010 release.” Wookey’s approach appears to first shore up areas where SAP customers have been defecting and then worrying about what’s next (see Note 1). Meanwhile, discussions with Oracle product teams also hint that a release of 5 to 9 SaaS offerings to complement Oracle Siebel CRM OnDemand offerings could be announced soon. This defensive strategy shores up competitive SaaS solutions such as incentive comp, procurement, and strategic HCM.

Figure 3. Rate of adoption of key SaaS solutions show significant interest in CRM and other areas

Source: Forrester

The bottom line -SaaS gives software vendors and system integrators an opportunity to take market share.

Instead of playing defense, vendors should look at the opportunity to take market share through SaaS. SaaS vendors and their investors have realized they can target any install base and win by providing compelling functionality. Why shouldn’t on-premise vendors bite the bullet and go on the offense? To make this work software vendors would want to take advantage of their partner ecosystems and customers to extend capabilities beyond what’s being delivered in on-premise. Vendors must make an initial investment in a SaaS/PaaS platform, agile development methodologies, and integration technologies to support hybrid deployment options. From there, white spaces in the product road map will provide direction into the future opportunities such as vertical and other pivot points that have not been well served. SAP’s acquisition of Clear Standards for carbon compliance, NetSuite’s acquisition of OpenAir for project based solutions, and Intuit’s acquistion of Entellium for CRM highlights examples of going on the offensive with SaaS. Of equal importance, system integrators can shift the balance of power and deliver new IP via SaaS solutions while reducing their dependency on the mega vendors.

Recommendations: 7 best practices for crafting a SaaS strategy at an on-premise vendor

Imagine you could start from scratch and build a new software company. That’s the question I posed to 61 software executives this year. Most stated they would start with a SaaS deployment option for the scale and the business model. Now what to do if you are an on-premise vendor? Answer – build a separate SaaS software division within an on-premise software company. This could be the next trend among the on-premise vendors for both investment and revenue recognition reasons. What would be a good strategy:

Reuse similar business process parts as the on-premise product

Harmonize the data model and common objects

Build a brand new RIA based UI and UX

Assume that all data sources will be heterogenous

Design the product to run stand alone

Attack white spaces of new growth in a competitor’s install base

Keep a PaaS platform in mind to attract partners and customers to extend the solution

Your POV.

Totally turned off by SaaS? In the midst of a SaaS strategy? Ready to embark on a SaaS strategy? If you need assistance, don’t hesitate to reach out? Please post your point of view here or send me a private email to rwang0 at gmail dot com.

Note 1: The large enterprise (LE) SaaS platform will not come from NetWeaver or SAP’s SME Business by Design (ByD) technology, but come from the acquired Frictionless platform. While this may leave some SAP customers concerned, Wookey and product super stars Kevin Nix and Peter Lim (of Siebel fame) counter by highlighting where SAP components will be reused and highlighting the home base integration advantage.

As also seen in the July 14th, 2009 SandHill.com”Moving to a SaaS Offensive”

Tuesday’s Tip: Do Not Bundle Your Support and Maintenance Contracts!

Published on July 7, 2009 by R "Ray" Wang

In the past 2 weeks, emails from 31 software insider readers highlight a growing and concerning trend with support and maintenance contracts. Vendors concerns about support and maintenance contract retentions has led to new initiatives to consolidate contracts. At first glance, this may appear to be proactive and beneficial to customers. In fact, common rationale provided by the vendor sales reps seem benevolent:

Reduce the time and headaches of managing multiple contracts
Update existing contract provisions
Identify areas of non-compliance.

Keep in mind sales reps have been trained to push these new programs.

The bottom line – users should keep their guards up when vendor sales reps suggest bundling

While the above rationale make sense, bundling often create an all or nothing situation. Basically, it eliminates your options to go with another vendor throughout the 5 phases of the software ownership life cycle (i.e. selection, implementation, utilization, maintenance, and retirement). Convenience of one contract will be offset by 3 scenarios why you should never bundle your support and maintenance contracts:

Lump sum payment. Moving to one support and maintenance contract often means that the annual fees will be paid all at once. If push comes to shove, customers can mitigate this by asking for partial payments or more regular payment plans.
Third party maintenance. Customers seeking to move off of their vendor delivered support and maintenance will find themselves unable to segment out specific products and solutions. Individual contracts by products preserve the option to cancel as needed. In very rare cases, customers have carved out the maintenance for significantly older releases
Replacement strategies. Leaving contracts separate allows for easy replacement of applications. This strategy makes most sense when customers have become a vendor’s customers by acquisition. Leaving contracts separate enables the option to switch solutions, move to a SaaS option, or create more leverage in deals with the vendor.

Be aware of these new efforts to suggest consolidation of contracts. There are very few benefits. Should this be suggested to you, do not hesitate to reach out for advice on strategies to mitigate risk!

Your POV.

In the Enterprise Software Licensee Bill of Rights V2, new rights address this issue. But for now, have you experienced such vendor tactics? Did you manage to segment out your contracts? Do you need assistance with your apps strategy and contract negotiations strategy? Please post here or send me a private email to rwang0 at gmail dot com.