Many ERP customers, with their installations getting long in the tooth, are considering canceling their vendor maintenance agreements, some of which can run into the millions or tens of millions of dollars. According to a report from Gartner, although the number of customers that have cancelled their ERP vendor’s maintenance agreement is low as a proportion of the vendors’ total installed base (an estimated 5% to 10%), the analyst firm is seeing a steady increase in the number of inquiries from clients who are seriously considering it.

Gartner says canceling can play an important role in “enabling an enterprise to run current mature application releases more cost-effectively, shift funds to business growth initiatives, and position itself flexibly for the best-fit future application platform.” What else is driving this trend?

Need to cut IT spending: The ERP vendor’s maintenance agreement has long been considered a mandatory line item in the IT budget. But with more of the IT budget going to growth and with little to cut elsewhere, “the ERP maintenance budget is in the spotlight for potential reduction,” says Garner.

technical supportLow value-to-cost ratio: Many companies use the services included in their ERP vendor’s maintenance agreements; others use the services very little, or not at all. “Some enterprises intend to remain current on the software by upgrading as new content is released, others find upgrading to be too disruptive or the upgrade content to be of minimal additional value,” says Gartner. As a result, there is not enough value received for the high annual cost of the ERP vendor’s maintenance agreement.

Noncurrent software release: A key one. Some enterprises that have had ERP software deployed for many years have not kept up with the current ERP version, not applying all the patches or upgrades. “In essence, they are operating on a release of the software that is out of date from the software vendor’s perspective,” says Gartner. Result: the business’s ERP system is no longer supported by the vendor. “Enterprises in this situation often find that when they do call the ERP vendor for support for the old release, they are told that they won’t receive help until they update to the current release.”

Is your company a candidate for canceling an ERP vendor’s maintenance agreement? Enterprises large and small must look at the risks, short-term impacts, and long-term effects of canceling their ERP vendor’s maintenance agreement, says Gartner. So what do you stand to lose?

  • The enterprise will no longer receive new vendor-delivered patches or hot fixes.
  • The enterprise will no longer receive vendor-delivered security patches.
  • The enterprise may need a new source of payroll, tax, and regulatory updates.
  • The enterprise will no longer have the right to upgrade to new releases published after maintenance has been cancelled.
  • All other support services (in addition to break/fix and service tickets) will be canceled.

If a business still thinks it would be better off cutting the cord, it must think through all the ramifications and prepare for life after the maintenance agreement. Here’s a partial to-do list from Gartner:

Assess ability to self-support. If the enterprise has the technical expertise in-house and the head count to support the volume of services needed, it can take on the responsibility for application support, says Gartner. “However, at some point, the skills necessary to support the old release will also become ‘old,’ and hiring new people to support the old release may become problematic.”

Prepare for a software license audit. Customers are reporting that software vendor license audits are up across the board, says Gartner. But “software vendors are careful not simply to audit customers who drop their maintenance, as this could be considered retaliatory and anti-competitive, and could therefore pose legal risks,” says Gartner. Still, customers should avoid the potential cost of “truing up” the license by periodically self-auditing.

Develop and follow an ERP strategy and roadmap. Whether the “off maintenance” period is short-term (for example, while the enterprise is in the middle of a technology switch) or long-term, ERP leaders should ensure that the approach to receiving ERP application technical support aligns with their enterprise’s goals for using ERP to support the business as it evolves over time. “Create a strategy for exiting independent maintenance and support as part of the next phase of your long-term ERP strategy, whether that includes migrating to a future release of the incumbent vendor or migrating to a different vendor’s product,” says Gartner.

Develop contingency plans. ERP technical support (other than in the self-support option) will be provided as a service that may be open to competitive bidding, will have SLAs, and could potentially encounter a service quality (or other) issue that creates a need to switch providers. “Develop a contingency plan for switching independent support vendors. Include how to handle code created by one support provider that will be a part of the total ERP solution supported by the new vendor,” says Gartner.

Plan for future software purchases and downloads. “What if the enterprise needs to license more of the software it already owns?” Gartner asks. License agreements are typically separate from maintenance agreements, so the vendors can (and will) sell you more with no maintenance agreement requirements. Says Gartner: “One ERP customer reported that after canceling their ERP vendor’s maintenance agreement, they thought they no longer had access to the vendor’s electronic software delivery capability. They didn’t think they could purchase any new product from the vendor, such as single sign-on, or pay for a subscription to cloud content, because the vendor would not have a mechanism to deliver the purchase. This is a common misperception.”

There are many more details to consider and to incorporate into planning.

Image: Thinkstock

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One response to “Scrapping Your ERP Maintenance Contract”

  1. We’re two years ahead since the publication of this article and the reality has changed somewhat over the last two years. ERP companies are now pushing cloud based ERP accompanied by a new subscription model instead of the older license purchase fees and yearly maintenance fees. The new subscription model is a little more flexible than the old license models and hopefully will contunue to evolve to a proper ‘pay-per-use’ model.

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