OEM Software Maintenance: Should I Stay or Should I Go? Part II

Today’s guest post is from Torey Guingrich, a Project Manager at Source One Management Services, who focuses on helping global companies drive greater value from their expenditures.

As a strategic sourcing consultant, the very broad category of “software” seems to always be an area in which companies are looking to reduce costs. . But is there an opportunity to substantially reduce maintenance costs if you want to continue utilizing the applications? Are third party maintenance providers an option?

The first step to answering these questions is to properly frame questions with IT to better determine if third party maintenance is a potential solution for your organization. Yesterday we provided you with the important Application Lifecycle questions. Today we address value from support, level of customization, and level of response.

  • Value from Support:
    • How often do we engage with the vendor support? Assuming you are in a stable environment that opens the door for third-party maintenance, consider the support/content you are receiving and utilizing from the software publisher directly.
    • Are we apt to upgrade with every release or do we tend to push off upgrades?/What are the pain points in upgrades and what is the perceived value we see from them? Third party providers provide break/fix support, troubleshoot bugs and typically provide tax/regulatory updates as well as potential support for customization, but you would not be eligible to receive updates and upgrades direct from the OEM. This is an opportunity to discuss with IT your organization’s typical appetite for change, e.g. do they immediately act on update/upgrade opportunities, or do you typically push these out for a few releases? It is not uncommon for OEMs to charge (or try to charge) back maintenance for some period of time when an upgrade is warranted, so you shouldn’t be cutting ties if you have planned upgrades or new version releases in your roadmap (assuming you are upgrading due to perceived value, as opposed to being forced off an older release by the OEM).
  • Level of Customization:
    • What level of customization does the system have and what support is in place for that custom code? When applications are highly customized, standard maintenance from the OEM is very unlikely to support those customizations. Many third party providers do include support for custom code in the cost of annual maintenance which may be an opportunity to alleviate the work of internal resources or other providers you may be utilizing to support customizations. Consider how customized your environment is and the level of effort IT resources (internal or external) spend to support that custom code; question your IT stakeholders on the systems that are most customized and any past issues they may have run into when it comes to customization (or if they already rely on an outsourced model to do so). Highly customization systems typically run into issues when it comes time to upgrade, so if your company has delayed upgrades or prefers to retain the current version because of the level of customization, this again may be an opportunity to look to third party maintenance.
  • Level of Response:
    • How happy are you with the level of support and responsiveness from the vendor? One final area to consider are the service levels/guarantees of your current support model. Third-party maintenance providers tout their strong SLAs and dedicated account management, with many offering 24×7 support and aggressive response and resolution timeframes. While some customers think this alone may be a reason to switch maintenance models, work with IT to try and quantify the frequency with which you engage the current support model and if there is truly a business impact or benefit that could come from stronger or more responsive support.

While third party maintenance providers boast large reductions in cost (many market a 40-50% decrease in annual maintenance cost), Procurement needs to work with IT to define if these providers can be used strategically given the considerations above. Considering compressed IT budgets and heavy reliance on ERP vendors, it may be high time to explore the options in the market, have the conversation with your IT leadership, and challenge third party providers to help you determine if they are a good fit given your current environment. At the very least, this option can be used as a leverage position with some of the software giants out there to negotiate maintenance percentage or mitigate increases to maintenance structures.

So now you need to decide, Should I Stay or Should I Go?

OEM Software Maintenance: Should I Stay or Should I Go? Part I

Today’s guest post is from Torey Guingrich, a Project Manager at Source One Management Services, who focuses on helping global companies drive greater value from their expenditures.

As a strategic sourcing consultant, the very broad category of “software” seems to always be an area in which companies are looking to reduce costs. The spend categorized as software is usually compromised of some net new licenses purchases, perhaps annual subscription based licensing, but almost always has a large portion of spend that is actually ongoing maintenance and support for previously purchased licensing. But is there an opportunity to substantially reduce maintenance costs if you want to continue utilizing the applications?

While third party maintenance providers are expanding their ground for many hardware and software solutions, one of the more prominent areas of expansion has been in managing annual support costs associated with ERP systems where the cost of maintenance can be a staggering, and ever-increasing, amount. While there are some conflicting opinions on the future of ERP third party maintenance given the ongoing legal battles in recent years, there is a strong case to be made that third party maintenance as a concept will not being going away anytime soon. While Procurement professionals may be enticed by the opportunity to slash a software budget, does it make sense for your company to cut to ties with native maintenance services from the software publisher and how should you go about evaluating this option for your company and/or discussing it with the stakeholders who manage those relationships?
The areas below will help Procurement frame questions and discussions with IT to better determine if third party maintenance is a potential solution for your organization:

Application Lifecycle:

  • What are the current owned licenses and associated maintenance costs/structures? Gaining visibility into the current software and maintenance environment is key to determining the scale of software maintenance costs as compared to other areas of spend within the IT budget.
  • What is the roadmap for the current software system in use? Once you have isolated the primary solutions that drive maintenance costs, it is important to set the stage for measuring stability in the environment. If a particular system is planned to be replaced or retired in the next few years, it may be a great opportunity to explore third party support for a limited time on the system being decommissioned before the new system is put in place.
  • How long has the solution been in place?/Have you recently launched or upgraded the solution in questions?/How stable is the environment? Immature and unstable environments tend to rely more heavily on OEM updates, upgrades, patches, and other content than those that have been in place for many years. Stability of the current environment is a key component in evaluating opportunities for third party maintenance as any change may be disruptive without the comfort of patches and regular updates from the OEM.
  • Is there a desire to keep the current system beyond the period the OEM offers support or are we being forced to upgrade where we would rather not? If you discover that the environment is very stable with no planned upgrades, you may have the option to actually extend the life of a certain application or release by leveraging third party maintenance where an OEM is no longer offering support.

These necessary questions are just a few of the key questions you need to ask. If the answers to these would allow a third party provider to be considered, the next step is to assess value, customization, and response. We will discuss these issues tomorrow in Part II.

One Hundred and Twenty Years Ago Today

One Hundred and Twenty Years Ago Today J.J. Thomson announced his discovery of the electron at the Royal Institution in London.

Without a good understanding of electrons, which play an essential role in electricity, magnetism, and conductivity (in addition to more fundamental gravitational, electromagnetic, and weak force interactions), we would never have made the advances we made in modern technology. For example, even though, based on the work of Goldstein and Hittorf, Sir William Crookes developed the first cathode ray tube back in the 1870s without knowing what they were, it was electrons that made them work — as determined by J.J. Thomson and colleagues through experiments they conducted in 1896 (based on the work of Lorentz and Schuster).

The visual computing revolution started with the cathode ray tube, and, moreover, as there is no computing without electricity, and no electricity without electrons, without the discovery of electrons, and a good understanding of what they enabled, we wouldn’t be where we are today.

Opposites Attract

A Sourcing and Procurement Love Story.

[S] I’m M.C. Doc on the rap so mic it
[S] Here’s a little story and you’re sure to like it
[S] Swift and sly and I’m playing it cool
[S] With Procurement, ’cause buyers rule!

[S] Oh it seems we never ever agree
[S] You like catalogs
[S] And I like RFPs
[S] I take things serious
[S] And you take ’em light
[S] I analyze daily
[P] And I buy when I like

[P] Back office sayin’
[P] We ain’t gonna last
[P] Cuz I move slowly
[S] Catalogs move fast

[S] I like it quiet
[P] And I love it loud
[B] But when we get together
[B] We both can stand proud

[Chorus:]
[S] I take 2 steps forward
[P] I take 2 steps back
[B] We come together
[B] Cuz opposites attract
[S] And you know — it ain’t fiction
[P] Just a natural fact
[B] We come together
[B] Cuz opposites attract

[P] Who’d a thought we could be partners
[P] I place the orders
[S] And I cut the contracts

[S] I like it neat
[P] And I make a mess
[P] I take it easy
[S] But I get obsessed
[S] I’ve got the budget
[P] And I’m always broke
[P] I don’t like strategy
[S] My eyes on the prize

[B] Things in common
[B] Just ain’t a one
[B] But when we’re working in-sync
[B] It’s nothin’ but black ink

[S] I take 2 steps forward
[P] I take 2 steps back
[B] We come together
[B] Cuz opposites attract
[S] And you know–it ain’t fiction
[P] Just a natural fact
[B] We come together
[B] Cuz opposites attract

[Repeat Chorus]

[B] Oh ain’t it somethin’
[B] How we lasted this long
[B] Both of us
[B] Provin’ everyone wrong
[B] Don’t think we’ll ever
[B] Get our differences patched
[B] Don’t really matter
[B] Cuz we’re perfectly matched

[Repeat Chorus Twice]

[B] Nothing in common, only trust
[P] I’m like a minus …
[S] I’m like a plus
[S] One saving up,
[P] One spending down
[B] But together we’re on common ground

[P] When things go wrong we make corrections
[S] To keep things moving in the right direction
[B] Try to fight it but we’re telling you Jack
[B] Its true — this — Opposites Attract!

… but the unanswered question is, should they?

When Selecting Your Prescriptive, and Future Permissive, Analytics System …

Please remember what Aaron Levenstein, Business Professor at Baruch College, said about statistics:

Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital.

Why? Because a large number of predictive / forecasting / trending algorithms are statistics-based. While good statistics, with good sufficiently-sizeable data sets, can reach a very high, calculable, probability of accuracy a statistically high percentage of the time, if a result is only 95% likely 95% of the time, then the right answer is only obtained 95% of the time (or 19 / twenty times), and the answer is only “right” to within 95%. This means that one time out of twenty, the answer is completely wrong, and may not even be within 1%. It’s not the case that one time out of twenty the prediction is off more than 5%, it’s the case that the prediction is completely wrong.

And if these algorithms are being used to automatically conduct sourcing events and make large scale purchases on behalf of the organization, do you really want something going wrong one in twenty times, especially if an error that one time could end up costing the organization more than it saved the other nineteen times because it was primarily sourcing categories that were increasing with inflation or decreasing according to standard burn rates as demand dropped on outdated product offerings, but one such category was misidentified. If instead of identifying the category as about to be in high-demand, and about to sky-rocket in cost due to the reliance on scarce rare earth metals (that are about to get scarcer as the result of a mine closure), it identified it as low-demand, cost-continually-dropping, over the next year and chose a monthly-spot-buy auction, then costs could increase 10% month over month and a 12M category could, over the cost of a year, could actually cost 21.4M (1M + 1.1M + 1.21M …), almost double! If the savings on the other 19, similarly valued, categories was only 3%, the 5.7M the permissive analytics system saved would be dwarfed by the 9.4M loss! Dwarfed!

That’s why it’s very important to select a system that not only keeps a record of every recommendation and action, but a record of its reasoning that can be reviewed, evaluated, and overruled by a wise and experienced Sourcing professional. And, hopefully, capable of allowing the wise and experienced Sourcing professional to indicate why it was overruled and expand the knowledge model so that one in twenty eventually becomes one in fifty on the road to one in one hundred so that, over time, more and more non-critical buying and automation tasks can be put on the system, leaving the buyer to focus on high-value categories, which will always require true brain power, and not whatever vendors try to pass off as non-existent “artificial intelligence” (as there is no such thing, just very advanced machine-learning based automated reasoning).