So Lawson is the ERP Pioneer for Installed Base Justice? (Not According to the Books)

SAP clients who have recently had to face the fact that SAP "just isn't that into you" with its 30% hike in maintenance fees can, for now, only wonder what would happen if maintenance costs were tiered according to needs, usage, and merit.

Dennis Howlett, who attended (via Internet) Lawson Software's CUE09 reports that "...the company has introduced a tiered set of maintenance charges: bronze, silver and gold. Each has different price components that depend upon what the individual customer wants in terms of support and value."

http://blogs.zdnet.com/Howlett/?p=860

One would think that such a differentiator would be highly touted but further analyst digging revealed a few clouds of dust around what glitters like gold.

From Frank Scavo:

"...with a number of financial analysts in the room, Lawson finds it important to reassure Wall Street that its maintenance revenue stream is not threatened. A couple of us later checked with Lawson's PR group concerning pricing for Lawson's two tiers and found that Silver is priced annually at 22% of software license cost, while Bronze is just a two point discount, at 20%. We were underwhelmed, to say the least."

http://fscavo.blogspot.com/

While it is always difficult to glean apples to apples from these firms' annual reports, Lawson's 2008 report is challenging because of the split between maintenance and consulting. http://snurl.com/gmmo1

All the same, on page 39, we find a report of $336.8M in revenues for 2008 maintenance. On page 41, we find costs of 2008 maintenance of $65.9M. And further down, there it is: Gross margin, maintenance: 80%.

In the restaurant business, food is served at a marginal loss and profit is derived from the wine list. (This is why a waiter grimaces when six guests order salads and bottled water.) It appears that in the enterprise software business, maintenance is the wine list and clients are ordered to drink from it. Yes, at Lawson too.

Certainly Certifiable: SAP SI’s, Not Just Consultants

That hardy perennial “SAP consultant certification” is blooming again but this time in regard to independent consultants as opposed to those in systems integration firms.

http://blogs.zdnet.com/Howlett/?p=761

Below is a link to Jon Reed’s excellent analysis of a recent survey of SAP consultants in this regard:

https://www.sdn.sap.com/irj/scn/weblogs?blog=/pub/wlg/13913

Past certification programs, administered by SAP, have been met with partial success at best and have been unfortunately skewed entirely to SAP technical bones and not at all toward consulting skills.

Since 1995, I have come across a lot of SAP consultants who know the software inside and out but are incapable of holding a conversation with a business person (manager level or user level). These consultants would fly through any SAP certification to date but I wouldn't want them on my implementation team.

More to the point, what problem do we seek to remedy? If it is poor implementation results, I would have to say that consultant performance is only a subset of that problem. The SAP implementation teeter-totter includes two sides:

Systems Integrator:

Adherence to Methods/Practices
Level of SAP Skills
Level of Consulting Skills

Client

Adequate Budget
Realistic/Tangible Goals
Project Ownership

A few years ago, I was involved in deep research of SAP systems integrator performance based upon input from 1,502 clients of the leading SAP systems integrators (the usual suspects and SAP Consulting). Roughly two-thirds of the client respondents were project leadership or delivery team members and the remainder were training, change management, and business stakeholders for projects completed between 2003 and 2006. The results of this research were both varied and compelling. Some of the numbers mumble (it is still hard to determine true client interest in an SI’s industry focus) but other numbers scream in perfect grammar.

Some of the screaming results:

An alarmingly high number of teams fail to adhere to established methods & practices; in essence, business process white-boarding and seat-of-the-pants configuration prevails far too often. (In this instance, even the best consultants may well be wasting client time and dollars).

Very few clients set tangible goals, so projects drift toward go-live, leading to “till’s empty, time’s up, might as well go live”.

Client ownership and participation in implementation project is regularly compromised by faulty knowledge transfer (attributable to both SI’s and clients).

My long-held belief is that systems integrators, not individual consultants, should be held to a certification/ratings fire. To date, they are not. Most of them tend to claim “our clients love us” but it is readily evident that they are not talking to all of their clients.

Well known “rating” systems such as the Magic Quandrant, the Forrester Wave, and others are not sufficiently based upon field input. All are founded upon a very small client sampling mixed with analyst opinion. Further, none of these rating systems cover various aspects of projects or even types of projects (new implementations, upgrades, geographic roll-outs, or optimizations. For example, one key finding in my studies is that Deloitte (240 clients reporting) is chronically challenged by new implementations but shines at all other types of SAP projects. Another finding is that Accenture (276 clients reporting) performs very admirably in large projects but causes considerable grief in small and mid-sized projects.

(FYI, an identical study of leading Oracle systems integrators was also conducted and yielded very similar results.)

I do agree that efforts to improve field performance are a necessity. In that light, I generally welcome ongoing efforts to certify SAP consultants provided:

A suitable third party (separate from the SAP organization) has a hand in such certification.

Certification addresses consulting skills and is not, as we have seen in past efforts, a conglomeration of multiple choice questions relating primarily to technical acumen.

(I will have to give some thought to the latter consideration. Consulting skills address a combination of experience, communication skills, empathy, and the like and as such are not subject to written examination.)

Further, I would like to see some sort of certification process for project managers whose role in any SAP field endeavor is of paramount importance.

All the same, if we are going to visibly improve SAP systems integration field results, I believe that we should be certifying what matters most: the systems integration firms. Maybe Gartner can replace some of the magic in the Magic Quadrant with actual field data or the Forrester Wave can include hundreds of clients hitting that beach.

Investment Analyst Love and Client Satisfaction: How SAP Can Solve the Client Crisis of Confidence (and Still Jack Up Its Support Fees)

Pushback on the SAP Support Costs

The announcement at the 2007 SAPPHIRE in Atlanta, GA that got the biggest ovation was SAP’s message that, in the future, they would not be pushing upgrades based on new functionality. Instead, future upgrades would be less frequent and based almost entirely upon technological breakthroughs.

One year later, SAP raised its annual maintenance fee from 17% of base license costs to 22%, a 30% hike based upon…”that’s what Oracle charges”.

Prior to 2007, nearly every SAP upgrade announcement was keyed by a laundry list of new functionality. But Hasso Plattner’s message “How many ways can you enter an order?” signals that SAP now possesses full-blown do-it-however-you-like business functionality. So what’s in the next upgrades? Technology and something called Enterprise Support, the latter of which has generated close to zero enthusiasm.

http://www.computerworlduk.com/management/it-business/services-sourcing/news/index.cfm?newsid=14158agement/it-business/services-sourcing/news/index.cfm?newsid=14158

Further, if you want all the new stuff, you have to be on version 6.0. More than two thirds of SAP clients are not on this version, so they have to upgrade to, uh, upgrade.

So if you have no need or interest in Enterprise Support, you may just be sitting tight with a less-than-contemporary version and a 22% maintenance fee.

Ray Wang (http://blog.softwareinsider.org/) notes the difference between support and maintenance:

About a decade back it was common to have 2 line items. Support covered help desk requests, bug fixes, and troubleshooting. Meanwhile, maintenance provided access to regulatory updates, tax changes, enhancements and sometimes point releases. Today the bundling of both support and maintenance prevents customers from choosing to keep maintenance without support or vice versa. In new contracts, clients should push for separate line items so they can eventually engage the vendor in deciding what they would like to pay for going forward.

Under these definitions, the support may be worthwhile unless you have your own help desk and a viable center of excellence. The value of maintenance is variable; tax change stuff is probably being handled by Vertex but regulatory changes, many of which are on the horizon, will be useful.

That said, there has been a considerable amount of howling among SAP clients, SAP prospects, and industry analysts, none of which has been adequately addressed by SAP. While most current clients are moving incrementally from 17% to 22%, four of five German and Austrian clients are holding at 17%. No such break is being accorded to U.S.-based clients.

As Dennis Howlett concludes in his recent blog post (Corrupting Consolidation, March 29, 2009) (http://blogs.zdnet.com/Howlett/?p=768):

Denial is a common attribute of those who believe they are unassailable but as Wall Street discovered, no-one is too big to fail except through the complicity of those who let them continue. The applications vendor consolidation of the last five or so years was fine in the good times when the idea of having a single throat to choke seemed sensible. It led to what I believe is a corrupted industry that refuses to give customers relief. We’re living through disruptive economic conditions yet that doesn’t seem to impact the mega vendors’ relentless pursuit of Wall Street approval. That cannot be right. It cannot continue.

To date, SAP is determined that it will continue. Clients will pay 22% maintenance and SAP will bank the profit. Some angry clients will dream of alternatives such as Cloud Computing (was ever an IT concept so aptly named?), some will consider moving (sunk costs be damned) to other vendors (like Oracle with its 22% maintenance?), some will turn to build rather than buy, and some will simply Shut up And Pay (note the acronym). This is not client satisfaction. It is SAP corporate economics 2009-2010.

The Economics of SAP Support

What follows is based upon SAP’s 2008 results.

http://www.sap.com/about/investor/reports/annualreport/2008/pdf/SAP_2008_Annual_Report.pdf

Euro amounts have been uniformly converted to USD at 1.33 to address the U.S. audience.







Not a bad year, despite a 4Q slump.

However, looking at just the support side, before the hike from 17% to 22%, the picture is really bright:






Without these support margins, SAP is running at -2% operating profit.

In 2010, that support revenue will be based on an average rate much higher than 17%. Assuming 5% rise in costs and an average support rate of 20%, this would yield.







Investment analysts love software firms. They love them because software requires no refrigeration, has no (perceived) shelf life, engages zero storage or transfer costs, and includes maintenance fees that defy the imagination. But how much love does SAP need? And how might they balance investment analyst love with a reduction of client rage?

A Client-Vendor Partnership: Tiered Support Rates

SAP has been in business for nearly forty years and regularly touts its dedication to client satisfaction and value. Never in its history has it faced such a revolt from its client base and I believe the core of that revolt is lousy justification for the rate increase aggravated by inconsistent application thereof.

SAP could slip this noose and truly distinguish itself as a viable vendor partner by instituting a client-vendor partnership by which excellent clients (those not tapping the SAP support operating expenses) would be given a break and those who are flat out maintenance hogs will know why they are paying so much. In such an arrangement, clients will have added incentive to improve their operations. If enough of them do so, SAP will have a tangibly lesser maintenance burden and, yes, better client satisfaction.

There are myriad ways to measure a client’s stress on SAP support resources. A thumbnail tier system could include reductions from 22% as follows:

Call Volume/Severity: High = 0%, Medium 1%, Low 2%

Version: 4.6 = 0%, 4.7 .5%, 6.0 = 2%

Solution Manager: None = 0%, Installed = 1%, Complete = 2%

In this simplistic scenario, “great citizen” clients would be paying 16%. “Medium citizens”, such as a client on version 4.7 with a medium level of calls and an installed Solution Manager would be paying 19.5%. Only the truly woeful, of which there are admittedly a boatload, would be paying the full 22%.

Refinements to the scale would include “contribution” activities such as active ASUG participation (how much does client-to-client support relieve the burden on SAP?) and other less measurable factors that still have a positive impact on SAP resource requirements.

Though lacking exact figures as to the current state of the SAP client base, I can extrapolate that the over-all percentage of banked maintenance fees may drop a few points but isn’t that worth it to the SAP ecology? Or this just “the cloud” that I am huffing?

(See, “SAP: Stop Chopping Off the Tallest Heads to Make Everyone Equal”) http://sapsearchlight.blogspot.com/2009/03/sap-stop-chopping-off-tallest-heads-to_25.html