April 16, 2020 | Jim Nollsch | CFO
As the COVID-19 pandemic maintains its grip, finance leaders are pressured to look at every option available to reduce costs and better manage cash flow. Third-party support (3PS) for Oracle or SAP enterprise software is a proven service that can help strengthen the balance sheet. But, applying 3PS is a matter of timing.
Oracle and SAP support contracts typically renew on an annual basis, and it is important to know the precise renewal date and cancellation requirements. Not canceling before this deadline means that you’ve missed the opportunity to reduce support fees by about 60% for yet another year. Additionally, since Oracle and SAP usually require 100% of annual support fees upfront, you will be sending more cash out the door sooner than you have to.
In Part 1 of this blog series, I referenced a five–step process designed to drive an efficient investigation of, and a swift transition to, 3PS should you decide it’s right for you. These steps, which are detailed in our Quick Start Guide, include:
- How to get up to speed on the basics of 3PS
- How to determine if a switch to 3PS is possible prior to your next auto-renewal deadline
- How to build the business case for 3PS
- How to efficiently gather the exact information the vendor needs for scoping and pricing
- How to engage the right internal stakeholders to drive a team decision
In this blog, I will provide a high-level overview of the first three steps of the five-step process, along with my own perspective on each.
1. Getting up to speed on 3PS
Third-party Oracle and SAP support has been available for more than 15 years, but it may never be more relevant than today. As a replacement alternative for software publisher-provided support, 3PS has evolved to fill gaps not addressed by Oracle or SAP – for a fraction of the cost. Thousands of global organizations – small to large, representing any industry segment – have already made the switch to 3PS.
Even before the onslaught of COVID-19, Gartner projected that the 3PS market would triple in size to more than $1 billion by 2023. Whether organizations are more apt to apply 3PS during the pandemic remains to be seen.
Gartner analysts that follow 3PS provide their customers with a fair and balanced take on the market. A wealth of content is also available to help you and your team get up to speed on 3PS. The Quick Start Guide includes links to informative documents and comparison tables.
My Perspective: 3PS is not for every company, but every company should give it a hard look – especially in a cost-conscious time like this.
2. Determine if you have time to switch to 3PS this year
If you’re looking for quick cost savings or to improve near-term cash flow, third-party support is a possible solution. However, there are only certain times in each year when it is possible to make the switch.
Often times, support renewal contracts align with software publisher fiscal year-end dates (May 31 for Oracle and December 31 for SAP). This is not always the case, which is why it’s important to read the support agreements closely. It’s also mandatory to understand cancellation notice obligations, i.e., SAP requires a 90-day cancellation notice with strict instructions to follow.
Aside from cancellation deadlines, time is required to evaluate, scope, price, contract, and onboard to 3PS. The Quick Start Guide provides a proven evaluation to onboarding timeline to help you confirm whether you have time to make a switch before your next auto-renewal deadline. The process takes weeks, not months, if the process is followed.
My Perspective: Organizations that deploy a well–planned process for evaluation through onboarding will more immediately arrive at bottom-line savings and better service.
3. How to build the 3PS business case
Replacing software publisher support with third-party software support is a big decision. The business case typically hinges on the intersection of:
- Service quality – 3PS gets the nod regarding responsiveness, comprehensiveness, and issue resolution effectiveness. 3PS assigns each customer a named team of experts that are accessible 24/7/365 that work with both standard and custom code. Now that the publishers are suspending support for many legacy versions and seldom provide meaningful updates, their customers are finding it harder to justify the high fees.
- Cost – 3PS provides an immediate cost reduction of about 60% and version-level support is available for as long as the customer desires. 3PS has become a favored solution among the CFO community.
- Planned software roadmap – Plenty of organizations are steadfastly aligned to the Oracle or SAP road and have stayed current through thick and thin. Their likely next move is to adopt cloud replacement offerings in a timely manner. For those in this camp, I would not recommend 3PS. However, for those who are current and want to sustain what they now run until cloud offerings become more mature, 3PS is a popular alternative.
- Risk appetite – Although 3PS has been successfully adopted by thousands of organizations across the world, some organizations have to get comfortable with risk mitigation. Oracle and SAP do a good job of creating risk and doubt about 3PS but it’s largely unfounded. We can take you through the areas of concern others have raised. Sometimes companies just prefer to stick with the known.
My Perspective: You can’t get fired for sticking with Oracle or SAP, but you can lose a considerable amount of money that you could re-purpose to more urgent needs. It can also reduce the first payment of the first year by 90% – which gives you more cash flow flexibility.
When I speak with IT executives and other CFOs, I emphasize just how much time is of the essence. Oracle and SAP support contracts are built to be difficult to change or cancel, and a focus on the three steps above will bring you better results, faster as you consider whether third-party support is the right solution for your specific needs and product set.
Reach out and contact us to begin an exploration of your particular needs.