I've been talking to organizations that heavily rely on packaged enterprise applications (SAP/Oracle/Siebel etc.) and are paying considerable annual maintenance fees (typically between 18% - 22% of the software license price). This means that within 5-6 years time the organization has paid the equivalent of a full software license.
On top of this expense, internal dedicated staff that support the ERP/CRM packages is a considerable expense and, meanwhile, it doesn't look like it's getting any smaller.
Enterprise applications have become what is sometimes called "Applistructures" – a combination of software and infrastructure components bundled together. This advent has an implication on the ERP support staff: it is becoming more diverse, more skills are required, and the packages are more difficult to maintain (one CIO told me that in the "good old days" when a specific model had performance issues they knew exactly what to do, nowadays you can never know if the problem is in the application level, portal server, web server etc. so the maintenance is getting more and more complicated as the packages vendors provide more "SOA" elements).
ERP staffing ratios in Israel
A survey we performed among large Israeli enterprises revealed that it takes 1 ERP professional to support 30-50 users (this is in organizations that are relying quite heavily on ERP for a large percent of their business operations); and it takes 1 ERP professional to support 80-100 ERP users in which ERP is "just another application", or, in other words, not a critical one. This means that ERP departments in organizations are quite large, and are usually above 10 people.
How much does it cost to run ERP after going live?
A general "rule of thumb" stated that the cost of maintaining ERP after going live is 1% of the organizations' revenues! This is a very disturbing figure, especially since most ERP packages are not helping companies grow or transform, they are usually helping companies to "keep the lights on" and continue operating pretty much the same way they did.
So - What can companies do to lower these maintenance costs in post traumatic IT times, such as the one we are most likely facing in 2009 and possibly beyond that?
New application packages maintenance models?
An interesting phenomenon (in the worldwide IT market) lately is the use of 3rd party vendors that are offering software maintenance services (for specific software packages such as Peoplesoft, Siebel etc.), for about 50% of the maintenance costs that are paid to the software provider. In exchange, these companies are offering Help Desk services, updates and fixes (at the application level, not technical level), and also tax and regulations updates. For example, Rimini St., (which also lately announced it will soon support SAP at a time when SAP shops are faced with maintenance fees increase from SAP). Another example which was actually founded by the same founder formerly is (was) TomorrowNow, it was acquired by SAP which was sued by Oracle and recently had to close these operations.
While this is a very interesting model that provides some alternative to CIOs, it is definitely not for everyone. It seems to me that a CIO would have to be quite brave to take on this adventure. Sure, it provides great savings each year and frees up much of the budget to be used for better purposes, but it also means that he doesn't have anyone to talk to if there are serious technical issues that can only be solved in the product technology level. The other big implication is that once a major release is out, and an organization has not paid maintenance fees to the vendor, he would have to buy the package all over again.
We have not seen any vendor try to offer this model in Israel, and I'm not sure that we will. It is not a very widespread trend abroad as well, but is definitely expanding. However, this model shows that there is an interest to decrease "keep the lights on" budgets to make more room for "grow" and even "transform" budgets. I think we are expected to see more models around the area of software maintenance that provide lower TCO in the next years.
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