Large ERP software vendors are taking a beating in the marketplace. Fortune 1000 companies are slashing their enterprise software budgets, Software as a Service (SaaS) is threatening traditional business models, and indulgent spending on ERP software solutions are a thing of the past. To add insult to injury, there has been a backlash against long-term and high-cost ERP maintenance contracts.
Companies typically spend 15-20% of their software license fees on maintenance and support each year. In fact, according to a recent survey on our web-site, 69% of companies spend at least 15% per year for ERP support and maintenance (view the current ERP poll results). On the other hand, 8% indicate that they are no longer paying support for their systems. Given the 10- to 15-year average lifespan of ERP investments, license costs are often eclipsed by maintenance costs in the long-term. So it’s understandable that companies would want to reduce these costs.
However, there are some risks to consider before canceling your ERP software maintenance contract. Here are three reasons to think carefully before canceling your ERP maintenance contract:
- Inability to upgrade your software. Once you cancel your maintenance contract, your organization will generally be ineligible for automatic upgrades. ERP vendors spend significant sums of money on R&D to improve their software functionality incorporating best practices from their client bases, so there may be opportunity costs and lost business benefits associated with canceling your maintenance.
- Business operations become frozen in time. Because upgrades and support stop when the maintenance contract is canceled, it becomes very unlikely that you will change the system to keep up with the evolution of your organization. As a result, your business needs are likely to become misaligned with the functionality of the software. This misalignment may accelerate the need to completely replace your ERP system, which can be more costly than the savings from reducing annual maintenance.
- Proliferation of workarounds outside the system. Because of the first two reasons, users are more likely to become frustrated with the system and start adopting their own business processes and workarounds outside the ERP system. This will generally decrease user satisfaction with the system and undermine business benefits. Companies generally make significant investments in enterprise software implementations to take steps forward, so regressing backwards can damage your overall return on investment.
However, this is not to say that companies should blindly pay high costs for annual maintenance. These annual contracts are a high-profit area for ERP vendors, so these costs and terms should be negotiated accordingly. In addition, it is important to negotiate service level agreements (SLAs) to hold your ERP vendor accountable for the duration of the contract. Both negotiation tactics should be incorporated into your ERP selection process.
What do you think? Take one of our weekly polls on the topic or view the results regarding ERP software maintenance.