Baquirin, Rey Benjamin M.

ITP.1123 TTHS 10:20-11:45

March 1, 2014

News Analysis: New SAP Customers Face Maintenance Hike SAP/Systems Applications and Products in Data Processing is among the mostpreferred ERP/Enterprise Resource Planning systems available in the market today.

An Introduction to ERP Systems What exactly are ERP systems? ERP systems are software systems that focus on consolidating information between various areas of a business to facilitate easy access, sharing, and manipulation of the said information. Basically, ERP systems make it possible for all departments or functional areas of a business to access and use information in real-time. These systems also allow user-dependent configurations to help optimize their performance according to the clients unique specifications. Various vendors cater to the market demand of ERP Systems nowadays. Some of these vendors target small to medium businesses, and some target global businesses. The most notable vendors of ERP are Oracle, Microsoft, and SAP.

All about SAP ERP The SAP ERP system is the most used Enterprise System in the world today. Developed in Mannheim, Germany in 1972 by SAP AG, it has evolved into the most vied-for ERP system by globally competitive businesses. The SAP ERP is an integrated software solution that assimilates all major business functions and processes of an organization. Probably its most promising feature is that it lets buyers or users adapt to the SAP system and configure it according to their needs, albeit of course, still following SAP standards. As a 3-tier client-server enterprise system, the SAP ERP system allows quick and reliable access and sharing of information by having a presentation layer or the Graphical User Interface (GUI) itself on the forefront, and several application servers connected to one database management system on the back-end. Think of the GUI as the homepage of a website includes all available options for you to navigate the option or issue a command, this command is sent to the then gets the information you need from the database company and displays it back in the GUI. you frequently visit. It system. Once you select an application servers, which management system of your

The SAP ERP, as of the version R/3 offers the following business modules: Material Management (MM), Production Planning (PP), Sales and Distribution (SD), Financial (FI) and Controlling (CO) Accounting, Human Capital Management (HCM), Warehouse Management (WM), Enterprise Asset Management (EAM), and Customer Service (CS).

It is worth mentioning though that although they are the most commonly used or bought by global businesses, these arent the only modules available in the SAP ERP system. The image below shows the extensive array of modules or programs SAP ERP offers.

SAP Maintenance Services Referring to the image above, you can implement a lot of modules into your system as you see fit. However, the SAP ERP system configuration and back-end is complex in nature and implementing SAP ERP into your business requires you to employ the services of an SAP consultant to make sure that the system is configured correctly to your specifications. In addition, regular maintenance ascertains that you get the most out of the system by keeping you updated on any patches or debugs that SAP might release. However, regular SAP Maintenance entails that you agree to the standard fee that SAP offers upon buying the system (20% of the specific license costs). In retrospect, the more modules you install, the higher your maintenance fee will be. It also means that if you opted not to go with SAPs Enterprise Support, youd still need to hire regular maintenance of your system from a third party company.

The Controversy: New SAP Customers Face Maintenance Hike On February 4, 2013, Ray Wang published an article entitled News Analysis: New SAP Customers Face Maintenance Hike. In the article, the author reported that SAP plans to increase the Support Maintenance Fees they charge to new customers by 5.5%. This price hike is applicable only to new businesses that purchased their SAP ERP systems after July 15, 2013. Throughout the article, the author also shared his views on the controversy. stated that if you would look at the issue closely, SAP seems to have

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increased their support maintenance fees continuously over the years starting from 2009. Quoting the author, SAPs tried hard to justify the price increase by offering message handling, remote services, SAP Solution Manager Enterprise Edition, and access to SAP Service Marketplace as additional value added benefits. Unfortunately, most customers find Solution Manager to be a mile wide and an inch deep, the remote services to be minorly useful, and the SAP Service Marketplace to be immature at best. The result customers are not getting much value for the price increase. He also provided a graphical representation of how SAPs maintenance costs seem to increase over the years. The image below supports his statements. It represents the increase in SAP Enterprise Solutions price. (NOTE: SAP Enterprise Solution is only a part of SAPs overall maintenance service package).

To further look into the controversy, lets take a look at it at a local, national, and professional level.

The Controversys Local and National Impact SAP ERPs maintenance fee hike has little impact on a local or regional scale. Although SAP ERP can cater to small (1-999 employees) and medium-sized (1000 and above employees) businesses, it is optimally used in global enterprises. Furthermore, the price of having an SAP ERP system integrated into a business is rather expensive. It costs approximately 250,000 GBP or 2,000,000 PHP to integrate an ERP system to a business. This price tag is more than what most small to medium businesses can afford in Baguio City or Northern Luzon. At a National level though, the increase in SAP ERPs maintenance fees can impact two of the companies implementing and servicing SAP ERP licenses, services, and products in the Philippines: Accenture Philippines and Fujitsu Philippines (specifically the subsidiary Fujitsu Enterprise Solutions). These companies are among the few SAP experts in the Asia Pacific region and both are recognized to be long-term partners of SAP AG (SAP Germany). Accenture Philippines and Fujitsu Philippines provide SAP services and products to interested businesses. They are third-party companies affiliated with SAP. Therefore, the SAP ERP maintenance price hike that affects SAP customers who

bought the system on or after July 15, 2013 has a significant impact on the two companies as they provide the main bulk of SAP services in the country.

Specifically, the SAP ERP maintenance price hike can dissuade the companies prospecting customers once they learn about it, affecting sales and services statistics, leading to the loss of sales leads for Fujitsu and Accenture. Also, these two companies may experience an increase in customer calls/queries regarding the SAP ERP maintenance price hike, which can distract the companies focus on their core processes.

Nevertheless, it is also possible that the SAP ERP maintenance fee price hike can boost Accenture and Fujitsus consultancy services as SAP customers who discontinue their system maintenance through SAP Philippines will find it compulsory to turn to third part companies for maintenance leading them to Accenture and Fujitsu.

The Controversys Professional Impact The profession of ERP Consulting focuses mainly on implementing, upgrading, or providing support services to ERP systems integrated to various businesses. As stated in the introductory part of this paper, automation of business processes for real-time access of information is the main concern of an ERP system and SAP is among its most globally competitive vendors. The controversy of SAP ERPs maintenance fee price hike can impact the ERP consulting profession positively or negatively. There are a lot of varied opinions about the controversys professional impact on ERP consulting, although

most agree that it affects the profession adversely. Here are some views on the issue: The article author, Ray Wangs point of view indicates that the professional impact of the controversy is negative as the price hike and its continuous increase may lead to customers being charged high rates for a service that, in terms of development and benefits, is not parallel to price increases. To support this statement here is the authors exact words: SAPs made it very difficult for cost effective and pro-customer vendors to exhibit and build functionality thats competitive to Solution Manager. The strong arm tactics could mean customers pay more for an inferior product. Similarly, Duncan Jones, an ERP Consultant for Forrester Research, stated in his blog that Sourcing Professionals and CIOs/Chief Information Officers should be concerned about the controversy. He wrote: Presumably SAP believes that the price elasticity of demand is sufficiently low for this to be net revenue positive. In other words, SAP hopes that customers are so dependent on its products that they will accept this increase. However, there comes at a time when CIOs are desperate to cut maintenance and operating costs in order to free up budget for vital new initiatives. Based on Mr. Jones perspective, the controversy also has a negative effect on the ERP Consulting profession. He emphasizes that SAPs move to make their customers dependent on SAPs services may turn out to be ineffective as instead of paying the increased maintenance fees; companies would rather use the intended funds to budget innovations. Even the prestigious publication The Wall Street Journal reported on the issue and concluded that the impact of the SAP ERP maintenance price hike on the Consulting profession is negative. Clint Boulton published an article on February 15, 2013 in the WSJ gathering the views of esteemed SAP ERP consultants about the SAP ERP Maintenance price hike. All of the analysts blasted the price increase including the aforementioned analyst from Forrester, Duncan Jones, plus other recognized consultants in the profession like Vinnie Mirchandani and Constellation Researchs Frank Scavo.

A Rhetorical Analysis on Duncan Jones Perspective Duncan Jones perspective on the controversy of SAP ERPs increase in maintenance fees focused on the possibility that companies would rather invest their funds on other more promising and new innovations than pay it to SAP for maintenance costs only. He also stated that SAPs hope that its customers will depend on their products alone and just accept the increase is rather premature. Mr. Jones perspective has a lot of ground to cling to. Analyzing his statement concerning SAP customers loyalty to the product, I think he has a point, but would like to emphasize that it can go either way.

The image below shows SAPs market share compared to all available ERP software solutions offered today as posted by Forbes.com in 2012.

As presented in the graph, SAP customers comprise a stunning one-fourth of all ERP software clients in todays enterprises. 25% is a huge part of the whole population considering its up against other major vendors like Oracle, Sage, and Microsoft. Anyway, these statistics may just be SAPs basis on assuming that their customers will accept the maintenance price hike on SAP ERP. After all, if you hold of the ERP clients all over the globe, it says much about the quality of your product and your customers trust in the improvements you propose for the product. However, I agree with Mr. Jones perspective on companies rather investing their funds on new initiatives rather than giving in to SAP ERPs maintenance fee price hike. The main purpose of an enterprise or business is to gain profit, not risk its loss. Therefore, while most of SAP ERPs clients will continue using SAPs products to manage their businesses, they are more inclined to fund other profit-generating projects rather than pay the increased maintenance fee. With the increasing number of third-party companies today who provide maintenance and servicing to SAP products, SAP clients have a lot more options open to them and they need not limit themselves with sticking to SAPs maintenance package.

The Perspective of a Professional SAP ERP Consultant in the Philippines To further gather information on the controversys effects on the national and international scale, the researcher interviewed a professional SAP ERP Consultant working in the Philippines. The researcher was only able to gather the respondents answers through a survey sent via Facebook due to the difference in geographical location. Phone interviews and Skype interviews were out of the picture as well as the respondent keeps a tight work schedule. The researcher sent a Facebook message with an attached survey to Nadi Lasdacan, an SAP ERP Consultant currently working in Fujitsu Enterprise Solutions in Makati. The researcher also asked his views on the controversy. Here is a screenshot of the conversation when he sent the survey back as proof:

His responses can be seen in the next page.

Thank you for taking the time to answer this survey! In February 2013, SAP announced an increase in their Maintenance Fee by 5.5%. This is applicable to all clients who buy SAP ERP from July 2013 onwards. Some consultants argue that the maintenance fee hike is justifiable when compared to the difficulty of maintaining an ERP system while some find it too expensive. Kindly fill-in your answers in the boxes beside the questions. Name: Nadi Lasdacan Question Do you think that the SAP maintenance price hike affects the few businesses that use SAP ERP in the Philippines? How? Company: Fujitsu Enterprise Solutions Position: SAP Consultant

Do you think that the SAP maintenance price hike affects global businesses that use SAP ERP? How?

In your professional opinion, is the SAP Maintenance Price Hike justified or not? Why?

Answer The price hike must've hurt the local companies here in the Philippines. SAP maintenance costs a significant amount in a company's budget. However setting cost aside, SAP has been evidently been useful in every business process that's why local companies still pursue this. In a consultant's point of view, firms that use SAP are always open in any changes, improvements, or additions of SAP features in their business process. As a matter of fact, as far as the budget is still loose, the person who handles for example a project for an SAP development will have the confidence of losing some time for some extra requirements in SAP. With this price hike as what it will obviously end will have these businesses to keep a keen eye when a SAP project is thought to be launched. They will have to see to it that no more is being spent than the requirements set. In addition, they will keep their scope of development as close as possible. No, it will not be this easy and sudden for them but it will be a gradual change in the attitude towards this SAP product. Some (companies) maybe won't pursue SAP ERP in their business most especially small-scale businesses. As long as their business information can be handled by MS Excel or other applications other than SAP, they will do think of SAP later. In terms of global businesses, I think it will not affect much. SAP ERP has been worshipped by big companies. It will be a turn of goal to stop developing their own SAP requirements. However, I can think of a possible effect of this price hike. SAP ERP has been worshipped by big companies. This may probably attract IT/ businessmen/ accountants to seek employment in the SAP office. SAP Maintenance Price Hike is justified. As according to an article in Information Week, SAP Plugs Profit Hole With Support Price Hike (Henschen, 2013), '"there is ongoing expansion of value, for example a continuous flow of innovation through enhancement Packs while SAP Standard Support is covering a broadening solution portfolio." Enhancement packs are SAP's vehicle for adding new features, functions and upgrades to its Business Suite applications.' SAP is a huge business solution that handles a lot of business complexities. People and business change thus the system to support more of the customer requirements. Consultants will know how SAP is trying to extend its support from Telecommunications, to Manufacturing, to Public Defense and Military. Moreover, there is some goal of SAP to reach some significant profit by 2015 and due to some newly acquired companies, it became harder. SAP maintenance does not do much fails for companies and also dealings like huge discounts have always been accepted from customers.

Rest assured that all information you have provided will be used solely for academic purposes. Again, Thank you for your time! Rey Benjamin M. Baquirin BSIT 2 University of the Cordilleras