ERP Users Bristle at Upgrade Pressure, Maintenance Costs

IT execs cite growing dissatisfaction, take steps to rein in vendors

Many IT managers are becoming increasingly agitated by the ballooning costs of maintaining packaged business applications and the relentless efforts of software vendors to push them to upgrade their systems.

Five users of ERP software and other business applications said last week that they are being hit by increases in maintenance fees or feeling pressure from vendors to invest in upgrades. Their comments back up survey results released by consulting firm AMR Research Inc., which said in its report that IT managers are becoming "furious" about maintenance costs and upgrade policies.

A sizable number of the 202 survey respondents are starting to act on their anger, according to AMR analyst Jim Shepherd. For example, one-third said they plan to ask vendors to renegotiate their software maintenance contracts. And more than 20% indicated that they're weighing the idea of switching vendors.

Quaker Chemical Corp. in Conshohocken, Pa., is among the dissatisfied users. "For the last three years, we've seen [maintenance and upgrade] price increases and have received no added benefits for this added cost," said CIO Irving Tyler.

Quaker uses applications developed by J.D. Edwards & Co., which was bought last year by PeopleSoft Inc. Tyler said Quaker plans to cut costs by stabilizing its ERP system and relying more on internal staffers to support it—a move that's being aided by the soft economy, which has made it easier to hire high-quality IT workers. Quaker officials are also considering a plan to hold off on installing future software releases unless business needs "change dramatically," he said.

Tyler declined to point a finger at PeopleSoft or any other vendor, nor would he disclose specific details about the software costs the chemical maker is being asked to bear. But, he said, "if the vendor wants more fees for the same service and the same software, then that is not a good deal."

Richard Scheerer, vice president of IT at The Clarks Companies, North America, in Newton Upper Falls, Mass., said some software vendors have tried to force the shoemaker into expensive upgrades without considering either the costs or potential benefits of the projects.

Clarks uses applications like i2 Technologies Inc.'s supply chain management software. But Scheerer also declined to single out any vendors, saying the problem "exists across the board." He added that Clarks is "a smaller shop with several large packages," which limits its ability to handle maintenance and support internally.

Application vendors have been increasing maintenance costs and pushing existing users to do more upgrades to compensate for drop-offs in new software sales during the past few years, Shepherd said. Some survey respondents said they have seen their annual software maintenance costs increase by as much as 15% to 25% over the past five years and have been unable to get vendors to defer fees on unused licenses, he noted.

Shepherd added that nearly one quarter of those surveyed said they were dissatisfied with upgrades they have done because the new features didn't justify the costs. In addition, 22% indicated that they don't plan to do any upgrades in the next six months, a number that Shepherd said should be "chilling" for vendors looking to boost their revenue.

IT managers should purchase end-user licenses in small increments to avoid buying more than they need in the short term, Shepherd recommended. Users also should negotiate harder on maintenance terms than on license costs, he said.

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38% of survey respondents are training internal IT staffers to do technical support work on their applications.35% plan to try to renegotiate their application maintenance contracts.22% are considering switching to more accommodating software vendors.12% plan to stop paying maintenance fees altogether.

BASE: 202 companies using packaged business applications in a variety of industries

Source: AMR Research Inc., Boston

Copyright © 2004 IDG Communications, Inc.

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