Traditional support and maintenance contracts today generally offer diminished value to CIOs. CIOs have primarily bought support and maintenance contracts for the periodic upgrades they receive and as insurance against product failures. The value of both of these has diminished in most software segments. First, the value of periodic upgrades continues to diminish because the functionality of many products has matured and the incremental functionality packed in new upgrades is on a diminishing curve. The value of frequent upgrades is becoming largely limited to regulatory updates. Exceptions are more in infrastructure software such as security and systems management products and in relatively nascent vertical applications. The immensely disruptive upgrade process itself actually contributes to the perception that stability, not change, is more valuable. Second, the value of support contracts as insurance against problems has diminished. A significant portion of enterprise software has been installed and running for more than five years. Most bugs are discovered during installation or during an upgrade. As these events recede into the past, the value of maintenance as insurance declines. Many large customers have also developed in-house expertise. The likelihood of a catastrophic failure has been reduced. Customers see less value in paying high-priced support fees as insurance against a diminishing risk, a growing part of which they can underwrite themselves with their in-house expertise.
CIOs today are focused less on implementing new products or expanding functionality but more on improving the operations of their existing IT assets. The top two operational priorities for most CIOs today are to make IT systems run cost effectively and reliably. The recently completed 2005 Support Demand Research Study conducted by Tech Strategy Partners and the Service & Support Professionals Association (SSPA) surveyed 200+ IT executives and found that more than 47% of their IT budget is made up of TCSM. Continuous improvement in TCSM is one of the top priorities for CIOs. At the same time, CIOs are also focused on instituting management processes and discipline in the IT function so that IT systems operate as they are supposed to and meet the requirements of business users reliably. The maintenance and support offerings of most vendors do not help CIOs meet either of these priorities in any substantial way. Therefore CIOs sometimes view them as “unjustified” cost line items and see limited return on their spending on this front. In fact, the 2005 Support Demand Research Series found that 42% of the respondents are renegotiating their vendor support and maintenance contracts. Price negotiation is the second most commonly used lever, after standardization, to reduce TCSM.
While this provides some tactical relief to CIOs on the price front, this does not really help CIOs “run their IT systems more cost-efficiently or reliably”. Reducing the price of support and maintenance contracts is not the main lever for reducing TCSM. The majority of the spending on operating and managing an existing system is internal. TSP estimates that even a 15% reduction in payments to vendor will only reduce the total cost of operations for CIOs by 3%. The 2005 Support Demand Research Series found that only 19% of the TCSM is support and maintenance fees paid to vendors; 71% is in internal staff costs and another 10% is attributed to fees paid to third-party consultants.
The internal staff costs are driven primarily by upgrades and migrations, performance management (i.e., monitoring, diagnostics and turning), patch management, and the helpdesk. Upgrades and migration have become a significant effort particularly for enterprise software. They account for almost half of the cost of operating a large enterprise application software installation. Performance management is a large issue for enterprise software as well as hardware. Many customers cite diagnosis and tuning of different systems for optimal performance as a large cost driver. Patches are more frequent and less complex than upgrades, but nonetheless require significant effort from the IT staff to make sure a patch works and does not break anything else and to roll it out to broadly.
What’s required is a new focus of support and maintenance. The value of these contracts needs to shift from access to new functionality and insurance against product failures to services, tools, and best practices required to improve the operational efficiency and effectiveness of IT systems. Customers need to take the lead and influence this shift, much as they did in the mid ‘90s with professional services. Then customers struggled with implementing the functionality that they had purchased. Vendors played a limited role in implementing the software they sold to customers, most of which was done by third-party consultants. As a response to customer demand for greater software vendor accountability in the implementation phase, software vendors increased their role in implementation, re-skilled their professional services organizations, and developed standardized methodologies to guide customers and implementation partners through the process. A similar transformation needs to happen with customer support.
Vendor organizations need to modify the support programs they currently offer. They have to be willing to put their skin in the game and take responsibility for the performance of their systems. Greater emphasis needs to be placed in the support program on managed services such as managing customer-specific help desks, providing customer premise-based and remote systems administration, performance tuning, customizations, etc. Vendors need to employ delivery models that allow them to effectively combine offsite services with onsite services to offer an integrated solution to the customer, regardless of whether the customer wants these services delivered on its premises or from a remote location. In addition, the focus of education and training programs needs to expand beyond product functionality to emphasize operational and management best practices. There is a need to develop new tools and improve existing tools, where necessary, that automate the “labor-rich” operational processes, such as monitoring, diagnostics, patch management, etc. The existing talent in support organizations needs to be re-skilled to provide these services. Customer support needs to absorb capabilities currently resident in field service, internal professional services organizations, and even external service partners. This represents a dramatic shift from the current industry status. Customers can help trigger this shift by changing the way they set maintenance service targets, negotiate maintenance contracts, measure the effectiveness of the delivered service, and reward vendor performance and behavior.
CIOs and their organizations have a lot to gain by encouraging product vendors to transform their support capability and offerings. Those that do not do so and view their relationships with vendors as a zero sum, one-dimensional price negotiation game will miss an opportunity to take their IT cost and quality performance to the next level.
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Rahul Sood , Rahul.sood@techstrategypartners.com is a principal with Redwood City based management consulting firm Tech Strategy Partners. His firm assists enterprise technology vendors on defending and enhancing the value of support and maintenance programs. |
The data for this paper was the result of a joint research project by the Service & Support Professionals Association (SSPA) and Tech Strategy Partners (TSP). That research resulted in the 2005 Support Demand Series available from the SSPA.
