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The Enterprise System Spectator

Monday, October 13, 2008

ERP support costs: the offshore model

Vinnie Mirchandani has a good post on ERP total cost of ownership (TCO), referencing our Computer Economics study on ERP support staffing ratios. Vinnie and I have been corresponding on this subject.

He also points out the role of offshore service providers in ERP support. Although they have been able to demonstrate their ability to deliver some ERP support functions in an offshore model, the cost advantage of offshore resources has been mitigated due to cost escalation.
One way to manage that cost in the last few years had been to use offshore firms. In the run-up to Y2K they showed themselves adept at transitioning knowledge on a number of relatively steady, legacy custom developed apps. They have since extended that capability to ERP support, particularly around SAP and Oracle applications. But with the currency and wage inflation most Indian firms have experienced in the last couple of years, that support cost is re-emerging as an area that deserves significant CIO attention - and, of course analyst and blogger scrutiny.
If the cost-advantage of offshore providers is lessening (and Vinnie is in a position to know), it makes support optimization all the more important.

Our original study on ERP support staffing ratios examined and quantified the primary drivers of support costs--multiple ERP systems, instances, and versions, along with extent of modification and other factors. Simply minimizing salaries or hourly rates will not have as great an effect on support costs as optimizing these drivers. It's a tougher job, but worth doing.

by Frank Scavo, 10/13/2008 08:23:00 AM | permalink | e-mail this!

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Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

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