Victory in court for open source software

My friend Jeff Gordon, an expert on software licensing, alerted me to an important decision that came down today, greatly strengthening the legal basis for open source software licenses. The case, which I've been following for some time, was filed by one Robert Jacobson, who manages an open source project for model railroad enthusiasts, claiming copyright infringement for use of his code in a competing product.

I first wrote about this case in 2008, when a lower court ruled that the license in question was "intentionally broad" and therefore could not be used as the basis for copyright infringement. The U.S. Court of Appeals, however, overruled the lower court and "determined that the terms of the Artistic License are enforceable copyright conditions."

Jeff's post is here, summarizing the latest ruling. He writes that "the end result is a huge win for open source developers as a result of three key findings by the District Court:"

1. Violation of an open source software license constitutes copyright infringement, not just breach of contract (this was first upheld by the Federal Appeals Court in 2008 in this case).
2. Use of open source code without attribution is a violation of the Digital Millennium Copyright Act.
3. These violations entitle the Plaintiff (Jacobson) to monetary damages – which, as they’re based on violations of copyright law, are potentially much more substantial than those which may have been limited by contract law.

Jeff helpfully points to a post on ConsortiumInfo.org that provides much more detail on the ruling. There's also a 2008 article from PC Magazine that gives more background on the facts of the case.

My take
For open source enterprise applications to compete successfully with proprietary software vendors they need investors to fund their efforts. But potential investors need the assurance that the work they fund will be protected from IP theft. This case gives real teeth for enforcement of open source license terms and conditions, which should encourage investors to be more willing to fund such efforts.

Related posts
Court ruling strengthens legal basis for open source

SAP pushes back on Gartner for its ranking of Business Objects

SAP is complaining about Gartner's latest Magic Quadrant, which shows its Business Objects product line ranked way down the line for "ability to execute," behind Oracle, Microsoft, IBM, SAS, and Microstrategy.

From Information Week:

When vendors make it into the top-right "leaders" quadrant of a Gartner Magic Quadrant (MQ) report, they generally don't complain. But SAP isn't thrilled with the "ability to execute" positioning of SAP BusinessObjects in the 2010 Gartner MQ for Business Intelligence Platforms, which was released early this week.

"If you look at the results, it's nonintuitive and nonsensical that we would have less ability to execute, than, for example, Microstrategy," said Franz Aman, SAP's vice president, intelligence platform product marketing.

You can read the entire Magic Quadrant at no charge on Gartner's website.

Magic Quadrants may have their deficiencies
Now, I'm no fan of Gartner's Magic Quadrants, as I've discussed previously. In a nutshell, I don't find MQs useful to buyers for the following reasons:

• Gartner's criteria for evaluation are almost certainly going to be different from the criteria of a specific buyer.

• MQs measure things not of interest to buyers. For example, as a buyer, is "completeness of vision" really one of the two primary criteria in evaluation? How about fit to my functional requirements and industry?
  
  
• MQs often leave out vendor that a specific buyer ought to be considering, as Gartner typically only evaluates vendors above a certain size threshold. The MQs by definition favor established, even legacy, vendors.
  
  
• Vendors use MQs in their sales presentations, if their position is favorable, without noting all the caveats that Gartner includes. First-time buyers, especially in small or midsize companies, may not understand the misuse of MQs in this way.

But this MQ calls out specific problems with SAP
Having said that, I think SAP is asking for trouble in bringing attention in particular to this MQ, because Gartner had specific reasons according to its criteria for ranking SAP as it did in terms of "ability to execute." The reasons? SAP's problems after its acquisition of Business Objects in transitioning support to its own support systems as well as apparent issues with how it is dealing with acquired customers.

As Gartner points out in cautionary notes regarding SAP (emphasis, mine):

For the third year in a row, customer survey data shows that customer support ratings for SAP are lower than for any other vendor in our customer survey. Overall customer experience scores that include support, sales experience and software quality are also at the lowest levels. These results are not unusual in the aftermath of an acquisition. To address these challenges, SAP has put in place programs to address customer issues with support and to address, more broadly, the customer experience.

Gartner points out, however, that SAP is not alone in problems stemming from an acquisition of a BI player. Oracle had some of the same problems with its acquisition of Hyperion, while IBM with its acquisition of Cognos is currently in the same boat as SAP:

Customer turmoil from acquisitions typically follows a life cycle. Initially, there is significant customer concern because of uncertainty about product road maps and commitment. This is followed by the actual execution of the acquisition transition in which support, contracting, pricing, sales territory alignments and products are often changed. This transition process takes time and is not easy on customers. Successful acquisitions at some point complete the transition and reach a new "normal" for customers.While Oracle, which acquired Siebel and Hyperion in 2005 and 2007 respectively, seems to be successfully exiting the back of this curve, as shown by significantly improved Magic Quadrant customer survey results this year over last, weak customer survey results for IBM and SAP suggest that they are still in the throes of this transition. This heightened level of customer dissatisfaction revealed in the customer survey is reflected in these vendors' Ability to Execute positions.

On a side note, it appears that SAP may be attempting to squeeze additional revenues from some of the Business Objects customers that it acquired, leading to client dissatisfaction. This also affected Gartner's ranking of SAP's ability to execute:

Usage terms, not previously defined in older contracts for virtualized deployments, have led to confrontational experiences with SAP for some Business Objects customers. In the middle of 2009, SAP added virtualization definition and a migration path to new contracts. Installed base customers with old contracts could still be subject to additional fees from an audit.

If the issue around SAP's support for Business Objects rings a bell, it's because I covered these problems back in July 2008, when I wrote about SAP's botching up support transition for Business Objects:

The problems are confirmed by postings on the Business Objects Board (not affiliated with Business Objects or SAP). As of this writing, there are seven pages of posts, showing a complete lack of coordination for the migration of support. It sounds like a deadline-date-driven migration for which SAP was not prepared.

This is not the first trouble SAP has had in its relationships with Business Objects customers. Things got so bad earlier this year that Business Objects emailed its customers to apologize for "issues related to poor service including delayed deliveries of the company’s technology."

If SAP is going to make major strategic acquisitions in the future, it is going to have to learn how to make them painless for customers.

Bottom line
The fact that Business Objects customers are still having support problems--two years after they found themselves in SAP's customer base--suggests that SAP should spend less time trying to disprove Gartner's findings and more time getting its own support systems and processes in order.

Related posts
Gartner Mid-Market ERP Magic Quadrant: Should Have Stayed in Retirement
SAP botching up support transition for Business Objects

IT workers seeing meager 1.8% pay raise in 2010

Over at Computer Economics, we've just released our new 2010 IT Salary Report. Bottom line: salaries at the median are increasing but not by much:

During two years of turmoil, the great recession of 2008-2009 brought budget cutting and layoffs across most IT organizations, large and small. But the picture is brightening for IT workers, and our 2010 IT Salary Report finds that IT organizations are budgeting to give the typical IT worker a 1.8% boost in pay.

By historical standards, the 1.8% median pay raise is meager....But in light of still-high unemployment rates, the finding indicates IT executives are responding to the need to retain their best workers and boost damaged morale.

The first chapter goes on to describe pay raises by job classification. Interestingly, workers at the bottom rungs are actually getting higher pay raises than IT executives and managers this year.

The full study provides 2010 total compensation ranges for 70 specific IT job positions in 73 U.S. metropolitan areas. Salary ranges are further broken down by organizational size for each job position within each metropolitan area. To aid in analysis, all salary statistics are provided at the 25th percentile, median, and 75th percentile.

You can download the entire first chapter and a sample of the salary data presented for one of the positions at no charge.

Oracle shuts down free support blog

Dennis Howlett called my attention to a recent action by Oracle to shut down a free support blog run by one of its senior support people. Chris Warticki’s Oracle Support Blog (See Feb. 24 Update at bottom of this post), was hosted by Oracle but completely under the editorial control of its author.

Leaving no doubt that it was Oracle that took action to shut down his blog, Warticki subsequently wrote on Twitter, "Sorry...I'm not allowed to represent Oracle Support through social media."

An Oracle customer in the UK, RNM, provides the background on the usefulness Warticki's support blog was providing:

Chris took an awful lot of flack last year when the new flash-based My Oracle Support was launched. He did his best to soothe tempers, and from what I saw – as a grunt on the ground just using the product – was the only real person from Oracle actually communicating with the Community. Everything else that Oracle put out was empty-worded platitudes and patronisations that did nothing to address people’s real anger and frustration at what was clearly a Challenged implementation.

I remember at the time being impressed that someone from within the organisation was prepared to put their head above the parapet and actually try to work with people experiencing problems. The rest of the communications that I saw from Oracle appeared equivalent to a five-year old putting their fingers in their ears and shouting "na na na na i can’t hear you there’s no problem na na na na"

The final straw however, apparently occurred last week, when Oracle's new support site, "My Oracle Support" went down. As RNM comments,

How can an Oracle blogger post something that acknowledges that My Oracle Support is fallible? That a system that people pay a lot of money to use is not only dog-slow because of an awful flash-interface, but that it's actually UNAVAILABLE?

In addition, his blog's comments section gave a platform to a lot of people raising grievances about Oracle's support platform, and maybe that disturbed the corporate PR monster too. No adverse comments equals no problem, right?

My take
Oracle needs to realize this is not 1999, or even 2005. Customers have ways of communicating about problems, whether Oracle likes it or not. Better to participate in the conversation and have an opportunity to shape it than try to stymie it. In fact, attempts to stifle the dialog only gives such problems more visibility.

For example, I wouldn't have even known about problems with My Oracle Support had Oracle not shut down Warticki's blog. But now, here I am writing about it, and this post will soon go out to my 1,300+ email list, many of which are Oracle customers and partners.

The larger issue, however, is what this says about Oracle's ability to support all the customers that are coming on board due to its acquisition program. Thousands are about to be added from its acquisition of Sun Microsystems. Only last week, Oracle was boasting that, in a few weeks, Sun customers were about to experience the highest level of customer service in the industry, when Oracle migrates them to its own support systems. The problems with My Oracle Support couldn't have come at a worse time.

Oracle isn't the only major enterprise software vendor that's had problems with support. For example, in 2008 I wrote about the huge problems SAP had in transitioning support for Business Objects. Read the many comments triggered by that post: it appears those problems continued for many months. The issue is not that there are problems, it's how the vendor deals with them.

In Oracle's case, it's not helpful to shut down the one voice that is attempting to provide some positive response. It's also not helpful to be charging customers 22% of software license fees for support and also filing lawsuits against those that provide third-party support.

Read Dennis's take on the situation. Chris Kanaracus also reports on problems with Oracle's support site.

Update, Feb. 16: Josh Greenbaum weighs in on the matter, in his post, Oracle Plays with Fire that Burned SAP.

Update, Feb. 19: A source tells me that the Oracle support site, My Oracle Support is/was down again and that Oracle users are none-too-happy. My source says that he's heard quite a few comments regarding "that frickin' Flash interface."

Update, Feb. 24: A comment on this post from RNM alerted me to Oracle's reinstating Warticki's support blog, with its historical posts. In addition, Warticki is now back online with Twitter. However, it appears as if any new postings from Warticki will just point to his writing behind the password-wall on Oracle Communities. Read RNM's post and understand that Oracle has still not figured out how to engage online with customers.

In this respect, with its SAP Developer Network (SDN), SAP appears miles ahead of Oracle.

Update, Mar. 25: Well, just checked and Chris has not updated his support blog for over a month, so he must be spending all his time behind the firewall on My Oracle Support Community. The historical posts are still up on Chris's original blog, however.

Related posts
Oracle slams Rimini Street with lawsuit over third-party maintenance
SAP botching up support transition for Business Objects

Not a good week for SAP

There are more management changes in Waldorf, with SAP announcing more changes to its executive board. But the big disappointment is the resignation of John Schwarz, former CEO of Business Objects, which SAP acquired in 2007.

Why is he leaving? Most likely because he didn't get the CEO job, which went to Bill McDermott, head of the field operations, and Jim Hagemann Snabe, head of product development, who will now share the top job.

The loss of Schwarz is a body blow to SAP for at least three reasons:

• First, Schwarz was slated to run product management for SAP which is in desperate need of strengthening. Confusion over the role of SAP's new Business ByDesign is just one example.
  
• Second, as the former head of Business Objects, his resignation has to be a discouragement for the top Business Objects people, who SAP needs to keep, as business intelligence is one of the few bright spots for new sales in SAP’s portfolio right now.
  
• Finally, Schwarz was a test case for whether an outsider could survive in the top ranks of SAP management. His departure has to be seen as a failure for SAP to accommodate someone without a long tenure within SAP at that level.

Dennis Moore has a good write-up on these latest management changes at SAP.

Update: Forrester's Paul Hamerman thinks SAP needs to follow through on its intent to "changing its meandering direction." He writes, "Failure to do so will result in a loss in market value and eventual acquisition."

Related posts
SAP top management changes: impact on maintenance fees?

SAP top management changes: impact on maintenance fees?

SAP pulled a surprise change in its leadership team over the weekend, with Léo Apotheker out as CEO and replaced by Bill McDermott, head of the field operations, and Jim Hagemann Snabe, head of product development, who will now share the top job. At the same time, SAP elevated Vishal Sika, chief technology officer (CTO) to the SAP Executive Board.

Analyts and bloggers have been buzzing about the news for several reasons, not least of which is the fact that SAP announced the switch in a press release over the weekend, following up with a somewhat terse conference call this morning by co-founder and chairman Hasso Plattner.

Joab Jackson and Chris Kanaracus have an excellent write up at Computerworld, including some contents from an internal email from Apotheker to SAP employees. In it he refers to the results of a recent SAP employee survey, which found a dramatic loss of confidence in senior management, according to a Financial Times report.

In the conference call this morning, Plattner sounded a humble note on SAP's unilateral decision to increase its software maintenance fees, in the midst of a recession. As reported by Computerworld:

He addressed head-on one of the most heated issues in SAP's recent history: Its 2008 decision to move customers to a richer-featured but more expensive Enterprise Support service. The plan rankled users worldwide, particularly those with older, stable systems and little need or desire for additional support.

"I was part of the decision that we had to raise maintenance fees," he said. "That is not something we can put in Léo's shoes. This was done by SAP. We made a mistake and we have to change course here, and regain trust from the customers who were more than upset. Unfortunately, the head of the company takes the blame, whether it was just or not."

Implications for SAP maintenance fees
I normally do not pay a lot of attention to management changes at software companies, as I find them to be more of interest to insiders and financial analysts. But I've been convinced by a couple of my fellow Enterprise Advocates that this switch matters because of what it means to customers.

If the issue of the maintenance price-hike is one of the main issues behind Apotheker's departure, what does it mean for maintenance fees? Last month, SAP appeared to be backing off its decision to unilaterally migrate all customers from Standard Support (typically at 18% of license fees per year) to the more expensive Enterprise Support (at 22%). But a more careful analysis by David Dobrin revealed that SAP's apparent reversal was no reversal at all: in fact, by invoking cost-of-living clauses in many of its customer contracts, SAP might actually be raising fees for Standard Support above 22%!

So, if Plattner is now expressing humility on the maintenance fee issue, does that mean SAP might be backing off its enforcement of cost-of-living increases? One can only hope so. After this morning's conference call, it's hard to imagine SAP's sales force turning around and playing tough guy with cost-of-living increases.

Other voices
Fellow Enterprise Advocate Dennis Howlett, who reads SAP tea leaves more closely than I, has been all over the story. He reports on SAP's need to rebuild trust with customers. At the same time, he feels now is the time for SAP to beef up its technology with some targeted acquisitions of firms such as Software AG and TIBCO.



Vinnie Mirchandani views the leadership change at SAP as not addressing the real issue of the total cost of ownership for SAP and its ecosystem partners. He writes:, "Bill McDermott and Jim Snabe, the new co-CEOs are good solid, likable executives – but they represent more of the same."

Finally, for those interested in SAP "inside baseball," former SAP executive Helmut Gumbel has a good post.

Update, Feb 9: Bob Evans has a very good piece in InformationWeek on SAP's failure to put its customers front and center, including this zinger (emphasis, mine):

I think it helps to paint a picture of a company that is dangerously out of touch with what its customers do and want and need, and with how those customers rate and reward IT vendors in these days where it's essential to do a great deal more with a whole lot less.

Speaking in broad strokes about trust and the need to rebuild it, Plattner said this: "What SAP has to re-establish is that we have trust between all involved parties: the [SAP] Supervisory Board, [SAP] Executive Board, the co-CEOs, the management team, the employees, the works council, the partners, the customers, and the employees working for our customers." Setting aside that bizarre customer/customer-employee split, look at where customers rank in the great chain of being constructed by Plattner: dead last. Almost an afterthought. What good does it do SAP to have gushers of harmonic convergence among its own employees if the company's customers feel alienated, unfairly treated, and unwilling to trust anything SAP says? I just don't get that—again it's a degree of tone-deafness that is hard to fathom.

Read the whole thing.

Update, Feb. 10: Bob Evans has another excellent piece in InformationWeek: An Open Letter To SAP Chairman Hasso Plattner.

Related posts
Flash: SAP backs down on 22% maintenance fees
SAP postpones its maintenance fee price hike
Enterprise software: who wants to be the low-cost leader?
Attacking and defending software vendor maintenance fees
SAP and third-party maintenance: good for me but not for thee
SAP maintenance fees: where is the value?
Mad as hell: backlash brewing against SAP maintenance fee hike

Oracle slams Rimini Street with lawsuit over third-party maintenance

Chris Kanaracus at Computerworld alerted me, via email, to the news that Oracle filed has filed a lawsuit against Rimini Street, alleging massive theft of Oracle's intellectual property, in connection with Rimini Street's delivery of third-party maintenance services.

Chris was kind enough to send me a PDF of the actual complaint. A quick read reveals allegations similar to those Oracle made in its lawsuit two years ago against SAP in connection with SAP's now-discontinued TomorrowNow operation. For example, "massive theft of Oracle's software and related support materials through an illegal business model." I won't repeat them here. Read Chris's reporting for a summary of the lawsuit.

As I wrote in response to Chris, I'm not a lawyer and cannot comment on the legal aspects of this case. But I do suspect it will have a chilling effect on others that are contemplating the delivery of third-party maintenance services, at least for now.

Having said that, however, I am told that Rimini Street has had top notch legal advisors from the beginning, and I expect that they've prepared for this contingency, both in terms of their internal procedures and their legal standing to do what they do. I do not expect them to roll over.

A risk to Oracle
In fact, there may be a silver lining in this case for those of us who want to see a viable third-party maintenance industry. That is, this case is going to bring increased legal scrutiny of Oracle and other major software providers in terms of how they lock in customers to their maintenance and support programs. Oracle runs a risk in filing this lawsuit. If Oracle does not prevail against Rimini Street, the case will strongly establish the legal basis for the third-party support industry.

I see an analogy in the court rulings that forced IBM to unbundle its software and hardware, creating the IBM-plug compatible mainframe industry in the 1970s, led by third-party hardware providers such as Amdahl, Fijitsu, and Hitachi. The unbundling created competition in the mainframe hardware market, the lack of which had led to inordinate profits in IBM's mainframe business.

Today, can anyone argue that Oracle (and SAP for that matter) earn excessive profits on their maintenance and support contracts? They have a 90% profit margin, by Oracle's own admission. The only reason that Oracle (and SAP) can do this is because there are a lack of alternative support providers. Is this not a case for antitrust action?

As I've written in the past, I don't need to go to my Lexus dealer for routine auto maintenance. There are a whole array of authorized third-party support organizations for the major automobile manufacturers. Why should enterprise software be any different?

I've written many posts in the past on this subject, only a few of which are listed in the Related Posts section below. To find the rest, use the search field on the right to search for "Rimini" or "TomorrowNow."

Updates:
Shane Schick has a very good take on the lawsuit as well, "The vampires vs. Rimini Street."

Helmut Gumbel has a good post, making some of my same arguments, plus some others. Worth reading.

Related posts
No recession for Rimini Street third-party maintenance business
Rimini Street, SAP, and the future of third-party maintenance
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

Flash: SAP backs down on 22% maintenance fees

SAP has finally thrown in the towel on its fight to unilaterally increase maintenance fees from 18% of software license cost to 22%.

According to SAP's press release:

SAP...today announced a new, comprehensive tiered support model that is being offered to customers worldwide. This support offering includes SAP Enterprise Support services and the SAP® Standard Support option and will enable all customers to choose the option that best meets their requirements. Additionally, in response to the financial challenges organizations continue to face, SAP also announced that its 2010 fees for existing SAP Enterprise Support contracts will remain unchanged from 2009 levels.

Translation: We tried and failed to move all customers to Enterprise Support at 22% but the blowback has been so strong that we're giving up.

I would like to think that SAP's decision had something to do with the focus that I and other bloggers, such as Vinnie Mirchandani and Dennis Howlett, along with many other independent voices, brought to this issue. (See related posts, below) But ultimately, it was SAP customers, who finally said enough is enough that tipped the scales.

The move speaks well of SAP, which remains the leading enterprise software provider globally. Nevertheless, the basic question remains: what is the value of SAP's maintenance and support offerings? If moving all customers to 22% was too much, what's to say standard support at 18% is the right number? Again, SAP customers will need to decide.

Other analysts are already weighing in on the announcement and what it means for customers. An early post by Amy Konary is worth reading. Forrester's Paul Hammerman also has good analysis.

Update, 12:30 p.m. Vinnie weighs in, suggesting that if two tiers of pricing is good, three tiers is better, with a bare-bones support option at 8-10%.

Update, Jan. 15. Hmm. David Dobrin takes a little time to run some numbers on SAP's new tiered pricing and finds that the new arrangement may not really be a price reduction, as SAP is now stating it will increase pricing for standard support based on some yet-to-be-determined annual cost of living increase. His conclusion: "Whatever SAP is doing, it is not a U-Turn, and it is not a rescission of the price increase." Read the whole thing.

Update, Jan. 19. Dave Dobrin continues his analysis by looking at the results from SAP's KPI measurement initiative (done with the SAP user group SUGEN) and the fact that there is less there than meets the eye. An excellent piece of work, Dave.

Related posts
SAP postpones its maintenance fee price hike
Enterprise software: who wants to be the low-cost leader?
Attacking and defending software vendor maintenance fees
SAP and third-party maintenance: good for me but not for thee
SAP maintenance fees: where is the value?
SAP under the spotlight for "broken promises"
Mad as hell: backlash brewing against SAP maintenance fee hike

Outlook brightens a bit for 2010 IT spending

Over at Computer Economics, we've just release the findings from our special November survey of IT decision-makers regarding their IT spending and staffing plans for 2010. See the six year trend chart above, with our 2010 projection.

Although the 2% projected rise for 2010 in IT spending at the median of the sample is surely not a barn-burner, it's a welcome improvement from the dismal results for this year, when IT executives at the beginning of the year expected budgets to be flat. As it turns out, that was certainly optimistic, according to our survey.

From the media alert:

After a year of budget cuts, layoffs, and delayed projects, IT executives are looking forward to 2010 as a period of stabilization and rebuilding. According to the Computer Economics fourth-quarter outlook survey, the typical IT organization plans to raise its IT spending on operations by 2.0% in the coming year.

The in-depth survey of 139 U.S. and Canadian IT organizations shows that more than half anticipate increasing IT spending in the year ahead, with the median budget increase projected at 2.0%. The survey indicates budget cutting and layoffs are in the past for most organizations, although hiring and capital spending will continue to be restrained through at least the first half.

As one might expect, the outlook for 2010 appears upbeat only in comparison to an anxiety-filled 2009. The projected 2% rise is operational spending lags behind the 2.5% rise in 2005, during the recovery in IT spending after the previous recession.

The full report, Outlook Brightens for 2010 IT Spending, also provides detail on what specific actions--both positive and negative--IT leaders have been taking in the past three months to increase or cut IT spending levels. Interestingly, while there are plenty of cost-cutting actions still taking place, there are some positive trends as well. For example, over half of our respondents report that they have refreshed/upgraded computer hardware or started a major new project in the past three months. This is a vast improvement over the results of our survey a year ago, when few organizations were taking such actions.

Outlook for enterprise software buyers
Where does this leave buyers of ERP and other types of enterprise software? Although there are signs of an uptick in spending levels, it is still too early for this to be affecting software vendor financial performance. In other words, vendors are likely to still be hungry for new business. So if you are shopping for software, it's still a buyer's market.

In addition, there are signs in our survey that buyers are still negotiating hard on existing vendor contracts. About half of our respondents indicate they have renegotiated a vendor contract in the past three months. Keep in mind, this means all sorts of IT contracts, not just for software. The increased attention on the value (or lack thereof) of vendor maintenance contracts is likely to continue, regardless of whether the IT spending climate improves.

More information

• The full report: Outlook for IT Spending and Staffing in 2010
• The research byte: Outlook Brightens for 2010 IT Spending
• The media alert: Forecast for 2010: IT Operational Budgets to Rise 2%

Revisting Epicor's Shared Benefits program

I wrote about Epicor's Shared Benefits program about a month ago, when it was first announced. The program, in brief, offers customers to get back half of the savings if Epicor delivers its implementation services at less than estimated, and only pay half of Epicor's hourly rates if Epicor exceeds its estimate. In essence, it's sort of a compromise between a time-and-materials project and a fixed-price engagement.

After my initial post, Epicor wanted to brief me more fully on the program, so I agreed to take a phone call this morning from Craig Stephens, Epicor's VP of Consulting Services, who is based in the UK.

Time and Materials vs. Fixed Price
The problems of time-and-material contracts are well-understood, as many ERP prospects have heard the horror stories of projects that run well over budget. Many therefore jump at the chance to have the vendor take on the implementation as a fixed-price contract. In our buyer consulting services at Strativa, we point out, however, that this can often be a mistake, for two reasons.

• Customers often don't realize that with a fixed price contract, every change in scope becomes a change order. Every assumption must be spelled out in the contract. Furthermore, as the inevitable misunderstandings become apparent during the implementation, the project manager often winds up spending more time negotiating change orders than managing the work itself.
  
  
• Secondly, customers don't realize that a fixed-price contract can often cost more than a time-and-materials engagement, as the vendor immediately jacks up the price by 20% or more as a risk premium for doing the project as a fixed price.

Stephens believes that the Shared Benefits program represents a better approach, reducing the risk of a time-and-materials engagement for the customer while avoiding the risk premium required for a fixed price contract. He claims that Epicor does not include a risk premium when quoting these projects, thereby saving the customer money.

The other point that I find attractive with the Shared Benefits program is the alignment of incentives between customer and vendor. With fixed price contracts, Stephens points out, customers are under little restraint in trying to include additional scope within the fixed price. Under Shared Benefits, customers can still try to interpret the implementation plan to include more work, but they will share in the cost if the project exceeds budget.

Resources for Epicor 9 rollouts
While I had him on the phone, I asked Stephens about Epicor's ability to support its push to roll out its new version, Epicor 9, to new and existing customers, especially in light of workforce reductions that Epicor has taken in the past year in its professional services group.

Stephens indicated that headcount is flat from the previous year and that there are adequate consulting resources on board to support Epicor 9 implementations. He also indicated that much of the functionality in Epicor 9 is an upgrade from Epicor's previous Vantage 8 product, though the financial modules are new and different. Hence the major training effort for Epicor's consultants is in the E9 financials.

In response to my question about documentation, Stephens also assured me that the system documentation was all up to date for the new version and in fact sometimes was developed more quickly than the product itself. As this is so different from what I've heard from my own sources, I'd be interested in any feedback readers have on this issue, or any other matter involving Epicor. Leave a comment on this post, or email me privately (my email address is in the right-hand column).

Innovation in services delivery
As I wrote in my earlier post, Epicor should be commended for at least trying to do something about the problems facing organizations generally in contracting for and implementing ERP. Whether Epicor's Shared Benefits program is an answer remains to be seen as the program is just now being rolled out. Stephens says he expects about 40% of Epicor's new contracts to include the Shared Benefits option and it is the "default" option in writing new business. Over the next few months Epicor should get some early results from this program, which hopefully will demonstrate the success of the concept.

Related posts
Epicor's Shared Benefits program: watch for unintended consequences