Let the (one-sided) ERP renegotiations begin!

Profile picture for user brianssommer By Brian Sommer April 10, 2020
Summary:
Apparently, some ERP vendors aren’t behaving well during this pandemic. Early renegotiation discussions are finding entrenched vendors digging in and being less than helpful. Prepare to get furious when you read this.

negotiating
(via Pixabay)

As discussed previously - Did ERP vendors learn anything after the 'Great Recession' of 2009?, many ERP customers and vendors will need to renegotiate their SaaS subscriptions. We highlighted how:

  • Some industries (e.g., hotels, restaurants, professional sports, etc.) have been savaged due to COVID-19 and will soon need to pay annual SaaS subscriptions. Their firms may not be able to meet these SaaS financial commitments or other financial commitments they have to employees, landlords, etc.
  • Some industries are experiencing temporary but traumatic reductions in their business and must conserve any and all cash on hand.
  • Some firms have seen their business models and work locations turned upside down.

Our article strongly suggested that IT leaders:

  • Review their software agreements to understand their rights, obligations and options, if any.
  • Contact their software vendors and get in line to renegotiate their agreements.

We also reminded readers that software vendors didn’t show a lot of mercy during the last great recession in 2009. It looks like that caution was very real and spot-on.

Today, I received an email from sourcing experts Net(Net) and it referenced their outstanding post on this matter. Net(Net) reports that:

In most cases, suppliers have agreed to extend payment terms (sometimes with a small finance fee).  In some cases, suppliers have agreed to suspend the performance of some contracts (generally with some catch-up-and-more provisions).  In cases where clients are looking to rescind obligations, suppliers have generally been uncooperative, but in rare cases, have made some “heads I win, tails you lose” proffers, and this is where clients need to be extremely careful.

Please read this Net(Net) piece in its entirety as the renegotiation “offers” they are seeing are reminiscent of the bad acts we saw a little over a decade ago.  Clearly, some ERP vendors didn’t learn anything from the last recession!

When a vendor offers a paltry 10% drop in subscription charges for a portion of 2020 only to jack up costs by a considerably larger percentage in 2021 and beyond, these (charge a wee bit less for now but pillage us later) deals are no real deal. Worse, if that’s the best can offer in the worst pandemic any of us have ever seen, what could ever motivate these vendors to be ‘partners’? For companies whose revenues are off 25%, 50%, 75% or 100%, what’s a 10% short-term discount worth? Nothing!

I’m often confronted with software buyers who want to buy one vendor’s solutions because of their technical fit while being fully aware of what a terrible business partner this vendor can be. And still they do these deals! If ever there was a time to tell your ERP vendor to go pound sand, this is it folks. Seek true love elsewhere!

My prior counsel to ERP users still stands:

  • Get out those contracts
  • Look for a Force Majeure clause and ask your in-house counsel if it applies to this pandemic
  • Understand your firm’s exposure to this pandemic and the IT contracts you have
  • Get proactive on this now!

To that, I would also add:

  • Publicly share with other CIOs the kinds of offers you are seeing from all vendors – transparency in these matters helps your (re-)negotiating position
  • Continue to publish which SaaS firms are being partners and which ones are predators – only the bright disinfecting light of public disclosure will shame these malcontents into doing the right thing.

Translations

Don’t expect much from some vendors. When one industry analyst asked a major ERP firm this question on an analyst call over a week ago, we finally got this non-responsive, response:

____ERP Vendor___ has historically seen sales surge during and immediately after major market downturns, as organizations recognize that investing in best-in-class ____  capabilities is more essential than ever…... ____ERP Vendor’s __ role in helping customer organizations to weather this kind of storm have been well documented. To show solidarity with our customers, we have introduced no-charge ___ (names of small web apps)___.

Translation: We never cut our fees even if your firm is in a fight for its life and the planet is in the grip of a pandemic.  We hope that short-term access to a couple of small apps will make you forget about that big subscription fee that’s coming due.

When they responded to my related question, they again deflected with:

____ERP Vendor____ maintenance spend as a cloud product are market competitive and reducing our rates would require us to reduce service and staffing levels at a time when they are needed most. While some companies force their customers to deploy expensive and disruptive upgrades every few years, ___ERP Vendor___  has allowed our ERP customers to operate older software for decades.

Translation: We won’t cut prices even in the short-term. What we will do is let you amass more technical debt re: older versions of our product.

Responses like this are tone-deaf and contrary to what a partnership is supposed to be about.

My take

Sometimes clients ask why I delineate between white-hat wearing good guy ERP vendors and black-hat bad guys. It is in challenging times like these that the true colors of the vendors’ culture, management, business practices, etc. come to surface. I implore CIOs everywhere to pay attention to this behavior today and don’t ever forget it. Bad actors should never be rewarded with your firm’s hard-earned capital.

To ERP vendors, call us if you have something of use for your customers. Don’t bother us with sob stories about why Wall Street or RevRec (revenue recognition) rules won’t let you reduce costs. We’ve heard all that BS before. What we want to hear are REAL solutions that solve REAL customer problems.  Call us if you have them, and we’ll tell the world about it. We’d be happy to help ERP firms that help not hinder their customers.