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Propex slashes SAP maintenance costs with 3PM but that's not all

Den Howlett Profile picture for user gonzodaddy July 27, 2015
Summary:
Propex is in steady state with a comprehensive SAP landscape. How does it benefit from third party maintenance and what should buyers be looking to achieve by switching?

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Geosynthetic reinforcement by Propex

We are intensely interested in customer stories that demonstrate why an industry segment is being disrupted. We also like unusual stories. The case of Propex moving from SAP for maintenance to Rimini Street, then back to SAP and then back again to Rimini Street is interesting across several dimensions.

First of all, we should address the reason the third party maintenance industry exists. Software companies originally sold licenses for their products, and that was pretty much it. It did not take long for them to realize that while this is a very profitable business with gross margins in the 80-85% range, net profit could be quickly eroded by the cost of maintaining the software. This was especially true when there were fresh releases that would inevitably carry a massive bug payload. Over time, software matures, becomes more reliable and eventually stable enough that bug fixes and patches are minimal or, at least, at a much lower level than on initial product shipment.

In the meantime, software companies learned that maintenance could become a highly profitable business, especially if their customers became reliant upon the offering. That is what happened to all the major software companies but in the process, it has often meant the buyer is effectively paying for the software twice over every five or so years.

The maintenance tax has not only become a massive cash cow for suppliers, it has become something of a burden for buyers. In part that is because the service offerings have not matured at the same pace as the software.

Alternatives like Rimini Street, Spinnaker, and CedarCrestone, emerged as alternatives that claim better service at reduced cost. They exist for the reasons outlined above. Since their business model is fundamentally different from the software provider, they can afford to charge far less for maintenance than the software author. This does not come without risks.

When a customer moves off vendor offered maintenance, they lose access to the author's support systems. They also lose often provided auto-update services. This matters in dynamic situations but is much less of a problem when the customer is in 'steady state' or where it does not anticipate significant upheaval for some years to come.

Propex, a 105 year old manufacturing company serving construction, environmental and surface backing industries initially contracted with Rimini Street in 2010. At the time, this was a cost reduction exercise in the wake of the company feeling the chill wind of the global recession. In 2013, Propex returned to SAP because it had a planned expansion of its SAP ECC landscape to include new countries. That made sense because in new implementations that include signficant regulatory components, it is better to sit alongside the software authors who likely have direct experience. That in turn requires support. Cost is always a factor but companies will suck it up to ensure a good outcome  in those circumstances.

In 2014 things changed and once again, Propex was on the hook for finding savings. It returned to Rimini Street. I asked Propex director of IT David Eady to walk me through the SAP landscape and provide color on the decision making process.

We have plenty of experience in running SAP systems. It is a comprehensive landscape that has grown from the days of R/3 4.6 back in 1999 to ECC 6. We've got pretty much everything except project systems, and I'd say it is a pretty stable environment. We are not one of those businesses that is going to be a 'cool kid on the block,' so it made good sense for us to consider alternatives.

The second time around decision almost made itself. We were looking for savings again and having had a good experience with Rimini Street gave us a lot of confidence that we would be making the right decision. We were helped by the fact Cap Gemini [trusted advisor] said we should look at the service.

Cost savings are always attractive, and that is a big part of the Rimini Street value proposition but what about other things that help the decision? For a start, the handover was very fast in enterprise software terms. The deal process started in March and was contracted by May 2014.

Rimini Street made it very easy for us to shift something like 85-90% over to their support services. They were kind enough to take the original contract and amend for some appendices.

OK - so having an easy onboarding ride is great but as the old saw goes: 'the best time of any marriage comes the moment before you put ink on the contract.' So what is it about Rimini Street that gets Propex beyond the allure of the price tag and the onboarding process?

SAP's support doesn't seem to recognize our experience. We have been running this system for many years so when we're asked to do all the things we already know we have done - like check ongoing OSS notes - then we were nearly always in a situation where we have to escalate. We can't get to subject matter experts on the first call. That takes time and wastes money we don't have. Rimini Street has automated and streamlined the support processes we need which in turn means we get 90% of our support calls answered the first time around. It is a wholly different experience.

More to the point, Eady says that it can see how Rimini Street's continued investments benefit support services to customers:

There is no doubt in my mind that Rimini Street is on an upward trajectory. We see that in the strength and depth of the offering.

That's an interesting point from my perspective. I recall when Seth Ravin, CEO Rimini Street first spoke with me some years back, I asked him how he plans to flesh out the business model from the operational side. At the time, I was impressed by the fact his company only hires support professionals with 10 to 15 years' experience. That may seem counterintuitive in a world where youth and creativity are held up as paragons of developmental virtue.

I see it differently. You always need fresh minds to inject a degree of alternative thinking in any business model but in this case, the fundamentals of what it means to support systems that have decades old history require deep experience. That cannot be bought. It has to be acquired through years of experience at the sharp end of running often complex systems. It is something with which I identify closely.

Turning to advice for others, Eady is equally clear:

If you are going to turn your support over to a third party provider, then you must also realize that you are very unlikely to make big changes or upgrade for something like five years. You will lose access to new things the software provider offers. If your system is doing what it is supposed and is stable, then third party maintenance is a good choice.

We often hear that there are radical changes coming and are constantly warned that if your business is not ready for the digital age then you are toast. However, when we look across the enterprise landscape, we see a different picture.It is not as clear cut as many would suggest. Check this graphic from HfS that talks to top of mind CIO topics.

HfS C-Suite priorities

As I have said many times before, debits and credits are not going to change anytime soon. Activities around them might, but the fundamentals of the transactions are not going to be radically transformed. Established methods of administering your workforce and paying them are not going to change as quickly as some would have you believe. Legs and regs always need attention. That is an upkeep job, not a transformation one. This is especially true in long established and relatively stable manufacturing industries where the company is part of a long line supply chain.

That is why while companies like Propex can so easily be cast as laggards they are not. They are continuing to innovate - it just happens to look different to what you might expect. What's more, who would argue with the reality that this particular IT department IS getting more done for less?

Endnote: here is a link to the full case study (PDF) produced by Rimini Street

Disclosure: Both SAP and Rimini Street are premier partners at time of writing.

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