SAP agreement signals shifts in software industry

SAP has made history in the software industry by becoming the first supplier to agree to meet key performance indicators (KPIs) in its software support...

SAP has made history in the software industry by becoming the first supplier to agree to meet key performance indicators (KPIs) in its software support programme.

The move, which demonstrates the power of SAP's well organised user group community, will make SAP's competitors sit up and take notice.

SAP agreed to introduce mutually agreed KPIs, following high level talks with the global federation of SAP user groups, Sugen.

The talks followed an outcry from users over SAP's plans to raise its support costs. SAP plans to increase its prices from 17% to 18.6% in January. But further increases towards 22% will now depend on SAP meeting the KPIs.

Although the agreement is unique in the industry, Ray Wang, vice-president for enterprise applications and strategies at Forrester Research, says it is unlikely to result in immediate changes to the way other software suppliers deliver support.

"Maintenance will continue to be the battleground as suppliers rely on this stream to meet shareholder expectations," he says.

Key performance indicators

Alan Bowling, chairman of the SAP UK & Ireland User Group, says the challenge facing SAP and IT departments is how to define KPIs and then how to measure them.

However, once in place, the KPIs should enable users to see if they are getting value from software support programmes.

"SAP users should be in a position to know whether they are receiving value," he says. "Others may not be so clear."

Vuk Trifkovic, senior analyst at Datamonitor, says it is too early to predict if SAP's move will set a trend, but he says it is a clear indication of a change brewing in the software industry.

"Software suppliers in general are listening much more closely to their customers," he says.

One of the biggest drivers, according to Trifkovic, is increased competition from software-as-a-service suppliers.

Businesses are also looking for greater value from suppliers as they reassess IT spend in more challenging economic times.

"Enterprises now have more choice," says Trifkovic, and this means big suppliers have to work more closely with end-users.

The result, he says, is that software supplies are working more closely with customers, collaborating and demonstrating value.

Software-as-service is also driving another important trend. Businesses are setting increasingly rigid KPIs for suppliers in outsourcing agreements.

This is already happening with software services, says Joost Berden, senior consultant at Metri.

Analysts say it remains to be seen whether SAP's initiative is successful and they point out that not all user groups are as well organised as SAP's.

They suggest that in the absence of any guarantees, businesses should be looking for other ways to get more value from software support.


Forrester Research is advocating the introduction of competition as a way of driving down costs to end-users.

The firm's Ray Wang says the introduction of third-party support for software from big suppliers could reduce maintenance costs by half.

Similar cost reductions were achieved in the software and hardware markets when they were opened to greater competition, he says.

Read more on Business applications