This week AMR Research produced a note on negotiating with SAP. They focused on SAP because the company is doing very well despite AMR's view of the sector being weak. This idea of the Enterprise Applications (EA) sector (ERP, CRM, SCM, etc.) being generally weak does not resonate with my current experience. I am seeing a significant number of non-SAP (mostly Oracle) ERP implementations in the local market, although Oracle has a historically strong footing in these parts. I think part of the sector weakness right now may be caused by Oracle's continuing, and possibly Quixotic, designs on acquiring PeopleSoft as well some uncertainty among current JD Edwards customer caused by PeopleSoft's acquisition of JDE.
Getting back to the issue of enterprise software negotiation, it is important to recognize that incumbent package vendors have some significant advantages when they come to the negotiating table (beyond the obvious issues of frequently negotiating EA deals and having a more intimate understanding of their licensing models). Enterprise applications are expensive to implement and relatively painful to change, especially if moving to a new packaged application that would possibly need to be customized or involve substantial process change or retraining. This creates enormous switching costs, a software vendor's most significant advantage. Vendor lock-in is even more significant now as companies are further hesitant to switch because of their recent efforts in process control and documentation activities driven by Sarbanes-Oxley compliance initiatives. Does anyone really want to go through that right now?
Now, of course single-sourcing isn't all bad. The common architectural platform of a full-line vendor such as Oracle 11i or SAP R/3 (and to a lesser extent Peoplesoft) means easy integration among a wide variety of applications. Integrating disparate packaged applications proves to be a challenge (or at least surprisingly costly) for many organizations. This is the sort of thing that seems like it should be easy until you really get into the nuts and bolts of it.
However, the price paid for this ease of integration is the possible need to compromise on functionality in certain application areas. In this case, my typical advice (and what I have seen work well) is to select the suite that best meets the broad requirements and then implement custom solutions in those areas where the suite vendor doesn't have a module or where the module does not meet a defined threshold of fit for the company. This is a larger topic and one I will explore more deeply in a future post.
Now, almost all the major IT research firms (AMR, Gartner, Giga, etc.) offer consulting services to help negotiate with vendors. If your company is already a client of one of these firms, it's worth reading their vendor-specific advice. If you're not a client, or you just want a negotiating primer, here is a quick rundown of generic strategies you should consider the next time you need to negotiate with your EA vendor.


