ERP, Cloud, and the Vision of a New Model

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In 2018 the EDUCAUSE Enterprise IT Program is examining the concept of next generation enterprise IT. This blog identifies ERP pricing challenges and proposes a collaborative approach involving technology purchasers and providers to address those challenges.

ERP, Cloud, and the Vision of a New Model

In my work with higher education technology leaders across the country this year, it seems that there are several recurring subjects of concern. Given that much of my focus is on ERP and cloud-based systems, CIOs, CTOs, and directors of technology share their concerns about a few central items that are clearly forming their opinions, their planning directions, and their buying decisions in the ERP/SIS and cloud-systems markets.

New Models Needed for a New Century

Many technology leaders today are concerned that the current terms, conditions, licensing models, and pricing structures in the ERP industry are outdated. They also worry that some of these outdated practices are bleeding into the newer cloud and SaaS marketplace. Institutional leaders understand that a wholesale change in these areas has the potential to disrupt solution providers' traditional business practices and cash-flow processes. But most also believe that there must be a change to make these aspects of ERP contracts more transparent and collaborative, especially in the licensing and pricing structures.

Many institutional leaders believe that it would be a huge undertaking to move from ERP/SIS systems to another solution, and some are convinced that their solution providers know this too and take advantage of it. Although many smaller institutions similarly feel trapped or stretched by their providers, there has recently been a movement in this market segment, with smaller institutions making the change to completely new solutions.

My takeaway from discussions with executives from many of the major ERP vendors is that they understand their customers' concerns. They need guidance to better understand the changing needs in higher education and how best to address them. Most major ERP executives do see the changing landscape of higher education but are chained to an existing staffing and/or financial infrastructure. A few providers seem to be in "protectionist" mode, outwardly resisting all requests for change in their practices and structure. Because many of the ERP providers are publicly held companies, any reduction in scale could be painful. Reductions in staff or operations by the ERP providers could also trigger problems with stock holders and board members. Scale-backs could also be perceived by potential and existing customers as financial failure that could cause further instability in their customer base.

Reducing customer costs is complex for ERP providers, but equally troubling is a slow bleeding of customers to other platforms with newer features and lower maintenance and support costs. Small and midsized institutions are feeling the pressure, but large institutions aren't immune to current and future challenges on this front. As smaller institutions begin to leave solution providers, larger institutions will be expected to pick up the revenue slack. This will almost definitely steepen the curve of annual cost increases for the institutions that remain with that provider. In this particular situation, large and small higher education institutions are definitely in this situation together.

Movement for Industry Change

As a former CIO, I understand the issues better than I care to say. I felt the pinch of slim budgets—as well as budget cuts—and also saw my ERP/SIS licensing costs increasing exponentially. One of my long-time CIO friends shared his experience recently, perfectly summing up a situation that is plaguing many smaller and midsized colleges and universities. He said that he had been a customer of one of the major ERP providers for about 25 years. Over those years, he saw how his provider had gradually increased licensing, support, and maintenance costs. Over the past 10 years, those increases year-to-year had grown to the point that the institution is now having to look at other solutions. In short, the institution was happy with its current solution but was being priced out of it. The institution was in desperate need of a reset on annual support and maintenance costs. My discussions with other CIOs have reflected this situation many times over.

One Possible Solution to a Major Meltdown

After many discussions with institutions and their software providers, I spent some time thinking about solutions to this "rock versus a hard place" situation. With shrinking budgets on the institutional side and financial and infrastructure obligations on the ERP provider side, a win for both sides is difficult.

CIOs need to lower their recurring operational budgets as well as their overhead costs (facilities, staff, utilities, infrastructure). ERP providers need to maintain their cash flow as well as show revenue and investment growth.

I propose that a possible bridge in this process could be a "cloud-migration reset" plan that would include moving an existing customer to the cloud, making adjustments to current maintenance costs, and flattening the cost-escalation curve for the term of the agreement. This plan might include:

  • Move a customer to a cloud operation with a fair and transparent upfront cost, as calculated from the currently contracted support and maintenance pricing (at a cost much less than a new ERP implementation/move).
  • Provide a la carte pricing for value-added services in the cloud.
  • "Reset" the cost of the institution's annual support and maintenance to a lower calculated level and flatten the cost-increase curve for the life of the contract.
  • Include additional services for disaster recovery and business continuity in the contract negotiations.

The institution would move to the cloud, with a lower recurring cost over the life of the contract. The ERP provider would get an infusion of up-front investment cash plus a boost in its cloud offerings' economy of scale, lowering the costs of moving other customers to the cloud. The provider would have better customer retention by giving long-time customers a reason to stay with their solution and could realize a positive ROI.

Strength in Numbers

Increasingly, institutions are looking for new ways to collaborate and work as a group to make change. Much of my time over the past four years has been to bring CIOs, CFOs, chief privacy officers, and functional directors together to discuss change and form a national discussion on the challenges we all face in higher education technology. These technology and financial leaders have been consistent in their concerns over their administrative systems and services in the face of challenging budget times.

Technology leaders from private and public higher education institutions are coming together to discuss their challenges and possible solutions in enterprise systems. They are hungry to engage ERP/SIS providers to start a collaborative dialogue to address industry-wide issues. My experience with most of the major ERP providers and their top executives has been largely positive. ERP providers' interest in engaging their customers on a new level will be clearly shown soon in their responses to a recent ERP RFP created jointly by E&I Cooperative Services and the Higher Education Systems & Services (HESS) Consortium, due for award in June 2018.

One thing is clear: Change is coming. Institutions and solution providers are going to have to make some difficult decisions about their operations if a new sustainable model is to be found. I'm hopeful that there are ways to meet the challenges at hand in this industry, so crucial to higher education operations. In talking with both sides of the conversation, I am optimistic that the future can be bright if we can all work together to find new common ground and transparency in the higher education ERP/SIS market.

Keith Fowlkes is Vice President for Technology Contracts with E&I Cooperative Services.

© 2018 Keith Fowlkes. The text of this work is licensed under a Creative Commons BY-NC-ND 4.0 International License.