In the past, the operational methods and fee structures of SaaS tools were fairly straightforward. If a person needed a license, they did or didn’t get one. Companies paid for licenses, and procurement would negotiate on price.
Now, all that has significantly changed.
Organizations are regularly paying out millions a year — more than the initial ERP costs. Solution providers have learned to get creative with contract terms like end user licenses. Oracle (and other enterprise level solutions) have entirely changed how they define an end user, and you are probably not surprised to learn it is typically any person or machine that is in the environment.
Oracle has essentially started charging more for their Java subscription than their ERP.
These new strategies reflects a shift from market penetration to a private equity approach, prioritizing revenue maximization over market share. Instead of straightforward price hikes, this shift has seen costs escalate dramatically, sometimes surpassing even the expenses of the initial ERP system.
Procurement teams find themselves in a complex landscape where traditional strategies may no longer suffice. The evolving nature of contracts requires proactive measures and foresight.
Mitigation efforts, while challenging, are essential. Regular supplier performance reviews and market monitoring are vital to staying informed and prepared for potential changes. Having secondary suppliers in place is no longer just a contingency plan but a strategic imperative. Being 2-3 years ahead of contract expirations allows room for manoeuvrability and minimizes disruption.
If you haven’t taken a look to see when your contracts are ending and started to position alternatives, you may already be in trouble.
Situations such as these illustrate how procurement's role has evolved beyond mere cost savings. It now encompasses strategic supplier management, risk mitigation, and business continuity planning. Procurement must hedge against contract terms and watch for external change — likely no one else inside an organization is.
Being embedded within the business, rather than operating as a separate entity, facilitates collaboration and alignment with organizational goals. It's unrealistic to expect you will continue to drive cost savings over and over again from the same technology solutions. Instead, procurement must look for opportunity to enhance organizational goals, and mitigate looming risk.
By prioritizing supplier diversification, staying abreast of industry trends, and fostering collaboration within the organization, procurement can effectively navigate the complexities of long-term technology contracts.
Maintaining long-term technology contracts goes beyond the initial investment. It requires proactive planning, strategic supplier management, and a willingness to adapt to evolving market dynamics. By embracing these principles, procurement teams can effectively navigate the challenges and opportunities presented by today's rapidly changing technology landscape.
