Companies interested in SAP ERP managed hosting services may have a great relationship with the enterprise resource planning (ERP) giant or a third-party hosting provider, but it's important to remember that a handshake is no substitute for a bulletproof service-level agreement (SLA), according to experts.
SLAs -- legal contracts that spell out exactly what services the software vendor will provide in measurable terms -- offer software buyers more than just peace of mind. Experts say they can actually save customers money when the time comes to renegotiate -- particularly if the vendor came up short at any time on its end of the managed hosting bargain.
"It's important that executives keep [any SLA breaches] documented, because you're going to renegotiate a contract with them every so often," said Cal Braunstein, chairman, CEO and executive director of research with the Robert Frances Group, a Westport, Conn.-based IT consultancy. "You want to be able to bring that [documentation] back and either ask for reduced prices or credits for failures during the last period."
For example, he said, should the ERP system go down and become unusable, that would be considered severity-level one, and buyers should stipulate that in the case of a severity-one event, the vendor will respond and have the problem fixed within 30 minutes.
"On the other hand, if it's a documentation error that is annoying but doesn't hurt anybody, maybe you're willing to wait a few days or until the next release," Braunstein said. "So, with severity types, you have to make sure the SLA addresses the initial response period, the commitment to when they're going to try and get you a patch or final result, as well as an escalation process for each of those."
It's especially important to be very specific about the escalation process. Braunstein said that means listing in the SLA the exact names and phone numbers of personnel to call when trouble arises.
Finally, he said, make sure the SLA stipulates what will happen in the event that the managed hosting team fails to perform to expectations.
"If you document that and you bring it to the table and you put it into the contracts, then the discussion focuses on real, measurable elements that people can talk about," he said.
Like traditional hosted offerings, managed hosting programs let users deploy their SAP ERP application at an off-site facility. But unlike traditional hosted offerings, the vendor handles all of the infrastructure management, including hardware and software configuration management, change management, bug testing and environment optimization.
According to the experts, managed hosting is right for companies that want to outsource a portion of their IT operations and instead focus on core competencies.
"Instead of your having to deal with managing the infrastructure, they do it for you," said Ray Wang, a business applications analyst with Cambridge, Mass.-based Forrester Research Inc. "Some organizations don't want to deal with infrastructure, support desk, and figuring out how to tune the applications."
Don't overpay for that managed hosting SLA
While solid SLAs offer the potential to save money on managed hosting services at renegotiation time, they can also lead to wasted funds if buyers aren't careful.
"I think the most important thing is not to overpay for a service-level agreement that doesn't really meet your usage requirements," Wang said. "A lot of people tend to overbuy what they really need, out of fear or out of insurance."
To avoid overpaying, buyers of managed hosting services should first conduct an internal analysis to come up with -- at the very least -- an estimation of how much uptime is needed, Wang said. Then go into the contract negotiation armed with that information.
"You need to figure out what level of service is appropriate for you," the analyst explained. "You also need to have clauses in the contract that allow you to flex up or flex down as you start realizing what your actual usage is going to be like."
In the end, it comes down to the fact that companies buying managed hosting services need to know themselves before they can get the best deal.
"It's important to find that right balance so you can make changes across the years," Wang said. "Try to get some granularity in [the SLA]."