Plugging Revenue Leaks from the ERP Gap: A Revenue Opportunity for Application Producers

Big “IF” #1: Tracking Constantly Changing Software Licenses and Entitlements?

You need to accurately know what software a customer is entitled to use and access. Many producers believe that their ERP system accurately tracks who owns what. There’s a simple reason why that may not be true. ERP systems were built to handle static, physical assets, not today’s ever-changing, self-served software licenses.

Big “IF” #2: Managing Post-Order Transactions?

For software, the majority of transactions occur after the initial order (i.e. transfers, re-hosts, returns, downgrades, upgrades, updates, converted trials and more). How, and if, you capture these changes could be the cause of revenue leaks with renewal quotes, unauthorized product access and more.

By taking a deeper look at these potential gaps and the automation technology available to plug these gaps, application producers have an opportunity to strengthen their revenue. This white paper reviews ERP gaps, associated revenue risks and how “purpose-built entitlement management” technology can plug the gaps.

The ERP Gap ... and the Revenue Risks

The first thing to know—ERP systems were built to handle physical assets, not digital goods. Why is that important? Software is completely different—fluid in nature and always changing.

Most software, license and entitlement changes occur after the sale. In fact, the initial order represents a small percentage of the transactions performed. For example:

  • Client A decides to move licenses between users and facilities
  • Client B returns licenses because of an incorrect order or product no longer needed
  • Client C exchanges its initial purchase for other products
  • Client D updates some, but not all, of its licenses to the newest release

Ripe for Improvement: Quote-to-Cash Operations

“Companies that have transformed Q2C operations realized significant agility and efficiencies, while reporting significant improvements on critical metrics across the transaction lifecycle.”

PwC report: Technology Industry at the Cross-Roads

ERP systems, although highly valuable (for managing financial transactions), were not built to handle these “after the sale” transactions that occur with software. Many application producers end up recording this information in disconnected systems or not at all, which means no central, accurate record of what customers have licensed and are entitled to use and access or the terms of that access. The revenue risks associated with not having accurate information is significant:

  • Inaccurate renewal quotes = lower earnings
  • Customers access software not entitled to = lost revenue
  • Audits based on erroneous information = poor customer relationships
  • Revenue projection difficulties with channel partners = misstated earnings
  • Increased internal costs to research what customers own = higher costs

Let’s look more closely at the ERP gaps that cause these risks.

A Deep Look at the ERP Gap

To shed more light on this disconnect, let’s compare a big printing company and a software company’s use of an ERP to manage their products and assets.

A big printing company needs to track 20-30 printing presses that cost millions. In this situation an ERP meets their need because the company has:

  • Few assets
  • No interdependency needed between assets
  • Changes to those assets has a financial impact
  • Detailed knowledge of assets is not required

For a software company, assets (or entitlements) include multiple software products with the complicating factors of multiple releases, versions, and platforms. Often, relationships and dependencies exist between products. Plus, the customer or channel partner can own the product.

Entitlement Management Systems and the Quote-to-Cash Opportunity

“When business leaders considered the megatrends rocking our world, 86% cited technological advances as the global trend that most transform business … … Whether pursuing new business models, meeting new customer expectations, remaking their operating model, forging new alliances, or tackling talent challenges, technology was an essential part of the strategy.”

Excerpt from Good to Grow, 2014 US CEO Survey

While at first glance it may appear that an ERP can handle these products, a deeper look uncovers key issues:

  • Hundreds or even thousands of assets (entitlements) need to be managed
  • Asset records cannot be linked together, so a new release requires entitlement changes to multiple records
  • Upgrading maintenance customers to the hundreds or thousands of entitlements in a new release can require custom code and could take many man hours
  • Moving an asset from one organization to another requires much time and multiple screens, because the ERP thinks that it’s moving depreciations around (even if the move is within the same company)
  • Custom coding is likely to be required for…
    • Generating licensing keys and/or serial #s
    • Creating fields for meta data about licensing structures
    • Sending emails or files
    • Changing fingerprints or machine identifiers
    • Sharing entitlement information with customers or channel partners

Since software requires frequent updates, changes, and often times new technology, the need for what’s described above can occur 2-3 times a year or more. Since ERP solutions are generally core to the business, they can’t and should not change frequently to be effective.

This all adds up to a fundamental architecture issue in ERP solutions that makes it difficult for them to support the fluid nature of a software business. Certainly, workarounds are possible, but would require significant resources, time and often do not fully close the accuracy gap.

Closing the Gap: Entitlement Management Solutions that Extend Quote-to-Cash to Prospect-to-Support

To solve this challenge, application producers are increasingly turning to:

  • Purpose-built entitlement management systems to create a highly accurate view of the installed base to drive predictable and recurring revenue
  • Extending traditional quote-to-cash processes to prospect-to-support to manage the full software licensing lifecycle

How Purpose-built Entitlement Management Technology Closes the Gap

Entitlement management systems were created to manage all the post-order license, entitlement and fulfillment transactions. Entitlement management systems are generally integrated to share information with ERP, CRM or other backoffice systems. Purpose-built entitlement management solutions:

  • Manage the entire software license lifecycle–fulfill, activate, return, re-host update, upgrade, renew and repair software licenses
  • Manage the licensing activities related to devices including creating, provisioning (and de-provisioning) capacity and capabilities, rebalancing, returns and moving devices
  • Support virtualization and cloud environments–detectand-deny or detect-and-activate products in virtual and cloud environments to protect against accidental cloning
  • Report on software and device licenses–analyze licenses by customer, license status, product and version, expiration dates and more to help you make better decisions

As far as the accuracy that plugs the leaks in renewal quotes, software access, and other key areas, a purposebuilt entitlement management system:

  • Creates and manages tier numbers of customers, users and permissions–the hierarchy of business units within a company can be represented and updated easily
  • Assigns different roles and permissions to users based on the business unit they belong to
  • Handles decentralized purchasing and accurately tracks software entitlements and departmental charge-backs
  • Tracks, reports, and transfers software entitlements between producers and tiers of channel partners and distributor
  • Supports usage-based trust-but-verify software licensing and compliance models so companies can offer enterprise customers pricing based on actual usage (pay-for-use, pay-for-burst, pay-for-overage, etc.)