ERP software delivered as a service is still a very small percentage of the overall market. Why is that? Regardless of the reasons one thing is clear: most customers are thinking about ERP as a service, but delaying the purchase decision.

There are pros and cons for acquiring your ERP on-premise or as a service. In the end the decision needs to be based on specific needs. Given how frequently business needs change, the need for a flexible model that allows customers to shift between SaaS and on-premise models becomes extremely relevant –Software at Your Service.

Here we examine the benefits and challenges of both SaaS and on-premise delivery models for ERP applications and demystify the alleged tension between them.

Or would you have stuck to what was comfortable, and risk getting relegated to the sidelines in the wake of the communications revolution that was to follow?

I’ve zeroed in on the fax-email dynamic quite intentionally. Just as enterprise email servers and messaging software have relegated fax machines to the sidelines, so too have they begun to be replaced by cloud-based, SaaS enterprise mail, such as those from Microsoft and Google.

Having been a technology writer for the better part of a decade, I see a couple of trends in enterprise-class messaging that I think may be relevant indicators that describe the relationship between on-premise and Cloud ERP.

Two growth areas for Messaging SaaS

There have been two broad groups of organizations that have embraced cloud enterprise mail.

The first group are major companies like GalxoSmithKline, who have found it more cost effective to convert their mail, calendaring, and contacts functions to a subscription service via the cloud with Microsoft Office 365, rather than to maintaining the hardware and software needed to do these in-house.

It also frees up their IT people to focus on more high-impact IT projects, rather than to patch, update, and otherwise manage a global deployment of enterprise mail.

Says Alastair Robertson, VP of Information Workplace at GSK : “Moving to Online Services will enable us to reduce our IT operational costs by roughly 30% of what we’re currently spending. The ability to introduce a variable cost subscription model for these collaborative technologies allows us to more rapidly scale or divest our investment as necessary.”

The second group is made up of small and medium-sized enterprises that could not or did not want to part with the funds and resources needed to set up on-premise enterprise-class messaging.

That all changed with the cloud – in what represents a major evolution for SMBs, enterprise-class messaging became something that even start-ups could count on, along with Internet connectivity, power, and other utilities that are taken for granted in many parts of the world.

Where Cloud Messaging goes, Cloud ERP might follow

The two categories of Cloud Messaging adopters also, somewhat coincidentally, represent two major markets for Cloud ERP. Similar patterns can be discerned here.

Cloud ERP in the Enterprise

For instance, there is the large enterprise that has grown weary of being locked in by a costly ERP vendor with a pricey maintenance package, and where innovation has taken place at a pace somewhat slower than other enterprise solutions. And then there is the growing SME that is availing itself to cost-competitive ERP SaaS for the first time.

At this time, we should acknowledge that it’s not easy for a major company with an existing ERP system to move to a cloud-based one. It’s a challenging decision and process, but with planning and preparation, and the right partner, this is entirely doable.

Cloud ERP software in the SMB market

The SME has fewer constraints. Often, they can be quite eager to embrace the ERP Cloud to optimize for growth, and leave behind the need to juggle spreadsheets.

For these smaller companies new to ERP, SaaS and the ERP Cloud are highly viable and affordable alternatives to on-premise ERP.

In fact, in a survey conducted in 2011 with over 300 SMEs each posting less than $500 million in annual revenue, Aberdeen Research found that 77% of the SMEs interviewed have already implemented an ERP solution.

A significant number of these SMEs reported adopting an ERP solution due to the expectation of strong growth despite the uncertain economy, with almost four in 10 adding that they were doing so due to lower cost options, like the SaaS and the ERP cloud.

Summary

Naturally, the comparison between different SaaS products is not a perfect one, but the parallels between how Cloud Enterprise Messaging has evolved, and how Cloud ERP will evolve, are ones that any business and technology decision maker would do well to heed.

In today’s blog, I wanted to touch on how a made-to-order manufacturer finally decided to commit to moving their ERP to the cloud after a black swan event that has shaken up the organization. This was a tip-off that we received from one of the Cloud ERP vendors that we partner with.

So – how is this manufacturer currently managing the many complex and distributed ways its business is running?

With pen and paper. Seriously. Good old-fashioned pen. And paper.

Could have, should have, gone with SaaS

Here’s the backstory. The manufacturer’s previous on-premise ERP system had been hacked, which disrupted its ability to function and exposed its business to significant risks. To add insult to injury, the hacker or hackers encrypted all of the compromised files and data, effectively locking the manufacturer out of them.

With no other means to continue operations, the company has had to resort to the technologically primitive stopgap measure of taking orders, managing manufacturing, and ensuring fulfillment with paper forms – and lots of legwork, calls, and faxing.

Starting over with SaaS

At the same time, its team has had to rebuild. So they are now reviewing a new SaaS ERP solution because in their minds, not only would this mean less work for their IT people, it would even be more SECURE than their previous on-premise set up.

And while they are planning a cloud ERP system from the ground up, they are also taking the opportunity to load up on a few extras.

On top of the accounting package with BOM, inventory control, OE, Purchase Order and payroll modules, they are also planning for future upgrades such as bar code functionality and serial number allocation to the BOM to minimize errors, as well as a way to create RFQ’s in the purchasing module that would convert the RFQ into a new PO.

Conclusion – Changing Views of Security

Perceptions around security and Cloud ERP and SaaS have come a long way. Four years ago, security perceptions were the number one reason that customers elected not to go to the Cloud. In a 2010 Aberdeen research survey, the desire to control upgrades surpassed security as the number one concern for ERP buyers. As more articles on cloud ERP security are published, customers are overcoming inaccurate perceptions of security. Advice to companies with on-premise servers – perhaps it might not be a bad idea to start planning for a transition to a Cloud ERP solution before a black swan comes a-calling!

If you’re not happy with the service that you receive, take your business elsewhere. That’s pretty much what Amazon CTO Werner Vogels said at an event organized by the company’s Amazon Web Services recently.

His exact words were: “You should keep your providers on their toes every day. If we are not delivering the right quality of services, you should be able to walk away. You, the consumer of these services, should be in full control. That is core to our philosophy.”

That comment created quite a stir in the cloud community. Most people agreed that, philosophically, Vogels was right – nobody wants to be pay big bucks just to be held hostage to a cloud vendor, regardless of whether it was for IaaS, Paas, or SaaS. For that matter, nobody wants to have to pay big bucks to break free, either!

A one-way SaaS ticket?

However, at least one commentator took issue with Vogels. In an article on GigaOm , Barb Darrow pointed out that those who have tightly integrated their SaaS applications, such as with ERP Cloud for instance, with AWS would have a much harder time switching IaaS providers.

Darrow quoted the CMO of VoltDB, Fred Holahan as saying: “Depending on the level at which you’re building software, you might be quite insulated from the details of the underlying infrastructure, but part of the objective of a platform vendor is to provide you with tantalizing services that lock you in.”

While many of the new AWS services do result in more tightly coupled scenarios between AWS and its customer data centers, there are ways to avoid vendor lock-in by planning ahead, both in the Cloud in general, but also in the ERP Cloud in particular.

Planning ahead to keep SaaS portable

Ensuring your organization’s ability to switch providers whenever it makes sense to do so entails a couple of things: planning ahead, and picking a provider that is committed to an open, interoperable framework.

With proper planning, your organization could turn the lights on for its alternative cloud so that it can run in parallel with the legacy provider, and have data written to both databases at the same time. That would allow a smoother transition for when there is a need to do so.

The other thing to consider is to drill down with the service providers of choice, and make sure that they take an open approach and are set up to compete based on the best product, the best service levels, and the best value over the long term, rather than luring you in with sweeteners, but making it painful to leave. This is especially relevant for SaaS applications and the ERP Cloud.

It might be a bit of a pipedream, but perhaps the open service provider that already has that perfect mix of product, service and value might just be able to turn openness and interoperability into a fourth competitive advantage!

SaaS ERP more expensive in Long Run

In the CRN article, Joe Langner, EVP for midmarket and CRM solutions at Sage was quoted “For most resellers, the recurring revenue stream eventually exceeds that up-front payment.” This suggests that for customers, SaaS is a more expensive solution in the long term than purchasing a license.

In a prior ERP Cloud News article we did a cost comparison between on-premise, hosted, and SaaS ERP solutions. This comparison validated the fact that purchasing ERP as SaaS can be more expensive in the long term. The breakeven point between SaaS and a hosted license varies according to the assumptions made regarding the cost of doing upgrades, managing the application, the cost of IT resources, maintenance payments, hardware costs, hosting costs, and several others.

For many mid-market pricing scenarios, the breakeven (point at which SaaS became more expensive) occurred before year 3 when purchasing a license and utilizing an external hosting provider. So, if you are planning to use your ERP system for less than 3 years, then SaaS makes good sense from a pricing perspective. But, most ERP solutions are installed for 7 years to 10 years or even longer.

Justifying the Higher Price

SaaS deployments may cost slightly less in years one and two – so if you have short term cash constraints, then a more expensive long term solution can be justified. But, if your company is not worried about accounting and cash flow issues and plans to use the software for the long term, then you must justify the higher long term cost of a SaaS ERP system.

SaaS versus On-Premise

Justifying SaaS over an on-premise deployment can be quite simple. If you don’t have spare IT resources, servers, OS licenses, and database licenses, then the cost of hiring or contracting with a vendor can be too high. And even if you justify the cost, it’s probably not worth the hassle of developing in-house expertise or taking on the liability of providing 24×7 operations.

SaaS versus Hosted

Hosting differs from SaaS in that customers purchase a software license and maintain responsibility for maintenance payments and software upgrades. Hardware, power, Internet connectivity, monitoring, and other services are outsourced depending on the hosting provider and the service plan. Different cloud hosting services can provide everything from bare bones virtual servers (infrastructure as a service) to a fully monitored and updated operating system (platform as a service).

In this case, the higher price of SaaS can be justified by the fact that server operations, application upgrades, and maintenance payments are included in the price. Think of SaaS pricing as including a “convenience fee” that adds up over the life of the service. A license and hosting arrangement is usually less expensive than SaaS, but the hassle associated with doing upgrades and managing the application should not be underestimated. SaaS vendors specialists in their application and provide a single point of blame if things go wrong (although behind the scenes the SaaS vendors usually outsource the hosting operations to a third party).

Conclusion

Depending on your level of expertise, company needs, and company infrastructure, SaaS may provide value or simply be a more expensive choice. There are situations where you are willing to pay for convenience and there are situations where you want to maintain control or do-it-yourself to save money.

One thing to keep in mind is that your needs, requirements, and expertise may change over time. While making your choice of SaaS or on-premise, keep your long term goals in mind, or select a vendor that allows you to move seamlessly between a SaaS and an on-premise version of their software.

Nothing lasts forever, especially not in the information and communications technology industry. Even those enterprise systems which have delivered sound and dependable service over the course of ten or more years, and which aren’t broken, may yet require replacement. That’s not so much a factor of their inadequacy, but rather an inevitable consequence of progress which renders even the best systems eventually obsolete.

Can I Continue using my Aging ERP System?

The familiar expression of ‘if it ain’t broke, don’t fix it’ doesn’t apply universally. If advantage is not taken of the new capabilities and possibilities which are emerging, your company could become uncompetitive. So, while your old ERP system may be functioning perfectly, it may already be impeding your business performance.

Or, more simply, emerging software models mean the ability to achieve the same – or better – business performance at far lower cost. That means reduced cost of production and quite possibly increased productivity, too.

But what becomes of aging technology and, perhaps more relevant to those saddled with it, what of the users?
That is something we have borne witness to over the course of a quarter of a century. As systems approach end of life, a number of symptoms emerge, apart from there being fewer users and a reduction in the number of new implementations. The average age of people working with the systems increases and it becomes harder to find the necessary skills as individuals update their CVs to secure employment on emerging platforms. Older employees may be less inclined to face the challenges of learning new products, and so remain within the shrinking pool of resources with reduced mobility between companies. Support costs are bound to increase.

Aging Systems – Customer Acquisition Target

Perhaps interestingly, even in the sunset years of a system, a mass exodus of clients doesn’t always manifest; the vendor may instead become a target for acquisition. That’s primarily driven by the value seen in the client base; transition may then be encouraged through neglect of the acquired system.

In such scenarios users should consider some questions to guide strategy: It is worth investigating what a change of ownership communicates. What is the practice of the acquiring company? Has it acquired other products in the past? How has it developed those products? How has it integrated them with its existing stable of products? What has been the experience of customers of the system it acquired? The answers may be telling – and could provide valuable insight into the best way forward.

Pro’s and Con’s of Older ERP Software

Working with a system which is nearing end-of-life isn’t all bad news. There are both positive and negative aspects; the extent to which it is still suitable for business requirements depends on the strategy and requirements of your business.

PROs: On the up side, older systems are often settled and therefore stable; any bugs are ironed out and for those companies that don’t need to change business processes, stability means lower cost of ownership. Support is easier, as users are familiar with the system; maturity also means depth of functionality and also depth of skills in the market (although the persons providing that support may themselves be aging and because of their seniority more expensive).

CONs: The major disadvantage is the inability to take advantage of new ways of working; specifically, concepts like web accessibility, cloud computing, better integration of value chains, and the associated features of software as a service may be out of reach. Difficulty may also result when using new technology in other areas of the business with the ERP system, while compatibility issues may result with new operating systems and other peripheral systems which have faster refresh cycles.

Conclusion – Taking Action

Ultimately, it is as important to examine the reasons for making the decision to remain on older technology, as it is to evaluate the case for moving to new. What should be ascertained is whether or not the current system is inhibiting opportunities, and whether new technology will add value to the company. Will it save costs – and can new technology enable changes to the business which can boost performance? Does the business have requirements that traditional ERP systems do not address? The answers to these fundamental questions should guide the corporate ERP strategy.
 

 

 

About Computer Initiatives
Computer Initiatives is a specialist provider of accounting system solutions, providing support and implementation of ERP software. The recent addition of cloud-based ERP and CRM means that Computer Initiatives can offer a fully web-based solution to address the requirements of clients taking a strategic view of how to deploy systems that enable them to leverage the power of “The Cloud”.

Software as a Service (SaaS) provides an option for businesses to “rent” software. For applications that are easy to install and learn, the rental term is often monthly, while more complex solutions such as accounting and ERP software offer annual rentals.

In this article we take a deeper look at equating SaaS with the term software rental.

Why rent when you can own?

People are taught that it’s good to own things. Most people believe that owning a car, a refrigerator, furniture, televisions, vacation properties, and other tangible assets is less expensive that renting. In some cases this is true, but there are situations where renting can be less expensive (home ownership example in San Francisco).

People and businesses with sufficient cash positions will almost always purchase goods instead of renting them. Long term savings, perceived benefits of ownership, control over rental price increases, and freedom to do what you want with the item are reasons people give for owning.

But renting also provides several advantages. From a short term cash-flow perspective, renting ties up less capital. As a renter, you do not always have the hassle of maintaining the item or the risk that the item becomes defective. Rental items are also less complicated to dispose of. In the case of ERP software, the costs of maintaining the operating environment can be substantial.

Ownership with rental cash flow

Traditional on-premise software is almost always purchased; however, companies looking to maximize access to short term cash can find financing options to convert a one-time purchase into a series of monthly payments. There are many leasing companies such as Navitas that make these arrangements. Leasing can provide similar cash-flows to SaaS, but there are many differences …

Comparing software as a services (SaaS) to rental models

SaaS is more than just a rental. SaaS is a service that includes hardware, software, updates, bandwidth, electricity, redundancy, support, and more. The software component of SaaS is delivered over a distance and updated with new functionality at regular intervals.

Key talking points:

• Location: SaaS involves delivering work over a distance while most rentals involve taking temporary possession of physical goods (furniture, cars, tents, other assets). With ERP software “work” can include creating a financial statement, approving an invoice, and managing inventory.
• Ownership: Like most rentals, SaaS does not allow you to own the infrastructure for doing your work. This is often seen as a negative – but lack of ownership means you don’t have to understand how to maintain and repair the service. SaaS includes software updates, redundancy, up-time, and other complexities wrapped into a service level agreement.
• Maintenance: Typical rental goods (e.g. furniture) are easy to use and maintain. Maintaining ERP software is much more complicated and requires in-house expertise. A rental model that includes software plus the experience to keep it running is appealing to companies without in-house expertise. Without in-house experts, you have to contract with an outsourced IT firm or hire an expensive resource to maintain the system. For these reasons, SaaS can be les expensive in the long term. (see cloud software pricing article in ERP Cloud News)
• Price Control: Ownership allows you to control prices (you pay for it once), but you may encounter unexpected repairs. Renting (and SaaS) eliminate the cost of unexpected repairs, but the price of your service can change during your renewal. Many ERP software vendors raise prices because the switching cost is high. This lock-in has deterred some people from purchasing SaaS.
• Customization: Imagine renting/leasing a car, painting it pink and green polka-dots, and then returning it. SaaS differs from rentals in the sense that some modifications are possible. Since the cost of creating a copy of the software is nearly free, SaaS does not have the strict limits of physical rental goods with regard to customization. However, SaaS solutions are not completely customizable. If you want to change core business logic, accounting logic, or build interfaces to on-premise systems, SaaS can limit your capabilities. If you own the software and have access to source code, then you will have more customization options. Just be careful … too much customization to a complex ERP system can lead to undesirable results.
• Protection from obsolescence: Short term rentals never become obsolete, because you can return the item and rent something new. With ERP software, it’s not so simple. In theory your SaaS vendor keeps making updates so that your software never becomes obsolete. But, if you want to ‘return’ ERP software, then you need to undergo costly training and data migration to a new system. Vendor lock-in that originates from high switching costs is an aspect of ERP SaaS that is not a problem with rentals or simple software.

Conclusion

SaaS has many similarities to a traditional rental arrangement, but comparing SaaS to a pure rental model is not comparing apples to apples. Payment arrangements, maintenance benefits, customization limits, and ownership rules are similar between SaaS and rentals. Differences include the degree of customization (none in rental versus limited in SaaS), protection against obsolescence, ease of disposal, and the services included with the software.

A better SaaS to license comparison would involve comparing a bundle of renting software and contracting with a consultant versus purchasing software and hiring a employee. The software and the person each represent a complete system that can do work. By layering on the idea consultant versus employee, we capture the fact that a consultant is easier to hire (SaaS is easier to install), less work to manage (SaaS doesn’t require maintenance), and more expensive in the long run (SaaS is usually more expensive over multiple years). The consultant/rental model also represents the idea of limited customization because you can modify the consultant’s tasks, but still are limited with what you can do with the software. Finally, the constant represent the idea that you get the services with the software versus the employee who develops the skill to run the software in-house.

Some software packages allow you to use the same software as a rental or license and give you the flexibility to include your own services. In these cases, you can craft a program that meets your financial needs as well as your level of experience.

Resolutions Applied to Business Software

The most popular personal resolutions from the sites above can also be applied to business software. In this article we describe the tools available to help you achieve your business resolutions.

1. Lose Weight, Trim Down

The #1 personal resolution is very applicable to business software. Many ERP deployments suffer from code patches, bulky client software, and customizations that lock businesses in to old technology. Just like personal weight issues, software bloat can cause issues that develop over time. Your business becomes less responsive. Changes to business processes become more difficult. Maintenance of your software becomes more expensive and provides fewer and fewer benefits.

Following through on your resolution

Deploy web-based software to eliminate client software installations and reduce the complexity of maintaining applications on Windows, Linux, handheld devices. Just like losing weight, purchasing a new ERP system is a process that requires a plan and execution. But, the longer you put it off, the more difficult it is to accomplish.

2. Save Money, Stick to a Budget

Another common personal goal is to save money and adhere to a budget. Sticking with a budget is perhaps even more difficult in a business environment because there are many more uncertainties and unknowns. This is especially true if you are using antiquated software that cannot adapt to new business opportunities, split out costs by department/product, or integrate with other systems.

Following through on your resolution

Cloud and web-based accounting software delivers key advantages that will help your financial processes. First, the Cloud delivers real-time data and reports to your home office, remote offices, and business partners. Second, the Cloud is easy to deploy to all people in your organization. By involving everyone, you ensure that processes are not left out and get a clear picture of revenue and expenses throughout your organization. Finally, if you are still using QuickBooks and you suffer from multi-currency issues, lack of a complete audit trail, lack of integration with other systems, or lack of a centralized view of your business, then consider upgrading a more advanced solution in 2012.

3. Get a Better Job

Many individuals pledge to get a better job in the new year. For businesses, outdated software can be a major source of job dissatisfaction. Old software increases complexity and creates manual work for employees. The net result is longer hours, mistakes, blame, and less productivity.

Following through on your resolution

Upgrading to a modern Cloud ERP package can improve your job and your work environment without the hassle of finding a new place to work. Imagine performing your most tedious daily task with a point and click/press from anywhere you happen to be. Tracking sales leads, managing inventory, merging online/offline sales orders, creating accurate financial reports, and getting purchase orders approved are all examples of processes that can go from misery to automation with the right ERP software.

4. Enjoy More Time with Family and Friends

Spending more quality time with family and friends is one personal resolution that is a bit tricky to translate to business. Not many people will pledge to spend more quality time with business associates. However, improving your business life can help you achieve your personal goals.

Following through on your resolution

Installing a cloud solution that provides access from anywhere will help you be productive, even when you are not in the office. Approve an expense report, confirm arrival of a shipment, note a conversation with a sales prospect, and perform other business tasks. Of course, working on your mobile devices while you are ‘spending quality time with family’ should be done at your own risk.

5. Get Organized

In your personal life getting organized involves arranging personal items, cleaning up trash, and getting on top of your to-do list. In business, many of these same tasks apply. Automate your to-do list. Clean up dead inventory, old data, and unimportant tasks. In your personal life, the main obstacle is time and motivation. In business, an old ERP system is often the biggest obstacle to achieving organization. Old ERP software prevents rapid exchange of data, simplified auditing, and process automation.

Following through on your resolution

Take a couple days to define all of your business processes. Then determine essential processes, important processes, and nice-to-have processes. Next, contact your business partner or software vendor and schedule a meeting to discuss process improvement. Determine which essential tasks are being impacted by corrupted data and determine essential and important processes that would benefit from automation. Your business partner or software vendor should be able to give immediate feedback on the viability and ballpark costs associated with automating business operations.

Summary

The New Year should be a time to set business resolutions in addition to personal goals. Making a pledge to get the software you need to run your business better will improve your business. This is especially true if you are running a system that is 5+ years old. Then, once you get your business running better, you will have more time and more money to work on those personal resolutions you’ve been making.

CFO Involvement

Thirty years ago, managers didn’t need to know how to operate a keyboard. There were secretaries to type letters and agreements that formalized phone conversations. Times have changed. In addition to understanding business, today’s managers need to develop a working knowledge of the software tools that are designed to make their job easier. The CFO is not exempt.

Over a quarter (27%) of CFOs say they’ve become more involved in their company’s operations over the past three years, and 15% say specifically that they’ve become more involved in IT according to a recent report by Robert Half Management Resources survey of 1,400 CFOs. There has been plenty of information and hype about cloud computing with a strong shot of technical jargon thrown in.

Cloud Software, IT, and the CFO

Some IT professionals are threatened by the perceived notion that the cloud will make their jobs obsolete. The reality is that IT jobs will change, but will not be eliminated. IT personnel will become more involved in the business and less involved in the day-to-day management of servers and software updates.

Some CFOs are worried that the Cloud limit the control they have over data. As the steward of the organization’s financial well-being, the CFO has the responsibility to understand the current transformation in IT and provide guidance. With a predicted increase in IT spending of 7.1 percent over 2010 (worldwide IT spending is forecast to total $3.67 trillion in 2011) according to Gartner’s 2011 Q2 update, there is a lot at stake.

Just as IT needs to understand more about the business, CFOs and COOs need to understand more about software options available to them. Getting smart about the cloud is becoming easier with a proliferation of objective articles and white papers. Some ERP Cloud News articles discuss ERP cost comparisons, security issues, and 2011 predictions.

More Information for CFOs

Recently the ERP Software Blog published a white paper targeting CFOs who want to get smart about the cloud.
This paper gives CFOs the foundation ask educated questions and lead discussions about moving ERP software to the cloud.
You can read the white paper on the ERP Software Blog at www.erpsoftwareblog.com/cloud-erp.

“It’s time for companies to move on. To eliminate these massive shackling on-premise systems that have been inhibiting growth and creativity for so long. Stop pushing aside innovative projects because they simply can’t be done under SAP. It’s time to get creative again, fuel growth and create the jobs that our country and others desperately need. SAP’s efficiency allowed companies to cut jobs and costs. The cloud will maintain that efficiency but re-integrate the level of creativity that these great companies once thrived on.”

The Cloud delivers many benefits to ERP software designers. Access from anywhere, scalability, reduced IT costs, pay-as-you-go, and elimination of client software are among many benefits. Building Cloud ERP systems as web-based applications, delivers even more benefits as discussed in a previous ERP Cloud News posting. However, the claims made in the aforementioned article are exaggerated and require some clarification.

A Rebuttal, a Clarification, and Support for Cloud ERP

Rebuttal: SAP in the Cloud

Although not mentioned in the article, SAP has demonstrated that it is taking the cloud seriously through the launch of Business ByDesign as well as their work on a cloud-based platform. SAP might be too expensive. SAP might be too big for mid-sized businesses. SAP might be process driven. But I wouldn’t call SAP inflexible. If your business has a healthy budget (read millions) and large volumes of transactions to automate, then you can make SAP do just about anything. See sidebar “ERP and innovation.”

Clarification: Some Clouds are More Rigid than On-Premise

The his article, Mr. Yarnold states “the dominant rigidity of on-premise ERP systems appears to be evaporating with the advent of more flexible cloud-based applications.”

Clarification: Multi-tenant cloud-based systems can be more rigid than on-premise deployments. With multi-tenancy, you gain some efficiency, but you lose control of the source code because it is shared by many users. I’ve worked with many multi-tenant applications (ERP, CRM, marketing automation) that allow you to define variables, parameters, and custom work flows – so I would not call them inflexible. If you can accomplish what’s needed with configuration (not customization), then the cloud will save you time and money. The key is knowing what you can accomplish with configuration. If your process requires core logic changes, then you will get faster results with an on-premise vendor.

Flexible Cloud ERP

The best of both worlds is an on-premise cloud implementation. On-premise clouds are more flexible and much less expensive than a client-server deployment. Modern development tools with web-based APIs eliminate client software and deliver robust applications to a web-browser. Since these applications are managed centrally, they can be designed and deployed faster and cheaper than client-server software.

Unlike multi-tenant cloud applications, on-premise clouds provide access to source code. Before starting your customization, make sure that the vendor protects your customizations during software upgrades. Otherwise, you will have to reinstall or redevelop your customized code during each upgrade cycle. A single tenant application will also allow you to upgrade your application at a time that is convenient for you. The multi-tenant upgrade will occur automatically, but at a time specified by the vendor.

Conclusion: Cloud ERP helps drive Efficiency and Innovation

David Yarnold’s article endorses modern cloud ERP software. But the article goes too far by saying all cloud systems are more flexible than on-premise systems and misses the fact that SAP is pursuing cloud strategies. I would not blame job loss, lack of creativity, and the demise of some US manufacturing sectors on ERP software.

ERP software is designed to make business processes (sales, orders, manufacturing, accounting, invoicing, etc.) more efficient. The cloud accomplishes this by offering rapid scalability, pay-as-you-go pricing, and eliminating the burden of client-software.

When choosing a cloud solution, the ability to customize and connect with other systems is critical. Core accounting processes are rules-based and need to be flexible and open, but not innovative. ‘Creative accounting’ usually leads to big problems and falling stock prices. However, inaccessible and unconnected accounting systems are just as dangerous. Innovative manufacturing processes, line-of-business applications, support processes, and other business advantages need to be easy to plug-in to the core accounting, ordering, inventory, and management processes offered by the ERP system.

ERP systems should make businesses more efficient and provide them with the tools to innovate. Cloud and web-based systems offering SaaS and on-premise deployments provide the flexibility and efficiency required to reduce the cost of innovation. This allows new ideas to be implemented faster and sooner than legacy software solutions – making Cloud ERP systems both efficient and innovative.