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!

Professional Services Software

The recent release of Acumatica 3.0 caught the eye of Robert Houdeshell from Njevity, Inc. As someone working in a professional services organization, Robert was able to provide a review and describe how the cloud will help consultants who live and die by the timesheet, projects, and billable hours.

A short except from Robert’s article is provided below. View the complete article on the Njevity Blog.

“Professional Services employees make up a large demographic of our workforce. They are architects, engineers, contractors and consultants like me. We are a highly mobile workforce, often flying to work on projects or working at our client’s offices. This creates a need for us to be able to manage our work, projects, resources and time from anywhere. However, most solutions for project management, until today, have been legacy technology with very little mobility built in…”

Read the complete article on the Njevity Blog.

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.

To:      Operations Management

From:  Doug Potter

Re:      No more spreadsheets for Purchasing

Supply Chain management would be so much better off without spreadsheets. I see this over and over. Purchasing and operations management has a spreadsheet to tell them what and how much to reorder. And the spreadsheet has grown to a behemoth that takes constant care and feeding.

Don’t bother with cloud based supply chain planning systems, like MRP for manufacturers and DRP for distributors. People often tell me: “Our spreadsheet takes care of everything we need.”

That’s probably a true statement. As long as we can agree:

1. You don’t need any higher profits
2. You already programmed the spreadsheet with a complete set of supply chain best practices for purchasing and manufacturing planning.

But seriously, the biggest cost from spreadsheet-based supply chain planning is higher overhead. Related problems include:

• Order Point versus MRP. A spreadsheet never rarely provides complete time-phased planning, usually it is just a device for enhanced order point, or min/max replenishment.
• More Overhead. There’s tremendous overhead in the development and maintenance of the spreadsheet. Usually this shows up as time spent using, customizing, debugging, and maintaining it. One sign things are out of hand: someone on the staff decides they have to learn programming using Excel macros to help.
• Lost Productivity. Inventing your own methods of replenishment and reordering is usually far less effective since you cannot really deliver all the money-saving features of a true MRP system (for example, try implementing “pegging” from a spreadsheet).
• “Not Invented Here”. We humans have an innate problem. We tend to like things we made ourselves. (Ladies, if you think this is a male problem, I’m interested in your opinion – email me at dpotter (at) newportconsulting.com). So anyone associated with the development and invention of that spreadsheet will typically defend its use and block any attempts at best practices or real supply chain improvement.
• Involve Everybody. Spreadsheets frequently live on a computer and are passed around via email. When more than one person needs access to the most current information. MRP systems (especially cloud based systems) allow multiple users and your entire organization to get real-time status regarding supply chain activities.
• Not Scalable. As business volumes increase, the management of Excel as a planning device becomes exponentially more uncontrollable.

I suppose you could consider the Excel Spreadsheet an extension of the enterprise it management system. My counterargument: it’s an improper extension of the company enterprise software. There’s a much better solution, if you follow standard best practices in supply chain planning. These best practices should include Cloud ERP so you entire organization, your business partners, and other stakeholders can participate in supply chain planning.





About Newport Consulting Group
Newport Consulting was incorporated in 1989 as a spin-off of Price Waterhouse. Today the business has a large customer base that covers many industries including deep specialization in distribution, manufacturing, finance and accounting. Newport Consulting is a Microsoft Dynamics partner and software developer. Visit www.newportconsulting.com to learn more.

It is inevitable that despite upgrades and constant development, enterprise systems will age and eventually become obsolete. The million dollar question for the organizations which depend on such systems is not if they should be replaced, but rather, when they should be replaced.

How to make the decision to upgrade your ERP Software

Probably the most important consideration for executives faced with this issue is the necessity to separate the decision to change from that of deciding when to migrate and which system to select. This distinction has become more significant in our quarter-century experience in the industry. Here is why.

Deciding that it is time to move off the existing system should have little to do with the choice of its replacement. The reason is quite simple. At issue at this juncture is a really quite simple evaluation: is the existing application no longer suitable? If the answer is ‘Yes’, then a replacement should be sought.

When evaluating the existing system, he says key issues to consider include its ability to support the business operations and strategy. The system may be acting as a constraint, perhaps as a limitation of the underlying technology. For example, many DOS-based accounting systems prevented companies from performing functions now considered the norm. Automatic production and emailing of PDF invoices and statements was not possible; companies using such systems were limited to cumbersome paper and fax based solutions, resulting in unnecessary costs and processing time.

More recently, integration and workflow technology have evolved significantly. Many older systems cannot provide integrated business processes, requiring external systems which add complexity and which reduce efficiency.

I need to upgrade my ERP software, now what?

Once it is established that a shiny new ERP solution is the way forward, a new set of challenges is presented. Evaluating alternatives is a difficult, high-stakes responsibility. It starts with clarifying requirements; experience has proven that those companies which know what they want, with a well-defined and clearly articulated list of requirements, tend to have higher satisfaction from their deployment than those that figure things out as they go.

Critical Business Issues approach

A proven approach is to identify what we call ‘the CBIs’. These are the Critical Business Issues, and by that, we mean ‘What makes a company tick? How does it create value? What are the key measures that need to be monitored or controlled?’

If a system under evaluation doesn’t address the CBIs, the action to take is quite simple. It should not be investigated further. This is a useful filter because it is quickly applied and narrows down the number of systems to be considered.

Of importance, too, is the necessity to clarify the decision-making criteria. Making decisions is easier with a structured approach. While there are many other approaches, I have used the Kepner-Tregoe Decision Analysis methodology, which advocates identification of the criteria for success, and ranking these before considering options. The methodology also provides a structured way of evaluating alternatives using these criteria, and a risk assessment tool.

Narrowing down ERP software choices

As the process narrows down, the time will come to select several potential systems for evaluation. Since evaluation itself is a time-consuming process, the range of options should be substantially reduced to systems which are definitely viable and then choosing from those.

While some systems enjoy a high-profile and will generally be included in any initial list, there are many that do not enjoy the same level of marketing, but which may be a better fit for particular companies. Newer web-based solutions, for example, don’t enjoy the level of marketing that established players do. But, it is well worth exploring these especially in terms of examining international presence and performance. They may enable a level of transformation in your business that more established vendors cannot provide.

Online research provides extensive information and opportunities to identify, explore and evaluate potential systems. Don’t limit the options to what you see on billboards; look beyond the obvious choices as therein may lie the opportunity to introduce changes that could deliver competitive advantage.

And finally, thorough research should also expand your horizons beyond those that existed when setting out on this journey. Our ability to conceptualize new solutions is too often hindered by prior experiences. Our knowledge of current and prior solutions creates blinkers that may prevent us from perceiving solutions that lie outside of our sphere of experience. It is good practice to revise the decision-making criteria based on research findings, before finalizing the selection criteria.
 

 

 

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”.

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”.

ERP Systems can become Obsolete
Image used with permission from TechyShit.com

Key Technology Changes Impacting ERP

During the past 25 years, we’ve had ringside seats to what happens when products reach end-of-life. Recognizing this phase can be important if you are to take your company smoothly into new-generation solutions – and avoid becoming saddled with a system which inhibits business performance amid escalating support costs.

When software is developed, it is done so within the context of a specific set of technologies. At the time of conception of an enterprise solution, there is a dominant technical framework, with emerging technologies providing new ways of addressing requirements. Within this context, successful software displaces current solutions by providing significantly more than the incumbent market leaders. It does this by utilizing new technology and techniques, adopting programming paradigms previously not possible as the basis for design.

The IT industry is famous (or infamous) for it’s pace of change; the very nature of the way in which technology develops lays the foundation for obsolescence. At some point, a tectonic shift occurs, rendering the fundamental design of an existing system obsolete, with no simple path from the present design to the future.”

Examples of this shift in programming paradigms are clear in the progress from simple assembly languages, to procedural languages and on to object-oriented programming. The point is that these advances enable software developers to do far more with the applications they create. That, in turn, translates into the ability for businesses to function more efficiently and more effectively. In short, the work of the programmers can and often does support the competitiveness of the businesses using their applications.

Today’s Technology – Cloud Computing

The major shift underway today is the emergence of cloud computing as a proven, viable means of software delivery. The dramatically reduced price of operating cloud-based systems completely shifts the cost-base. Those companies which adopt cloud computing at an enterprise level may face risks associated with early adoption, but they are also likely to enjoy enormous advantages in lowering the cost of production. We have seen businesses transformed in ways they could not have imagined by enabling staff to access their system from anywhere with only a browser. The more distributed the operations of a business are, the more significant this transformation is.

However, the shift toward web based solutions also means that many vendors will lack the ability to reinvent solutions which are rooted in now-obsolete programming (and even business) models. These solutions will settle into an extended period of decline.

How to Recognize an Obsolete System

The symptoms of such a decline are clear in road maps, versioning, and the pace of improvements and enhancements. A solution is in trouble when the vendor stops publishing the road map, or when it becomes vague or merely focuses on issues such as compatibility with new operating systems and database versions.

And as end of life approaches, new versions contain few major improvements to their capability. A distinctive trait is the ‘lipstick on a pig’ problem, where new versions provide cosmetic enhancements while significant functionality remains unchanged.

A notable example surrounds the emergence of web enablement; older products unable to be deployed in this manner are ‘wrapped’ with technology that renders their old screens via a separate web service. However, the limitations of the older architecture will continue to operate as a constraint on conceptualizing and implementing new ways of working. Ultimately, the design deficiencies aren’t addressed, as they become prohibitively expensive for the software principals to correct.

The more-aware users of such systems are also likely to understand and appreciate the consequences of impending obsolescence and seek improved alternatives. As a consequence, the vendor in question will experience a decline in market share and a reduction in implementation and support partners.

Conclusion – Taking Action

Recognizing the signs is one thing. Taking action is another. Anyone working in this industry knows that change is rapid and that new advances can fundamentally affect business performance in terms of costs and also new capabilities which can accelerate productivity or efficiency. Modernizing the software that runs your business can mean the difference between competing effectively and struggling to keep up.

Next: read part 2, What Becomes of Aging Technology – and its Users, of the 3 part series.
 

 

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”.