You Need Feet on the Street to Sell Cloud ERP
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In Bob Scott’s Insights, Kevin Gilroy, VP of channels at SAP says that the goal is to have “1,000 feet on the street” selling Business ByDesign by 2011. The fact that ByDesign already has 250 sounds impressive, but there could be a catch. Counting feet could be dangerous if a single VAR has 100 people (200 feet) or a centipede (100 feet) on their sales team.

Cloud ERP Software requires Business Experts

Kidding aside, feet-on-the-street is still an essential part of selling ERP software to mid-sized businesses. Customer prospects with separate sales, accounting, IT, and human resource departments are unwilling to purchase ERP software by entering credit card information into an e-commerce site … and for good reason. ERP software is complex and integration with existing systems requires experts to configure the software to match your business processes. This work is usually provided by value added resellers who know and understand a specific business.

ERP Not an iPhone App

An effective ERP system will involve your entire organization in business processes. While a single individual may purchase an application for his iPhone and get some personal use from it, the same individual get little benefit from purchasing an ERP application unless others in his organization are using it. The benefit of ERP software increases as more and more people use it to collaborate and interact with one another.

Sales consultants (a.k.a. feet on the street) are important in breaking down organizational boundaries and getting everybody involved with a centralized process flow that works with ERP software. Centralized ERP delivers real-time data sharing and reporting, but without inter-departmental cooperation, an ERP deployment will not deliver the desired benefits.

ERP Software Configuration and Training

ERP software has thousands of screens and hundreds of options, so it requires configuration and training. Robust ERP software provides more than one way of accomplishing a task. Examine the simple task of placing a customer order — a customer can bring an item to a counter and pay cash or pay on account, a customer can order an item that you have in-stock in an off-site warehouse, a customer can request a drop shipment from a third party vendor, a customer can place an order then pick it up using their vehicle or have it shipped by a common carrier, a customer can request services billed in advance or billed after services are rendered. This is just a partial listing of scenarios, and each of these has different ways to manage money and inventory.

Without configuration and training, employees may not select the correct processes. Imagine what would happen to your inventory if employees created invoices using services (non-stock items) because they were more comfortable doing it that way. Product documentation will explain the correct method, but the feet on the street are important for delivering training and emphasizing potential pitfalls based on past experiences.

Feet in the Cloud

There are other advantages to feet-on-the-street provided by personal relationships. Some customers may feel more comfortable spending thousands of dollars on software if they can identify a person or company that they can visit to get their problems resolved.

In the spirit of the Cloud, web conferencing services provide alternatives to on-site configuration and training. Some ERP customers may require in-person training, but others may be willing to do remote training in order to save on travel costs. Web meetings can be effective if participants are fully engaged and separated from the distractions of their offices. For feet-in-the-cloud, the presenter/trainer must acquire a different set of skills in order to gain feedback since confused looks and facial expressions may not be available.

Saving Money with Value Added Resellers

Feet-on-the-street add value by understanding the workings of both vertical and geographical markets. This value allows accounting, distribution, manufacturing, customer management, and other applications to be written generically and configured to meet specific customer needs.

The alternative is to build custom applications for each business or change your business to match generic business processes. However, the cost advantage of adapting horizontal software for your particular needs are substantial because the cost of development and maintenance can be spread over a wider audience. See our previous posts to learn more about customizing ERP software.

In CRN magazine, a recent press release “NEC Launches ERP Cloud Service Systems With SAP” describes a new partnership. In this partnership, NEC will utilize its Cloud Oriented Data Centers to launch a Cloud ERP solution based on SAP software.

The problem is that hosted ERP software solutions compete against native/true cloud applications. In this partnership, SAP is helping NEC create a hosted ERP solution which could compete against Business ByDesign.

Rationalizing the move: ERP Software Market Segments

The announcement doesn’t provide a lot of detail, but in this case the customers NEC will approach with their version of SAP Cloud ERP is likely going to be different from the customers that SAP will approach with SAP ByDesign. The customers for NEC will likely be large multi-nationals with heavy integration and customization requirements, while customers for SAP ByDesign will be mid-market folks with fewer customizations and integration tasks.

Can True Cloud ERP address enterprise markets?

Yes. SAP has decided that hosted “cloud” ERP will serve larger customers while ByDesign will serve the mid-market, but there is no reason that Cloud ERP solutions cannot serve enterprise customers. The Cloud is scalable and can be installed inside an organization (private cloud) to meet demanding integration and customization requirements. Several Cloud providers already deliver this model.

SAP’s segmentation makes sense because their older ERP software contains extensive features, robust APIs, a network of system experts, and many deployments. By partnering with NEC to host a “cloud” version of the legacy code they can address the enterprise market without waiting for all features to become available on ByDesign. This highlights that the technology is different and shows the difficulties that older ERP providers face introducing cloud solutions to the market.

Vendors that start with a true cloud solution can opt to run the solution as a service (SaaS) or offer a software license – allowing customers to select their deployment method. This makes it possible to deliver the same code base to both large customers needing customizations as well as smaller customers needing turnkey operations.

Partner and Compete

Public clouds will force ERP software companies and partners to compete globally and differentiate based on service delivery, uptime, and features. Private clouds will force competition based on customization, flexibility, adaptibility, and industry knowledge. In a private cloud the role of the value added reseller and the partner channel will be critical for delivering services and customizations.

A solution that is developed for the cloud can be used to compete effectively in both markets. By providing public and private clouds, a single software solution can meet the needs of both mass markets (public cloud) and best in breed markets (private cloud). The SAP and NEC partnership highlights the importance of the cloud as well as stop-gap measures for delivering cloud solutions using legacy software.

The dust has almost settled, but the jury is still out on the launch of SAP’s Business ByDesign. ByDesign is SAP’s software as a service (SaaS) offering that has been in testing and development for the past 3-5 years. The topics of cloud computing and SaaS are still hot in the ERP market, but will adoption follow?

Much has been written on the topic, below we have linked to several insightful articles.

Reports on SAP ByDesign

Timing

July 28. Warwick Ashford reports in Computer Weekly “SAP too slow to cloud, say users” that 73% believe that SAP was too slow getting the product to market. The article does include quotes from SAP folks explaining reasons for the timing and provides evidence that maybe the hype was ahead of adoption. Key issues such as data protection, lack of control, lack of customization, compliance, and risks of outages are still causing some to wait.

August 3. Ann All reports in IT Business Edge “Was SAP Too Slow on SaaS? Maybe, Maybe Not” that SaaS is still accounts for a relatively small percentage of ERP deployments. The article also defends SAP’s timeline as normal for ‘traditional’ software-development standards. In the new SaaS world, maybe old timelines are no longer applicable? The article also addresses the issue of whether SaaS ERP should be a point application or become a sophisticated replacement for existing on-premise solutions.

Pricing and VAR Impact

August 2. Dennis Howlett recaps the pricing and offerings in ZDNet “SAP Business ByDesign 2.5 arrives: what now?” and discusses the critical issue of distribution and how value added resellers (VARs) will participate in SaaS offerings. This issue is further developed in his August 10 article “Is the cloud a VAR killer” where he takes a deeper dive at the fixed-price implementation issue.

User Counts, More News

August 2. Rick Whiting discusses customer rollout issues in CRN “SAP Furthers SaaS Push with New Business ByDesign Release.” The article also points out that version 2.5 is a feature pack which will kick off more widespread public availability. The initial version launched in 2007 only acquired 70 active customers.

August 3. The critics add their opinions in ZDNet “NetSuite slams SAP Business ByDesign.” In this blog post, Dennis Howlett moderates comments from both sides.

Let the Voting Begin

The market will determine the future of SaaS as well as the future of ByDesign. The polls are now open for enterprises, mid-market businesses, and small businesses. Results (a.k.a. adoption rates) are likely to vary by customer sizes and industries. Small marketing and consulting firms may come out for SaaS while large manufacturers may cling to on-premise. Keep in mind the ERP market has several “candidates” running for office. Some are strict SaaS, some have stayed with the client-server incumbent, SAP has two candidates, and other have candidates with both SaaS and on-premise capabilities.

The Original Launch

SAP Business ByDesign was formally launched on September 19, 2007 (see press release). At that time the pricing was $149/user with a 25 user minimum ($3,725/month). It’s reported by Michael Krigsman in Enterprise Irregulars that 100 customers were enrolled (50 implemented) on this offering prior to the redesign.

3 Years Later

As reported from the SAP SAPPHIRE conference by Doug Henschen in Information Week, SAP’s on-demand offering will launch in late July 2010.

This information was also reported by Thomas Wailgum in his CIO article SAP’s Business ByDesign: Finally Real, But a Tough Sell? Quoting co-CEO Jim Hagemann Snabe “Business By Design is not a fantasy. It’s a real product. We wanted to perfect the infrastructure. You only get one chance.” Ironically, this is SAP’s second attempt at a successful SaaS offering.

Features, features, features

So what is going to be different this time around? According to several sources, Business ByDesign is relaunching with new infrastructure technology and new features.

Tim Ferguson in Silicon.com article SAP: Business ByDesign is coming this year, mentions that new features such as in-memory analytics, support for specific mobile device scenarios, and Silverlight web development were announced at SAPPHIRE.

Dennis Howlett in his ZDnet Blog posts a video of Hasso Plattner describing SAP’s challenges in launching an on-demand offering. He describes technology challenges as well as the challenge of replicating every feature available in SAP’s traditional products in ByDesign.

Howlett’s video highlights the feature battle faced by SAP. The SAP sales teams are used to selling a solution that includes every possible feature. SAP customers will line up feature comparisons and demand that all features are supported in Business ByDesign. The sales process will be different and sales teams will have to evolve.

Vendors which pioneered on-demand services such as NetSuite, Intacct, and Acumatica were able to design a solution which was unencumbered by existing feature requirements, pricing models, and customer demands. The sales processes at these companies are designed to overcome hurdles such as a missing feature.

SaaS ERP is a reality

In our opinion, there will always be a variety of deployment models to meet different ERP customer needs. But most vendors are developing a SaaS solution or hosting their legacy on-premise application and spinning it as SaaS.

SaaS ERP is a reality, the question is, what percentage of ERP will be sold this way, both in the market and at SAP?