Sramana Mitra’s summary

The interview uncovers several cloud computing trends. One of them is the case of early adopters pushing cloud vendors to address integration between on-premise and cloud services. Once there is significant adoption, this may not be a scalable proposition, and eventually we expect several new players and innovation by third parties and entrepreneurs to help the cloud providers and cloud adopters work out integration.

The acquisition of Cast Iron may have given IBM some edge in integration within its own cloud and on-premise offerings, but that leaves the playing field wide open for other players and innovative solutions. Another trend we spotted is the pricing model by ERP vendors whereby they share a percentage of sales as their fees. Last, cloud-based printing solutions and easing the real customer problem of not being able to access attachments via a BlackBerry are some of the blue-sky opportunities for entrepreneurs to explore.

ERP software in the cloud before CRM

Inteva started cloud adoption with ERP instead of CRM. Dennis says that once the ERP implementation is complete, business intelligence “might be next”. This example is interesting because it contradicts the standard industry adoption process where companies start their cloud experience with CRM and move their ERP to the cloud later. Standard industry adoption is supported by the fact that in 2008, Salesforce.com had 11% of the CRM market, while all web-based and SaaS vendors only accounted for 4% of the ERP market.

During the interview, Hodges describes HR software as an application that has been put “in the cloud”. Although to be fair, he says that this is really “outsourced” instead of cloud. ERP Cloud News comment: the fine line between outsourcing services and putting software and services in the cloud is a debatable topic. In a previous post we covered the differences between cloud, hosting, and SaaS.

Cloud ERP requires in-house business skills

Ms. Mitra skillfully leads Dennis Hodges to a discussion regarding the impact of cloud and SaaS on his internal resources:

If I look at the SAP model I do not have a stable of ABAPers, FICO experts, or anything like that. I have the finance business analysts, the purchasing business analysts, and they can work across more than one module.

The point is that cloud ERP still requires business expertise, but IT specific operational tasks become simple because they are outsourced. Not mentioned in the interview is the fact that the business experts need to be more computer savvy than the old days of dictated letters and day-long meetings.

Dashboards and reporting are important

At the close of the interview, dashboards and reporting features are seen as critical requirements for a business intelligence system. Dennis says that the ability to take a massive amount of data and make it simple or graphical so it can be read by a CEO or CFO is needed.

ERP Cloud News commentary

This interview is evidence that in 2010, the ERP market may begin catching up with CRM in terms of SaaS/cloud adoption. Critical information delivered by SaaS CRM (centralized views of sales, pipelines, and opportunities) also needs to be provided by business intelligence tools (centralized views of revenues, costs, cash, forecasts) to continue accelerating the adoption of cloud ERP. As adoption grows, organizations will need to change to favor business experts with a technical background over technical experts with a business background.

According to IDC, Forrester Research, Gartner, SMB Group, and many other analyst firms, cloud applications are the wave of the future and will comprise over 30% of deployments by 2014. However, today over 95% of ERP deployments are still running on premise. So how do we move from a world with fewer than 5% of ERP deployments as SaaS to a world with over 30% of deployments as SaaS?

Reasons for upgrading ERP

The first step in understanding how this will occur it to review some reasons why companies purchase or upgrade their ERP software.

1. Newer companies without an advanced accounting solution need manage growth and automate their business processes. These companies do not normally have an existing infrastructure (and existing software baggage), so a solution which minimizes hardware, software, and IT complexity is a natural choice. Newer company needs are well served by a web-based solution that is offered as SaaS so they can benefit from the latest technology without a large capital expenditure.
2. Companies with ERP software systems that are no longer supported will be forced to upgrade. In some cases, these companies migrate to a supported version of their current vendor’s software. But, in the majority of cases, the legacy vendor only offers an upgrade to another client-server solution. Since the upgrade is nearly as expensive as installing new software, companies often use this time to investigate vendors that offer more modern technology. Unlike newer businesses, these companies have experience running client-server technology and be adverse to the notion of a cloud-based solution.
3. Specific activities such as acquisitions, mergers, new regulations, or rapidly changing business requirements often force businesses to investigate new automation solutions. As business requirements change, companies try to adapt and customize their existing systems to meet the new challenges that they face. This often leads to a web of loosely connected systems (instead of a single centralized web-based system) with expanding complexity. After the typical ERP upgrade cycle of 5-7 years, the company sets aside money to fix the problems that have accumulated.

Change is the biggest driver

Business is not stagnant. Most businesses face growth, budget cutting, mergers, acquisitions, management turnover, and other events on an annual basis. These changes almost always create changing requirements which lead to stress on current processes and systems.

The cloud provides agile computing environments so companies can manage change more efficiently. This is a major factor that will drive growth of SaaS adoption as predicted by several analysts.

Preparing for Change

SaaS solutions enable businesses to efficiently manage most types of business expansion. But a SaaS solution that does not offer the ability to move on premise or to a different data center or cloud provider can result in the same problems as your original client-server solution. As your requirements, regulatory environment, and corporate structure change, many SaaS solutions will face the same 5-7 year upgrade cycle because the are not easy to customize and do not offer deployment flexibility.

Example 1. Assume you distribute health care equipment. By purchasing a SaaS distribution solution, you can get started quickly and access real-time data and reporting from all warehouses and offices. As your business grows, you decide to begin selling direct to clients, which necessitates tighter controls over confidential data. If your same software code and data can be moved on premise, you can easily manage this change.

Example 2. Assume you are a CPA firm and utilize a SaaS accounting solution to do client write-up and allow customers to quickly access financial reports. Some customer want to utilize SaaS, others want to use an on-premise solution.

Example 3. Assume you are a company that needs to upgrade your software. Your CEO is excited by the prospect of SaaS, but the IT department and operations folks are not ready to make the jump yet. A web-based ERP solution that provides the ability to move from on-premise to SaaS is just what you need to keep folks happy in the short term while preparing for the future.

Conclusion

Companies should purchase a software solution that allows them to run either on-premise or as SaaS. This flexibility ensures that the solution will fit the business to ensure the lowest priced solution, even as the business’s size, complexity, IT expertise, financial position, or regulatory position changes.

The Software as a Service (SaaS) market had worldwide revenues of $13.1 billion in 2009. IDC forecasts the market to reach $40.5 billion by 2014, representing a compound annual growth rate of 25.3%. By 2014, about 34% of all new business software purchases will be consumed via SaaS and SaaS delivery will constitute about 14.5% of worldwide software spending across all primary markets.

What about ERP software?

According to the IDC study, “applications will account for just over half of the market revenue.” The rest of the spending will occur on cloud platforms as businesses begin to purchase cloud services instead of hosted services.

ERP Cloud News Opinion:

Of the over $20B in application revenue, some will undoubtably be in ERP, while CRM, human resources, and other applications will continue to grow quickly as well. In addition, the size of the markets will be critical to cloud adoption. Small and medium sized businesses markets may develop quickly in the area of applications while larger businesses may develop more quickly in the area of infrastructure.

Cloud technologies are currently being hyped and advocated by all software vendors. Almost every ERP, virtualization, infrastructure, and application vendor says that their software takes advantage of the cloud. The cloud has become synonymous with successful, modern, well developed software. As companies promote the cloud, the differences between a SaaS offering, web-based software, and the cloud have been blurred. In this article we will try to clarify the benefits of each.

Web-based technologies have been in the press for many years so they are not as “in vogue” as cloud technologies. Key differences between web and cloud are (a) web-based technology relates to software while cloud-based technology has been applied to a wider range of computing resources such as hardware, storage, and software and (b) cloud technology can be employed without the use of web-based software.

The definition of SaaS is the widely debated, and in an earlier article we pointed out confusion between SaaS and hosting. Both cloud technology and web-based software make SaaS easy and effective to deliver – but it is possible to have SaaS without cloud technology.

This article will cover some how web-based and cloud-based can benefit ERP users. In many cases the benefits of web-based software is more important than software that is deployed on the cloud.

Benefits

Cloud Benefits

The benefits of using an external cloud provider are similar to the benefits you get from buying power from your power company.

1. Instead of building a power plant in your office, you can get started right away by hooking into the power grid. If you grow rapidly or plug in more appliances, you can easily buy more capacity from the power company instead of having to upgrade your plant and equipment.
2. When you first buy power you only invest in building the connection and the appliances, you don’t have to spend massive amounts of capital to build a plant.
3. When something goes wrong, you call the power company get them to fix the problem. You don’t need to hire full time employees with expertise in power distribution and circuit design.
4. You benefit from economies of scale associated with providing the service. This is why you don’t see many businesses with generators running behind their building. Of course, there are exceptions where a large corporation in a remote location may benefit by generating their own power.

By replacing the words power company with cloud provider and appliance to software application you will see the benefits of deploying your ERP solution on a externally provided cloud.

To summarize: faster to build, lower hardware costs, rapid scaling, pay only for what you use.

Web Application Benefits

The benefits of using web-technologies are similar to the benefits you get from making purchases using a charge card such as Visa instead of setting up an account with each of your vendors.

1. Instead of multiple accounts and multiple pieces of plastic, a universally accepted charge card provides you with access to your account/line-of-credit no matter where you are, just like a web browser with your account credentials provides access to your software applications/data from anywhere.
2. Once you setup your charge card with your bank, you to not have to maintain any information with regard to each vendor, just like after you setup your computer, there is nothing more to maintain (with the exception of some occasional browser updates).
3. Your charge card provides instant access to a centrally managed account with your information and data no matter where you are.
4. Your charge card can be used from any city or location and provides access to your centrally located account information.

To summarize: no client software install, no client software maintenance, real-time data, access from anywhere, cross platform compatibility

SaaS Benefits

The benefits of using SaaS are similar to the benefits you get from renting a house instead of buying it.

1. It’s faster and easier to rent. There is no title search, home inspection, down payments, and complexities associated with purchasing a house.
2. You don’t need a large, up-front investment when you rent a home instead of purchasing one. Of course, renting isn’t for everybody and may end up being more expensive in the long run.
3. When something breaks a renter does not have to arrange to fix the problem or pay to fix it. Usually the renter calls the owner and has them perform the necessary maintenance work. As a renter, you do have responsibility for minor things such as cleaning, taking out the trash, etc.

A renter is similar to a user of SaaS software while a home owner is similar to a company that buys a software license. The reasons for home ownership are similar to software ownership. First, you can make changes/customizations to the software that are specific to your business. A renter can configure some things (change paint color, etc.), but an owner can take down a wall or add a bathroom. Second, the cost of owning software may be less in the long term if a business is willing to update the software and manage the operating environment. Finally, some businesses, just like some home owners, like the control that ownership provides against increasing rents and long term reliance on external vendors.

To summarize: rapid installation, lower up-front fees, fewer maintenance hassles.

Putting it all together: web, SaaS, and cloud

Web-based applications can be run as SaaS in the cloud to gain the benefits of all three models with one deployment. The table below illustrates several advantages of an ERP system deployed in this manner while specifying the technology that is the main contributor to the desired benefit.

* Importance to ERP. This column describes the relative benefit to a mid-sized ERP company. The ability to access your data and applications from anywhere is quite important while the hardware savings associated with the cloud might be insignificant in an average ERP deployment. For example, if an ERP system costs $100,000 (software, configuration, customization) and the hardware it runs on costs $8,000, then saving 20% on the $8,000 will not be a critical component of the overall solution. Scaling up and down and paying for only what you use are also benefits of Cloud, but ERP deployments have fairly predictable usage patterns for most companies (although I can think of many exceptions where this would be critical). Some more discussion on these items is found in the post ERP for Distributors: SaaS versus Traditional.

** Many cloud programs are offered with SaaS components. For example, the Windows Azure program includes an operating system and OS updates. In this case the “cloud” includes the platform and would also include the benefits of SaaS (as it relates to the operating system). The combinations of solutions and fluid nature of the cloud definition make it nearly impossible to represent benefits in a simple matrix as we have tried to do here.

Is SaaS Required?

A final point worth noting is the fact that SaaS should be an optional component of your ERP software, not a required one. Some businesses may decide to forgo the SaaS benefits in order to gain a more flexible system and long term cost benefits associated with purchasing a cloud ERP system that is customized and integrated with on-premise applications.

Conclusion

Software applications that are web-based and deployed on the cloud maximize efficiencies and minimize costs associated with building and maintaining ERP applications. The relative importance of the benefits associated with a web-based solution for a complex application such as ERP is much higher than the financial benefits realized by deploying on the cloud. The introduction of SaaS provides both benefits and encumbrances, so we recommend selecting the vendor which offers both and allows you to switch deployments according to your business needs.

All of the Microsoft partners I spoke with were well versed in software and know their specific area of expertise. Many used acronyms such as LMS and RMS without thinking it was possible that I may not know what those things are. Likewise I assumed that everybody knew what ERP was, but in reality, even some technologists need a bit of guidance.

Many of the answers provided were quite good, and most people know that ERP stood for enterprise resource planning. A few notable exceptions include the person who thought that ERP and accounting were “pretty much the same” and the person who argued that ERP referred to “any business software system designed to simplify work.”

Formal Definition

Following the show, somebody who took the poll sent me the following definition:

“Enterprise resource planning (ERP) is an Integrated computer-based system used to manage internal and external resources including tangible assets, financial resources, materials, and human resources. It is a software architecture whose purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. Built on a centralized database and normally utilizing a common computing platform, ERP systems consolidate all business operations into a uniform and enterprise wide system environment.

An ERP system can either reside on a centralized server or be distributed across modular hardware and software units that provide “services” and communicate on a local area network. The distributed design allows a business to assemble modules from different vendors without the need for the placement of multiple copies of complex and expensive computer systems in areas which will not use their full capacity.”

The Cloud and ERP

The definition above used to be accurate, but the delivery aspects of ERP are changing. During the conference, Microsoft stressed cloud, cloud, and more cloud. The cloud makes it possible to deliver ERP in new ways, including the ability to deliver services outside the “local area network” described in the formal definition.

The cloud is changing and improving ERP. As many ERP companies are discovering, the cloud and web-based solutions allow you to build and deploy solutions in ways that meet customers’ needs so they no longer have to setup and rely on a complex local area network.

Managing a cloud service outage

Keep your options open

Ultimately enterprises need to have the freedom of choice so they can choose a deployment model that meets their price and uptime requirements. At ERP Cloud News, we advocate customer choice with regards to the deployment of cloud technologies. Vendors who create cloud software that is built for a single cloud infrastructure promote vendor lock-in and vulnerability to issues like service outages. Customers should be able to move transparently between cloud vendors and on-premise deployment options. The last thing any business needs is to be locked-in to a provider that cannot deliver service.

Option 1: In-House

The option to maintain complex ERP software on your premises is not for every business. Often this requires specialized knowledge and expensive IT resources and is not guaranteed to do better than trusting the experts running a SaaS solution. The on-premise option does prevent an outage if your internet service is interrupted and people are not trying to access the system remotely.

Option 2: SaaS with a Service Level Agreement (SLA)

If you elect to outsource your deployment, you might be able to save significant money on IT resources and hassles associated with software upgrades. If you elect to go this route, we recommend getting a service level agreement (SLA) and verifying the procedures in place to recover from an outage.

Option 3: SaaS and on-premise

Businesses with large budgets and IT expertise, can implement SaaS with an on-premises backup solution. This will provide a rapid way to recover from a service outage, but will increase the cost and hassle of running and maintaining your system. Most likely you would not implement an instant-failover arrangement, but store data as well as a copy of the application on premise. This arrangement is not possible with SaaS providers that run a single multi-tenant version of their software.

Software vendor or service provider?

Traditionally, there has been a separation of software providers and service providers. As more software companies move to the cloud, the lines between the software provider and the service provider have been muddied. The role of the software developer has expanded to include maintaining an operating environment, managing upgrades, tracking bandwidth, providing storage, providing customer service, purchasing hardware, and providing backups.

Software companies may outsource some or all of these features to a service provider. Some software vendors purchase collocation space and manage everything else. Others purchase infrastructure from a provider such as Amazon or GoGrid (power, hardware, bandwidth) and manage the rest. Still others purchase a platform from a provider such as Microsoft Windows Azure and only manage their application.

As software vendors begin to take on service provider responsibilities, mistakes are bound to be made. Developing software and managing data centers require different skill sets.

What’s Missing – the Value Added Reseller

As an open-source company, Compiere was predisposed to work with the community including value added resellers that could profit from configuring ERP to customer needs. Consona, on the other hand, has a “services” menu on it’s web-page menu instead of a “partner” menu.

Compiere - VAR Friendly

Consona - Services not Partners

It will be interesting to see how the transition from a community of partners to a single partner unfolds. The press release did not mention how existing partners would fit into the Consona plan.

VARs do not work for Free

Today’s vendors are scrambling to enroll value added resellers. The fact that Compiere was not able to obtain a large number of paying customers may have had to do with its partner channel. While many customers were willing to download the solution (company boasts millions of downloads), few (130 customers) actually pay for it.

For VARs who receive income by receiving discounts on vendor software, Compiere offered little incentive. If VARs are operating on thin margins, they will certainly not expend the time and effort to adopt and sell a product which can be downloaded for free.

With complex software such as ERP, VARs provide business process expertise as well as accounting and industry specific expertise. Without VARs, many small and medium sized business customers probably struggled to implement the software to match their business processes. Mid-sized and larger customers that could afford consultants were probably aligned with VARs that offered other solutions.

Other Links

Certainly VARs were not the only factor in the lack of Compiere customers. Other authors have already written on the topic – including providing a good history, perspective, and other theories.

• ERP Graveyard Blog by Ned Lilly – good description of the history and theory on where things went wrong.
• The Enterprise System Speculator by Frank Scavo discusses the history, points out some counting issues, and provides opinions on what went wrong.

What is a multi-tenant architecture

Journalists and marketers are proclaiming that multi-tenant cloud architectures are the wave of the future. Let’s start by trying to define multi-tenant SaaS.

Wikipedia sums it up nicely by saying “the principle of multi-tenancy is not universally accepted and supported within the software industry.”

Under a strict definition, a multi-tenant application is a single piece of software that is shared by multiple users. But, there are many components which can be “multi-tenant” – these include the application code, operating system, data storage software, and computing resources. In an ERP application there are many varieties of multi-tenant depending on which of these resources are shared.

Even within the data storage, there are many different options. The ideas of separate databases, shared database – separate schema, and shared database – shared schema are well presented in an MSDN article on multi-tenant data architectures. The article discusses the trade-offs involving development time, economic savings, backups, scalability, security and regulatory concerns.

 

Different multi-tenant architectures are better suited to different types of ERP customers. Complete multi-tenant is best suited to small companies or specific vertical solutions which have highly repeatable and mostly standard processes. Multi-tenant options with single-tenant components are best suited to larger businesses with non-standard processes or significant integration requirements.

In the future, if there are well followed cloud ERP standards and a wealth of applications, the distinction between these models tends to erode. As all clouds interact seamlessly and more applications are available, the need for integration will become less and less. Of course, ERP Cloud News does not recommend waiting for this to happen, as standards and complete cooperation among worldwide vendors is not probable in the near future.

Ideal uses for multi-tenant

Multi-tenant applications, operating systems, data storage, and computing resources are tools that can be used to perform work. In the case of ERP, the work involves running a business with proper automation, accounting, and reporting. A good craftsman has many tools in his bag. Multi-tenancy is one of those tools. Just like a carpenter would not use a chain saw to cut molding, software engineers will not need to use multi-tenant applications in every ERP situation.

Multi-tenant is appropriate for business tasks that are common across many customers or divisions of a company. Just like it does not make sense for a gamer and a business user to share the same application (although there are probably scenarios where the two are not much different), it does not make sense for an at-home craft business to share the same application as a Fortune 100 company.

ERP customers need the following:

• Features that meet business needs
• Security and regulatory compliance
• Ability to modify application if business needs change
• Lowest possible price for all considerations above

The last point is perhaps the most important because both single and multi-tenant applications can be used to solve most problems, but with comparable features, price and security will be the deciding factors. The security issue is beyond the scope of this posting, but we may get to it in a future article.

Multi-tenant pricing

Multi-tenant ERP systems are generally priced competitively with their legacy system counterparts. This means that multi-tenant vendors are pocketing additional profits, not reaching critical mass, or not realizing the cost savings that have been promised.

Multi-tenant systems can gain economies of scale with regard to:

• Shared hardware costs (most talked about, least important)
• Shared IT resources
• Application and OS upgrades

The most talked about is the infrastructure savings, but the most important is the cost of IT resources and software updates. For many mid-sized ERP implementations the cost of hardware can be only 5% of the overall project cost – meaning that an additional 20% hardware efficiency will only save customers 1% of their overall project cost.

The savings from reducing IT staff by eliminating software installations and upgrades is far more compelling, but only on a case-by-case basis.

Multi-tenant systems are potentially more expensive because:

• Vendor lock-in – forced to use a single vendor
• Feature development – custom features have to be developed by specialized resources

Vendor lock-in can come in many forms such as limited support options, price increases, forced upgrades, and lack of customization features. Sometimes these issues can lead to higher out of pocket expenses and sometimes they lead to higher costs in terms of limited business processes.

The diagram below based on research Forrester Research, “SaaS Clients Face Growing Complexity,” April 2008 shows the top 8 reasons why CFOs pass on SaaS ERP.

 

Ideal multi-tenant applications

From a customer perspective, the ideal multi-tenant application is one where hardware costs are high relative to the application cost and where the application is a commodity to eliminate the opportunity for vendor lock-in.

Utility applications such as email and web-hosting fit these requirements and are well suited to a multi-tenant design. Implementing and maintaining email and web servers can be expensive, and sharing this cost across multiple customers will reduce costs tremendously. However, even simple applications like email and web hosting may require some customization. For example, different customers may want different firewall settings for their web server or different spam filters for email. In these cases, the email application will have to be adapted for multiple customers or a single-tenant component (firewall, spam filter) will have to be added and integrated.

ERP applications (the topic of this blog) have lagged behind others in terms of multi-tenant adoption. Small businesses with simple processes or enterprise departments have started taking advantage of this trend, but in many cases, ERP applications are highly customized programs with interfaces into multiple systems. While Salesforce.com attracted approximately 11% of the CRM market in 2008, the entire multi-tenant ERP market only accounted for less than 4%. This could be because the costs associated with customization tend to outweigh the benefits of multi-tenant, or because the larger businesses lag behind when it comes to adoption of new technologies.

Customer size matters – Multi-tenancy in larger businesses

When a customer is large enough to support a full time IT staff and uses enough resources to justify several servers, the benefits of multi-tenant become quite small. A business of this size can benefit from economies of scale without a shared multi-tenant architecture. The customer can install the application in-house or outsource the work depending on security considerations and business requirements.

However, businesses with multiple offices may still benefit from multi-tenant architectures through cost reductions associated application upgrades across different operating entities.

Multi-tenant ERP in the enterprise

Businesses running multi-tenant applications only have to update one application, while those running multiple copies of a single tenant version will have to do multiple upgrades. The same principle applies to the operating system. One operating system is easier to patch than multiple operating systems.

For example, a web-based architecture may allow a company to serve all divisions and entities using a single copy of the application. In the case of ERP, this means that the application needs to be able to manage multiple currencies, different business processes, and maintain separate reports for the different operating entities. In this scenario, the definition of multi-tenant is stretched to mean different operating units instead of different companies. By running multiple operating units on a single application, the enterprise can centralize operations and save costs.

Multi-customer versus multi-entity

Multi-tenant ERP versus multi-entity ERP

Small businesses with standard processes can use configuration tools, metadata options, and database schemas to customize a multi-customer architecture to their needs. Medium and large sized businesses with complex processes and multiple integration points would be best served by their own multi-tenant software license.

Managing your multi-tenant ERP architecture

There are two primary ways for businesses to purchase and manage a multi-tenant ERP architecture.

1. Option 1: Outsource everything (hardware, licensing, upgrades, configuration) to a single vendor who rents the software to you and manages all operations.
2. Option 2: Purchase a software license and enlist the services of a value added reseller (VAR) who understands your business and is an application expert.

This distinction is over-simplified because these options can be packaged many different ways, but this abstraction is useful for the discussion that follows.

The best option for your business depends on your cash flow requirements, operational expense versus capital expense, company IT resources, and your company culture. Companies wanting to preserve short term cash should utilize option 1 while companies who want to own their systems and depreciate them over time should utilize option 2. Companies with spare hardware and IT resources should purchase while companies with little IT expertise should select the rental option 1. For larger ERP customers, option 2 is usually the most cost effective over an extended period of time.

Utilizing a value added reseller (VAR) which understands both your business as well as ERP software is highly recommended. The hourly costs of value added resellers can appear high ($100 – $200/hour in the USA) but the customizations and modifications are critical to running your business properly. Most importantly, you can evaluate customizations on a case by case basis. For example, if it costs $5,000 to implement a customized interface between your bank and your ERP system, you can decide whether or not that is justified based on time savings and the benefit of having real-time information.

Conclusion

Multi-tenancy is a tool to add to your IT toolbox. This tool can save you money when used properly. However, flexibility is critical to your business operations. Your legal, regulatory, business, cost, and customization requirements can change, so make sure that your software can change with you.

Multi-tenancy can be delivered in different ways. When selecting a multi-tenant offering, avoid vendors which lock you in to their support and software because this may lead to rising prices and a lack of flexibility.

Medium and large sized businesses are best served by multi-tenant offerings which are not shared by several customers while smaller business with standard processes may find lower prices when vendors provide a facility for sharing costs across companies. Companies with little IT expertise should look for SaaS solutions with allow for outsourcing of hardware purchasing, software upgrades, monitoring, and backups.

If you have had experience, good or bad, with multi-tenant applications, we would enjoy hearing from you.

Cloud Infrastructure and it’s impact on Hosting and SaaS

Cloud technology enables SaaS and powerful new forms of hosting that can reduce the cost of service delivery. Note that cloud does not equal SaaS and cloud is not mutually exclusive from hosting.

How much cloud do you need?

Customers can purchase services with different amounts of “cloud” in the service delivery stack. Assume that we have four distinct layers of delivery: cloud infrastructure (hardware resources for the cloud), cloud platform (operating system resources for the cloud), cloud applications (application resources built for the cloud), and client resources (user interface to the cloud). This distinction helps us illustrate the way cloud services are offered in the diagram below.

Cloud Delivery Options

In this simplified diagram, we show three types of cloud services:

• Cloud Infrastructure (for example: Amazon, GoGrid) delivers an cloud infrastructure where you install and maintain a platform and an application.
• Cloud Platform (for example: Windows Azure) delivers a cloud platform where you install and maintain your applications without worrying about the operating environment.
• Cloud Application (for example: Salesforce.com) delivers a complete application, all you maintain is your client access program which is frequently a browser.

SaaS ERP and Cloud Models

Even legacy ERP vendors are moving to cloud technologies to offer software as a service to their customers. When vendors offer SaaS, the customer is only responsible for maintaining their client device (usually just a browser).

Vendors can offer SaaS utilizing all three cloud infrastructures above. Some vendors such as Acumatica offer all three types of services.

• Offering SaaS using a cloud application is straightforward. In this case the vendor builds an application which is tightly integrated with infrastructure and hardware so that the three components cannot be separated.
• Offering SaaS using a cloud platform means that the vendor must manage the application layer separately from the platform layer. This architecture gives the vendor the flexibility to move the application to a separate cloud platform provider.
• Offering SaaS using a cloud infrastructure is similar to a managed hosting scenario. In this case the vendor installs and manages both an operating system and their application on top of a multi-tenant hardware infrastructure. This technique provides maximum flexibility, but may increase overhead slightly.

Comparing SaaS Offering Options

Multi-tenant applications

Multi-tenant applications can be deployed in any scenario to reduce overhead associated with upgrading multiple customers and maintaining different versions of software. This implies that multi-tenancy reduces the flexibility to run an old version of software and limits customization and integration potential. Multi-tenant options should be priced lower to offset the loss of flexibility.

** Recommendation **

For a complex application such as enterprise resource planning (ERP), we advise selecting a vendor that can provide flexibility. ERP systems are not like CRM, email, or other cookie-cutter applications. Your ERP application needs to grow and change as your business changes.

Key questions that you need to ask:
1. Do you need significant customizations and interfaces with on-premise systems?
2. Will you need to move your ERP architecture on-premise in the future?
3. Do you need to own your operating environment and the location of your data?
4. Do you prefer to own software instead of renting it?

If you answered “yes” or “maybe” to any of these questions, you should consider the Cloud Platform or Cloud Infrastructure options. These options provide maximum flexibility as well as the option to own your software.

If you answered “no” to these questions, then a cloud application may provide price benefits that offset the vendor lock-in issues. Be careful that the price that the vendor quotes in year 1 is not going to change significantly in the future when it may be difficult to leave the platform.
 

Software Advice, a website that reviews software for manufacturers, recently hosted a roundtable discussion on the state of the manufacturing ERP software industry. They teamed up with four ERP industry insiders to report on activity in the software as a service (SaaS) market, how vendors are adjusting prices to compensate for the economy, how offshoring influences spending and whether manufacturers are implementing integrated enterprise resource planning (ERP) systems or best-of-breed applications. Here is an overview of their findings:

• SaaS solutions are gaining momentum. Activity in the SaaS market is up among small- and medium-sized enterprises (SMEs). The main driver is the low barrier to implement web-based solutions. SMEs don’t have the same IT resources that their larger counterparts do.
• Software Vendors Adjust Prices to Compensate for the Recession. The recession created pent-up demand as many manufacturers delayed their ERP projects. This has placed pressure on software vendors’ revenues, which has prompted many to drop their prices. Additionally, most manufacturers have tighter IT budgets, so vendors are competing on a cost basis and are reducing both license and maintenance fees.
• Manufacturers Seek Integration Across Offshore Facilities. With more manufacturers looking to move facilities offshore, integration is becoming a greater – and often requisite – driver of ERP software acquisition. In some cases, small and medium-sized manufacturers are even acquiring ERP software just to make a business case for offshoring.
• More First-Time ERP Buyers Seek Integrated Suites. As the functional gaps between integrated and best-of-breed offerings narrows, most first-time ERP buyers are looking towards integrated suites rather than a best-of-breed system. This can be attributed to ERP vendors enhancing functionality of their modules and adding vertical depth by acquiring best-of-breed applications into their ERP suites. As Jonathan Gross points out, “deciding between ERP and best-of-breed applications is no longer an issue that involves a balancing of clear tradeoffs.”

To continue reading the rest of the report, visit: 2010 Manufacturing Software State of the Industry Roundtable – Part Two.