Estimating the time and cost required for an ERP implementation is serious business. In my experience, unrealistic expectations surrounding implementation planning is one of the key root causes for ERP systems failures.
Our 2016 ERP Report shows that a majority of organizations take longer and spend more money than expected to implement their ERP systems. While some may think that this is because organizations are grossly mismanaging their implementations – which could certainly be one of the causes of disappointment – a bigger root cause is that most organizations and project teams have unrealistic expectations to begin with.
Each organization has its own unique variables that will ultimately determine how much time, effort and resources will be required to be successful. However, there are a few general rules of thumb that can help determine those variables based on the actual results of thousands of ERP implementations over the years.
Below is what I refer to as the “Rule of Five” when it comes to estimating your ERP system implementation:
Expect to spend 5% of your annual revenue on your total ERP and digital transformation initiative
ERP vendors and consultants are notorious for underestimating the time and cost required to implement systems. This is sometimes due to the fact that overzealous sales reps are trying to lowball their estimates to get the deal done, while other times its simply due to the fact that sales teams do not truly know the costs required to make an implementation of their software successful.
Unlike the 1:1 software to implementation cost ratio that the industry typically uses to estimate implementation costs, our research over the last decade shows a remarkably steady, yet different metric when it comes to cost. The average organization spends a total of 5-percent of their average revenue on the total cost of implementation. This metric includes everything from software licenses, hardware upgrades, consulting fees, internal resource costs, customization, contingency costs and everything in between.
For example, a company that does $100M in annual revenue is likely to spend an average of $5M on their total cost of implementation. Similarly, a $1B company is likely to spend around $50M on their initiative. Vendors don’t like these numbers because they can create sticker shock while they are trying to close new business, but the facts can’t be disputed.
Keep in mind that most ERP vendors don’t have insights into these additional non-vendor costs, but they typically constitute a majority of implementation costs. Also keep in mind that larger organizations typically see percentages lower than 5%, while smaller organizations can see numbers a bit higher. This is largely because larger organizations have size and scale that enables a lower normalized implementation cost relative to their smaller counterparts.
Expect to spend a total of 5x your direct cost of software
Another useful metric is to multiply your software license costs by five to get your total cost of ownership. Again, as is the case with the 5-percent metric discussed above, this will lead you to a total, “all in” cost of ownership that includes everything that might be required to make your project successful.
For example, let’s say that you have negotiated an on-premise software license deal that results in a per-user cost of $3,000, although it will probably be higher if you don’t use Panorama to help with negotiations. Let’s also say that you have 1,000 concurrent (as opposed to named) users in the new system. This equates to $3M in software license fees.
While the typical ERP vendor, consultant or system integrator might get lazy and assume that $3M will equate to $3M in implementation fees, actual historic data suggests that your total cost of ERP implementation in this example will actually be closer to $15M, or 5x $3M.
Expect to have at least five internal FTEs supporting your initiative
Some might suggest that ERP systems are fairly simple to implement or that the ERP vendor can handle most of the heavy lifting behind implementation, but our research shows that the average company has five internal FTEs supporting their ERP implementation. This does not necessarily mean that five people are committed 100% to the project; it may instead mean that 10 people are spending half their time on the project, or 20 people are spending a quarter of their time.
Unlike the above “rule of five” metrics, which have proven to be very consistent over time and with a small variation among different types of companies, the number of FTEs used by the average company fluctuates quite a bit. Larger companies have much larger teams, while smaller companies are able to scrape by with fewer.
Keep in mind that this number is what is what organizations actually used in their implementations, not what they should have used. Most organizations we survey indicate that they did not have enough internal resource support rather than too much. I always suggest using five FTEs as a minimum number – especially if you are a larger organization.
What about SaaS and cloud solutions?
The above data and examples may seem to primarily relate to on-premise ERP systems. However, we have also found that these numbers are strikingly consistent regardless of whether the technology is on premise or in the cloud.
How can this be, you might ask? It’s simple: the way technology is deployed and licensed is relatively immaterial to the overall cost of the total implementation. Even with SaaS and cloud ERP systems, people and process related issues are more than likely going to consume a majority of the effort, cost, risk and heartburn on your ERP project.
So, it’s pretty simple:
ERP project costs = 5% of total revenue
ERP project costs = 5x your software license costs
Internal resources = 5 FTEs
Of course, these are average numbers, but they provide a good ballpark to start with. And note that the first two metrics, although both related to cost, will often give you two different numbers. Consider these two numbers a starting point for the range of your implementation cost.
Interested to see where your organization stacks up against your competition? Download our 2016 ERP Report to see where you compare!
Too often, companies jump right into selecting new ERP software without first understanding their overarching enterprise and IT strategy. It’s an easy mistake to make when your current systems seem so dated compared to newer options in the industry, but it typically leads to disappointment.
A disconnect between the strategic direction of your overall company and your selected and implemented ERP system can lead to trouble, so here are some tips to develop an enterprise IT strategy that aligns with your overall company strategy:
Define your company’s overall strategy. Some organizations have well-defined strategies, while others don’t. In either case, it is important to either define and document your strategy if it doesn’t already exist, or leverage your existing strategy to complete the additional steps below. This entails ensuring that you have a clear vision for where the organization is headed in terms of growth prospects, future markets or customer bases that you plan to pursue, potential M&A activity and other key strategic criteria that should ultimately influence how you move forward with your IT strategy.
Define IT’s role and purpose in your organization. Ask yourself a key question: does your organization view IT as a commodity or support role in the company, or is it viewed as a competitive differentiator that can help provide unique value to your customers? The answer to that question will likely lead you down one of two paths – one that leads to outsourcing IT functions and applications, or another that leads to building those competencies in house. This will also determine the types of enterprise solutions you might pursue in the future, such as cloud, SaaS, on premise, best of breed, etc. The graphic below shows a basic framework that can be used to drive some of those decisions.
Assess your internal IT group’s competencies. Based on your answer to #2, you also need to look at how sophisticated your group is (or isn’t). A more sophisticated group, for example, may be better suited to handle a best of breed on premise environment, whereas a less robust IT department may be better suited to manage a SaaS ERP system. When assessing your competencies, be sure to take into account the breadth of your team’s skills, as well as your overall physical infrastructure.
Priority of short-term benefits versus long-term benefits. Certain companies move faster than others. Some are more patient in realizing benefits, while others may not be. It is essential to understand how important it is for your team to implement solutions quickly and inexpensively versus focusing on maximizing longer-term business benefits. Those two paths can lead to very different IT strategies. Either way, it is important to look for low-hanging fruit to realize some benefits early to help build momentum.
Other considerations. There are a host of other considerations to keep in mind when building your enterprise IT strategy. For example, how open are your employees to change? How unique is your business compared to peers in your industry? How much are you looking to standardize your business operations across multiple locations or business units? Which areas of your business are the “real” competitive differentiators that you want to focus more resources on? All of these and other questions will help determine the appropriate enterprise IT strategy for your organization.
These five areas will help define an enterprise IT strategy that is aligned with your company vision and strategy. That alignment is more likely to lead to enterprise software success than your industry peers and counterparts.
For the ninth consecutive year, we have published our annual report outlining results from the last year’s ERP implementations. The 2015 ERP Report, which quantifies results from 562 implementations across the globe, provides compelling data helpful to those beginning an enterprise software initiative.
For this year’s survey, Panorama partnered with Mint Jutras, an independent research-based consulting firm specializing in the business impact of enterprise applications. Survey participants varied in size, industry and geography. Half of the organizations in this year’s results generate under $300M in annual revenue while the other half of organizations are bringing in over $300M annually. The survey data for this year’s report was gathered between February 2014 and March 2015.
Here are some of the key findings in this year’s report:
ERP implementation costs are higher than in past years. Over the last year, we saw an increase in ERP implementation costs. The average total cost of ownership increased from $2.8M last year to $4.5M this year. When expressed as a percentage of revenue, the average company spends an average of 5.9% of annual revenue on their implementation. These numbers include software licenses, consulting fees, technical integration, hardware upgrades, internal resource backfill costs and other costs required to fully deploy a new enterprise system. Our study also reveals that companies that get their implementations right the first time by investing in key critical success factors such as organizational change management and business process reengineering are spending less on their implementations in the long term.
ERP failure rates increased from last year. Although every organization has differing definitions of “success” and “failure,” we found that more companies are defining their projects as failures when compared to previous years (21% this year compared to 16% last year). Also, less companies are saying they would have chosen the same ERP software vendor again if they could do it all over again (69% this year versus 76% last year). This suggests that companies are struggling to select and implement ERP systems in a way that they would consider a success.
ERP software customization is on the rise. Despite the increasing number of options among ERP vendors in the market, more companies are customizing their chosen ERP systems than previously. This year, an overwhelming majority of organizations (93%) customized their software to some degree. Although most organizations begin their ERP initiatives with the expectation that they use the “vanilla” software, organizations are clearly still making changes to the way the software was intended to be used. This may also partially explain the increasing failure rate among ERP implementations.
SaaS may finally be reaching the tipping point of adoption. Despite industry buzz, over the last several years Software as a Service (SaaS) adoption has hovered at a relatively low level. However, this year we saw an exponential increase in SaaS and cloud adoption. This year 33% of organizations implemented a SaaS solution, compared to just 4% last year. Non-SaaS solutions that are hosted in the cloud remained at 11% adoption this year–the exact same number as last year. These numbers suggest that although a majority of companies are still implementing on-premise ERP solutions, SaaS and cloud deployment offerings may be just a year or two away from matching or exceeding the adoption rate of on-premise. However, only 56% of these organizations experienced costs savings as a result of their SaaS solutions.
Post-implementation benefits and operational disruptions still leave much to be desired. Unfortunately, benefits realization and simple operational stability after go-live are arguably the biggest challenges companies are facing when implementing their new ERP systems. This year, 52% of companies faced some sort of material operational disruption at the time of go-live – a number that is surprisingly consistent over the last several years. Further, 60% of organizations failed to realize the business benefits they expected from their ERP implementations, which is an increase of approximately 10% over last year.
There are certainly lessons to be learned from this year’s data. In addition, hiring the best qualified, focused and unbiased ERP consultants can make your organization’s implementation more successful.
A man by the name of Dennis Gabor once said, “We cannot predict the future, but we can invent it.” In the ERP industry we have the ability to look at data collected over the last several years to see where trends are shaping the future of enterprise resource planning. Late last year we published a white paper titled 20/20 Panoramic View of the ERP Industry: Nine Business and Technology Trends to Watch. Seeing how much attention it drew, we thought it would be helpful to take a deeper look at some of the emerging business and technology trends that will impact industries, geographies and enterprises of all sizes between now and the year 2020.
Even more heated competition. There is no shortage of business competition in today’s economy, but those forces will continue to intensify over the next several years. Barriers to entry will become lower, private equity and other sources of capital will become more ubiquitous and technological changes will drive shifts in the competitive landscape. Companies that can effectively capture market intelligence will have the ability to morph operations to better meet changing customer needs while effectively collecting customer insights through CRM software, business intelligence and other methods of enterprise software.
Business will reach the mainstream tipping point. As entrepreneurial as our global economy is today compared to years past, the rate of new business formation has not reached the tipping point of mainstream adoption. As technology becomes more accessible, demographics continue to shift to support more business creation (think millennials and immigrants), and popular culture continues to glorify business (think shows such as Undercover Boss and the movie The Social Network). People will start understanding and embracing business more than they do now. Not only will this result in more competition as described above, but it will also create opportunities for those that sell in the B2B space.
Small and mid-size businesses will become more technologically sophisticated. Up until recently, larger enterprises had a big technological advantage over their small and mid-size rivals. However, with the new SaaS ERP software and mobile technologies becoming more cost-effective and easier to deploy, small to mid-markets will be able to catch up to their Fortune 500 counterparts. Gone are the days of companies needing millions of dollars to deploy new enterprise technologies. ERP systems, CRM software and other business technologies will be accessible to most.
There will be tectonic shifts in the ERP and enterprise software industry. Given the fact that ERP vendors and other enterprise software upstarts are opening up smaller and mid-size markets, changes in the business technology landscape will accelerate as more organizations continue to adopt these solutions. More specifically, enterprise software solutions providing flexibility, analytical reporting, mobile access and ease-of-use will dominate the market at the expense of the traditional ERP systems.
Widening gap between “have” and “have-nots.” The increasing adoption of enterprise technologies, mounting competition among businesses in general and changes in the business software space will all converge to create a widening chasm between successful organizations and those that fail. To be successful in this increasingly volatile and competitive environment, successful organizations will need to excel at business strategy, efficient and flexible operations, effective use of enterprise technologies and everything in between. Those that neglect to do so will ultimately fail.
While we cannot speak in absolutes about the future of this industry, these are some of the key trends to keep in mind as you plan your organization’s strategic, operational and technological future.
A number of government organizations are considering the idea of merging internal IT departments and infrastructure by sharing service arrangements. There are financial savings and potential operational advantages to this approach. Relying on one, centralized IT organization ensures improved performance, better security measures and synergistic resilience.
Due to budget pressures, changing work habits and citizens’ expectations, public sector organizations are being pressured to be more mobile, adaptable and capable. “Cheeks in seats” is no longer the only option for public sector organizations and their workforce. There are many cloud, SaaS and hybrid approaches available that can give the public sector workforce the mobility and flexibility required to remain relevant in the 21st century.
There have been numerous IT success stories in the private sector where organizations took advantage of centralization facilitated by cloud solutions. The public sector, on the other hand, is not as agile and bottom-line driven as the private sector – and for very good reasons. Rather than saving money, some public sector IT initiatives actually have a negative ROI – and a negative return on citizenship (ROC). Failure to manage organizational change and a tendency to adhere to old and inefficient processes are the two of the main culprits.
Public sector organizations need third party guidance in order to achieve an optimal mix of technology upgrades and organizational change management. An independent third-party can walk a municipal, city, state or federal agency through the tall cotton and capture, validate and join long-term strategic goals with short-term functional, IT and user requirements. An independent organizational change management consultant can facilitate frequent horizontal and vertical communications and ensure that long-term employees do not feel threatened by new technology or the concept of shared and centralized services.
While the cloud provides several possibilities, a complete move to the cloud is not always practical, particularly for large agencies or organizations. Specific departments or agencies within a larger organization should migrate distinct offices or operations to the cloud in a three-step process:
Define clear IT policies. The organization should implement a central IT infrastructure with clear and distinct policies that are standardized for crucial capabilities and applications. There needs to be a storefront for applications and a single IT throat to choke for management and control.
Acquire private cloud infrastructure. By acquiring a private cloud infrastructure, the organization can highlight the automation and provision behind a single point of management and control.
Evaluate who is using the services. Total cost of ownership can be calculated by determining which applications and capabilities are required and who is using each service. The CIO should evaluate the return on investment and decide which services can be efficiently used in the cloud and which ones need to be provisioned internally. Public sector organizations can also offer cloud services to smaller agencies and bill those customers based on their usage.
Organizational transformation and innovation cannot happen without the right technology and strategic organizational change management. You will not only save money in the long-run, but you will maximize your agency’s quality of service and its ability to achieve a high return on citizenship.
Last week, we published our 2014 ERP Report, which shared some interesting trends among hundreds of global ERP implementations completed within the last year. While some of the trends are no surprise – such as the fact that most implementations still take longer than expected, cost more than expected, and fail to deliver the expected business results – there are also some surprising new trends that we hadn’t seen in past years.
For example, our research shows that cloud and SaaS ERP adoption actually decreased from 26% of all implementations in 2012 to 15% in 2013. While these two numbers aren’t materially different from one another and certainly don’t warrant a reason to sound the alarms just yet, it is a bit surprising compared to what most of us might have expected. This data point also conflicts with the continuing industry hype proclaiming the death of on premise ERP and touting cloud and SaaS ERP as the greatest thing since sliced bread, so what could possibly explain the disconnect?
Before we explore to the reasons for the disconnect, it is important to note that this relates to cross-functional ERP implementations, not more point-specific solutions such as CRM or HCM. While many organizations are still adopting Workday, Salesforce and other SaaS CRM and HCM options at a higher rate over time, they are not doing the same for their full-blown ERP implementations.
Our research not only reveals an interesting reversal in recent trends here but it fortunately also delves into the reasons why CIOs, CFOs and organizations in general are still a bit skeptical of SaaS and cloud solutions. “Lack of knowledge about cloud offerings” (cited by 45% of respondents) and “fear of a security breach” (30% of respondents) are the top two reasons cited by organizations that had chosen to implement an on premise or otherwise non-cloud solution. Clearly, if cloud systems are going to resume the steep market share gains it had demonstrated in past years, SaaS and cloud ERP vendors need to do a better job educating potential buyers and countering some of these perceptions.
First of all, let’s look at the “lack of knowledge” issue. This one is interesting because most, if not all, major ERP vendors offer some sort of cloud solution. Even if they do not offer a pure, multi-tenant SaaS model, most provide third-party hosted options for their on premise solutions. It seemed as though vendors such as Microsoft Dynamics and Oracle had done a good job educating potential buyers of their on-demand or hosted options in recent years but that messaging seems to be losing momentum in recent months.
Secondly, the “fear of security breach” may be even further from reality. More specifically, a company that provides cloud or SaaS options for a living is almost always going to provide more secure solutions than any internal IT group is going to provide. After all, a SaaS ERP vendor’s entire livelihood is at stake if they suffer a material security breach that impacts their customers, while life will go on for the average company whose internal IT group fails to preempt a security breach. However, perception is reality, so the reality is that executives aren’t buying the notion that a third party can provide better security than their own team. Clearly, ERP vendors need to overcome this concern as well.
Finally, this trend is particularly worrisome for small and mid-size organizations, which are typically more likely to adopt cloud solutions than mid-size to larger organizations. If they aren’t feeling comfortable with the cloud options in the market, then they are less likely to purchase new ERP software. The good news for Microsoft is that, if this is indeed true, then they will at least be able to continue selling plenty of Microsoft Excel licenses, since that is the ERP software of choice for these smaller organizations that have yet to migrate to a “real” enterprise system.
The bottom line? SaaS and cloud ERP options have come a long way in the last several years and they continue to evolve as we speak. However, their marketing messaging isn’t doing enough to educate potential buyers, which is causing many to rethink their ERP software purchases, or worse yet, to settle for a perceived second-best option. The good news is that there are plenty of ways to educate yourself on the various cloud and SaaS options available in the marketplace, which should be a prerequisite to any ERP software selection process.
Today, midmarket organizations need to do more with less and become as productive as possible while providing the highest levels of customer service. To do so, they need easy and immediate access to the tools and information they need to do their jobs within one browser session. Traditional ERP systems can often hinder productivity, overwhelming users with a wealth of applications and functions that may not be relevant for them. Led by Eric Kimberling, managing partner for Panorama Consulting, and Joe Scioscia, vice president of sales for VAI, this webinar will stress the importance of implementing ERP solutions that have the ability to combine deep industry processes and analytics with new social collaboration tools. Together, they will discuss how this can create a more satisfying, easier-to-use software experience that helps mid-market customers make better informed business decisions much faster than ever before, while increasing productivity and collaboration throughout their organizations. Both parties will address how these solutions allow knowledgeable workers to customize their own ERP applications and add new social collaboration tools, thus leveraging a role-based user experience that allows access to business functions.
The other day, I was intrigued by an interesting article about cloud ERP systems. In the commentary published earlier this year, the author suggests that Google may become the next big vendor of cloud ERP systems. Imagine that, Google Cloud ERP Systems. The rationale suggests that since smaller organizations have a higher propensity to shift to cloud ERP at this point in time, Google could be a perfect candidate to shake up the market.
More specifically, the author points to Google’s aggressive and small-business-friendly pricing as a key reason why it is likely to make a splash in the cloud ERP arena. The article also presents the hypotheses that Google will piggyback on its progress in providing productivity software to smaller organizations, by providing its customers with a single vendor for ERP software and other solutions.
While Google has demonstrated interest in a variety of diverse solutions in recent years, it’s hard to know for certain whether or not Google will also become an ERP vendor. Either way, this potential theory lends additional credibility to the momentum of the cloud ERP movement. In fact, the research outlined in our 2013 ERP Report shows that 26% of companies implementing ERP systems in the last year deployed either SaaS or hosted cloud solutions. Most of these organizations are small- to mid-size organizations, which are right in Google’s sweet spot.
Assuming Google does enter the market, it begs the question: how will they fare in an already red ocean of competition? SaaS ERP vendors such as Plex Systems, Netsuite, Workday and Salesforce are already gaining strong footholds in various niches of the ERP industry. In addition, traditional ERP vendors such as SAP, Oracle and Microsoft Dynamics are solidifying their cloud deployment options – along with providing pure SaaS offerings as well – which helps explain why these Tier I vendors were able to recapture lost market share in the last year (also outlined in more detail in our 2013 ERP Report).
That being said, we are still finding that many of our clients have legitimate concerns about the viability of SaaS ERP software for their organizations. Perceived security issues, lack of flexibility and less control over workflows and business processes are all obstacles to greater acceptance of SaaS ERP systems, whether from Google or any other ERP vendor. In addition, uptime and access is also a very real – although somewhat unfounded – concern among CIOs and CFOs. Even if a system has 99.99% uptime, executives are scared of that tiny fraction of time that the system is down. Never mind that fact that very few internal IT departments could only dream of that sort of reliability.
Our take? SaaS is a very real trend and one that is very lucrative for the successful ERP vendors in this space but it’s not for everyone. Even Google can’t change the fact that complex engineer-to-order manufacturers, for example, have unique requirements that may not be adequately addressed by a multi-tenant SaaS ERP system. In those types of cases, traditional on-premise ERP systems are more likely to fit the bill.
In other cases, however, SaaS ERP does make sense. Smaller companies with less complex or less defined business processes are good candidates. In addition, larger organizations are good candidates when they can migrate just one functional area over to a SaaS solution (think Salesforce for CRM or Workday for HCM). In addition, companies of all sizes are good potential candidates to migrate their traditional, non-SaaS ERP systems to a third-party, cloud or hosted provider, depending on their longer-term IT strategy.
The bottom line: companies need to cut through the SaaS hype and determine what’s best for them. Their business processes and organizational needs should determine the right solution, more so than the Google brand name or anything else, for that matter.
The world of ERP software has recently been transformed. Gone are the days when only large corporations could afford the luxury of SaaS (software as a service). Today, small to medium-sized businesses also have the opportunity to enjoy the benefits and features of web-based SaaS ERP system.
Enterprise resource planning has been around for over 40 years but only large corporate entities could previously afford the exorbitant costs of on-premise installation, maintenance and training associated with the software. These expenses often run into multi-millions of dollars that companies could not afford. SaaS represents lower costs because you don’t have to purchase any software or hardware. You can instead lease software for a flat-fee or buy it on a metered basis. Think of this as how you pay for electricity; you’re paying for the service on a monthly basis instead of paying for the entire service upfront.
The internet, as it has done in so many other service areas, has leveled and expanded the playing field. Businesses can now deploy a state-of-the-art cloud ERP system in a SaaS environment. This platform includes all of the software your business needs to operate. It’s updated automatically so you don’t have to worry about checking on upgrades for your existing system.
Benefits of SaaS ERP for Mid-Sized Companies
SaaS ERP brings many benefits to mid-sized companies. Employees can easily share and collaborate on data, business intelligence and reports over a secure network, through electronic dashboards. This information flows across boundaries and goes mobile to smartphones, tablets and iPads. All designated staff can access data anytime, anywhere on any device. This is the type of operational convenience any business can appreciate.
Not every business is alike, though. That’s why a cloud ERP system can be customized to sync with the way your business likes to administer its operations. The measures of customization, of course, depend on what ERP vendor you choose.
Privacy is a main concern of any business regarding software. Mid-sized companies, like any other, want to be assured their proprietary data is kept private and well secured. They want to ensure that when they move that data they have full workflow and document management support. A good cloud ERP service provider should be able to guarantee that.
Old vs. New ERP
You can imagine the frustration of many old-school ERP advocates when they see what can be done through the cloud. A SaaS system does much more than traditional on-premise ERP. You will appreciate unlimited user licensing as opposed to per user licensing that you pay with traditional ERP. The setup is fast and the platform is easy to install, which is not the case with the drawn-out, costly deployment of on-premise ERP. With the cloud, you can enjoy easy integration with all other applications, have the mobility to work across numerous devices and boundaries and not pay for any costly maintenance or software upgrades. Some ERP vendors have different costs associated with maintenance and upgrades but if you choose your SaaS system wisely, you’ll be paying a lot less.
Another advantage of web-based applications is you can better mine business intelligence and calculate more accurate reports. You have the ability to move your data in and out of the cloud and you can designate who gets direct access to the system. (Keep in mind, you will also be deploying from a fully-secured platform.)
Mid-sized businesses need the cost-effective flexibility that a SaaS or cloud ERP ecosystem provides. Now, that’s a full on reality. All of the software you need is accessible from any location. Your staff from around the world can have access to the same information in real time. This is where the world of software is at today and it’s an exciting place to be. You can lower and control your IT costs, while at the same time gaining access to all of the software you could think of to conduct business in the best way possible.
Note: The inclusion of guest posts on the Panorama website does not imply endorsement of any specific product or service. Panorama is, and always will remain, completely independent and vendor-neutral. If you are interested in guest blogging opportunities, click to read more about our submission guidelines.
Jenzabar Provides Baker College With an Innovative Solution for Long-Term Success
Jenzabar, Inc., a leading provider of software, services and strategies for higher education, announced today that Baker College System, the largest independent college in Michigan, selected Jenzabar’s SaaS-based ERP offering and Managed Services.
With over 35,000 students, the Baker College System is a non-profit institution offering more than 150 programs at 17 campus locations as well as an online program and a College of Graduate Studies. Baker College was using a legacy system that was developed in-house. The College found it difficult to dedicate the resources needed to develop value-added functionality. As a result, Baker College was seeking an alternate ERP solution that would provide an enhanced feature set, more robust functionality, true mobility, retention tools, and business intelligence technologies to help make data-driven decisions.
One of the school’s primary objectives is to ensure compliance with state and federal rules and regulations. Moving to a fully hosted system became a major branding initiative for Baker College that was called Baker Expedition, Exploring Enterprise Resource Possibilities. The essence of the project was to explore and identify an IT solution that would carry the College far into the future, and establish a long-term business relationship with a provider that would focus on Baker’s success.
“We selected Jenzabar for several reasons,” said Jacqui Spicer, CIO and Vice President for Information Technology at Baker College. “One of them is because of the people at Jenzabar. We wanted a true business partner and it was apparent to our institution that Jenzabar would get in the trenches with us to ensure that our implementation was a success.”
Baker’s criteria involved finding a product that offered a hosted or SaaS solution. Jenzabar’s SaaS solution allows the IT team to focus on critical activities while providing constituents with state-of-the-art services and solutions. Jenzabar JX, the next generation enterprise resource planning (ERP) system, was built from the ground up with the latest technology. Offered as a SaaS-based solution, Jenzabar JX provides an innovative product and services suite that will tackle the growing demands of Baker College’s constituents today and beyond.
“To host or not to host is no longer a question in today’s IT landscape. The future of IT will focus on managing services and providing innovative solutions,” said Spicer. “The Jenzabar JX product is modern and innovative. Jenzabar is dedicated to enhancing the product and truly listens to their customer base to deliver products and services that customers truly want.”
“Baker had a specific IT model in mind that would meet their long-term business goals,” said Robert A. Maginn, Jr., Jenzabar Chairman and CEO. “Our team did a deep analysis of Baker’s business plan and presented a solution that was best suited for the institution. The Jenzabar JX ERP system combined with the SaaS model met all of their criteria, and fit Baker’s business strategy and vision for the future.”
Industry analysts have been predicting the death of ERP for years . . . and it still hasn’t happened. Cloud and SaaS software have yet to overtake traditional ERP systems. This webinar clips explains why the cloud hype is subsiding.
SaaS and cloud ERP solutions are the highest growth segment of the ERP software industry. Companies such as Salesforce, Plex Systems, and Netsuite all continue to show robust increases in revenue while traditional, on-premise ERP systems are showing much slower rates of growth. As outlined in Panorama’s 2012 ERP Report, the market share of cloud-based ERP systems has grown from 6% to 16% in a single year. Even the traditional ERP vendors are redirecting R&D dollars to cloud and SaaS ERP solutions.
However, as is the case with any ERP and IT strategy, there are pros, cons and tradeoffs for both the on-premise and cloud ERP paths. While SaaS solutions may be a good fit for many organizations, it’s not the right solution for everyone. But if organizations do indeed determine that cloud solutions are the right fit, they need to recognize and address the risks and tradeoffs that are inherent in any strategic ERP decision. They also need to recognize some of the complexities associated with migrating from the traditional on-premise approach to the cloud.
Below are three things to consider when transitioning from on-premise to cloud ERP systems:
1. Recognize that risk will shift away from technology to the business. Industry hype would suggest that SaaS ERP systems can be implemented faster, cheaper, and easier than their on-premise counterparts. While this may be partially true for the technology iteself since there is no software to implement on-site and there is less need for a physical infrastructure to support the solution, the tradeoff is relative lack of flexibility. As a result, CIOs and CFOs are forced to spend more time addressing organizational change management and training issues since the solutions can’t be easily changed to fit business needs, increasing the pressure on the organization to change its business processes and people.
2. It’s not as easy as the industry hype might suggest. ERP implementations are difficult, costly, and potentially risky to any organization, regardless of whether you’re implementing on-premise, SaaS or cloud ERP solutions. However, CIOs often make the mistake of assuming that business processes don’t need to be redesigned, employees don’t need organizational change management, or adequate resources aren’t required to make the project successful. Mismanaged expectations are one of the root causes of ERP failures in general, but especially so with SaaS and cloud ERP implementations.
3. Be prepared to address potential integration and data issues as your organization scales for growth. The blessing and curse of SaaS and cloud solutions such as Salesforce, Workday, Netsuite, and Plex is that the technology is often used to roll out point solutions for specific functions of an organization, rather than biting off an entire enterprise-wide solution all at once. For example, many of our clients have implemented CRM systems such as Salesforce as a way to get an immediate ROI for a focused part of the organization. However, integration and data complexities can be amplified when it comes time to bolt on manufacturing, accounting or other types of enterprise software solutions. These complexities often result in fragmented systems and data with challenging integration between systems. Before implementing a SaaS or cloud solution, organizations should have a clear IT strategy and roadmap for how it will address such complexities to avoid backing itself into a corner.
While some of the above points are relevant to all types of ERP systems – whether on-premise, SaaS, and cloud systems – they are especially important for the latter two. Even SaaS and cloud ERP systems require critical success factors to be successful, such as business process management, organizational change management and strong implementation project management. CIOs and CFOs interested in migrating from on-premise to cloud or SaaS systems should be aware of these challenges.
Learn more about choosing the best-fit ERP software for your organization in our on-demand ERP webinar series. Episodes of particular interest may include Understanding the Differences Between Leading ERP Software and Tips for Selecting the Right ERP Software for Your Organization.
SaaS revenues grow strongly; Group well positioned as move to SaaS accelerates
UNIT4, the global business software group, today announced annual results for 2011 which showed increased revenue and the trend towards Software as a Service (SaaS) continuing strongly. Listed on the Amsterdam Stock Exchange, UNIT4 is the world’s leading provider of enterprise software for Businesses Living IN Change (BLINC).
UNIT4 is well known for providing customers in the public and private sectors with software solutions that reduce costs, improve control and enable them to manage rapid and continuous change without the typical costs associated with set-up and customization. This differentiation proved key in growing the number of significant deals (above €1 million), where UNIT4 successfully competed and won against competition from large ‘tier 1’ players in the market. Large deals included Addis Ababa Water and Sewerage Authority in Ethiopia, the City of Oslo in Norway, and Magnox in the UK.
Positive revenue growth in a number of countries exceeded market levels, namely Singapore (+20%), Norway (+15%), North America (+13%), Sweden (+8%) and Benelux (+6%). There was strong activity in both the private and the public sector in these regions.
Highlights for full year 2011:
Total revenue increased by 8% to €454.7 million (2010: €421.7 million)
EBITDA, including FinancialForce.com, rose 2.1% to €87.9 million (2010: €86.1 million)
Earnings per share (before goodwill-related items) rose 7.9% to €1.64
Net profit (before goodwill) increased 11.1% to €48.0 million (2010: €43.2 million)
Product revenue increased 10% to €80.0 million (2010: €72.7 million)
SaaS and subscription revenue grew 45.1%
Strong performance from FinancialForce.com, with excellent prospects for future growth
Acquisitions in the year have positioned the company to enter the business analytics market aggressively and to extend market reach in Asia.
FinancialForce.com, UNIT4’s US-based cloud applications company formed with minority investment from salesforce.com, grew strongly in 2011. The annual revenue run rate (including services) was over $9 million by December 2011. The launch of FinancialForce Professional Services Automation (PSA) has added significant value, both in terms of revenue and the strategic direction of the company. Customers are increasingly taking both Accounting and Professional Services Automation (PSA) applications, driving larger average deal sizes. The largest deal secured to date had a total multi-year contract value of almost $1 million. FinancialForce.com has staff in the US, UK and Spain, customers in more than 25 countries, and users in more than 45 countries.
A recent article published by Tien Tzuoon the CIO Network blog on Forbes’ website suggests that ERP is dead. While it was a well-written article and isn’t necessarily inconsistent with what many other analysts have stated over the last three to five years, I’m still not buying it and still don’t see ERP software going anywhere anytime soon.
Just as a full disclaimer, just as the author of the above referenced article used to be a key employee at Salesforce and may be a bit biased toward cloud and SaaS solutions, Panorama provides ERP consulting solutions and the argument could be made that my biases lean toward traditional ERP. However, at the risk of sounding flippant, I really don’t care what happens to ERP software. It could all migrate to SaaS, the cloud, best of breed solutions, or stay exactly as it is today for all I care. Because we are an independent, technology-agnostic firm, any of those potential industry outcomes will still result in huge opportunities for us to add value to our clients and will do very little to nothing to jeopardize our business model.
With that in mind, I am still not at all convinced that ERP is dead. Let’s set aside all the fears and phobias executives have about cloud ERP software, because those will eventually go away. CIOs will soon realize that most cloud providers can provide more stable and secure solutions than any internal IT organization. However, even after neutralizing those unfounded fears, there are a number of more concerning and real flaws with the assumption that the cloud is going to push ERP systems to a slow and painful death:
This story is a rerun from the ‘90s. I love watching reruns of Seinfeld and Frasier just as much as the next guy, but I know how all those episodes end because I’ve seen them before. During the same era that I was infatuated with Jennifer Aniston on Friends, I was also hearing early in my consulting career that a new “ASP” (application service provider) model was about to kill traditional ERP. It was a pretty compelling story then, but the reality is that ASP – just like SaaS and cloud solutions today – had significant limitations that prevented widespread adoption. For example, lack of flexibility and lack of integration were two big limitations that the ASP model shares with SaaS and cloud ERP. Many companies that did migrate to the ASP model ended up needing to revert back to traditional ERP systems to standardize and integrate their operations better. The side exhibit in this blog visualizes the fact that just as the political pendulum will always swing back and forth between conservative and liberal ideologies, the ERP industry will always swing back and forth between traditional, single ERP systems and SaaS/best-of-breed/cloud/ASP models.
Most companies are still buying ERP. As our 2012 ERP Report, which was published earlier this year, shows, only a small fraction of companies are using SaaS or cloud solutions. It makes sense for smaller or less complex businesses to leverage SaaS technologies for their relatively vanilla business needs, but these solutions simply aren’t ready for the needs of larger organizations. To Tzuo’s credit, his article does accurately convey the fact that most CIOs are looking for alternate deployment options, such as subscription-based pricing and/or ERP systems hosted in the cloud. These are two very real and very viable alternatives for CIOs, but neither movement requires ERP to die. All can peacefully co-exist and provide the best of all worlds to customers.
Business software is not the same as a consumer using Pandora or Facebook. The author suggests that the consumer movement to web-based solutions like Pandora, Spotify and Facebook is proof of the allegedly inevitable enterprise movement to subscription-based and SaaS ERP models like Salesforce and Netsuite. However, this comparison is like comparing apples to oranges – the needs of a consumer posting a Facebook status update is much less complex than an aerospace and defense contractor that has to manage the millions of parts, people, tasks and resources required to build a satellite or aircraft. So while they may be perfect for simple transactions like streaming music, SaaS ERP solutions are nowhere close to being able to handle the types of complexity inherent in most global businesses and supply chains.
Although I’m not at all convinced that ERP is dead, I do agree that ERP is changing and will look very different in five to ten years. Business intelligence, mobile solutions, social media integration, subscription-based pricing models, and private clouds are all exciting new changes to ERP systems. Companies are also getting smarter about how they implement ERP systems – for example, they know not to bite off more than they can chew and they understand they have multiple deployment options. However, SaaS and subscription-based solutions are just one of a portfolio of options available to CFOs and CIOs, and traditional ERP systems will continue to be a viable option for a number of organizations now and in the future. Some of the risks of each are illustrated below:
At the end of the day, the argument over SaaS vs. cloud vs. traditional ERP is simply noise that masks a bigger and deeper problem: most enterprise software initiatives fail. Call it what you want and use all the cool technologies that you want, but your project will still fail if you don’t address the real differentiator between software success and failure, which is more related to business processes and organizational change than it is to software. The sexiest and slickest SaaS software in the world doesn’t matter one bit until those bigger issues are addressed. I can’t predict the future and I don’t bet, but if I could or did, I would put big money on that problem not being automated in my lifetime. So instead of discussing whether or not ERP is going to die, we should be asking: “Are enterprise software implementations ever going to stop failing?”
Purchasing ERP software has become easier and more flexible over the last several years. The advent of public and private clouds, SaaS ERP software, on-demand offerings, and hybrid deployments all provide more options to executives looking to deploy new ERP systems in their organizations. This is good news to most CIOs and CFOs.
The bad news, however, is that comparing options and navigating through the related contract and licensing scenarios add a layer of complexity that most buyers of ERP software don’t have experience with. For example, when evaluating between a SaaS ERP system and an on-premise one, cost and contract structures are entirely different, which can be difficult for less experienced buyers to understand. This difficulty can lead to bad decisions and higher costs for organizations, which we see too often in our industry.
Here are three common “gotchas” to watch for when evaluating and purchasing ERP software licenses for your organization:
Getting Over-Licensed on Your ERP Software. One common pitfall is purchasing more software than you need, whether it be in terms of unnecessary modules, too many users, or other instances of “shelfware” which can be the equivalent of throwing away money. For example, we recently worked with a mid-size manufacturing company that estimated it had purchased $600,000 of shelfware licenses that were not going to be used by the company anytime in the near future. It’s always easier to add to your purchase over time, but nearly impossible to scale back on licenses that you’ve already committed too. Even if your ERP vendor is offering you a “once-in-a-lifetime” deal on software licenses in order to meet quarter- or year-end numbers, you are more likely to more than compensate for the alleged savings by over-purchasing software that you don’t necessarily need.
Failure to Consider to Total Cost of Ownership of Your ERP Software. Licenses are typically just one aspect of the total cost of ownership (TCO) of your ERP software purchase and account for less than 25-percent of TCO according to our research of nearly 2,000 ERP implementations across the globe. Most organizations fail to consider the remaining 75-percent of total outlay, such as hardware costs, internal and external project resources, integration and customization, and other hidden costs. Executives should have a clear picture of the TCO for their purchases – not just their direct software license costs – and this understanding should be applied to negotiate contract terms accordingly. In addition, the TCO should be quantified for at least seven years, which can paint an entirely different picture than if you simply consider the first year or two (think: SaaS vs. on-premise ERP systems). For example, SaaS ERP systems often entail additional vendor costs, such as storage or transactional volume fees, in addition to other non-vendor fees associated with deploying the software.
Negotiate a Long-Term License Deal. Rather than focusing solely on the immediate purchase, it is more important to view the acquisition of ERP software as a long-term deal. Since most implementations take between one and two years (longer for larger organizations) and another one to two years to realize the benefit from these implementations, it rarely makes sense to front-load license contracts to acquire the software all at once. Instead, companies should purchase what they need when they need it and pre-negotiate the price on future purchases to avoid unanticipated license cost increases. For example, we typically negotiate deals for our clients allowing them to purchase additional licenses, modules, or users at pre-defined costs for three years or more, while at the same time minimizing their up-front capital outlays.
Negotiating ERP software licenses and contracts is part art, part science, and requires a solid understanding and breadth of experience. We have helped more than 100 organizations negotiate software license contracts of all types over the years and have amassed experience that most CIOs and CFOs simply do not have. However, with the right expertise and guidance, executives can effectively negotiate long-term deals that make sense to their organizations and consider the various complexities, nuances, and constantly changing realities of ERP software contracts.
Leading Openbravo Partner, Sysfore Technologies awarded as the Partner of the Year 2011 – India
Sysfore Technologies, a specialist provider of business web solutions and IT Outsourcing services, has been named Partner of the Year 2011 (India) by Openbravo. Openbravo, the agile ERP company, announced the winners of its “Partner of the Year 2011” awards recognized for technical excellence in their geographic region throughout the year and for helping customers achieve low cost, real business results with Openbravo’s ERP platform. The awards recognize implementation partners from Openbravo’s world-wide network of more than 100 partners in 40 countries.
”2011 was Openbravo’s most successful year in company history, and this success is a direct reflection of the dedication and commitment to customer success from our global partner network”, said Andreu Bartolí, VP Channels at Openbravo. “With so many satisfied customers and excellent partners, selecting the ‘Partner of the Year’ was more challenging than ever. We congratulate all the award winners for their contributions and the shared success of our companies and look forward to an exciting 2012.”
Sysfore, a specialist Openbravo partner, offers both enterprise and SaaS variants of Openbravo ERP, bringing to market a serious, viable and cost effective alternative to mainstream commercial ERPs. In 2011, Sysfore continued to improve its Openbravo offerings and service infrastructure to serve its customers across different industries and regions. In 2012, Sysfore launched its first solution on Openbravo – for Human Resource and Payroll Management on the Openbravo Exchange. For manufacturing industry clusters in South India, Sysfore now offers customizable SaaS variant of Openbravo ERP, raising the benchmark for the industry. Sysfore also embarked on a journey towards Retail industry vertical specialization with the launch of its Integrated Retail Solutions that include core components to manage Store, Merchandise and Ecommerce operations, easily extendable to components to automate Financial Management & Accounting and Human Resources & Payroll.
Finally, Sysfore launched its Middle East office in Abu Dhabi in 2011 offering open source Openbravo ERP implementation services for retail, distribution and discrete manufacturing for small and medium businesses.
Ajith George, Director Projects of Sysfore says, “It’s heartening to receive recognition for our efforts in pushing forward Openbravo ERP as a serious alternative for enterprise software in our regional markets of India and the Middle East. Working with Openbravo has been a pleasure, and their partner friendly approach and support ecosystem has helped us deliver value in the highly competitive ERP space. With the new Openbravo 3 release in early 2011, its rich functional footprint, appealing user interface and compelling advantages in terms of cost-benefit value, we see a rich world of opportunities especially with the small and medium sized enterprises in our markets.”
Sysfore Technologies Pvt. Ltd. is a specialist IT Outsourcing Services company focusing on Openbravo ERP implementations, Turnkey Cloud Solutions and Microsoft Business Application Outsourcing Services for Small and Medium Businesses globally. Based out of Bangalore, India, Sysfore delivers on IT engagements by providing high quality local engagement, complemented by cost-effective offshore development. At Sysfore, we are committed to our customer’s success. Sysfore has several Openbravo implementations with customers globally in the last year across industries in Retail, Manufacturing and Distribution. Some of the customers who have valued Sysfore’s services and achieved success include Decathlon Sports India, Maison Boutique, ReaMetrix, and Compact Electric Lamps.
A full profile of Sysfore Technologies is available on the web at www.sysfore.com.
With another year quickly drawing to an end and our predictions for ERP in 2012 already in place, we thought it would be worth taking a look back at the past year in the ERP industry. As we reflect on the major milestones of 2011, it reminds us of the large spectrum of positive and negative industry incidents. For example, on one hand, Panorama Consulting continued its growth and success by merging with The Prescott Group while, on the other hand, several high-profile organizations failed miserably in their attempts to implement ERP systems.
Here is a look back at three of the major milestones of 2011:
Proliferation of ERP failures and lawsuits. Even with the economy still in the dumps and CFOs and CIOs more risk-averse than ever, lawsuits, fraud and project failures continued to grab headlines. For instance, Lumber Liquidators, CareSource Management Group, Tesco Bank, Whaley Foodservice Repairs, and the City of New York all reported failed or troubled ERP implementations in 2012, reminding us all how awry ERP projects can go if they are not managed well. Case in point: the CityTime payroll system implementation, which had an initial budget of $63 million and rapidly grew to $760 million in actual costs, along with allegations of kickbacks amongst the project’s system integrators and sub-contractors. While our firm will undoubtedly provide ERP expert witness testimony in several high-profile lawsuits in the coming year, we would much rather be earning our revenue by helping companies do ERP right the first time. Hopefully, these examples serve as reminders of the value of independent ERP consulting experts to help select and implement enterprise software effectively.
Industry growth and consolidation. Despite the accelerating rate of ERP failures, the industry as a whole showed continued signs of life in a tough economy. Panorama expanded its reach into new industries, service areas, and geographies by merging with The Prescott Group to form Panorama Consulting Solutions, while Infor continued its march toward becoming a viable Tier I ERP vendor by acquiring Lawson. In addition to these and several other high profile merger and acquisition deals in the enterprise software space, other ERP vendors demonstrated aggressive growth by expanding their footprints of new customers, embracing software as a service (SaaS) and cloud delivery models, and focusing on emerging markets such as China. SAP, for example, continued to push its Business By Design SaaS offering and indicated that China is its number one geographical growth priority in 2012 and beyond.
The cloud is for real. 2011 appears to have been a turning point for cloud ERP software and SaaS solutions, with it becoming more clear that the movement is not a flash in the pan.SaaS ERP vendors such as Salesforce, Workday, Kinaxis, and Netsuite all exhibited strong software license growth in the last year, while traditional on-premise vendors such as SAP, Oracle, and Epicor demonstrated stronger commitments to their SaaS and cloud offerings. While the heaviest rate of adoption is still very concentrated among smaller organizations, the adoption rates in these segments of the market illustrate that the cloud is here to stay. The next step for SaaS ERP vendors is to prove that they can crack the code and concerns of the enterprise software needs for larger organizations.
While 2011 may have been a mixed bag, it left us with enough positive news and opportunity to get us ready for an exciting 2012 with optimistic prospects. On behalf of everyone at Panorama Consulting Solutions: happy new year to our current clients, future clients and industry peers. Here’s to a successful 2012 and we look forward to working with you.
Confused about the cloud? Stumped over SaaS? Perplexed by platforms? Wonder no more! Panorama has posted a new white paper, Frequently Asked Questions About Cloud ERP to make sure that you have the information you need before deciding which ERP deployment option is right for your organization. The free report covers security issues, benefits and drawbacks of cloud ERP, primary causes of ERP cloud failure and comparisons between cloud / SaaS solutions and on-premise solutions based on research in our 2011 ERP Report and 2010 ERP Report. To whet your appetite, we’ve included three of the ten FAQs below:
1. What’s the difference between cloud and software-as-a-service (SaaS)?
SaaS offerings are typically smaller, niche solutions that are best for organizations with limited complexity, size and global presence. ERP vendors host SaaS applications on their own infrastructures instead of locating the systems on-premise at the purchasing organization. To use a SaaS application, one typically logs into a vendor-controlled website.
Cloud ERP, on the other hand, really means traditional ERP solutions hosted off-site. Its flexibility and scalability are big selling points, as is the capability to access real-time data from anywhere without using complicated and costly remote-access software.
2. What is a “hybrid” cloud option?
A hybrid option is basically another way of saying cloud ERP. As touched on above, it’s when organizations purchase a traditional Tier I (SAP, Oracle, Microsoft Dynamics) or Tier II (Infor, Epicor, Lawson, etc.) ERP system and have it hosted by a third-party vendor. This can be a “best of both worlds” scenario for some companies as it provides the flexibility of on-premise ERP solutions with the cost and outsourcing benefits of the cloud.
3. Is it really faster and cheaper to deploy cloud-based solutions?
There’s no question that it’s faster (and cheaper) to implement a cloud-based solution than an on-premise one . . . at least in the short-term. What vendors might not tell you, however, is that an ERP strategy still has to include comprehensive business process mapping, data cleansing, organizational change management, end-user training and a number of other activities to ensure your organization achieves the highest possible ROI.
The cost structure of cloud ERP also is quite different than on-premise ERP. Rather than paying one lump sum up-front, organizations must pay for yearly subscriptions to their cloud provider. Companies are of two minds about this: on one hand, it’s a great way to amortize a large upfront expense over several periods. On the other, if cash is suddenly tight it may be impossible to pay for the subscription going forward (whereas with an on-premise solution, the costs would have already been absorbed). Think of the difference between buying and leasing a car – while scheduled payments can be easier to stomach than a lump sum, buyers who go this route typically end up paying more in the long run.
Earlier this month, Salesforce hosted Dreamforce, its annual conference for cloud ERP vendors. The event drew over 45,000 participants this year, underscoring the significance of the company in the ERP space, and more importantly, the significance of cloud and Software as a Service (SaaS) based ERP solutions.
Dreamforce also featured the launch of Kenandy, a Silicon Valley startup focused on SaaS ERP solutions for the manufacturing industry vertical. While ERP vendors such as Salesforce, Plex, and Epicor already provide SaaS manufacturing ERP systems, this particular industry has been sorely lacking the software options required to give most manufacturing executives the choice and comfort required to fully embrace the SaaS model. Kenandy’s launch, which is backed by over $10 million in venture capital funding, helps mitigate these concerns.
Don’t get me wrong: the SaaS and cloud trends are very real and are quickly changing the game for ERP vendors and their customers. Despite the relatively low market adoption rate, SaaS acceptance is still growing incredibly fast, up from 6% to 16% adoption between 2009 and 2010. In addition, ERP vendors such as Salesforce and Workday are providing best of breed point solutions in the CRM and HR arenas, which are more likely to be embraced by manufacturing executives. However, when it comes to fully integrated solutions that tie together a manufacturer’s data and business processes – ranging from financials to inventory to manufacturing workflows – into a single system, SaaS ERP systems have been lacking, with only a handful of solutions providing the truly integrated processes desired by most manufacturing and distribution companies. With each new company like Kenandy and Plex, executives in this industry vertical will become more comfortable and more likely to adapt the SaaS model.So does this mean that traditional manufacturing ERP systems are obsolete, only to be replaced by SaaS options like Kenandy? Not quite yet. Although many industry analysts strongly disagree with my lukewarm opinion of SaaS solutions, I still feel as if we are still three to five years from seeing widespread adoption of SaaS enterprise solutions in the manufacturing industry. Indeed, our most recent research – as outlined in our 2011 ERP Report – indicates that only 16-percent of organizations that implemented ERP systems in 2010 had adopted SaaS-based solutions. Despite the hype and long-term potential, the fact of the matter is that SaaS and the cloud have not yet quite killed traditional enterprise software.
In addition to more options, here are a handful of things that need to happen before manufacturing executives fully embrace the SaaS model:
1. More breadth and integration. The complexity of most manufacturing companies makes SaaS adoption more difficult, resulting in a lower adoption rate here than in other industries.While SaaS CRM or HR options from Salesforce or Workday can be effective solutions to address specific and relatively vanilla functional areas, most SaaS ERP systems do not provide the breadth of functionality and business processes required to address manufacturers’ business requirements. Companies such as Netsuite and Plex are changing this, but the maturity and breadth of fully integrated manufacturing ERP processes are not quite there yet.
2. More robust development and integration tools. One of the shortcomings of the SaaS model is the relative lack of flexibility compared to traditional, on-premise solutions. Since SaaS options typically entail multi-tenant delivery models, they are inherently less flexible to customize. Granted, they still do allow tailored changes to basic configuration and set-up, but they do not allow heavy customizations. While customization is generally viewed as a negative thing, it is often required to help organization’s maintain and automate their competitive advantages. In fact, according to our research, only 15% of ERP implementations involve no customization, so it is something that is clearly desired by the market. Until SaaS solutions further develop their tools to allow the flexibility that most executives are looking for, they will always play second fiddle to traditional ERP solutions.
3. Concerns with security and data ownership. I spoke at a manufacturing ERP conference in Chicago last month, and executives at the event demonstrated common concerns with security and data ownership. The reality is that SaaS and cloud providers build their entire companies around providing secure solutions – while manufacturers aren’t generally focused on doing so – so they can quite frankly provide more security and stability than any internal IT department would ever be able to. Similarly, manufacturing companies that service aerospace and defense, food, and the government, have concerns about controlling or owning the data, which is a concern addressed by most effectively negotiated software contracts. However, SaaS ERP vendors don’t seem to be doing enough to address these concerns. Until software companies do a better job of selling their capabilities in these areas, manufacturing executives are going to remain skeptical.
Once these three areas are addressed, manufacturing companies will more fully embrace the SaaS model. In the meantime, executives are going for a sort of hybrid approach, where they purchase traditional ERP solutions while having them hosted in the cloud. This often provides companies with the potential benefits of SaaS while maintaining the flexibility they are looking for in their ERP systems.
Learn more (and follow links to all of our related material) on the SaaS page of our ERP Software section.
Until the late 90’s, the main role of the IT department (then known as data processing) was to write and maintain programs to run parts of the business. Much of its time and resources were consumed just to keep hardware and software running. With the advent of more packaged solutions, especially ERP systems, the IT staff’s responsibilities shifted somewhat from custom programming to maintaining and interfacing packaged solutions. As time went on, users began to ask functional questions that were more business-related than technical. So IT had to become a business management resource more than a technical support resource. Today, an understanding of business processes and functionality remains an important facet of IT department responsibility.
IT as Value Add
With the advent of software-as-a-service (SaaS) and cloud computing solutions, the role of the IT department is once again evolving to meet new challenges. With cloud-based applications, for instance, IT is no longer responsible for installing and maintaining the applications and updates, daily back-ups and other routine tasks. Those activities belong with the SaaS supplier.
Yet the IT department is likely still considered as application experts and business process enablement advisors. IT should embrace this role as an important value-adding contribution to company success. Further, with its increased focus on business problem solving and decreased focus on technical aspects, IT staff should be encouraged to learn more about the functional side of ERP, CRM and other applications that are critical to operational users.
An Eye on Business Benefit
Acting as a liaison between the application suppliers and the user community, IT staff is well positioned to identify how systems can help the company reduce costs, increase flexibility and agility, improve customer service, and reduce time-to-market.
One example is the increased availability of smart phones and tablets, which has created more interest in linking these devices to business information systems. Other technologies like GPS, RFID smart tags and plant/warehouse level devices like voice technology offer plenty of opportunities – and challenges – to IT departments. This evolution will keep technology firmly in place for IT professionals as they help users find new ways to apply these tools for business benefit.
Note: The inclusion of guest posts on the Panorama website does not imply endorsement of any specific product or service. Panorama is, and always will remain, completely independent and vendor-neutral.