ERP SaaS 101: Services Trump Software

How many ERP SaaS offerings are in the market today?  The number depends on who you ask but it is a fair statement to say that all Tier I and the majority of Tier II ERP vendors have a SaaS offering.  A majority of the market and many ERP analysts still take an on-premise approach to evaluating ERP SaaS offerings.  Services, not software, will have the greatest impact on ERP SaaS success.  The purpose of this article is to examine the impact services will have in a SaaS model.

Installation Is Not an Implementation

Ah, the battle cry of ERP SaaS “You can be up and running in a matter of minutes!”  Now, it is a fair statement you will have a running system but it is a far cry from a configured business solution.  Consider the key activities required for this transformation:

SaaS Implementation Services

SaaS Technical Services

Even though ERP software and infrastructure can be provided in an accelerated fashion, the business value realization of an ERP SaaS model can only be achieved through the effective delivery of technology services.   SaaS ERP is not a push-button solution.  I submit that technology services should have an equal or greater emphasis on ERP SaaS selection than ERP SaaS software. 

Great Services Can Cover a Multitude of Software Gaps

ERP SaaS software installation is a very small step in ERP SaaS experience.  Consider the following illustration:

ERP SaaS Solution Lifecycle

ERP SaaS Lifecycle

Following are a few points I would like to elaborate.  First, installed ERP software does not provide any business value own its own.  Business value is only realized when software is configured and implemented in a production environment.   Second, let’s not forget that an ERP SaaS model is outsourcing technical services to the ERP vendor.   Third, ERP SaaS software release cycles will be at least three times faster than traditional on-premise ERP software.  That means that a SaaS software model will address gaps in a shorter term.  As more customers look at SaaS ERP I believe that services not software will be the emerging competitive differentiator. 

Majority of ERP SaaS Offerings are Non-Competitive Differentiators

For purposes of this discussion please allow me to broadly categorize business processes into three areas:

ERP supporting business models

ERP supporting key business process groups

There are some key concepts that should factor in the ERP SaaS selection process.  First, competitive advantage only comes from revenue-generating business processes.  For example, would having the best of breed solution for SOX compliance enable you to gain market share?  Also consider if you would highlight your Payroll system as a competitive advantage to your customers. A best practice is not a competitive practice.  Organizations, just like individuals, cannot be the best in everything but it makes sense to be the best in your revenue generating activities.  A best-of-breed SaaS solution is of little value if the ERP SaaS provider does not provide competent technical services for reliable integration across multiple environments.

Summary

Too often we focus on the cart before the horse.  I believe that we are experiencing this misalignment with the emerging ERP SaaS market.  The best ERP software is of little value if you cannot implement a viable, manageable solution.  Technical services provided by the ERP vendor’s SaaS operations will have the greatest, long-term impact for business success.  Pick an ERP vendor that will focus on improving both their ERP software and SaaS technical services.

Is Cloud Ringing the Death Toll for ERP?

Cloud computing is here to stay, but what does that mean for those who sell and implement ERP solutions today?

First, it means that there is a new way in which business software solutions are being purchased and consumed, and that means resellers need to pay close attention to the way they run their business. Secondly, it means that if ERP companies wish to remain in the game, they need to make some significant changes.

Cloud on its own doesn’t affect the validity of ERP. Businesses still require management software to help them run their organization effectively. What Cloud does do however, is level the playing field and make ERP solutions more accessible to the consumer. That means publishers and resellers need to pay attention.

New Cloud companies are popping up every day, and while laggards scramble to bring their on-premise solutions to the Cloud, these born in the Cloud players are discovering faster, easier, and less expensive ways to deliver ERP. Complex, highly customized and bulky solutions which come with a hefty price tag and a collection of features and functionality not required by the end-user are quickly being replaced by pay as you go solutions. Customer expectations are also changing; soon no one will be willing to accept that ERP requires a huge capital expenditure and lifelong commitment without first researching alternatives in the cloud.

 

Cloud ERP Product Cycle

Product Lifecycle for Cloud ERP Offering

 

While Cloud ERP is still an emerging market, it is fair to say that we’re moving beyond the early adopter stage. We’ve crossed the chasm, and are quickly headed towards the early majority market. Within the next 2 years we can expect to see a majority of ERP purchases made in the cloud.  In our opinion, Cloud ERP will not be an initial threat to a vendor’s existing up-market ERP customer base.  This market is highly saturated (+90%) and today we do not see a compelling value proposition for large customers to move completely to the Cloud.  We do see opportunities where Fortune 500 ERP customers may be interested in implementing edge software products in the cloud (ex. travel & expense, self-service, tax calculation and compliance, etc) as part of a hybrid deployment model.  Where we do see a threat/challenge to on-premise ERP is in the SMB arena – especially for new customers.  This market continues to be a strategic growth area for ERP and customers have a greater flexibility to leverage a SaaS or Cloud model.

The Fate of ERP

While it doesn’t appear that the fate of on-premise ERP solutions is entirely bleak, there will certainly be a marked shift towards Cloud based ones. In fact, the resellers can already feel this happening.  There are fewer people out there looking for business management systems in general, and in a time of economic uncertainty and tight budgets, the appeal of an operating expense and a per-seat price is more than appealing. Customers are becoming more likely to change their processes to align with the functions of a less expensive Cloud based solution, than to go through the process of building one which is fully customized. What’s more, people are less likely to pay the large price tag most often associated with ERP services, instead preferring a solution in which they can turn off functions (thus reducing costs) at their leisure. 

So no, Cloud isn’t exactly ringing the death toll for ERP solutions, but it is changing them. ERP will always be required by many types of organizations, but on-premise ERP may in fact not survive this shift long-term. If traditional ERP companies hope to survive the transition they need to be proactive about developing their Cloud solutions, and that means more than throwing up a landing page and calling yourself a Cloud player.

So what do you do?

If you’re an on-premise ERP reseller with no Cloud transition plan, you better get started. That means developing a team to strategize taking your solution to the cloud, putting the necessary resources behind it, and understanding why some customers have an inherent fear of the Cloud. If you’re already developing your Cloud solution, then keep at it and make sure you’re not just focusing on the solution, but on the marketing and sales as well. And if you’re already well entrenched with an ERP solution in the Cloud, then you should get ready to defend your competitive position because you won’t be alone for long.

ERP Deployment Types

ERP Deployment Types

 

Additionally, if you’re a company seeking out a new ERP system, you should carefully consider the benefits of using a Cloud solution. While we’re only entering the early majority market, Cloud computing is the wave of the future. As consumption models go, Cloud works for a majority of businesses today, and the list continues to grow. If you’re looking to move some of your capital expenses into operating expenses, and looking for a better way to manage your business, ERP in the Cloud might just be for you.

Guest blog by Jason Carroll with contributions from Brett Beaubouef

Jason is an industry analyst for Software ThinkTank.  Software ThinkTank is an online resource that helps businesses keep up-to-date with the latest trends, technology innovations and business solutions through a range of articles, case studies, guides and tools. Visit SoftwareThinkTank.com for more information.

SI Partner for PeopleSoft ERP

Blog Sponsor – Cardinal Point Solutions, LLC.

Cloud ERP – New Dog, Same Fleas

I am very excited about Cloud ERP and the potential opportunities for customers, however, I like to speak to the minority opinion for a balanced discussion.  Just as ERP was deemed the panacea for all business automation pains, Cloud ERP is positioned as a revolutionary approach to deploying an ERP solution.  Cloud ERP provides a solution that is flexible, adaptable, scalable, efficient, and affordable.  Customers can enjoy painless upgrades, rapid deployment, and easy customization along with availability “anywhere at anytime”!  Practically speaking, Cloud ERP is just another deployment option available to customers.  The activities required for an “on premise” ERP implementation are also required for Cloud ERP.  The scope and responsibility for the implementation activities may be different but most assuredly they are still required.  Let’s further discuss the key impacts that a Cloud ERP deployment will have on the implementation.  For our discussion, we will refer to the following standard ERP life cycle.

 

ERP Phases

ERP Life Cycles

 ERP Life Cycle: Implementation

A repeated value proposition for Cloud ERP is a quicker implementation and deployment.  However, it is important to note that technology has a limited impact on accelerating implementations.  The deployment approach for cloud will naturally encourage a fixed, limited implementation scope – however, this is not unique to Cloud ERP.    I agree that from a technology perspective Cloud ERP offers a faster installation timeframe.  Nevertheless, it is important to note that Cloud ERP is only one component of a business solution.  There are still multiple disciples required for a Cloud ERP implementation – especially organizational change management.  Cloud ERP can provide very robust functionality but if the organization is not prepared to properly use the software then the value of Cloud ERP will quickly dissipate.  Also, note that data conversion and the quality of the data converted will have a significant impact on both the speed and value cloud ERP can provide.  Third, integration will be a greater challenge in a Cloud ERP model versus an on-premise ERP model – if only because the Cloud ERP will be outside the company’s internal network.   Now, let’s consider the impacts Cloud ERP will have on the maintenance life cycle.

 ERP Life Cycle: Maintenance

 There are two areas of consideration for the Cloud ERP deployment model: customizations and integrations.  These two areas are impacted based upon the cloud model.  Following is a summary of the most common cloud models.

 

Key ERP Cloud Offerings

ERP Cloud Models

The key consideration is whether the customer has a dedicated software instance or a shared software instance.  In general, a customer will have greater flexibility with integrations and customizations if the customer has a dedicated instance.  If multiple customers are on single software then the Cloud ERP provider may limit the level of integrations and customizations because the software changes may have an adverse impact on all the customers on a shared instance. 

ERP Life Cycle: Upgrade

ERP upgrades are necessary for software maintenance compliance and generating opportunities for greater return on investment.   The responsibilities may shift for performing the technical upgrade, however the customer must provide resources for providing input to the delta fit/gap process, conducting organization change, testing, and validation.  Another key consideration is if the customer has any flexibility on the frequency and timing of ERP upgrades.   Lack of flexibility may result in the customer managing to the Cloud ERP vendor’s timetable. 

ERP Life Cycle: Decommission

In general, the typical ERP life span is 10 years.  As most customers are “going concerns” focused on growing and becoming more successful, it is important to consider the options available to move across delivery models.  Consider the following illustration:

 

ERP Deployment Options

ERP Deployment Model

There is a relationship between customer size, integration requirements, customizations and ERP deployment models.  As a customer matures and grows there will be a need for greater integration and customizations to address unique competitive requirements.  Customers must balance cost and flexibility in selecting the right ERP deployment model.

Summary

Cloud ERP is providing additional opportunities for customers to leverage ERP as a viable option to support business operations – especially for smaller businesses with limited resources that require out-of-the-box functionality.  However, it is important to remember that Cloud ERP is not a short cut to success.  Responsibilities may change but the same activities are required to ensure a successful solution.  As with every deployment model, there are advantages and disadvantages to consider.  It is in the customer’s best interest to consider all phases of the ERP life cycle when selecting the appropriate deployment model. 

Applying Pareto’s Principle to ERP Selections

The Pareto principle (also known as the 80-20 rule), states that, for many events, roughly 80% of the effects comes from 20% of the causes.  The principle was developed to explain income and wealth distribution in Italy.  This principle has evolved into a “rule of thumb” in business.  In the software industry the Pareto principle has been applied to several areas:

  • Fixing the top 20% software errors would result in addressing 80% of reported software issues.
  • 80% of the value customers receives from software comes from 20% of the software’s functionality.

ERP Selection Case Study

I recently completed a software selection project for a mid-market discrete manufacturer.  A key activity for software selection is prioritizing requirements.    The following table provides an executive summary of our requirements gathered.

Area

Requirements Pains

Benefit Opportunities

Order Management

207

35 25
Warehouse

93

19

16

Manufacturing

88

17

9

Engineering

44

24

16

Finance

142

8

24

Purchasing

37

23

11

Reporting

77

14

38

Total

688 140

139

 

Allow me to make a few key points.  Gathering requirements is an iterative process.  The objective of requirements gathering was to define requirements to a level where the customer could make an informed decision on selecting an ERP solution.  As the implementation progresses from software selection to implementation the high-level business requirements will be further refined.  Second, as you gather requirements it is important to capture business pains and benefit opportunities.  Pains are limitations or barriers that keep business from meeting their objectives.  Pains may result in additional requirements and/or opportunities for quick wins.  Benefit opportunities are directly related to business requirements and will enable the customer to start with developing the business case up-front versus towards the end of software selection (which is reactive and a bad practice for software selection). 

Requirements Prioritization Guidelines

Requirements prioritization can be a painstaking, time-consuming process.  For the customer in this case study we had a single prioritization session instead of individual, functional prioritization sessions.  As part of the joint session we defined the following guidelines:

  1. Individuals should consider their top 3 – 5 business requirements.
  2. As a group we will determine priorities for all requirements (not just your own).
  3. Priority classifications: “Must Have”, “Valuable”, “Nice to Have”
    • “Must Have” requirements include competitive, strategic, and compliance business needs.  Revenue-generating business processes should drive the majority of these requirements.
    • “Valuable” requirements are usually not “show stoppers” however, they will add quantifiable benefits to the organization.
    • “Nice to Have” requirements are convenient but do not provide a significant or quantifiable benefit to the organization.
    • Rule of Thumb:  Demonstration scripts for vendor demos should primarily focus on “Must Have” requirements.
  4. Using Pareto to estimate requirements prioritization
    • No every requirement should be marked as “Must Have”.
    • Prioritization should be solution-based, not functional-based.
    • 80% of benefit is generated from 20% of effort (requirements).
    • 20% (138) of the total requirements (688) gathered should be prioritized as “Must Have”.

 

Summary

Prioritizing business requirements for an ERP selection project is both an art and a science.  Sorry to say that there is not a simple formula that can help you magically produce appropriate rankings.  There are heuristics like Pareto’s principle that can provide you “signs” that you are heading down the right path.

Five key areas to consider when selecting ERP software

There are five key areas to consider when selecting ERP software:

(1) Functional Fit

How well does the ERP software fit with (a) current business requirements and (b) future business requirements?  Too often I see vendor responses and demonstrations spend too much time on “core” functionality and not enough time on the unique and strategic requirements of customers.  These are the requirements that generate a competitive advantage to customers.

(2) Technical Fit

Two key activities need to be performed: (1) internal technical assessment and (2) external technical assessment with each vendor.  The internal technical assessment consists of identifying the current state of the customer’s IT environment: in terms of hardware, software, FTEs, and skills.  The external technical assessment consists of identifying the technology requirements of the vendor’s ERP software in terms of hardware, software, FTEs, and skills.  You then perform a comparison (fit/gap) to identify the technical requirements for the customers to move to the vendor’s ERP solution.   Quantifying the technical gap is very important in calculating the financial fit.

(3) Organizational Fit

This area is typically overlooked and underestimated.  It is important to understand how the customer’s organization must change to effective support the new ERP solution.  Many customers know that they must change, however few understand how and the amount of change that is required. 

(4) Implementation Partner

This is by far the area that will have the greatest impact on your success with any ERP software.  You can select the ERP software with the best fit but if you cannot implement the ERP software then what is the point!  This area is so important you should have a separate selection process for the implementation partner (separate RFIs, RFP, Evaluation).   Following are the key questions you should address with potential implementation partners:

  • Strengths
  • Weaknesses
  • Revenue, # of consultants dedicated to ERP software vendor
  • Locations
  • Industry Focus
  • Target Customer Focus (Up-market, SMB)
  • Software Product Knowledge
  • Certifications (Software, Industry)
  • Type of Consulting Services (implementation, upgrade, training, process improvement, installation, technical services) – how well can they support the entire ERP lifecycle
  • Implementation References similar to you
  • Recent News
  • Thought Leadership (publications, presentations)
  • Partnership status with Vendor (# of years, level)
  • Vendor recommendation

  (5) Financial Fit

 What is the total cost of ownership across the expected lifecycle of the ERP solution – including installation, training, implementation, maintenance, upgrades, hardware, ERP software, 3rd part software, process improvements?  It’s important to set the expectation that the proposed gains will not be realized in the initial implementation but over the expected life of the ERP solution.   The end result of the financial fit is the business case.  As with any business case there will be assumptions, constraints, and estimation accuracy (ex. Order of Magnitude) so please ensure that you clearly specify this information along with the value proposition. 

ERP software selection is an important step in your goal of implementation a new business solution.  I hope that the information will assist you in being successful.

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