ERP Software-as-a-Service: Choosing the Duck versus the Chicken

Joel Martin

Have you ever noticed the price premium of duck over chicken in restaurants?

There are many reasons (e.g. numbers raised in captivity, diversity of usage across products, cost to domesticate, maintenance, etc.) and I am sure you can come up with more on your own,. Fundamentally though, ducks and chickens are both birds and I imagine that if consumers wanted eat more duck that vast farms wouldn’t be outside of our capabilities.

Nonetheless, comparing the domestication of common water fowl versus a staple of our diet isn’t the purpose of this blog. (And yes, I did both Bing and Google my question and did not find a discrete answer. Has nobody but me wondered this question?) Rather my analogy came to me on my walk home as I was thinking about a debate I listened to and read/researched about today.

The latest in the ERP SaaS debate arose from recent research released by the Panorama Consulting Group and was commented on by others. The report stated, “Software as a Service (SaaS) implementations take less time than on-premise ERP, but deliver less benefits: 6.2% vs. 6.9% cost as a percentage of sales, and nearly 50% less likely to deliver expected business benefits.” These concerns were not new and after a simple search I found older posts on this topic (see reference below).

In response to Panorama’s release and webcast, vendors on both sides of the SaaS discussion began promote their views. As an analyst, former ERP product manager, and marketer I can see why the arguments on each side make sense, but fundamentally (repeated from paragraph 1) I think that there will be fewer and fewer large, intricate on-premise ERP implementations over the coming decade. The challenge then becomes not whether the vendor has ERP SaaS solutions, rather how their approach fits the needs the customer is seeking to address.

In my analogy, the ‘duck’ represents more complex line-of-business SaaS offerings that integrate into existing systems and can be entwined with other systems via industry standard (.Net or J2EE) code or in some cases proprietary legacy code. Think of the later as that layer of fat on a duck beast that needs to be cooked perfectly to create that flavour and texture worth paying a premium for – or in the context of an business application it represents the custom tailoring to generate competitive advantage.

Meanwhile ‘the chicken’ in most cases may be the ERP SaaS for the rest of us. It’s not as glamorous as the duck, but do we really need it? This version of ERP SaaS will be easier to deploy and something more apt to be ‘just turned on’ to deliver just in time, flexible, yet secure business application services to our users. Think of this as the ERP SaaS that addresses the commodity part of the market – currently serviced by a wide variety of packaged financial, billing, accounting and payroll applications. This version will offer simple core functionality, but will be dressed up by vendors, partners and end-user that are then able to share their customizations and tweaks within their organization and across others.

From a consultant or integrator’s perspective, the duck will always be a better choice than the chicken. Yet, for the customer while the exotic nature of the former may seem enticing, often the needs of the organization may be better suited to choosing the later and leaving room for other investments that can improve the implementation, adoption and sustaining of their business application needs.

Research shows we are still at the early stage of ERP SaaS and while certain parts of the ERP portfolio are commoditizing (core financials, accounting, etc) other business applications components are continuing to provide significant value to an organization (lean manufacturing, quality management, global sourcing and inventory management, etc). As such, vendors and their partners should work together to outline roadmaps that assure customers their current and future investments are sound. Clarity is a key to customer satisfaction.

In the customer’s eyes, the ‘hero vendors’ will offer a choice of how to deploy, support and integrate a mixed ERP environment that grows (and contracts) with the needs of the business. Successful ERP SaaS solutions will allow customers and their partners to invest in standards based technologies to amplify the usage of the commodity components (e.g. extending financial data to line of business professionals) in a format that ‘makes sense’ to their users. At the same time, more complex ERP SaaS solutions will be deployed to meet the needs of select requirements (e.g. discrete operations modules for pharmaceuticals). These SaaS solutions will be sought after as both on-premises and via the cloud.

Customer and vendors can benefit from both versions of the ERP SaaS as they share the benefits of high quality solutions while mitigating costs. Moreover they can deploy solutions more equitably throughout their business and ensure many of the latest innovations are applied seamlessly. In fact by adopting the cloud approach to SaaS, both ERP vendors and customers may benefit from the network effect of innovation at fractional costs.

In conclusion, it my opinion that the choice the customer makes should be based on the relevance and business need to move, consolidate, rip and replace their current business application for something new. None of the current business assessments, benchmarking, research/consulting efforts should be foregone with the expectation that an ERP SaaS will deliver the goods without equitable investment on the parts of all parties. The market is evolving and there are choices out there to fulfill different needs and expectations and often the choice that is most appealing may also draw a higher level of scrutiny resulting in greater opinions on satisfaction. So consider your needs and willingness to take risk and the ability of your organization from its IT department to its users to stomach the exotic versus the staple.

References:

http://www.sdn.sap.com/irj/scn/weblogs?blog=/pub/wlg/17888

http://panorama-consulting.com/saas-vs-on-premise-erp-software-understanding-fact-and-fiction/

http://mybibeat.wordpress.com/2009/09/27/is-saas-right-for-your-business/

http://panorama-consulting.com/2010-erp-report-erp-implementation-costs-and-durations-declined-last-year-but-so-did-business-benefits-realized/

http://www.successfactors.com/company/technology/

http://seekingalpha.com/article/149603-why-gartner-s-saas-satisfaction-survey-is-misleading

http://www.gartner.com/it/page.jsp?id=1062512

http://www.crmforecast.com/tco.htm

http://www.enterpriseirregulars.com/5055/the-future-of-financial-force-com-how-salesforce-com-benefits-too/

http://blog.financialforce.com/2010/02/15/accounting-billing-fastest-growing-area-for-saas-utilization/

http://news.cnet.com/8301-13846_3-10453066-62.html