Expertise : SaaS, what future for the ERP?

By Yves, Amaris Consultant

Strategic actors in the world of IT business management, the ERP (Enterprise Resource Planning) now represents a worldwide market of more than $ 40 billion. Historic product, this software is usually sold and used as a solution hosted and maintained on site. Will this practice be challenged with the advent of SaaS (Software as a Service)?

 

The ERP were born in the 90s from the implementation of the following management solutions: MRP (Material Requirement Planning) and MRP 2 (Manufacturing Resource Planning). Now more than ever, they are considered as essential in the world of IT management.

Adopted by a large number of companies, from small businesses to multinationals, the ERP consists in software packages for managing the business processes of a company. All business functions can be covered by the ERP (finance, management, logistics, production management, HR ...), thus allowing a real-time control and the harmonization of the management procedures within the company.

Despite the products’ diversity on the market, some macro-features allow us to describe a software package in general, that can be presented as a product:

• Which have a single designer/editor,
• Modular (an ERP consists of specifics modules which interact with each other),
• Based on a single database,
• Integrated : any action or update on the product is reflected in real time (or near real) from a module to the others,
• Multilingual, multicurrency, multi account plan ...: with an ERP, it is possible to run a whole business, including all the own complexities of multinational companies (parent company, subsidiaries, production plants...) and all the own legal question of specifics countries.

The ERP market, which accounted for more than $ 40 billion of revenue in 2010 (against $ 20 billion in 2000), is constantly evolving.

From a few years, there is a certain concentration of the 'conventional' actors, including buyouts of competitors with each other (PeopleSoft acquired by Oracle for example). We also can see an emergence of open source products that begin to take their place on the market.

From one year to another, the situation remains quite similar with the first two podium positions trusted by the undisputed leaders: Oracle and SAP. Those both players hold on their own over 60% of the ERP market.

The implementation of an ERP represents a real challenge for a company. It takes between a year and a half and two years to carry out this type of project.

During this phase, the company will have to choose a product which suits its needs, but also surround itself with a competent integrator and adopt a policy of consistent implementation (adapt the product to its needs or whether adapt itself to the product). Thus, in order to teach its users how to use the final product, that could be very complex.

Cloud computing and SaaS (Software as a service) are some concepts in vogue in the software world for several years.

The main characteristic of the SaaS is the online accessibility to the product features through a Web browser. Under these conditions, the company no longer pays the right to use the applications (license) but pays according to the utilization it has (consumption). Generally shared, these applications are hosted and maintained outside the premises of the company, at a provider and its partners.

Today, the market of software in hosted mode is mature, and become a model which can be applied to the world of software. For a long time, the ERP was considered as difficult to outsource but they begin to benefit of this trend; from now on, each editor must include SaaS services in their offers. These services are varied and may correspond faithfully to the historical product of the editor (Cegid for example), or have been totally redesigned (Business ByDesign of SAP).

In case of establishment of a scratch entity which not requires complex data from other systems, it is now possible to carry out projects of ERP implementation in record time (a few months), thus allows benefiting of pre-configured modules almost ready. There are many advantages: costs control, deadlines met, no complex infrastructure to set up, business continuity, 24/24 support, updates supported by the editor… So the company can stay focused on his heart business without having to manage oversized IT teams.

Besides the traditional "on-premise” solutions, the rental hosted form of ERP provides an appropriate response for companies whose needs are speed and flexibility, both technically and financially. However, if these solutions can be perfectly suited to specific areas (CRM, collaborative ...), we quickly run up against some resistance from certain companies when it concerns the hosting of data and functionalities more strategic (production, finance).

In addition and paradoxically, this hosted mode can be too simple, and arise at the user company, a feeling of loss of flexibility or loss of its processes control. Indeed, the product is no longer in the company’s hands, and the latter can no longer fit it with its needs (that being often more than necessary for an important entity).

Finally, this type of solution which can be ideal and very attractive financially for a small/medium business, can also become much more expensive than expected; indeed, the annual cost may raises sharply if the activity of the company increases (and therefore its use of the service). The change of the utilization’s mode (or reversibility of the SaaS mode to come back to a traditional mode), may be envisaged, thus representing a significant investment.

The SaaS, which now represents only 7% of the ERP market (according to Gartner), should not be able to completely revolutionize the practices in the years to come; at least regarding the large groups for which the implementation of a software package is extremely expensive and strategic.A more modular approach (or by function), which allows providing targeted services in addition of the ERP (electronic invoicing, dashboards ...) seems to come into being, and may be the preferred way of many actors.