Changing Rules for Selecting ERP Software

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1 Inside: - Executive Summary - ERP Technical Evolution - Technical Evolution is not Enough - New ERP Buying Criteria - Agresso s Approach - Guidance Changing Rules for Selecting ERP Software Executive Summary New generations of ERP software bring new decision factors into a software buyer s purview. While much of the discussion today concerns cloud ERP choices and their deployment methods, we believe other factors may need equal consideration by software buyers. ERP software buyers today should seek solutions that are: - Technically current; - Functionally complete; - Drive even lower TCO (total cost of ownership); and, - Support ever more rapid business change (not only technical change) within their firm. Unfortunately, some of the products on the market today cannot deliver to these criteria. They may meet some of the four requirements above but don t deliver a solution that is as market relevant as new ERP software buyers demand. Other products are all-new solutions that may lack critical functionality. And, another group of vendors still hasn t learned how to make their products change with the speed of business today. Executives will find on the following pages a compelling set of criteria with which to evaluate any new ERP solution today. Copyright 2013 TechVentive, Inc., All Rights Reserved - Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 1

2 ERP Technical Evolution ERP products have evolved significantly over three-plus decades. For example, the numbers of products that now make up many ERP application suites have exploded over the years. The solutions have morphed from older, monolithic platforms (e.g., mainframe, green-screen systems) to databasepowered client-server systems to web-enabled on-premises solutions. And, in recent years, SaaS-based (Software-as-a-Service) ERP solutions have appeared. But, not all SaaS-based solutions are the same. There are actually a number of different kinds of SaaS ERP products. Some are traditional, web-enabled client-server solutions that are offered on a hosted basis by the software vendor, a reseller or another third-party (e.g., Amazon AWS). These hosted products may be sold on a monthly subscription service pricing method. Some hosted-saas (and other SaaS ERP) solutions are all-new products that have been specifically developed in recent years. These products are rapidly evolving in functionality but often lack as complete a product suite as other solutions. One other major defining point in the ERP evolution story is the appearance of cloud-based singletenant and multi-tenant SaaS solutions. Single-tenant products give the customer their own copy of the application software in a cloud environment. These customers also have their own databases that are physically segregated from the databases of other customers on the cloud server. While this arrangement permits these customers to control many aspects of their software usage (from when, if ever, to apply upgrades), this option often has high support and total cost of ownership (TCO) costs associated with it. In contrast, multi-tenant ERP users share one copy of an application with other customers. Their data may or may not be physically separated. The data may be separated logically, by partitions, or in the case of at least one vendor, UNIT4, in individual or independent data stores. Multi-tenant solutions often offer some of the lowest TCO possible. Technical Evolution is not the Whole Story Though At the same time that ERP solutions have been changing at the technology level, the business environment has undergone significant and accelerating change. The speed with which a global economy can change dramatically is measured in thousandths of a second today. Competition is everywhere. A curious tweet or Facebook post can trigger wild swings in the valuation of a company s stock. Merger and acquisition activities are everywhere. And, perhaps one of the largest ERP stressors is the pace of government- or industry-mandated financial and/or regulatory change requirements. Copyright 2013 TechVentive, Inc., All Rights Reserved - Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 2

3 Make no mistake, the velocity of business change is substantially and materially faster than when many ERP solutions were first conceived. And, this should be troubling for many ERP software buyers as too few solutions were ever designed to adapt as quickly as businesses need them to adapt. In the cloud ERP world, some vendors make the case that their solutions can scale to meet the changing user counts and transaction volumes that a company may encounter today. Scalability in itself, while comforting, only covers the technical side of the requirement for the change/adaptability support that businesses really need. Specifically, businesses need more than the ability to add more users without new capital expenditures (e.g., computer hardware purchases). These firms need the ability to make frequent changes to: - the kinds of information they collect. - the legal entities they control. - the way they need to report. - their evolving business/organizational processes. One minute a company is a highly centralized regional powerhouse in one industry and in the next they could become a global player in several vertical industries. Functional requirements they didn t even imagine weeks prior may become business necessities today. Unfortunately, ERP products designed for success in a more stable, slowly changing time don t always make great selection choices in today s business climate. The New ERP Buying Criteria We believe ERP software buyers should consider products that possess the following three characteristics: - A complete product suite - Business change capability - Low total cost of ownership A complete product suite Some of the allnew cloud ERP solutions are painfully absent many critical functions. Why does this occur? Creating ERP software, from scratch, is expensive and time consuming. And, even when vendors have successfully delivered functionally-rich ERP solutions for decades, most vendors have to re-write cloud solutions from scratch. Copyright 2013 TechVentive, Inc., All Rights Reserved - Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 3

4 ERP products have code for dozens of countries, verticals, regulations, integrations, technical environments and applications. All of that code takes years, maybe decades, to create a functionally complete ERP solution. For example, Jones & Bonsignour report that accountants, one of the biggest ERP user constituents, use application software on average 5 hours per day. They touch some 12 software packages that contain over 175,000 function points and 10+ million lines of code. 1 To build and support these applications can cost approximately $2,000 per function point 2 or $350 million. We believe those estimates to be in the ballpark. We learned that one major vendor s cloud ERP product line: is nine years in the making and is still being enhanced today. required two years of conceptual design work using approximately 500 personnel. had a peak development team of approximately 2,000 personnel. incurred over $1 billion (USD) in development costs. Another cloud ERP solution we are close to has been in development since As of this writing, the product is still missing major functionality for mid-large sized enterprises. Currently, only back-office applications are available with key shortcomings apparent in the financial applications. In one 4-year period, the company has spent over $106 million in research/ development to create these applications. UNIT4 Agresso Case Study UNIT4 s Agresso was able to create a full multi-tenant cloud solution with virtually none of massive capital investments identified earlier in this paper. In fact, prior architectural decisions by Agresso (in creating its VITA architecture) made the transition to multi-tenancy a fairly simple, low-cost matter for the company. Agresso supports SOA, for technical interoperability/change, but is differentiated in the market with the VITA architecture, which is built for business change. Customers benefit from Agresso s architectural planning foresight, as the company is spending its R&D resources on leveraging value-add technologies (like new user interfaces and mobile optimization). This contrasts to what its competitors must do to achieve cloud multitenancy: by re-writing on-premises applications or, in the case of newer ERP competitors, building them from scratch over many years. UNIT4 customers gain immediate access to a fully built/vetted (3,500+ customers) ERP cloud multi-tenant solution. The entire product line, with all of its proven functionality, is available today as a cloud, multi-tenant solution. This immediacy point is more than one of convenience. Vendors that release new cloud application functionality in pieces subject customers to many, often substantial and risky upgrades. Agresso ERP customers have not been subjected to circumstances faced by many of their competitors customers: overly frequent, complex and ambitious upgrades. Agresso has only one code base for both on-premises and cloud solutions. Moreover, the single code-base for these (and prior) versions of the product allow the company significant speed and development economies. These economies permit the company to develop new functionality once and only once. This saves customers and UNIT4 time and money. 1 The Economics of Software Quality, Capers Jones and Oliver Bonsignour, Addison Wesley, 2012, pg. 6 2 The Economics of Software Quality, Capers Jones and Oliver Bonsignour, Addison Wesley, 2012, pg. 3 Copyright 2013 TechVentive, Inc., All Rights Reserved - Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 4

5 The key cost drivers for new application software products include: - how many applications are to be built and how many processes they will support. - geographic locations the products will serve. - key regulatory requirements to be supported. - quantity of industry-specific functionality needed. How long does it take to create a new ERP software product that is relatively complete? Usually, it takes many years. Our experience suggests that a decade of development for some up-market solutions is possible while for small business solutions, a new solution is possible within a few years. But, why is this important? When customers acquire an incomplete ERP solution, they will likely: - live with significant product deficiencies and process inefficiencies for several years. - have higher initial implementation costs as the customer will need to create workarounds and/or acquire supplemental technology to backfill functional deficiencies. - experience many upgrades that contain material new functionality. These upgrades could have a continuous and disruptive effect on the customer s business. Business change capability As mentioned previously, technical innovation alone is not sufficient. ERP buyers need solutions with exceptional adaptability to changing business requirements. UNIT4 s Agresso does this particularly well. Their ERP product line is marketed to companies experiencing this specific pain (in their words, they help businesses living in change ). What makes their solution so well-suited to this dynamic business environment is a combination of: - database design principles. - user addressable configuration capabilities. - dynamic re-configuration without changes to transaction databases. - highly flexible reporting tools and tables. What Agresso possesses is a combination of technical and business agility. The technical agility is driven by SOA extensibility. The business agility is achieved via non-code actions typically by end-users (not IT personnel). Business users can change processes, information models, reporting and analytics without IT assistance. In contrast, some ERP products require substantial, expensive re-coding of one or multiple products within a typical ERP suite, or even a re-implementation of the software to accommodate similar changes. We cannot stress enough the need for more of this capability in modern solutions today. A review of macro-economic, governmental, regulatory, competitive and technological changes shows accelerating changes impacting businesses. ERP solutions must be as nimble as your firm or else the software will become a major impediment to growth and the creation of shareholder value. Copyright 2013 TechVentive, Inc., All Rights Reserved - Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 5

6 Low total cost of ownership In a multi-tenant cloud environment, the vendor, not the customer, provides the upgrades, updates and maintenance on the application software. But this isn t just a cost transfer issue. The multi-tenant cloud vendor usually has only one application software version to support on only one technical stack. In studies we have completed on high-end users of multi-tenant cloud software, we have documented TCO savings of 40-60% over an 8-10 year window versus the costs of on-premises solutions. The biggest cost savings comes from a dramatic reduction in internal IT costs associated with the patching, maintaining and upgrading of the application software. The customer of an on-premises solution will continue to incur their own maintenance costs and may experience issues when the vendor has difficulty replicating their technical environment during a support incident. This is because the technical environment the customer possesses may contain different hardware, different versions or makes of systems software, different release of the database management software, etc. than what the vendor has. Likewise, the customer of a single-tenant or hosted solution will also incur their own maintenance costs as they choose when they will upgrade the software. While these customers may possess a more consistent technology stack with which the software operates, the fact remains that it is their personnel (or a third party integrator on their behalf) and labor cost involved in these activities. While customers will choose a deployment method that meets their IT, security or other needs/tastes, multi-tenant solutions will often be the lower cost option. Copyright 2013 TechVentive, Inc., All Rights Reserved - Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 6

7 Guidance We believe ERP software buyers should consider products that possess the following characteristics: - functionally complete applications that can realize the totality of the solution s value immediately (and not phased in over several years, if ever) - architectures that are designed to easily support increasing business change/volatility - solutions that provide frequent but digestible upgrades - technical architecture components that includes services- oriented components to facilitate interoperability and changing technologies - a proven track record of successfully and quickly moving functionality to new technical environments/platforms - multi-tenant cloud architecture We do not, however, find products with the following characteristics particularly compelling: - early generation cloud products that possess skeletal functionality - products that come with too-frequent and quite substantial upgrades - products that require users to implement software upgrades - products whose upgrades may require a re-implementation of the software - single-tenant only cloud applications - products that are part of large portfolios of acquired software companies as the different product architectures may not be easily, if ever, made into full multi-tenant cloud solutions - products based on old technical architectures (e.g., indexed sequential files, 80-column card inputs, etc.) but minimally re-worked to accommodated a more recent technology (e.g., relational databases) Copyright 2013 TechVentive, Inc., All Rights Reserved - Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 7

8 About Vital Analysis Vital Analysis is a very different kind of technology research organization. We are the intersection set where exceptional technology market knowledge meets the executive suite. Where other analysts replay vendor press releases, we give you the: impact new technologies will have on your business. reasons why you should care about specific emerging solutions. business justifications why you may want specific solutions. Vital Analysis was carved out of TechVentive, Inc. in 2007 as a new, but complementary business. As designed, Vital Analysis is the publishing, research and analytical arm of that company. Our reach, like our blog readership, is truly global. We ve consulted with top technology executives in Australia, Brazil, Canada, the United Kingdom and the United States. We ve been briefed by technology providers from virtually every corner of the planet. About the Author Brian Sommer is the CEO of TechVentive, Inc. - a market-strategy and content firm. Brian closely follows what C-level executives think, feel and need. Brian also publishes a blog on the intersection of application software and professional services ( He welcomes your thoughts and invites you to contact him at [email protected]. Reproduction of this publication in any form without prior written approval is forbidden. The information in this report has been obtained from sources believed to be reliable. TechVentive, Inc. disclaims all warranties as to the accuracy, completeness, or adequacy of such information and shall have no liability for errors, omissions, or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended result. The opinions expressed herein are subject to change without notice. To purchase reprints of this document or to quote passages within, please [email protected]. Copyright 2013 TechVentive, Inc., All Rights Reserved - Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 8