Microsoft Needs a Plan

SaaS ERP is Here to Stay
This business model just makes sense – for the customer and the software provider. The awareness is growing. More and more companies seeking ERP solutions are specifying the hosted model. They don’t want to wait 2 years for a new release. They don’t want to buy and manage servers, databases, backup equipment and all that. They realize that any SaaS provider worth its salt will protect its data way better than the customer could themselves. It just makes sense.

Microsoft Insulated from Customers
The Microsoft channel is not clamoring for a SaaS solution. With the exception of Michael Merfeld of Avanade, most Microsoft partners don’t see any uptake in SaaS ERP. They are using the hammer because they only have a nail. They find reasons not to believe SaaS ERP is the next logical step. The average Microsoft reseller isn’t talking to their prospects about not needing servers, getting constant software updates, not waiting years between releases, not having to tune databases, not worrying about security and backups. Microsoft isn’t hearing the message from the market – SaaS Just Makes Sense!

More Value, Not Less
Mr. Merfeld seems to imply that customers choosing a SaaS solution value their ERP less than those who want an on-premise solution. That is the exact opposite of what we are hearing. Our customers see their ERP (and MES, Quality and SCM!) as a competitive advantage. They want it to stay constantly up to date. They don’t want the drudgery of applying patches and the disruption of performing upgrades. They want the software to change and grow rapidly as their business grows and their needs change.

A Plan is Needed
The Dynamics product line has a great installed base. Netsuite, Intacct, Plexus and a ‘host’ of others will be taking share away. I would love to partner with Microsoft. However, the SaaS model is where everything is headed. It won’t be easy, but the smart folks at Microsoft will figure out a way to create opportunity for its channel while delivering a SaaS ERP solution.

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.

Tough Economy? SaaS Makes Even More Sense

There are plenty of headlines about the economy. Are we in a recession? Is a recession coming? Can we avoid one? Who will be affected if there is one?

Tony Friscia from AMR assures us in his piece called “Recession Reality Check: This Is Not 2001 All Over Again” that things are different this time around. He highlights the irrational spending leading up to 1999/2000 bubble and the subsequent, giant burst. Tony goes on to outline sectors that will continue to spend on IT initiatives and the areas in which those budgets will be spent.

We are seeing a significant additional impact of tight credit markets. Companies want to continue to improve their processes and capabilities but want to conserve cash. This is leading more and more consumers of technology to choose Software as a Service for more and more applications.

Cash is King. Executives are asking themselves why they would tie up their precious capital in software and servers. A weak economy is encouraging more and more people to investigate “this SaaS thing”. They can get the benefits without the large upfront cash outlay.

Great idea!

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.

There is no turning back – SaaS ERP is here to stay

What a difference a year makes

A year ago, we still had to explain what SaaS is and why it makes sense for manufacturers. We faced resistance, uncertainty and confusion. Now it seems nearly everyone “gets it”. By everyone I mean the small companies up through the high end of the SMB market and even the multi-billion dollar global enterprises.

Cash is King

This is even more true in today’s tight credit market. A manufacturer has lots of uses for capital – new plants, equipment, tooling, lift trucks. Spending hundreds of thousands of dollars on a new ERP system ends up low on the priority list regardless of the potential ROI.

Recently a $300million manufacturer selected Plexus Online as its enterprise business solution (ERP, MES, SCM, Quality). The customer wanted a perptual pricing model. We obliged and agreed to a purchase price well north of $1million. The final approval step was the board who looked at all the capital investments in plant and equipment they were making around the world and put a hold on all new capital projects that did not provide a specified return within a very short time period. Now the company has a much better understanding of the value of subscription pricing and is working to move ahead under that approach.

This is just one example of similar decisions being made around the world. It just makes sense.

Mass Appeal

Smaller businesses understood the benefits of SaaS very quickly. They don’t have the scale to be able to afford a datacenter and top IT talent.

These days, the IT staffs at larger companies are being asked to reduce headcount and expenses while increasing services to the business. Many are now adding SaaS applications to their portfolios as a cost-effective alternative to costly on-premise solutions or homegrown software.

Can the Established Providers Make the Switch?

QAD, Epicor, Exact, Infor, Oracle and SAP will all have to address this sea change. QAD among others has started to offer ‘on-demand’ solutions which really constitutes running their legacy code on servers at a third-party datacenter. They then charge the end customer on a subscription basis.

How will these public companies deal with the side effects of the SaaS model – lower upfront revenue, lower cash, high expenditures on datacenters? More importantly, how will they make the transistion to a service provider from a software vendor?

I predict a significant shakeout in 2008.

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.

Who Should Make the ERP Selection?

Too many top business managers think that an enterprise software selection decision is best left to the technical folks. They think it is a technical issue. In fact, though, it is one of the most critical decisions facing many businesses. The question is: “Who is in the best position to choose ERP software for a manufacturer?”

Consultants?

IT consultants can be a great help in the selection process. The best are those that have hands on experience with a wide variety of solutions at companies similar to the one having to make a choice. It is important that advisors have in-depth knowledge of the manufacturing firm. This deep understanding can come from previous projects performed for the company. Many times, though, it is gained at great expense to the manufacturer as they walk the consultants through every phase of their business operation explaining all the intricacies of their current processes.

The consultants may have other factors that come into play – relationships, market pressures and the like. For instance, the very large firms such as Deloitte and Accenture make their money doing large scale implementations of major products that require a lot of customization and other services – such as SAP and Oracle. They will make the selection process look open and fair. In the end, they are justified in recommending Oracle or SAP because those are market leaders – and the source of a great gravy train for these firms – regardless of fit and total cost of ownership.

IT Department?

There is no question that the IT staff should have a role. The CIO, IT Director, IT Manager typically has the skills to evaluate the technical aspects of competing solutions. However, many IT professionals have limited understanding of the real business needs. They see software solutions through a very different lens. John Soat describes the evolving role of the CIO in a recent Information Week article.

If the IT department is close to the business users it will understand the needs and be out in front of the process acting as the facilitator or quarterback. Too many are in the habit of reacting to requests from users and are put in a position of explaining why the solution the business user wants will not work.

Finance?

In many organizations IT still reports up to the Finance department. That arose because the accounting and finance folks were the only ones using the enterprise system. Nowadays, the true broad and deep ERP solutions are used by nearly everyone in the company. The best solution for the finance department may be a horrible fit for the rest of the company, resulting in massive customization and very high total cost of ownership (TCO) and risk to the organization. Finance should have a voice, but production, scheduling, shipping, procurement, quality and others must also be heard.

Users?

“What do they know?” is the dismissive statement used by many a sage IT professional. The end users are more likely to know what they need for their every day job. They can evaluate whether a solution will enhance their job or create undue and non-value-added work for their department.

Where things have gone astray in the past is when there is lack of alignment between IT and the business users. It starts with the “hidden backlog”. These are requests that users don’t even bring to the attention of the IT staff because they know it won’t get addressed in any reasonable time frame.

Next comes the “shadow IT” solutions – homegrown databases or applications to solve a business need. These are disconnected from the official system of record and often not properly maintained or backed up. Data is rekeyed between systems and the audit trail is broken.

Finally, the business users become aware of a solution that will meet many of their needs. They review it, learn about it, hear all the sales talk and then bring it to the IT department as the solution they want to buy. Nothing good happens from here on out. The IT folks want to do the rigorous evaluation and may suggest other solutions. The users feel IT is just out of touch and denying them what they need to do their jobs.

Facilitator Needed to Manage the Process

In the end, a facilitator is needed. Whether a consultant, the CIO or a strong operations manager, the facilitator needs to ensure that:

• the needs of the organization are fully understood
• appropriate solutions are considered – even if they don’t fit the technical preference of the IT staff
• and that the selection is based on what is best for the business as a whole.

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.

ERP Isn’t Enough

ERP consolidated a lot of applications when the concept first came into being. Standalone general ledger, accounts receivable, billing and order entry solutions, for example, were offered in one integrated solution.

Businesses and technology have continued to evolve. ERP was meant to cover the whole enterprise. Why then do we have standalone applications for:

• MES (manufacturing execution system)
• SCM (supply chain management)
• CRM (customer relationship management)
• and other industry-specific solutions?

The ‘niche’ vendors of solutions for MES, SCM, CRM, etc. are now expanding their footprint causing overlap and confusion. Ultimately, customers are not searching for TLA software (three-letter-acronyms). They are looking for software to run their business.

This has led to a new kind of application that has not yet been labeled. The closest idea would be vertical-industry solutions – those that seek to serve all the needs of a given type of business. Prior to joining Plexus Systems, I had only seen this in very tiny microniches such as dairy farm or lumber yard management.

In upcoming whitepapers and blog entries, we will outline how Plexus Systems has been able to develop a very broad and deep solution for a large vertical — manufacturing. The key enabler has been the on-demand business model coupled with agile development and a clear, focused, disciplined vision.

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.

Now, suddenly everyone is SaaS?

I am very grateful for all the attention being paid to the SaaS market these days. It takes a great deal of stress off our marketing budget. SAP, for example, is spending lots more than we could to educate ERP buyers about Software as a Service. Ditto for Salesforce.com.

What fascinates me is the traditional ERP software vendors who compete head-to-head against Plexus claiming that the on-demand or SaaS model is not proven or is just too scary for the customer to contemplate. Then, when the customer says they prefer SaaS, these same software vendors turn 180 degrees and explain that their tired old client-server software can also be delivered on demand. They go on to say that when the customer changes their mind or grows (or something) they can take the solution back in house.

My first question is, if SaaS is a good idea now, why would the customer later change their minds and bring it in house? Some thoughts come to mind:

• The software vendor is not committed to the concept. They see it as a passing fad, just like that world wide web thing they have read about.
• The software vendor does not have a real SaaS solution and is buying time until they do have a viable offering.
• The vendor cannot offer a competitive price for a SaaS solution, probably due to an immature architecture.

The next question then is what is SaaS? There has been lots of writing about the concept. Wikipedia has a detailed definition. That definition is relatively generous saying that maturity level one is still SaaS. This is basically the same as an on-premise solution (individual customized copy of the software) except that it is on someone else’s premises. This only adds cost to the vendor-customer relationship. Whoever is providing the premises (servers, OS, DBMS, etc.) must make a profit too. When a new software version comes along, each instance must still be upgraded. This just shifts the pain and annoyance of keeping traditional software up to date to a third party.

Compare this with Maturity Levels 3 and 4. All customers run off the same core software which is updated constantly. Changes are automatically available to everyone. Upgrades for new DBMS, Operating System, Hardware, etc. are all done in the background. The software is also more bandwidth-friendly since it was written directly to the web. 100% of the screens are accessible via a browser, not just the ‘portals’.

Buyers Beware! Make sure you are getting a real SaaS solution that will yield all the benefits vs. a hosted legacy application that will just add cost and complexity to the customer-vendor relationship.

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.

Lies My Software Vendor Told Me

Have you heard the one about the lawyer who dies and is given a choice between heaven and hell? Well, the devil shows him around his place and it looks great – everyone is happy and there are parties all night long. Then St. Peter shows him around heaven – very nice, beautiful and pleasant, but a little dull. So the lawyer chooses hell. He arrives to find constant torture, fire and abuse. When he asks the poor slob next to him what happened to the dancing girls, he replies simply – “oh, you must have seen the demo!”

Powerpoint vs. The Software

It is essential to see the actual software. Many software salespeople are powerpoint wizards and masters of obfuscation. When we hire reps away from competitors they are horrified to learn that we show the software to our customers early and often. They spent their careers hiding the software until absolutely forced to show it. As a buyer, you need to see how the data will actually be captured and how easy it is to use. Insist on a full demo of the real, currently-released software.

User Based Pricing

One of my pet peeves is user based pricing models. This is fine for narrow, point solutions where the user base is very clear, but not for a comprehensive ERP. Plexus Online was built from the shop floor out, not accouting down like our competitors. In a manufacturing enterprise, 80%+ of the transactions originate on the shop floor or at the shipping/receiving docks. Why not capture and validate those transactions as they happen?

There is a direct correlation between the number of people using the system and the validity, timeliness and usefulness of the information. User based pricing discourages broad use and results in suboptimal implementations. Vendors are able to present a low initial price that seems very appealing. Then, when the customer wants to deploy beyond the front office, they pay and pay. Follow on sales are a major revenue source for our competitors.

Plexus Online changes the definition of who is a knowledge worker. It is priced on an enterprise basis so our customers can deploy the software to everyone in the facility and know what their costs will be. The result is timely, accurate, actionable information for running the business.

What’s a DBA?

Providers of traditional, on premise software often pander to the IT departments, not the business users. The vendors tend to downplay to the business users the number and skillsets of people needed to operate a comprehensive ERP solution. I have found that enlightened CIOs love SaaS. It frees their team from the drudgery of backups, patches and upgrades so they can focus on making sure the business users are getting the full value from the software. Most manufacturers, especially in the mid-market, cannot attract and retain the kind of IT talent needed to keep their data safe and their systems evolving with the business.

Estimated Implementation Effort

None of our competitors will do fixed price implementations. Nor will most IT consulting firms. Why do you suppose that is? We have all heard stories of massive cost overruns on ERP implementation projects. The goals of the implementation team and the business are not in alignment when the meter is allowed to run. The business wants the system in to start earning their ROI. The implementation team has a perverse incentive to keep the project going. I began my career at the Biggest of the Big 8/6/5/4. I understand the economics.

It is hard work to stay focused on the key Critical Success Factors and not be distracted by every request to get a report “just like the one I had in the old system”. It also takes a lot of custom programming to make a ‘generic’ or horizontal solution work for the very specific needs of a manufacturer. At Plexus we don’t try to serve all industries. The software doesn’t get ‘overdeveloped’ with features for schools, retailers, restaurants and law firms. It is manufacturing all the time. That’s what allows us to give our customers cost certainty when it comes to getting the software implemented and providing value to the enterprise.

Upgrades Are Simple

OMG! RU KIDDING? The typical upgrade process for on premise software still looks like this:

• wait 6 months or a year for the upgrade from the vendor
• evaluate whether the new features are useful for your business
• plan the upgrade (new hardware, operating system patches, dbms, etc.)
• execute the upgrade (praying that all the planning went well and didn’t overwrite any customizations)
• test the system
• train the users

What usually happens is that mid-market companies get too busy, too customized or the upgrades don’t appeal to them and the software stagnates. With a SaaS solution the software is always on the latest release (and the latest hardware, OS and DBMS). Upgrades happen constantly without customer intervention. Users are made aware of new features via pop-up notifications and online help.

Summary

The SaaS model evolved to drive out costs and complexity in the relationship between the software vendor and the customer. It addresses many of the problems that have arisen over the years. However, software buyers must remain vigilant and:

• demand to see the actual software,
• see the software in use at a similar company,
• find out why there can’t be a fixed price implementation
• truly understand how many users will be needed to get the full value from the system.

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.

SAP must do more than publish new software

SAP’s much-heralded Business by Design solution is important not because it is new or groundbreaking (it’s not), but because the largest software maker in the world is recognizing a fundamental shift in the market – though perhaps a little too late. It will be exceedingly difficult for a very large, rigid company like SAP to do what is needed to succeed in the SaaS environment.

The ‘S’ Stands for Service

The biggest challenge will be moving from a software company mentality to that of a service provider. SAP has gotten very used to the idea of receiving a big check and shipping a standard version of its software, then letting consultants deal with making it work for the customer. SAP’s huge partners, largely the SIs like Deloitte and Accenture have gotten very comfortable with this idea also.

Now the economics change dramatically. Marc Benioff has compared the relationship between the SaaS provider and its customer as a marriage. You are both in for the long term and are committed to making it work. SAP’s history on the other hand, says the colorful Benioff, is more like a series of one night stands.

Even if the software is simple to install, a big part of an implementation is helping the customer change. This can’t be overlooked in the SMB market. Who is going to work with the 250-person company? SAP? Accenture? EDS?

Who’s Going to Sell It?

As Larry Ellison points out, it is tough to sell to smaller companies. Oracle tries from time to time and has never found the formula. Small to medium businesses may be a $15billion market (according to SAP), but it will take a whole different sales mechanism.

BTW, The Other ‘S’ Stands for Software

More and more customers are buying software that fits their business rather than ‘generic’ software that requires many costly modifications. Business by Design is rather generalized at this point. It is meant to appeal to virtually any type of company. It’s as if small to medium businesses as a group were a vertical focus. Manufacturers, distributors, retailers, service firms and others have very, very different needs. How much commonality is there among those types of firms? I foresee another ‘all things to all people’ product that is a great fit for no one in particular.

The software is not true SaaS. The benefits of a hosted, multi-tenant solution are proven to be enormous. SAP seems to be stopping short. This will not take the cost, complexity and delay out of the software company-customer relationship that a true SaaS solution would.

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.

Much Ado About SAP’s Business By Design

SAP finally unveiled (and named) its much-awaited on-demand software solution. I don’t know what the fuss is about.

Herr Kagermann says that “a new era” has begun. Actually, the new era began at about the turn of the century when several innovative software suppliers recognized the importance of the Internet and the problems with on-premise software. We released Plexus Online, a secure, multi-tenant centrally hosted application suite, in 2000 and have been growing rapidly ever since. Procuri, RealPage, and of course NetSuite and Salesforce.com are some others that have proven the model in their markets.

What’s new here is SAP’s recognition that large companies don’t innovate as well as smaller ones, that the giant fell behind. Goliath also realized that his previous attempts to address the mid-market have gained no traction. Indeed, my fellow on-demand veterans predict that SAP will fail once again to provide a compelling, comprehensive, affordable solution to the mid-market.

I am thrilled to have SAP enter the on-demand ERP market. If executives at mid-size companies had any lingering doubt about the viability of ERP on-demand, SAP’s scurry into the market should put that to rest. The behemoth is slowly awaking to see that the train has not only already left the station, but it is around the bend and has already picked up a lot of passengers.

I am eager to see SAP climb the same learning curve that Plexus and others have already done. There is much more to this on-demand business than meets the eye. I’ll elaborate on that later.

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.

What Will SAP Announce September 19th?

SAP’s long-anticipated on-demand strategy will be unveiled in New York according to ComputerWorld. The product, code-named A1S, is SAP’s third offering targeted at small and medium businesses. There is much speculation about the announcement.

Which industries will be targeted? SAP’s traditional strength is in manufacturing. Will this be where they start? Is the product broad enough to meet manufacturers’ needs on the shop floor as well as the office? It’s reported to be a whole new code base. It would be very impressive if A1S came out of the box with rich features for manufacturers such as scrap, downtime, quality, labor tracking, bar coding and so on.

How broad a solution is it? Finance and CRM are a given. That’s where they need to be to compete with NetSuite and Salesforce. Will it have robust procurement and shop floor capabilities? How much support for vertical markets will be there?

How will it be sold? The traditional approach of direct sales and large partners won’t work here. Will users buy over the internet?

Who will help implement it? SMEs typically don’t spend tens of millions of dollars to implement ERP software. Will there be a whole new type of partner on a smaller scale than DeloitteTouche and Accenture?

I absolutely welcome SAP’s foray into on-demand. The move speaks volumes about SAP’s view of the future of our industry.

Plexus Systems has delivered our comprehensive manufacturing ERP solution on-demand for the last 7 years. We have learned an enormous amount over that time about delivering software as a service. I am eager to have others climb that learning curve.

What will SAP announce? I don’t know, but I welcome them to our marketplace.

Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.