Erp hosts grow

Hosted software is booming, and now includes enterprise resource planning systems. So how do firms decide if it is right for them? Charles Clarke explains.


With software, value for money increases when advances in underlying computing technology enable the development of innovative solutions. On-demand software — usually in the form of applications hosted online by specialist providers — is one example.

Ubiquitous access to such ‘outsourced’ IT is now possible without major concerns about bandwidth or security. The basic question for customers is the simple one of whether to ‘buy or rent’ their software. To make such decisions, IT buyers weigh the reward or benefit against the perception of risk.

Traditionally the arguments were weighted against the on-demand approach because the risks were considered high, but views have changed.

A recent success story in this sector is salesforce.com. Business has grown rapidly for its on-demand customer relationship management (CRM) systems, and there are probably several reasons for its popularity.

Traditional CRM solutions generally did well in controlled environments such as call centres. Nevertheless, many firms suffered from failed CRM projects, and their CRM capabilities often disappointed sales staff in the field.

Big centralised CRM projects frequently stalled and ran into difficulties. One big problem was that the systems often failed to deliver real benefits to the ultimate users — sales staff on the road. The on-demand approach promised to fix this problem by offering tried-and-tested functionality in an easily accessible system.

A second problem was often the emphasis on large CRM deployments to link sales measurement and forecasting to central enterprise resource planning (ERP) systems. This emphasis on large CRM systems tended to restrict the market to the large corporates that could afford them.

By comparison, salesforce.com essentially offers a point solution that can be integrated with other applications if required, but typically supports a much simpler sales process.

‘For large companies with well-established IT infrastructures the evaluation of an on-demand point solution is less likely to find acceptance within their overall IT strategy unless “ubiquity” is a major concern,’ said Peter Thorne of consultant Cambashi.

Thorne added: ‘There is a strong case for on-demand if ubiquitous access is needed, and there is a demonstrable benefit for the ultimate user, who might not be an employee. One can expect further instances of on-demand solutions achieving early success in the corporate world in areas such as the supply chain and collaborative design where these conditions are likely to exist.’

For SMEs the availability of established and proven on-demand systems may be very attractive. For some firms this will be because it reduces perceived risk in an area where they may lack expertise — their IT operations. However, the large ERP vendors historically fared less well meeting the requirements of SMEs. This was because these vendors concentrated on the problems of large corporate clients able to fund major change projects.

Many SMEs currently seem willing to adopt on-demand software for most application areas, which explains the current stampede by vendors to announce hosting strategies. And the SME market offers a largely untapped reserve of potential ERP customers.

‘[Keeping software in-house] and retaining control of applications that are unique to a company may only make sense where they genuinely provide the basis of competitive advantage,’ said Thorne. ‘Under most other circumstances buying software as a service from an open and competitive market would seem to be the obvious way to go.’

However, buyers also face the problem of choosing a supplier. In the old days life was simple — there were a handful of ERP software providers, it was direct sales only and the choice was usually the one that was supported best or ran best on the mainframe computer of choice.

Now, with a multitude of hardware platforms and an even larger multitude of software providers it’s no surprise that many ERP buyers are confused. The issue of software functionality is still their overriding consideration, but running a close second is the desire to find the sales and support channel to best suit their needs. The instinct that says it is best to deal direct with the software author may not be correct. The sales and support model of the provider will affect the relationship during implementation and over the longer term. For many buyers, dealing with a reseller may be the best option.

Historically, big-system vendors such as SAP sold direct or worked with large system integrators. There were local heroes selling local solutions, and there were firms such as Navision (now Microsoft Dynamics) that combined the local heroes with the core product.

The sales channel for Navision was set up with local resellers doing add-ons for particular application packages, to offer local or sector-specific coverage. Microsoft Dynamics provides the back-office backbone and the reseller offers industry-specific functionality.

Most resellers offering these kinds of solutions have been doing so over a number of years, so their applications are robust and most of them have a sizeable user base, which keeps the applications up to date. How do you choose one provider over another? There is no single correct answer, but asking the right questions can help. For example, is it important to deal with a local supplier or one with particular industry expertise? Is it important to work with a global player because of the global nature of your business?

As good as a local reseller is, they may not be the best for linking to your new factory in China. And if you’re still confused, you probably need help. Even buying two or three days of a consultant’s time can significantly narrow the focus and trim your long list.

Buying software is like getting married — you have to find a partner you can live with in the long term after the euphoria of the honeymoon has worn off. Within six months of a major ERP installation the customer and the provider are very much part of each other’s business — so both should make sure that the basis for the relationship is right from the word go.