Lesley Meall, FSN contributing editor finds that everything to do with ERP is facing challenge – not least the relatively high cost of annual maintenance for relatively stable systems. In this article lesley examines emerging business models that could fundamentally change the way that ERP systems are managed and maintained.
There was a time, in the not so dim and distant past, when enterprise resource planning systems were the preserve of the very large and those with very deep pockets, but over the past decade the wheels of change have turned. “Lines around ERP have become difficult to draw, and even among the big traditional players it’s difficult to know where it ends,” says Cindy Jutras. As senior VP, research fellow and group director for enterprise applications at Aberdeen Group, and an ERP specialist for more years than she cares to remember, Jutras has witnessed the evolution of ERP systems and the businesses developing and using them.
“ERP is not just about manufacturing any more,” she says, adding: “Some ERPs don’t even do manufacturing” So what is an ERP and what isn’t an ERP? “I now define ERP as an integrated set of modules that can be used to form the operational and transactional system for business” – which can encompass a very broad range of on demand and on premise systems. But according to Jutras’ research (available free for a limited time), as well as the expanding scope of ERP systems, the sizes of the organisations typically using them have also changed. “Small to mid-sized companies are learning from the early adopters,” she explains, using ERP as both their transactional system of record and as a strategic weapon.
“As we come out of recession, SMEs have started to focus on their revenue growth again,” she says, so they are re-evaluating the possibilities offered by ERP systems. “They want systems that can help them to hold down costs, provide operational improvements, and streamline and accelerate their business processes,” says Jutras, “so that they can level the playing field and compete on the same stage as larger companies.” But learning from the past does not necessarily mean that they will be following too closely in the footsteps of the larger organisations that were among the earliest and biggest adopters of ERP.
“There is an increasing willingness to adopt SaaS [Software as a Service], in particular among small companies,” reports Jutras. “When Aberdeen first started asking about it four years ago the attitudes were very different,” she recalls, but since then SaaS uptake has steadily increased. “There is a perception that it will be cheaper than an on-premise system,” observes Jutras, “and it definitely has lower up-front costs”. But there are other reasons for taking the SaaS route: it makes ERP seem a lot more flexible and a lot less demanding than it used to. “SME businesses are asking themselves ‘Why would I ever want to hire IT staff myself?’” says the analyst.
Some of their ERP predecessors seem to be asking themselves a very similar question. Maintaining an ERP system is no small undertaking, in terms of manpower or money, so some ERP users are using third party support and maintenance providers (such as Panaya and Rimini Street) that are exploiting technology to minimise the cost associated with ERP maintenance and support and the need for in-house IT expertise. “Panaya has targeted ERP users that want to stay current, but have no appetite for risk and little budget or headcount to throw into the necessary testing for updates,” says Brian Sommer, CEO of TechVentive, a technology strategy consultancy.
Good news for ERP users
The Israeli innovator Panaya simplifies ERP maintenance and support by using the resources of the Amazon EC2 cloud to re-engineer the software update process (currently it provides the service for the SAP product line, and in 2011 it plans to add the Oracle ERP). “A Panaya customer still pays SAP its annual maintenance fee,” observes Sommer, but as Panaya users no longer need an army of IT staff to apply scores of patches, manage upgrades and new releases, or deal with the risk and disruption, the service has the potential to dramatically reduce the associated complexity and costs.
Using Amazon EC2, Panaya creates a ‘sandbox’ where updates can be tested against virtual versions of customers’ ERP environments; running a simulation of the update shows which changes work, which ones may create ‘issues’, and which ones will need more investigation if they are not to cause significant problems such as data corruption, or a system crash. According to Panaya, the approach can remove around 70 per cent of potential upgrade problems and cut as much as 50 per cent from “application lifecycle costs”, so it’s not hard to understand why hundreds of business ERP users are taking this route.
They range from organisations such as Abeam Consulting and the IT Frontier Corporation (a subsidiary of Mitsubishi), which both handle ERP upgrades on behalf of their clients, to corporates such as Bosch and Cadbury, which want to handle their own updates. “We have established the effectiveness of implementing Panaya-powered upgrades in our upgrade business practice,” says Akira Akaishi, executive officer and principal practice leader in the outsourcing department at Abeam, and it plans to use the service to “expand its upgrade business by targeting both the domestic and international locations of corporate clients”.
When Mercedes Benz decided to handle its SAP systems upgrade in house it too used Panaya. “When I saw the first demo it seemed too good to be true,” recalls Sanjeev Sharma, manager for SAP regional support for Mercedes Benz in the US, but the system enabled him to focus his resources much more effectively than usual. “By the time we got to unit testing, 80 to 90 per cent of our potential problems were already taken care of,” he says, and instead of using an offshore team with ten full-time developers, Sharma managed the upgrade process (on time, and in budget) using just three internal developers – and two of them were part time.
The third party provider Rimini Street is also helping to cut the maintenance costs of those with products installed from J D Edwards, PeopleSoft, SAP and Siebel – though it is taking a more controversial approach than Panaya. Rimini Street aims its services at users who want to step off the ERP upgrade cycle and away from the annual licence fees of the original software developer. As vendors of on-premise ERP systems charge between 15 per cent 25 per cent of the initial system cost in annual license fees, a medium sized company that paid $350,000 for an ERP package, could have annual maintenance fee obligations ranging between $52,500 and $87,500
So there are a lot organisations out there with stable, working ERP systems, that have decided to leave them pretty much as they are from a features point of view (unlike Panaya users), and stop paying license fees to the ERP developer for maintenance and software upgrades; but they still want and need other types of upgrade. “We use Rimini Street to keep our PeopleSoft systems compliant and up-to-date with constantly changing rules and regulations,” says Rick Perry, information technology supervisor, Oakland County, Michigan, “and their tax, legal and regulatory updates are always robust and accurate, and delivered in a timely manner to ensure that our mission-critical operations run smoothly without fail.”
Good news for lawyers
At the moment, Rimini claims more than 20 clients in the Fortune 500, and hundreds of global, mid-market, and public sector organisations from a range of industries. These include: the Anadarka Petroleum Corporation, Deutsche Post/DHL, Liz Claiborne, Metro Vancouver, Pepsi Americas and Spokane County Washington – though many of these organisations are less keen to boast about the benefits of third p[arty maintenance than Oakland County, Michigan, because Rimini Street and Oracle are getting ready to lock horns in the courts.
In January 2010, Oracle filed a lawsuit against Rimini Street and its founder Seth Ravin, alleging “massive theft of Oracle’s software and related support materials through an illegal business model.” Shortly after which, Rimini Street responded by filing a counterclaim alleging “copyright misuse, defamation, disparagement, trade libel, and unfair competition under the California Business and Professions Code.” It remains to be seen how all of this shakes down, but the uncertainty doesn’t seem to be stopping cash-strapped organisations from taking a chance on the outcome, in exchange for as much as 50 per cent off their support fees.
Nonetheless, it’s worth taking note of the downside to opting out of ERP upgrades. “If you stick with an old ERP system you may have to struggle along with something that doesn’t meet your changing business needs, and you won’t be able to reap the benefits that come with the latest releases,” cautions Jutras. Not that any of this is going to be an issue for organisations that opt for a new ERP system any time soon, because many of them will be SaaS users, and even those that aren’t can look forward to a world where Panaya (and the imitators that are sure to follow it) can help to minimise the post-implementation costs.
