Small Company

SAP Business One Heads Into the Cloud

Many have their heads in the cloud today. This goes for both individuals, as well as companies. The interest in Software as a Service (SaaS) has been steadily increasing over the past several years, led by enterprise applications such as Customer Relationship Management (CRM) and elements of Human Capital Management (HCM) such as recruitment, talent management and benefits administration. Yet broader applications such as Enterprise Resource Planning (ERP), which provide the transactional system of record on which a business is based, have been slower to warm to the idea. Today that is changing and as many weigh the pros and cons of SaaS ERP, the advantages appear to be winning.

On March 6, 2012, SAP announced that SAP Business One, characterized as its ‘most affordable ERP solution for small and growing businesses’, is now available “on-demand.” Previously only available as a licensed on-premise or hosted solution, this added deployment option launches Business One as a multi-tenant SaaS solution. The On-Demand version is available now in 18 countries (more to be added later) through selected partners. Subscriptions are competitively priced and offered on a monthly, named-user basis.

Responding to Market Opportunity

The fact that ERP has lagged behind other enterprise software with respect to SaaS deployment has led to conjecture. Has lack of acceptance of SaaS ERP resulted from few options being available? Or were few options made available because of lack of interest? While that may have been a valid debate in years gone by, the resistance to SaaS ERP appears to be breaking down while interest in traditional on-premise solutions seems to be waning.

The Mint Jutras 2011 ERP Solution Study, with over 900 qualified responses, found SaaS deployment is now more likely to be considered than traditional hosting options. Yet even more stunning is the decline in the willingness to consider on-premise deployments. A few years back the percentage willing to consider traditional deployments would have been in the 90’s while recent research pegs it at 56%. And the comparison is even more dramatic when we compare “World Class” ERP implementations where we see SaaS heavily favored over licensed options:

  • SaaS/On-Demand: 62%
  • Hosted by ERP vendor: 44%
  • Hosted by an independent 3rd party: 35%
  • Traditional licensed on-premise: 38%

Mint Jutras defines “World Class” ERP implementations as the top 15% in terms of results measured, progress achieved against company-specific goals and current performance. These are the implementations that have delivered the most business benefit to the enterprise, whether it is large or small. Installing ERP is a means to an end, and not the end itself.

So demand is definitely on the rise, and so is supply. With the launch of SAP Business One On-Demand, SAP is now one of several major ERP vendors taking to the cloud applications that are already well established as on-premise solutions. However, in evaluating these transitions, it is important to understand all the options as well as the limitations.

Often these transformations resemble hosted solutions more closely than they do software as a service. Some industry observers insist that a cloud offering be multi-tenant (along with other qualifications) before they will regard it as “true SaaS” and even go so far as to accuse vendors who offer single-tenant solutions (also known as multi-instance) of “cloud washing.” With its multi-tenancy for Business One, SAP avoids this label. But not all companies seeking a cloud-based solution want the same thing. It is important to look beyond these labels, understand your requirements and make sure they are met.

Not SAP’s Only Cloud Story

Often meeting customer requirements takes experience and practice. Note that this is not SAP’s first or only foray into the cloud. In fact, its cloud heritage dates back to 2007 when it officially launched its first SaaS solution, SAP Business ByDesign. Like Business One, ByDesign is part of SAP’s small to midsize enterprise (SME) product portfolio. Unlike SAP Business One, ByDesign is and has always been a SaaS only solution. Originally SAP segmented its SME portfolio only by company size, either by annual revenues or by number of employees.  Today SAP uses a slightly different positioning scheme. Business One is still viewed as the most affordable and recommended for small and growing businesses whether these companies are seeking an on-premise or on-demand solution. Business ByDesign, offered exclusively in a SaaS environment, is positioned as the best solution for mid-size companies looking for SaaS ERP. SAP Business All-in-One, which shares the same ERP as the Business Suite, is a scalable solution for mid-size companies looking to stay on premise. However, the earlier positioning by company size, combined with the assumption that SaaS was largely for small companies, often led to speculation by industry observers that ByDesign would cannibalize sales of Business One.

This never proved to be the case, in part because ByDesign was still a very “young” product and in part because SAP delayed unleashing its considerable selling and marketing engines to power sales. You see, unlike SAP Business One On-Demand, ByDesign was not originally released as a multi-tenant solution. While this did not adversely affect the value proposition, it did negatively impact the economics for SAP. It was not until Feature Pack 2.5 was released in mid-2010 that multi-tenancy was introduced, allowing SAP to reduce its internal cost by a factor of 20.

In the meantime, SAP had also announced other “on-demand” offerings, including what it refers to as “Line of Business” applications, as well as Business Intelligence (BI) On-Demand. While not originally the case, through evolution and performance improvements, ByDesign was announced as “the” platform of development for these on-demand solutions as well. SAP was getting more and more serious about its cloud offerings.

In December 2011, SAP went one step further and announced its acquisition of SuccessFactors, a SaaS-only HCM solution. However, it was quite clear, even at the outset, that this announcement was more about cloud than it was about HCM.  Amid the hoopla of the $3.4 billion acquisition, there was also speculation that ByDesign was dead. That prediction appears to be far from true. No, the latest cloud offering, Business One On-Demand, does not use the ByDesign platform but given the breadth of the entire SAP product portfolio, there appears to be room for multiple offerings and more than one platform.

So what does all this history have to do with Business One On-Demand? It’s really about the culture. Amidst all the merger and acquisition fanfare, there has been repeated reference to the ‘cloud DNA’ of SuccessFactors and the appointment of its CEO Lars Dalgaard, to take responsibility for all SAP cloud offerings. When an enterprise application has traditionally only been sold with an up-front license, like Business One has, shifting to a subscription based selling is a tough transition for the sales team (and sometimes Wall Street) to make. SAP management appears to “get this” and is proactively taking steps to address this. The first step last year was a conscious shift to sell all SME business through channels.  The acquisition of SuccessFactors and the appointment of Mr. Dalgaard to oversee cloud offerings is a second and important one.

Proposed Value Proposition

So what is the value proposition offered by SAP Business One On-Demand? In many respects, it is the same value proposition of any SaaS ERP offering. Survey participants in the Mint Jutras ERP Solution Study cited a wide variety of benefits to SaaS deployment, but three primary themes emerged: lower costs, more upgrades and the ability to support remote employees and locations.

Costs

Survey respondents anticipate lower total cost of ownership (TCO), smaller start-up costs and fewer Information Technology (IT) resources required in a SaaS environment. In order to deliver these benefits, SAP simply needs to price Business One On-Demand competitively. While SAP is not announcing the price publicly, (remember it intends to sell through its channel so prices are suggested) targets shared privately appear to be competitively priced and will necessarily fluctuate somewhat depending on geography.

There are still some that feel the cost of SaaS ERP is really not that much more inexpensive than on-premise, particularly over the longer term. Of course, this does not take into consideration avoiding the cost of hardware or internal IT resources to manage the installation. But even if you ignore the hardware factor, there is one advantage of purchasing SaaS ERP from a vendor that offers both SaaS and on-premise. That solution provider should be able to draw an apples-to-apples price comparison between the two deployment options.

SAP and its partners should be able to assist in helping the prospective customer in determining the break-even point purely from a software, services and maintenance stand-point. But don’t forget hardware, infrastructure costs and remember, often the larger costs from a TCO perspective are the soft costs of internal resources.

One cost concern expressed by 47% of survey respondents was that of escalating costs. What’s to prevent a software company from exorbitantly raising prices at the end of the term of the initial contract? Because SAP does not sell Business One On-Demand directly, it cannot guarantee, with absolute certainty that the price will not increase beyond reasonable expectations, but is relying on the competitive nature of its channel to keep escalating costs in check.

Upgrades

While lower TCO was the most frequently cited benefit of SaaS ERP, a close second was the reduced cost and effort of upgrades (48% of survey respondents). The availability of more leading edge technology through more frequent updates was also a significant factor for 39%. The frequency and method of upgrades do vary from vendor to vendor. Those with SaaS-only solutions, developed exclusively for an on-demand environment might have a bit of an advantage here in that they are not tied to a prescribed release cycle. Those which offer the same solution on-premise and on-demand may not be as fluid in the delivery of innovation. Existing customers of on-premise solutions often prefer a longer release cycle since the upgrade process can be disruptive. This disruption is minimized in a SaaS environment because much of the burden of the upgrade process is assumed by the SaaS solution provider.

SAP does not expect to accelerate the upgrade release cycle of Business One simply to compete on this front, but also points to the maturity of the product relative to newer products developed for SaaS only. With over 34,000 installations, the product is indeed mature. However, even mature products must continue to evolve to meet new business challenges, so SAP isn’t entirely off the hook for keeping pace with innovation. SAP intends to continue to deliver upcoming innovations including enhanced support and application management via its Remote Support Platform (RSP), enhanced mobile integration and complete partner initiated lifecycle management.

Indeed SAP is beginning to see the convergence of the three pillars of innovation it has been touting for the past two years: cloud, mobility and in-memory.  Many of the new mobile apps developed both by SAP and its partners, now (or soon to be) available through an “apps store” will have as much relevance for SMEs as for large enterprises. And in February 2012 SAP announced through “new analytics powered by SAP HANA for the SAP® Business One application and SAP HANA, Edge edition, SMEs will be able to leverage powerful in-memory technology from SAP.” The goal is to enable decision-making, dramatically increasing the speed of existing processes and speeding up access to potentially large amounts of data.

Remote Access

And finally, the third overall theme in terms of the appeal of SaaS ERP is in the support of distributed environments. There are several factors at play here. First of all, operating from multiple locations is no longer an issue only for large enterprises. The Mint Jutras ERP Solution Study found the average number of operating locations supported by ERP in small companies (annual revenues less than $25 million) was 2.5. This average grew to 5.5 as annual revenues grew to the $25 to $250 million range.

Secondly, large enterprises are often comprised of a network of small to mid-size divisions or subsidiaries. SAP has long referred to this scenario as an integrated business network. A very common scenario is to have a two-tier ERP strategy where one ERP is used at corporate (often called administrative ERP) and a second standard (often referred to as operating ERP) is used for units/divisions/locations. Because of its dominance in large enterprises, SAP is often the administrative ERP. While many other ERP vendors will make a concerted effort to interface to SAP at this level, nobody is better positioned to do this than SAP itself with one of its SME products.

Ninety percent (90%) of companies surveyed (and 97% of World Class ERP implementations) have defined standards for ERP implementations. What better way to control the standardization of solutions and processes than through SaaS deployment? In fact 36% of survey respondents cited the ease of remote access for a distributed workforce as a key advantage of SaaS and 27% noted the ease of bringing up remote sites.

Handling the Perception of a Down-Side

While SaaS ERP is gaining in acceptance, there is still a significant segment of the population who will not consider this deployment option and even those that will consider it still have some lingering concerns. Only 10% of the Mint Jutras ERP Solution Study indicated they had no concerns whatsoever in considering SaaS ERP.

In addition to the concern over the possibility of escalating costs, 46% expressed fear of down-time risk and unpredictable performance. Although a viable concern, due diligence can significantly reduce risk here. Prospective customers should ask for historical performance and they should also ask for guarantees of up-time, although appropriate caveats for natural or even man-made disasters may be negotiated in. Glenn Rhodes, IT Manager, DRIFIRE, a manufacturer of flame resistant clothing stated, ““Before we moved Business One into the cloud, I was concerned about performance impact but the impact has been minimal. Often you don’t see a difference at all.”

But the top concern, even with so much business being transacted over the World Wide Web, is still one of security, with 58% of survey participants expressing this concern. Mint Jutras would agree everyone should be concerned over security. But you should be concerned regardless of deployment option. And if you are a small company, without a dedicated IT security expert on board, chances are you assume more risk than you would in a SaaS environment, particularly one that has successfully completed an annual SAS 70 Type II audit. The SAS 70 certification was developed by the American Institute of Certified Public Accountants (AICPA) to annually audit the effectiveness of operations, controls  and safeguards to host and process data. Indeed another 29% of respondents admitted that part of the appeal of SaaS was the comfort of leaving security and other IT issues to the experts.

Which brings us to the final and very important factor in considering consuming Business One as a service: Who is the partner that will actually be delivering the service? What is the partner’s track record? Fully assess its ability to deliver services.

A New Kind of Partner

With the introduction of Business One On-Demand, SAP is also introducing a new kind of partner. In the past, a typical Business One partner would be an ERP specialist, a company engaged in selling and servicing an ERP solution. Some also might have provided a hosting option. This is the type of partner that will be most likely to see an opportunity to expand their offerings into the cloud. Some (not all) existing partners may seek certification by SAP to deliver the cloud option. Often these partners specialize in extending the Business One solution. In these cases, SAP will insure that existing on-premise add-ons will run in the cloud without disruption.

In addition to these existing partners, new strategic partners will include telecom service providers. These types of companies are experts in hosting, cloud infrastructure, billing and support. Generally speaking they are not experts in ERP. Some may decide to invest in building an ERP practice, others may not. Those that do not will most likely be partnering with one or more of the existing Business One partners who are experts in ERP and Business One, but have no experience or desire to provide this cloud infrastructure and support.

Key Takeaways

SAP sees the introduction of SAP Business One On-Demand more as a bid for new-named business, although it will be possible for existing Business One customers to make the transition to the cloud. SAP’s Business One business has been steadily growing and the market for ERP in small companies is far from saturated.

On balance the advantages of a SaaS environment for ERP seem to outweigh the disadvantages. Cost savings, including TCO, startup costs and cost of IT staff can be substantial. Even if the subscription cost equals the cost of software and maintenance over time, there are still the savings achieved by eliminating the purchase or continued maintenance of hardware.  If you have no IT staff today, there is no need to hire any. If you have good IT staff on board, let them engage in more strategic, value-add activities than routine maintenance without sacrificing the ability to take advantage of upgrades and innovation.

If you operate in a distributed environment, the advantages of a SaaS environment can be considerable in bringing standardization across the enterprise, providing access to remote employees and in bringing remote sites up quickly.

As with any selection of ERP, fit and functionality should be foremost in the decision-making process, along with ease of use and TCO which will directly impact the return on investment (ROI). So it is still important to put Business One and the partners selling it through their paces during the evaluation process. Make a careful choice that is right for your business.

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Does SAP’s Cloud strategy reflect a convergence of trends?

For quite a while now, we’ve been hearing three major themes from SAP: in-memory, mobility and on demand. In-memory (HANA) seemed to dominate the discussion at Sapphire in Orlando and then again at TechEd in Las Vegas. Mobility took on a little more prominence in the discussions at the co-located (Sapphire and TechEd) events in Madrid. But it was the on demand theme’s turn to be front and center at the SAP Influencer Summit in Boston this week. Usually this is a one day event, with some follow-on special interest group meetings the following day. But this year, SAP felt its cloud strategy merited an entire day two for all.

Early on day two we heard Peter Lorenz, Corporate Officer and Executive Vice President of OnDemand Solutions say something that I think set the stage quite well: “We don’t have pieces of a strategy. We really have a cloud strategy.” This implies a re-think and a holistic approach. Cloud of course is not new at SAP. The company entered the cloud world several years ago with the introduction of Business ByDesign. But that product had some false starts and the installed base hovered at 40 “charter” clients for a long time before SAP was ready to really go to market. At the end of Q3 SAP claims 650 customers and is still confident in predicting it will reach 1000 by the end of the year (yes, only two weeks away). There is a lot of back story here, but the real turning point was when ByDesign became multi-tenant last year, allowing SAP to profitably scale the OnDemand business. Also a factor… the release of the ByDesign Software Developer’s Kit (SDK) to allow partners and customers to extend the solution.

So what is SAP’s strategy and how does this reflect a convergence of trends?

SAP’s Cloud Strategy

An important aspect of SAP’s cloud strategy is that it is at least partially a result of listening to its customers. SAP execs heard customers asking them to “protect cloud dynamics” while leveraging existing processes and investments. “Protect cloud dynamics” sounds bit like marketing spin to me, but I think it means that customers want all the benefits of cloud deployments and yet many are not in a position to abandon some, any or all of their existing solutions. SAP has heard that speed of deployment is what people like best about the cloud. My research indicates speed of deployment is certainly one very important factor but the top three perceived benefits are all about costs:

  1. Lower total cost of ownership (52% of respondents)
  2. Reduced cost and effort of upgrades (48%)
  3. Lower startup costs (46%)

Yet faster often equates to lower costs – because time is money.

Technology-wise SAP’s cloud strategy is based upon the platform it created in developing Business ByDesign. This too is not new news. Business ByDesign is part of SAP’s SME product portfolio and is an integrated business management suite intended to address the end-to-end business processes of a diversity of small to midsize enterprises. As such it fits my definition of Enterprise Resource Planning (ERP): an integrated suite of modules that forms the transactional system of record for a business. ByDesign is delivered exclusively as Software as a Service (SaaS). It’s a good platform choice since the product was developed from scratch for the cloud. I think you will soon see SAP repositioning it in the context of company size. Even now, ByDesign targets both SMEs as well as subsidiaries of large enterprises.

Since SAP announced the ByDesign platform as the strategic platform of choice for OnDemand solutions last year, it has also been using this platform to develop additional “Line of Business (LoB)” solutions. I have always found the reference to LoB a bit confusing, because any enterprise application should be designed for the business. But in this context I have really found it to mean extensions to ERP that are designed for a single functional area of the business – I suppose you could say, a single “line” of business role. But (less intuitively) LoB here also refers to a cloud deployment model. Examples of these are:

  • Sales OnDemand
  • Service OnDemand
  • Travel OnDemand
  • Career OnDemand
  • Sourcing OnDemand
  • Carbon Impact
  • Sales and Operations Planning (S&OP) OnDemand

Streamwork and Crossgate round out the OnDemand portfolio, providing collaboration services. But SAP is not relying exclusively on its own development efforts to bring end-to-end OnDemand solutions to market. Today there are more than 40 ByDesign partners and 70  ByDesign applications that have been developed using the SDK. SAP expects to continue to round out the framework and the base product but fully expects its ecosystem to supplement that functionality, particularly to address vertical industry requirements and to provide localizations for subsidiaries in countries that are not yet on SAP’s three year roadmap.

SAP’s strategy is to have OnDemand solutions sold by a dedicated cloud “go-to-market” organization which will be direct for large enterprises and indirect (through a channel) for SMEs. SAP sees a huge opportunity for this dedicated sales force in selling to all its 176,000 customers, which also includes the Sybase installed base of customers.

Now of course the finer points of the strategy are subject to change because of SAP’s recent announcement of its intent to acquire SuccessFactors (SFSF). SFSF calls itself a “Business Execution Software” company, but I put it in the category of Human Capital Management (HCM) software. While employees are certainly critical to the success of a business, for a lot of types of companies (e.g. manufacturers), there is a lot more to manage than people.

But the category of software is far less important here than the fact that SFSF’s business is entirely SaaS and Lars Dalgaard, founder and CEO, is also part of the package. Technology is only one part of providing cloud-based solutions, which are designed, built, sold, delivered and serviced differently than traditional on-premise solutions. And those traditional solutions are what made SAP the giant company it is today, making it a relative newbie in the on demand world. Co-CEO Jim Hagemann Snabe was quick to point to SFSF’s cloud DNA as a driving factor behind the acquisition.

Spotting the trends

So how is this strategy reflective of both historical and emerging trends in the software world? Three different trends come immediately to mind: trends in cloud computing, multi-tier ERP and mobility.

Cloud trends:

The topic of cloud deployment of enterprise applications has been heating up for the past several years. While ERP has lagged behind in terms of interest and adoption, cloud-based applications surrounding ERP have trended upwards. Now the barriers to acceptance of SaaS ERP appear to be crumbling. The 2011 ERP Mint Jutras Solution Study found almost half (45%) of over 950 qualified respondents would consider SaaS/On Demand as a deployment option if they were making an ERP selection today. The companies with the top performing implementations were even more likely to consider SaaS (62% of what we defined as “World Class”). Even more interesting, the percentage that would consider a traditional on-premise deployment was down to 56%. In years past, this would have been between 85% and 90%. And only 38% of World Class would consider traditional on-premise.

Expanding the target for ByDesign beyond SMEs to include subsidiaries of large companies is also in line with trends. While many think of the market for SaaS ERP as primarily small companies, the Mint Jutras ERP Solution Study found the interest in SaaS deployment did not decline with increased company size. In fact it escalated from 42% in small companies (those with annual revenues under $25 million) to 59% in large enterprises (those whose annual revenues exceeded $1 billion).

And looking beyond ERP to those LoB solutions, it is very likely that even those with existing on-premise solutions are keen to extend those processes with cloud extensions to leverage cost savings and speed of deployment. While we found lower cost to be the primary appeal of SaaS, more frequent updates and ease of supporting remote employees and remote operating locations were also significant factors.

However, while SAP sees all 176,000 of its customer base a prime target for these LoB solutions, I am not sure I would agree. More than 78% of SAP customers are SMEs. Sure very small companies could benefit from the functionality, but they can also live without it and there are very cheap (sometimes free) alternatives that will be “good enough” for the low end of the market. Take for example Expensify as an alternative to Travel OnDemand – a solution to make the capture, submission and reimbursement of travel expenses simple for all your road warriors. Of course SAP’s solution is more robust, but will a small company pay for Travel OnDemand when Expensify is free?

Multi-tier ERP:

The ease that “cloud” delivers in connecting remote employees and managing remote sites brings us to the second trend: that of a growing need for a multi-tier ERP strategy. Once upon a time a company generally had to be of a certain size (think fairly big) before it had to deal with multiple operating locations. That is no longer the case. In fact in our same ERP study, 67% of all our survey respondents had more than one operating location (served by ERP) even though our survey sample included companies of all sizes from very small to very large. Even small companies (revenues under $25 million) averaged 2.5 operating locations. Of course this average escalated steadily to 10.7 in companies with revenues over $1 billion.

Another shift: “back in the day” even if there were multiple operating locations, different sites might have little to do with one another. But in today’s globalized environment that is rare. We have shared services, feeder plants, decentralized distribution for centralized manufacturing and centralized distribution for decentralized production; all creating a growing need for collaboration. With little interoperability, historically individual business units or divisions might have been left to their own devices to select and implement enterprise applications, including ERP. But as the need for interoperability grows, leaving everyone to do their own thing can create a nightmare.

Today 98% of top performers (and even 84% of all others) define standards for ERP implementations, but that doesn’t necessarily mean a single ERP used at corporate headquarters and also at all operating locations. It might mean a single corporate ERP and one or more “standard” ERP solutions, depending on the level of autonomy or interdependence between sites. In fact we found that World Class implementations were more than 2 ½  times as likely to use a two tier standard (one ERP at corporate and a single different ERP at the divisional level) and 1 ½ times as likely to use a multi-tier standard (two or more “standards” are defined for business units).

What does this have to do with a cloud strategy? What better way to implement, enforce and control the “standards” at multiple, remote operating locations than through a SaaS deployment model? This is especially true if remote sites are in emerging markets where IT talent and ERP experience are rare commodities?

Mobility:

Which brings us to the final trend: an increasingly mobilized world. This is one area where emerging markets do not necessarily lag behind mature markets. Everyone carries some sort of mobile device today, sometimes multiple devices. By untethering ourselves from the wired world, we have actually tethered ourselves more to the business and expect to be connected “on demand” sometimes 24X7.

This is why mobility is at the forefront for the ByDesign platform, which currently supports BlackBerry, Windows Mobile 7, iPhone and Android. Mobile scenarios include sales, approvals, expense reports, and analytics. Feature Pack (FP) 3.5, due out in January will focus on the iPad, which seems to be emerging as the tablet of choice for executive management and sales. FP3.5 will deliver sales catalogs, account management, lead and opportunity management on the iPad.

Wrap-up:

Cloud strategies are a hot topic of discussion today.  However, sometimes the more vendors and industry “experts” discuss the topic, introducing their own definitions and requirements, the more confused the general audience becomes. So far SAP has resisted being dragged into the fray of accusations about “cloud washing” and “false clouds.” In evaluating SAP’s strategy, the reader would also be advised to evaluate the offerings based on their own individual needs rather than on any one person’s definition of “true SaaS.” After all, not all companies have the same needs or desires.

And in fact I believe eventually “cloud” as a topic will cool down significantly. One day in the not too distant future, deployment option will become just another check box. It won’t matter so much how it is deployed, only that it solves your business problems.

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SAP Mobility @ Madrid: Is it for SMEs too?

Recently I had the opportunity to speak with  SAP’s Senior VP of Mobile Strategies, Nick Brown to get a preview of the “mobility” announcements planned for SAPPHIRENOW + SAPTechEd, co-located in Madrid this week. As anyone that follows SAP knows, mobility is one of its three hottest topics, the other two being cloud and in-memory computing. Since May 2010 when SAP announced its intended acquisition of Sybase, the mobility buzz has been about an integrated platform and application story.

Mobility for the Masses

SAP’s goal is to bring mobility to the masses. But this means something different to enterprises than it does to consumers. Or does it? I came away from the briefing understanding that at least one of the key objectives for SAP’s mobility strategy was to enable any size company to mobilize. Since I have a lot of interaction with the SME (small to midsize enterprise) teams at SAP, I immediately thought about the impact of these announcements on these smaller companies.

Since the Sybase acquisition, we’ve heard a lot about the Sybase Unwired Platform (SUP). The easiest “hit” for SAP here is with large companies with large IT staffs that worry about managing a large variety of devices. Talking about MEAP (mobile enterprise application platform), MCAP (mobile commerce application platform) and MDM (master data management) resonates here. But to most executive decision-makers that’s just alphabet soup. And those acronyms are even more foreign to decision-makers in your typical SME. They think a lot like consumers. They just want to consume; they don’t have big IT staffs to worry about a “platform.”

What SMEs want

SMEs want ready-to-use applications that address a specific business need. They just assume (rightly or wrongly) that the apps come with the necessarily underlying infrastructure to take advantage of the latest and greatest technology (think 3G and 4G), deliver security and work on any device they might want or need to use. That means they don’t expect to pay extra for it and perhaps they don’t expect to have to “buy” it at all. In fact they don’t necessarily even connect the dots from mobilization back to “IT” and core enterprise applications like ERP, which create the system of record for their business.

My “mobility” research shows that the number one priority for mobilization of tasks or functions is performing approvals and authorizations, followed closely by receiving alerts and notifications. And yet my “ERP” research shows that less than half (47%) of companies rate the ability to access ERP data from a mobile device as “important” or “must have,” 26% said it was “somewhat important”, 22% called it a “nice to have” and 6% said it wasn’t a consideration at all. Taking photos and attaching them to records rated higher than mobile order and account management. And the smaller the company, the less priority they seem to place on accessing ERP through a mobile device. A lot of companies still don’t get the connection between this proactive management and the underlying enterprise data that runs their business.

What must SAP do to address that?

First of all it needs to deliver applications that budget holders see real value in. And those applications are finally starting to flow out of the funnel. SAP is showcasing 50 of them at SAPPHIRENOW in Madrid this week. I went out to the App store earlier this week and counted 45 that are currently available. Twenty of them are free, 11 are from partners. While today there are more SAP-developed apps than partner-developed apps, SAP expects that to change dramatically and ultimately expects 80-90% to come from its ecosystem of partners. There are 200 of them undergoing certification by SAP right now. But partners will only do that as long as they are successful in selling them.

Because of the sheer volume of SMEs (compared to large enterprises), it would seem SMEs would be key to that success. And for SMEs to consume them, they must be affordable. And that means the cost of the platform cannot inflate the price of the apps.

Dennis Howlett (@dahowlett) has been very vocal on this subject. In fact he just published his insights on the mobility announcements in Madrid, including this excerpt:

“I have said before and I repeat here: SAP should give the platform away in most cases. It doesn’t make sense to developers if they have to pay for a platform at high cost. Apple managed to build a highly successful business by making the barriers to developers trivial. SAP is still trying to wean itself on the idea that everything has to come with a Veuve Cliquot price tag.”

So we will have to watch this closely to see how many apps continue to be produced and consumed and ultimately what stance SAP takes on the price of the platform. This will have significant impact on SMEs.

What Else?

How else can SAP educate customers and prospects? Another way is by use case examples. SAP showcased one in particular in Madrid and in its press release. This one was developed specifically for Berlin’s Charité, a big university hospital in Europe. In a way this is not the best way to reach and educate SMEs on the potential for mobilization because this was custom developed and is very specialized to serve physicians and hospitals, not something that helps an SME run its business better. On the other hand, it provides a showcase of an environment that is personally familiar to everyone.

The story is about mobilizing Electronic Medical Records (EMR) so that doctors can access patient information reliably from anywhere. It’s about letting the doctors record notes right in the application during or immediately after examining a patient, so they don’t have to be transcribed later. Everyone can understand it (and its value) because most of us have been patients at one time or another. Not only do we all understand the value of having more and better records and immediate access and the frustration caused by not having that direct access, but we are also quite sensitive to privacy and security when we’re talking about our own personal health records.

Other applications announced in Madrid include:

  • SAP CRM Sales 2.0
  • SAP Field Service 2.0
  • SAP Retail Execution 2.0
  • SAP Citizen Connect
  • SAP Transport Notification & Status
  • SAP Transport Tendering
  • SAP GRC Access Approver
  • SAP GRC Policy Survey
  • SAP Manager Insight (announced in October)
  • SAP Interview Assistant (announced in October)

Also worth noting are the “2.0” designation of the first three apps. The first releases were in June; now we have the second in November, just five months later. This tells us the 12-18 month release cycles are becoming a thing of the past. SAP promises releases to be quarterly in future – something else worth watching out for.

Mobility should be of enormous interest to SMEs. Let’s see if SAP can help them connect the dots to show them how mobile access to enterprise data can help them run better businesses.

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New Sage ERP MAS 90 Online Provides SMBs with Choice

On November 1, 2011 Sage North America announced Sage ERP MAS 90 Online, a cloud-based solution of Sage ERP MAS 90 and 200. Hosted by Sage, this option lowers up-front costs, eliminates the need to build an IT infrastructure and associated staff, and provides web access to a fully integrated business management solution for small to mid-size businesses (SMBs). Because this deployment choice is added to current on-premise options, it also comes with the option for seamless migration to an on-premise deployment in the future. Sage ERP MAS 90 Online will be available November 22, 2011.

Here’s what you get for $169 per user per month:

  • Access to all core software modules
  • Sage Business Care support
  • Backup services and disaster recovery

For existing customers of Sage 90 and 200, this will also include an upgrade to the latest version 4.5, announced at the same time (more on that in the next post).  This may very well provide incentive to small companies currently running small business accounting solutions like Sage’s own Peachtree or Intuit’s QuickBooks.

The Product Line

The Sage MAS product line is one of three offerings in Sage’s ERP portfolio, which also includes Sage ACCPAC and Sage X3. MAS 90 and 200 share a common set of code that forms a fully integrated business management solution for small to mid-size businesses (SMBs) managing a local operation. While MAS 90 runs on a single computer, MAS 200 uses a client server structure. This new deployment option adds web-based access to the mix. As part of a re-branding exercise, in January, these two products will become Sage 100. The numbers loosely relate to the number of employees and annual revenues in its target market. So in this case, Sage 100 is well suited to SMBs, often with up to 100 employees or $100 million in revenue. However, these are only guidelines and fit is primarily based on complexity of accounting and financial needs.

Extending the Solution

In addition to ERP for SMBs Sage also offers what it calls “Connected Services.” These are extensions to ERP such as Customer Relationship Management (CRM) or payment services, employee benefits, sales, marketing and lead generation services, etc. By adding these as separate cloud-based solutions, Sage has been adding value to all its product lines simultaneously and making that added value easier to consume. So “cloud” is not necessarily a new concept for all MAS 90 and 200 customers.

How much do SMBs care about SaaS ERP?

However, sometimes any company, including SMBs might be receptive to moving these complementary solutions to the cloud while still resisting moving ERP, which runs their business. In the past I have referred to ERP as “the last bastion of resistance” to SaaS but these barriers are beginning to break down and we may very well be on the cusp of a mass change in mind set. The Mint Jutras 2011 ERP Solution Study collected responses from over 900 survey respondents, qualified by their knowledge of ERP implementations. It asked the question, “If you were selecting an ERP solution today, which deployment options would you consider?” The percentage that would consider SaaS, taking into account all sizes of companies, was 47%. But when we examine the same data cut in a variety of way we find some interesting results.

While many industry observers and ERP solution providers think of SaaS ERP as a small company play, our survey results actually see the willingness to consider SaaS ERP increases with company size:

  • 42% of small companies (revenues under $25 million) would consider SaaS ERP
  • 48% of lower mid-size companies (revenues between $25 and $250 million)
  • 51% of upper mid-market companies (revenues between $250 million and $1 billion)
  • 59% of large enterprises (revenues over $1 billion)

So while companies who initially select a cloud deployment might feel it is important to have the option to move to on-premise later, it may not be growth that prompts that movement. This is particularly true since many large enterprises are comprised of a collection of small to midsize divisions, operating locations or business units. Because many of them have a multi-tier strategy for ERP (an administrative ERP is implemented at the corporate location and one or more different ERP solutions run the operating locations), cloud deployment may indeed be a way to bring remote locations on line more easily while standardizing implementation. So growth as a result of expansion to a new geography or an acquisition might also prompt a new deployment. And it may not just be new purchases that are considering SaaS. We may start to see current on-premise installations moving to the cloud and therefore we may be just as likely to see current Sage MAS 90 and 200 implementations migrate to a cloud deployment in the future.

But there was another way of looking at this data that was even more “telling.” The Mint Jutras 2011 ERP Solution Study was also used to benchmark the performance of ERP. It defined “World Class” performance as the top 15% of implementations based on results produced, progress against company goals and current performance of selected metrics. Interestingly enough, those with World Class ERP implementations were 35% more likely to consider SaaS as a deployment option for ERP (58% of World Class versus 43% of all others). Generally speaking, the companies with World Class implementations focus more on the end goals of increased revenue and profits and less on the means to the end. IT and enterprise applications are that means to the end and not the end in of themselves.

The Service

Sage ERP MAS 90 Online will utilize the same cloud service that already supports Sage Accpac running in the cloud, which has had a 99.874% recorded up-time for 2011. While the application itself is managed by Sage, the data center is run by QTS Atlanta Metro Data Center, the second largest data center in the world with an on-site Georgia power substation and direct fiber access. It is also SaaS-70 Type II Compliant. This data center is backed up by a second data center on the opposite coast in Santa Clara, California which is a fully redundant environment, with near real-time data duplication and less than four hour recovery time.

While we are seeing increased interest in SaaS ERP, there are still lingering concerns. Only 12% of survey respondents indicated they had no real concerns at all, and the top concern is still one of security. Security should be a concern for everyone whether running in the cloud or on-premise. Unless your systems are behind an impenetrable fire wall with no access from the outside world (including remote employee VPN access); and laptops never leave the premises and are never connected to any other network, you need to worry about security. And this is where small companies should be looking to secure SaaS solutions to bring a level of redundancy and security they would never be able to afford to build on their own.

Key Takeaway: Choice

Sage MAS 90 Online is being announced along with new database options and innovation which includes 50 customer-requested enhancements. In combination, it is all about giving customers more choices. Sage MAS 90 is an important element in providing deployment options with no lock-in whether you choose to run on-premise or

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Engagement vs Transactional Systems: Not a “from-to” especially for SME. SAP as an Example

I recently read Ray Wang’s Blog in the Harvard Business Review entitled “Moving from Transaction to Engagement” and something about it didn’t sit well with me. I wasn’t getting the “from – to” part. Recording transactions isn’t optional. Whatever tool you use to create your system of record (whether it is ERP or accounting applications or something else) is a necessary foundational tool. If you think tools that help you build relationships can replace transactional systems, then maybe you believed “eyeballs were everything” back in the dot-com boon and we all know how that story ended.

Since it troubled me I went back and read all the comments to Ray’s blog post and also a couple of pieces he referenced: Geoffrey Moore’s paper “Systems of Engagement and The Future of Enterprise IT: A Sea Change in Enterprise IT” and Dion Hinchcliffe’s “Moving Beyond Systems of Record to Systems of Engagement.” OK, I feel a little better now. But only a little.

I feel better because both Geoffrey Moore and Ray (in response to a comment) acknowledge that these transactional systems of record are necessary. And even Dion Hinchcliffe admits, “It’s safe to say that most firms would go out of business without the data within and automated capabilities of their systems of record.” But to say, they are all in maintenance mode, “ERP has hit its limit” and that “Transactional systems remain in a hard coded, rigid structured approach” ignore the change in how software is developed today and the real possibility of bringing better means of flexibility, engagement and communication to ERP. Yes, ERP must bring discipline and therefore must define data structures, but that doesn’t mean the application or implementation needs to be rigid.

I define ERP as an integrated suite of modules that form the transactional system of record for a business. So when we talk about transactions and systems of record, I assume we are largely talking about ERP. The trouble is, it has become harder and harder to tell where ERP ends and other applications begin. But that’s a good thing. It means software makers are providing added functionality and that ERP is seamlessly interacting with other applications. So why can’t we bring these characteristics of engagement systems (and maybe even experiential systems) to ERP? I’m not going to go down the route of “personal fulfillment” systems because we can’t lose sight of the fact that the purpose of the engagement is to generate transactions (because transactions mean revenue). I know I am over-simplifying but, I don’t think most executives want to discuss speed in the context of a time-space continuum and businesses can’t survive in a “feel good” environment where everyone gets a trophy for “engaging” regardless of whether revenue is flowing in.

SAP has gotten picked on a lot lately as a legacy application and as rigid, so let’s take SAP and its approach as an example of how transaction systems can be enhanced, not replaced by engagement systems. And let’s talk about it in a way that is not just for the large enterprise, because 78% (90,000) of SAP customers are small to midsize enterprises (SMEs). Customers are front and center of engagement, and to effectively engage you need to understand your customer. In order to understand your customer, you need data from a lot of different sources. Some of that data is structured and you are probably already sitting on a mountain of it from a variety of sources:

  • Your ERP system – what they bought, how much they paid, how well you performed in delivering product and collecting cash (all those pesky transactions).
  • Your support, contact or call center – including issues and resolution
  • Your Sales Force Automation solution – contacts, pipeline and quotes
  • Marketing Automation – how many times have you touched them?
  • Others might include document management, customer project management, engineering design and/or compliance specs, specific test results, etc.

SAP is approaching this by enhancing solutions from the outside in, rather than the inside out. What do I mean by that? I mean they are developing innovations SAP BusinessObjects Edge, business analytic applications and new dashboards and user interfaces that can be layered on any of their solutions, including those for SMEs like SAP Business All-in-One, SAP Business One and SAP Business ByDesign. That’s smart in two ways. First, they need only develop it once rather for each of their different ERP solutions. Secondly, by adding innovation in layers, they create the perfect environment for bringing data sources together from different applications. And in keeping these innovations on the “edge”, SAP can make them more “social” by tying in other sources of data, including “conversations” through chat and email, thereby supplying the “richer social orientation” of an engagement system. And once these new interfaces are placed on top of ERP, the user perceives them as a new and better ERP.

This also is the perfect opportunity to apply external business rules and event management, “smarter intelligence” that might otherwise be well beyond the reach of SMEs. Of course, looking beyond the conversations that might be shared between employees and customers, there is far more data out there about your customer than ever comes near your ERP and surrounding applications. There are Twitter streams and LinkedIn discussions and FaceBook pages. There are news feeds and stock watches. The list goes on and on. The trick is to put that data into the context of the data in ERP in order to put it into the context of your business.

And how you deliver it will be critical. Just constructing these focused dashboards is a good start. And perhaps good BI tools would be enough in the hands of a talented and well-staffed IT department, but SMEs won’t have that luxury. Part of “engagement” needs to be getting your employees, including business executives, to engage with the data that you have and that means engaging with applications -which is why it is more important for SAP to deliver business analytics as a configurable and ready to use application rather than just BI tools. But making these analytics accessible is also very important.

Business executives from large multi-billion dollar companies, down to the smallest startups want to be connected through mobile devices. And executives from smaller companies are just as likely to blur the lines between business hours and personal time, perhaps even more so because of the number of different hats they might wear in managing a small business. In our untethered world of mobile connectivity, we all become more tethered to work even in the “off hours.” And the older generation is now learning from younger generations and becoming more comfortable with specialized mobile consumer “apps.” In response, SAP is developing mobile apps and recognizes they must model consumer apps. That means they must be smaller in scope and more directly applicable to a particular function. No training required for the user interface and limited training required for the business process it is intended to perform.

SAP still has some decisions to make in making this type of mobility affordable to SMEs in a world increasingly moving away from corporate standards, producing a more “bring your own device” environment. But SAP has already delivered the SAP BusinessObjects Mobile app for iPad, in addition to the SAP BusinessObjects Explorer for iPad/iPhone , which is already one of the top downloaded apps for business with over 200,000 downloads from the Apple Apps store.

Of course no discussion of SAP would be complete today without mention of “in memory” but this is actually quite relevant in the context of both adding engagement characteristics to transactional systems and customer analytics. If you thought you were drowning in data before, once you open the door to capturing and channeling all these sources of public information, you will now be faced with a virtual tsunami of data. And make no mistake; this is not just a large enterprise problem. Once you open that door, you open the floodgates. So SMEs will need to deal with “big data” just as larger companies will. SAP is intending to bundle SAP HANA (its answer to big data) with SAP Business One for small companies, and SAP HANA will power SAP’s On Demand solutions, including By Design, but there might be a donut hole forming around Business All-in-One (BAiO). SAP HANA will be an option for both the Business Suite and BAiO and pricing has not yet been made public.

SAP is of course just one example, and I could have used other vendors as examples along the way. But SAP also has a very broad and deep footprint and has more irons in the innovation fire with more resources to bring to bear than your typical ERP solution provider. And SAP certainly touches a lot of SMEs (over 90,000).  But it also has a lot of history and a reputation of being rigid, in terms of both product and company. It hasn’t made the big splash about “Social” that Salesforce has recently. It’s been hard to miss Salesforce CEO Marc Benioff’s exhorting the virtues of the social enterprise.  But in the meantime SAP has been bringing more “engagement” to its transactional systems.

So the key takeaway here is that transactional systems can indeed take on some of the characteristics of an engagement system. While yes, they need to be structured, structured doesn’t necessarily mean rigid. I don’t think ERP has hit the wall – I think it still has a ways to go and many, including SAP still have the legs to take them there.

Disagree? Prove me wrong.

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The Sage re-Branding Effort Revisited

Back in July I wrote, “Sage North America is taking its brand very seriously these days.”

  • In spite of the fact that it is about an $858 million business and part of the larger global Sage Software, a $2.24 billion company…
  • In spite of the fact that is supports more than 3.2 million customers…
  • In spite of the fact that is has more than 27,000 Value Added Resellers…
  • In spite of the fact it employs 4,000 people in North America and 13,600 across the globe….

In spite of all this, and partly because many of these customers are very small businesses, Sage is hardly a household name. In an effort to strengthen its brand, at its Sage Summit last summer the company announced a major re-branding effort which would rename all of its products. While currently products are grouped and managed internally by software category (e.g. ERP and CRM), each with multiple brands and product lines, the thought moving forward was to simply group them by target of company size. This prompted many questions and caused a bit of an uproar amongst its channel partners, happy with current names and unhappy with incurring the expense of this effort.

Yesterday (October 18, 2011) Sage met with these channel partners virtually.  In a webinar presentation Sage EVP of Corporate Marketing, Dennis Frahmann, and Sage VP of Channel Management, Tom Miller, shared some details of the current plan. As you can see from the plan below, Sage has backed off on re-naming ALL its products. However, the goal remains the same: to build the “Sage” brand. In order to do that Sage will invest in marketing to leverage “Sage” as the master brand.

As stated before, the Sage branded portfolio will consist of product sets referred to by numbers that indicate increasing levels of sophistication or capability. These numbers/products were announced as: Sage 50, Sage 100, Sage 300, Sage 500. The numbers loosely relate to number of employees and annual revenues. For example, Sage 50 is well suited to smaller businesses, often under 50 employees or $50 million in revenue, but I described the coupling as “loose” because these are only guidelines. The fit is primarily based on complexity of their accounting and financial needs.

 

Sage also “exempts” some from this numbering scheme by saying, “All are bonded by a common set of Sage commitments: integration with common applications such as CRM, Fixed Assets and HRMS; Connected Services that connect the desktop to the cloud such as payment services; plus pre-requisite Sage services such as Sage Business Care and Sage Advisor.” So for example, you will see Sage CRM sold along with several of the Sage “number” lines. Sage ACT! is likely to be sold with Sage 50 and SalesLogix can still be sold stand-alone. Its name is not changing. And neither is Sage X3.

 

This makes the re-naming exercise largely ERP-centric. By treating CRM, HRMS, Fixed Assets and Connected Services as shared components, Sage will eliminate much of the anticipated confusion over where these products would “land”. I’m not sure how the decision on X3 really fits into the grand scheme, only that it seems Sage management decided it had enough brand value to leave it alone – at least for now. The same could be said for SalesLogix and ACT! Perhaps they will just get through this round first (a substantial effort) and revisit those decisions later.

 

In an effort to maximize the value and ease the burden on its channel, Sage is also promising to provide channel partners with materials that will assist in the brand transition, including a complete electronic brand transformation tool kit to transition. Sage also promises help in updating websites and co-funding up to 100% for eligible brand transformation activities.

 

In the meantime, here’s the new mapping:

  • Sage 50 is available in US and Canadian editions, representing Sage Peachtree and Sage Simply Accounting.
  • Sage 100 includes Sage ERP MAS 90, Sage ERP MAS 200, Sage Master Builder, and Sage Fund Accounting.
  • Sage 300 includes Sage ERP Accpac and Sage Timberline Office.
  • Sage 500 includes Sage ERP MAS 500 and Sage Fund Accounting
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Part 3 of 3: Can Your Small Business Afford ERP?

This is the third of a 3-part series exploring the question many small companies ask themselves: Can we afford ERP?  If you missed either Part 1 or Part 2, Click here  to download all three parts in one report. Note: registration is required.  Or Part 1 or Part 2

 

Reap the rewards

In cost-justifying the investment in ERP it is important to recognize all the potential business benefits. Some of these benefits can be directly measured in cost and time savings (and often time is money). Some may be directly attributed to the implementation of ERP and some may be indirectly linked. While some of the business benefits listed in the sidebar to the left, such as increased revenue and increased value delivered to customers, are more indirectly related, inventory costs and production throughput can be directly tied back to business processes that are streamlined and improved by ERP.  Reductions in administration and operating costs can also be the direct result of improved efficiencies and productivity, but are not as universally and specifically measured and therefore easily missed.

 

Cost savings

Cost savings are often the number one goal of an ERP implementation, particularly for manufacturers, partly because the cost and visibility of inventory reductions can be so visible. But any type of company can reduce indirect and administrative cost for tasks as common as processing customer invoices, matching vendor invoices and making payments on a day-to-day basis, as well as reconciliation, reporting and compliance and month end close. There is a cost associated with each of those manual tasks, whether or not it is adequately measured.

Control and Efficiency

Just as importantly, ERP allows a measure of efficiency and control over your business that is not possible to achieve otherwise. Without ERP, often business is managed through spreadsheets, manual processes and paper, possibly augmented with disparate business applications such as stand-alone accounting software, often based on older closed architectures that limit interoperability.  The number of times pieces of paper pass from desk to desk and hand to hand is a measure of inefficiency that is hard to measure but impossible to ignore. Elimination of paper and automation of those processes are exactly what ERP is intended to do.

Case in Point: Advanced Ventilation Ltd.

Take for example the case of Advanced Ventilation Ltd, a family owned business providing ventilation installation and services. It began its implementation of SAP Business One in 2006. It was a time of growth and the solution allowed the company to expand without taking on a multitude of people to absorb the added work.

According to Jamie McCann, Managing Director, “Perhaps where we have saved the most has been in the printing of stationary [or not] by communicating electronically. We have essentially gone paperless. The engineers receive notice of jobs on their mobile devices. We save on paperwork and the time saved also scales. The solution also allows us to speed up our invoice process. We know in seconds when a milestone or project has been completed. So we have also improved our cash flow.

“The solution also helped facilitate expansion and allowed us to take on new projects. It also afforded us with a way of differentiating ourselves in a service business which requires us to measure the performance of our employees and comprehensively track job progress and customer satisfaction. “

The solution also supported a launch of a completely new business. U-CLOCK is a spin-off company which not only provides services but also manufactures a product, which was entirely new for Advanced Ventilation. The manufactured product is a small device which is used in conjunction with mobile phones to manage time and attendance as well as project updates (including material requests), report health and safety issues and accidents and provide an audit trail of all of the above. The company operates U-CLOCK in an entirely separate instance of its ERP. Its experience with its initial implementation made the deployment in the new company not only a no-brainer, but also a smooth implementation.

Visibility

The net result for Advanced Ventilation, Ltd was not only improved efficiency and productivity, but also a measure of visibility that is equally difficult to achieve from paper, spreadsheets and manual processes. By having all involved operating from a single source of data that is available in real time, you reduce the risk of errors and omissions.

Collaboration and connectivity

But internal efficiencies are just the beginning in terms of business benefits that await companies embarking on ERP implementation today. Remember that fourth metric that is increasing important today – interoperability?

Collaboration and connectivity within a business network was a specific challenge for Barron’s Wholesale Tire, Inc., one of the largest wholesale tire distributors serving the southeast United States. Founded in 1989, it now has nine distribution points, 24-hour online ordering, and over 150 employees and offers an assortment of brands of tires ranging in applications from passenger to medium truck and beyond. For years it had run what might be viewed as a legacy application running on an IBM iSeries (AS/400). The all-in-one nature of the iSeries had always been appealing to Barron’s but the batch orientation and limitation in functionality of its existing application was beginning to hold the company back.

Richard Barron, Vice President and Chief Operating Officer explained, “Towards the end of 2008 and early 2009, demands from our business partner network started coming at us pretty fast. Up until then 60% to 75% of our suppliers were completely domestic, but then that percentage started to shift. Many began to do business with and from overseas. Some were also upgrading their own internal systems and were demanding that we plug in to them in order for the supplier to build better to real demand. Vendors also wanted us to manage their inventory at our site – not really consignment; it was owned by our suppliers. We were really struggling with how to do it. Here we had some tires at our site that we could use as inventory if we could just figure out how to separate it and trigger the appropriate back end response. We just couldn’t make our old system do it.

“We continued to pay the maintenance fees and started to question what we were getting out of it. We were developing and maintaining processes and programs that worked outside of the system and we wound up spending as much, if not more on those as we were spending on our legacy application. And so we decided to evaluate alternatives. When we started the project back in 2008 we honestly tried to avoid the expense of switching, but we also had to look five to ten years out and we were nervous. We determined it would have cost us four to five times as much to stay where we were. “

Ultimately Barron’s wound up replacing its legacy application with SAP Business One. It deals directly with eight major suppliers that happen to be running three different ERP applications. All eight of these suppliers are able to directly see Barron’s demand today.

While this interoperability is critical to its business today, it is the direct cost savings that are generating the Return on Investment (ROI). Richard Barron anticipated a return within two years and he is a bit behind plan, but is already 45% to 50% of the way there and has confidence in achieving the expected ROI.

The largest quantifiable savings have been a reduction in spend on its legacy maintenance agreement. In addition, Barron’s had had to overcome the shortfalls of the old system and that typically meant paying third party programmers to fill those gaps. In replacing its solution, it was able to eliminate about 35% of those add-ons because it now had functionality built in. Other extensions, such as a third party demand planning system, were plugged right in to the new system.

Beyond these IT-related savings were operational cost reductions. “We saved a ton on pre-printed documents. Today we simply create documents with a laser printer. Given we conduct about 1200 to 1500 transactions a day, this represented phenomenal savings.”

A third area of savings was in web integration. About 60% to 70% of these transactions come in online through e-commerce. “We were paying a pretty hefty penny on integration efforts. We saved a fortune because now we can do it ourselves, whereas before we needed to pay DB2 programmers, which were expensive. Now savvy business users can do a lot all on their own with plug in pieces.  For the little remaining work we can get bright young SQL programmers right out of school, which are far less expensive.”

Another significant advantage was in moving from a batch-based system to real time. “We now take an order online and it is synchronized every three minutes. This is a big advantage because we never have to shut down, whereas before we would be down several hours every day for backups. That wasn’t a big deal five years ago, but it is today. We deal with 11,000 customers, ranging from large retailers down to ‘mom and pop’ shops. About 35% to 40% of our orders come in after 5:00 PM. And we buy from seven or eight countries. So now when we are doing backups, our trading partners are not impacted and when we come back online everything is automatically synchronized. “

Summary and Recommendations

If you are a small business operating without a technology-enabled modern ERP solution, ask yourself the following questions:

  • Are you focused entirely on running your business? Or are you focusing more on pulling together inconsistent and incomplete information?
  • Do the various departments in your organization collaborate effectively with data driven decision or do they spend more time exchanging reports or waiting for data?
  • Are you able to support the level of interoperability your business networks are demanding?
  • Are you able to close your month in three to four days? Can you easily and effectively produce all financial and compliance related reporting?
  • Do you have the technology platform that will support change that you can and cannot anticipate today?

If you answered, “no” to any of the questions above, then instead of asking if you can afford ERP, the better question to ask is, “Can you afford to operate without it?” The cost of fully integrated ERP solutions have come down, while at the same time both ease of use as well as feature functionality have improved significantly. A well-executed ERP implementation can enable change and provide on-going savings that can help you sustain and grow your business. Not only will you be operating at a competitive disadvantage but you can severely handicap growth and profitability.

 

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SYSPRO USA Defines the Theory of ERP Relativity S=MC2

In December 2010 SYSPRO USA introduced its “Einstein” strategy, a clever association with the genius of the world’s most reknowned theoretical physicist. The goal of this strategy was simply to make Enterprise Resource Planning (ERP) for the small to mid-size manufacturer smarter by listening carefully to its customers, perfecting its implementation methodology, focusing resources on education, technology and functionality in order for SYSPRO users to maximize business benefits. Albert Einstein is best known for developing his theorey of relativity (E=MC2). In keeping with its theme of “Simply Smarter” ERP, SYSPRO continues to deliver on its strategy by introducing its own theory of ERP relativity: S=MC2.

S=MC2: Relativity Theory Explained

Einstein’s theory of relativity is based on the concept of mass-energy equivalence, recognizing that the mass of a body is a measure of its energy content. In Einstein’s famous equation E=MC2, E is energy, M is mass and C is the speed of light in a vacuum. In the equivalent equation for the theory of ERP relativity, M stands for material, and C2 is cost and cash management. S, of course, stands for SYSPRO. Apart from sharing a common equation however, that is where the similarity ends.

To fully grasp the concept of Einstein’s theory of relativity requires a thorough grasp of physics. The phrase, “You don’t need to be a rocket scientist” does not apply. Indeed you do need to be some sort of scientist to fully understand the meaning and implications of the theory. Not many business executives have the need or desire to understand the relationship between mass, energy and the speed of light. Conversely, every line of business or Information Technology (IT) professional in a manufacturing company needs to know the relationship between material management, cost savings and cash management.  And unlike Einstein’s theory of relativity, SYSPRO’s theory of ERP relativity is quite simple.  The value of SYSPRO ERP is derived largely from better material management, cost control and cash management.

Einstein’s theory is also based on the laws of conservation of matter that says neither mass nor energy may be created or destroyed, but only moved from one location to another.  SYSPRO’s theory of ERP relativity implies just the opposite. Cost savings can indeed be both created and destroyed. True, in the universe of all fiscal entities (companies and banks included), the law of conservation might apply to cash. But better management of materials and cash is truly additive in creating value.

Expanded Materials and Inventory Management

All manufacturers must play a balancing act when it comes to materials management. The goal is to reduce inventory to minimum levels without negatively impacting customer service. This is rarely easy. Having enough inventory available is only half of the equation. Having enough of the right inventory, just in time, is the goal. That means you need visibility into what you have, what you are planning to have (either through making it or buying it) and what you need.

Expanded Cost Controls

Globalization, outsourcing and the volatility of energy costs all play a significant role in presenting new challenges. Visibility in real time has become table stakes for operating globally and yet many companies today suffer from blind spots because of lack of access or timing.

While vigilance and visibility are paramount, it is also necessary today to exert control while nobody is looking. Key Performance Indicators (KPIs) need to be established and tied to operational controls. Business rules must be defined in order to raise visibility when certain conditions either occur or fail to occur. ERP is often cost justified by anticipating a Return on Investment, but all too often those cost savings are not monitored and measured post-implementation. Not measuring cost savings typically results in money being left on the table.  

Expanded Cash Management

The “other” C in S=MC2 stands for cash management. The age-old phrase “cash is king” has never been more relevant than it has been since the credit crisis in 2008. At the lowest point of the economic downturn, the only companies that could get credit were those that didn’t need it, making the ability to forecast and manage cash even more important. While we are seeing positive signs of recovery, small to mid-size businesses (SMBs) need to continue to keep a tight rein on cash and credit.

To read my full report, click here:

SYSPRO USA Defines the Theory of ERP Relativity S=MC2

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Turning the SAP TechEd messages upside down for the SME

This year’s SAP TechEd was the first to feature an SME (Small to Midsize Enterprise) track. As we wrap up Las Vegas (next stop Madrid), it is time to reflect on the real relevance to SME of the themes and messages presented at TechEd. Much of the event was an excellent presentation of technology, followed by some ideas and examples of how you might use that technology.  That is the way IT departments in large enterprises might approach their IT strategy and budget. And, after all the intended audience for the event was IT in general and developers in particular. But typically there aren’t any developers in small companies and most SMEs have very limited IT staffs. So really the SME audience at TechEd was the partners that service those SMEs.

While these partners were very well represented, can they effectively carry the message to their customers? In order to do that, those partners will have some translating to do, because that’s not how an SME “thinks.” SMEs don’t go looking for technology. They go looking for solutions to their business problems. So can we – and more importantly, the SAP partners turn the messages from TechEd upside down and still make them work for SMEs?

Fellow analyst Laurie McCabe did a great job highlighting the key themes for TechEd (HANA, mobility, cloud / on demand). None of these themes are new. While that makes it harder for those of us in the press and analyst community to find something new and different to “report,” this is actually a good thing for customers and partners alike. Instead of dealing with a different “message du jour” generated for each major even (which some vendors are known to do), SAP is continuing to firm up the foundation upon which they will deliver. The bad news is that some of these promises take a lot of time and effort to deliver, so sometimes it seems like we talk for a long time about what the future deliverables will be without actually seeing them. And while some SMEs might be slower out of the gate to embrace technology as part of the solution, once they do, they are no less impatient to get on with it than larger companies.

So let’s start with the mobility theme. An executive from an SME may not be orchestrating a large, multi-national global enterprise, but they are managing increasingly distributed environments. The Mint Jutras 2011 ERP Solution study found even small companies (those with revenues under $25 million) managed an average of 2.7 operating locations and this number grew along with revenues:

  • Small companies (revenues less than $25 million) : 2.7 operating locations
  • Lower mid-market ($25m – $250m) :                          5.0 operating locations
  • Upper mid-market ($250m – $1 billion):                     8.3 operating locations
  • Large enterprise (revenues exceeded $1 billion):     10.1 operating locations

And executives from smaller companies are just as likely to blur the lines between business hours and personal time, perhaps even more so because of the number of different hats they might wear in managing a small business. In our untethered world of mobile connectivity, we all become more tethered to work even in the “off hours.” And the older generation is now learning from younger generations and becoming more comfortable with specialized mobile consumer “apps.” So mobile access to enterprise data and functions is just as relevant for SMEs as it is for large companies, whether they realize it or not.  

And this access needs to be flexible. In the past large corporations were likely to issue standardized devices (usually a BlackBerry and usually primarily for email, phone and calendaring). Today employees in companies both large and small are buying their own devices and using them for both personal and business purposes and also expecting to do more with them. This creates a need for mobile device management and SAP has a solution for that (Afaria), but this is going to be a tough sell into a small company. Yes, they want mobile access, but they want “apps” not tools to build apps and manage devices and aren’t necessarily willing to pay for that.

In response, SAP is developing mobile apps and recognizes they must model consumer apps. That means they must be smaller in scope and more directly applicable to a particular function. No training required for the user interface and limited training required for the business process it is intended to perform. In some ways these requirements are similar to any business application intended for SMEs. Multi-purpose, horizontal applications, particularly ERP, must accommodate many different functions, and different types of businesses with similar but different business needs. This often introduces a level of complexity that SMEs simply can’t effectively cope with. Some respond by over-simplifying and implementing a solution with limited functionality. But this leaves the business underserved.

Many of these apps that we expect to see delivered by SAP in early 2012 will be mobile analytic applications. These should be of particular interest to SMEs, particularly those that have invested in ERP but have not ventured beyond traditional ERP reporting. By definition, ERP is neither a single purpose nor a simple “app.”  In forming the system of record of the business, ERP is the repository for potentially huge volumes of data that remains largely untapped.

Very often decision-makers themselves rarely, if ever, touch ERP directly, but instead rely on subordinates and/or traditional reporting from ERP for input to decision-making. Not only does this introduce latency, turning real time data into historical data, in relying on traditional reporting, decision-makers have a choice of looking at data in the aggregate at a summary level (that is too high for real conclusions) or wading through so much detail it is impossible to see the big picture. The ability to start at a summary level and drill down to successive levels of detail is becoming more common as a feature within ERP, but being able to do so through a mobile device is very rare. And that might just be the ticket to connecting the executive decision-maker directly to the data on which good decisions are based.

This is where SAP TechEd’s other big “theme” comes into play. HANA is SAP’s in-memory computing engine which is the platform on which these mobile analytics apps are being built. Often HANA and in-memory computing in general is associated with “big data”, which is in turn associated with big companies. But HANA is as much about speed as it is big data. And with speed, it is normal to add more and more data, reaching beyond that which is normally stored in enterprise applications. Think about the enormous potential of useful but unstructured data that is floating out there via the Internet and can be retrieved through search engines and the like. But rarely will you find an SMB that is willing to invest in in-memory computing.

As a result, HANA is not yet a reality yet for most SMEs.  Currently HANA is only available as an “appliance”, which means it needs to sit outside of the SME’s ERP solution. HANA will be certified for SAP BW (BW stands for Business Warehouse) in November but BW is most often found in large enterprises.

And then there’s the cost. While SAP is not disclosing pricing, another fellow analyst, Dennis Moore has pieced together some intelligence relating to cost. Dennis projects the entry level cost for software to be about $120,000. Purchasing HANA on an appliance today brings the projected total to about $250,000 plus services. So a pilot project might start at about $300,000, which is far more than the average small company pays for an ERP solution today.

But SAP intends to “fix” this by putting HANA “inside” both Business ByDesign (SAP’s On Demand ERP) and Business One. While adoption of ByDesign is still nascent, over 32,000 companies run Business One today. By replacing its current underlying infrastructure with HANA as a platform, SAP will have brought this powerful technology to the SME for the cost of their maintenance. Those upper mid-market companies running SAP Business All-in-One, which is built on the same ERP as the Business Suite, will have the option of upgrading to HANA as a platform, but it won’t be free. However, this is still “futures” so SMEs still have plenty of time to imagine how best to take advantage of this new technology, and unfortunately many will not. But they will at least experience some performance improvements as a result, once they upgrade.

Which brings us to the third theme – SAP’s On Demand platform. It is the underlying architecture of SAP’s Business ByDesign that provides this platform, bringing On Demand capabilities even to those that might be running ERP on premise. Software as a Service (SaaS) has made tremendous in-roads in certain functional areas, like Customer Relationship Management (CRM), Supply Chain Management (SCM) and Human Capital Management (HCM) for large and small companies alike. But most companies have a long history of avoiding SaaS ERP.

The barriers of resistance to SaaS ERP are breaking down slowly. One might expect the smallest companies to be most interested in SaaS ERP, but the Mint Jutras 2011 ERP Solution Study indicated just the opposite. When asked which deployment options they would consider if purchasing an ERP solution today, the willingness to consider a SaaS ERP solution actually increased with company size. While 44% of all survey respondents would consider SaaS, only 42% of SMEs (those with annual revenues under $500 million) would, compared to 59% of larger companies (revenues greater than $500 million). Although this is somewhat counter-intuitive, this implies SMEs are more likely to take advantage of what SAP calls its Line of Business (LOB) on demand solutions – applications like Sales On Demand that are more purpose-built for a particular functional area.

This also makes SAP’s plans for an “App Store” all that much more relevant. It is anticipated that this on-line store will allow customers to buy, download and deploy both SAP and partner apps based on the ByDesign platform. This should be appealing to both customers and the partner ecosystem that has grown to sell and support the Business One product, in addition to the ecosystem growing to support Business ByDesign.

And so it would seem there is an SME-specific message to all three of these themes. The challenge for SAP and its partners is to clearly articulate the value as well as the cost and the return on that investment to these smaller companies who continue to anxiously and cautiously watch every penny.

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HANA, HANA, HANA! Can SAP prove the value to companies both large and small?

All the talk at SAPTechEd this week has been about HANA, SAP’s new in-memory computing engine. While there were plenty of “techies” at the event this week, you don’t have to be too much of a technologist to understand that processing data that is stored in memory is going to be a lot faster than processing it from disk. And results from early adopters have been more than impressive. Examples include Yodobashi who took the process of running incentive payments from 3 days down to 2 seconds. Or Nong-fu Spring who ran the same script in HANA and in an Oracle data mart and found HANA to be 200 times faster. In fact these results are so impressive, one SAP customer said to me, “It sounds too good to be true.”

I suspect many other SAP customers may have similar sentiments. This all sounds great but how does my company benefit? Indeed my colleague Laurie McCabe of the SMB Group summed it up with a question to Sanjay Poonen, President, Global Solutions and Go-to-Market. Laurie asked, “HANA, HANA, HANA. That’s all we’ve heard. Can you bring it down to earth for us?”

Sanjay did. Think of HANA as a platform that will power all that is SAP. You know that little sticker on your laptop that says “Intel Inside?” Mine says “Intel Pentium Dual-Core InsideTM”. I remember when Pentium processors first came out, eclipsing the performance of their predecessors. Today we just take Pentium processors for granted. And if you are like me, you probably don’t know much more about what’s inside, but you’ve come to expect a high level of performance from a brand that you know and trust. While making HANA an industry standard is an unrealistic goal, making it an SAP standard is not and SAP expects to boost performance in a major, game-changing way.

You won’t see SAP using the phrase “HANA Inside” (note the trademark symbol on my sticker and yours). But you will see it porting all its enterprise applications to this platform. Although with such a broad product portfolio, this is a huge task.  All on demand (SaaS) products including Business ByDesign and other “line of business” on demand products (e.g. Sales On Demand) will be powered by HANA. For Business Suite customers, it will become an option. For SAP Business One (SAP’s ERP solution running in over 30,000 small companies), it will be embedded. There won’t be any decision to be made and there won’t be a price tag attached. It will just come with HANA inside.

For existing Business One customers, it will be delivered through the upgrade/release cycle. As Sanjay put it, “It will be like taking your car to the dealership and driving away with a larger engine.” I suppose this analogy works for the Business Suite as well, but while that “larger engine” for Business One would be covered under an extended warranty (maintenance), there would be a price tag associated with it to power the Business Suite. And I would expect the engine embedded in Business One might not unleash the full power of the engine. That’s OK because I suspect many Business One and On Demand customers will simply benefit from improved speed and performance and never look beyond to take advantage of the full power of HANA. For that you need vision and a certain degree of creativity to see the potential. Indeed we’ve only seen a few glimpses of these so far.

Today HANA is only available in appliance form on hardware from several vendors and SAP still has a long way to go in terms of making its enterprise applications available on the platform. Even though we’ve been hearing about HANA now for a couple of years, it represents a major technology transformation and SAP is still in early stages of innovation.

Early projects have focused on analytics. This might be viewed as the low hanging fruit of in-memory computing, bringing speed and agility to big data. But while the power of in-memory computing might be intuitively obvious to IT, to be successful, it cannot be viewed just as a new and better toy for IT. IT needs to sell the value to the budget holders and SAP needs to win the hearts and minds (and wallets) of line of business executives.

SAP is open to performing proof of concept (POC) projects today, and the cost of the project can be applied against the purchase of HANA and a more extensive project. But also several purpose built applications represent a first step in proving that value. In fact two new applications were also released this week:

  • SAP Smart Meter Analytics: mines smart meter data to analyze customer energy usage patterns to improve system load forecasting
  • SAP CO-PA Accelerator: planned functionality includes real-time profitability reporting on large-scale data volumes , instant, on-the-fly analysis of profitability data at any level of granularity, aggregation and dimension and cost allocations

These join previously released Strategic Workforce Planning that supports analysis of the effect of changes to a company’s employee base.

These are all great examples that target specific use cases. But SAP wants the use case to be pervasive.  And in order to achieve that, the platform needs to make applications better and faster, easier to use at a lower total cost of ownership. These improvements will spur new ideas of how to take full advantage of the technology. That’s a tall order. So far the dramatic results of early projects have created a certain mystique, or what Sanjay calls “the halo effect” and with that comes differentiation. He welcomes the sentiment that it is “too good to be true.” Give him a chance and he’s anxious to prove it is not.

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