A sign that social business is growing up

Michael Fauscette made some wise comments about a new company, Pragmatic Enterprise 2.0, that announced itself recently:

without a methodology, a risk mitigation approach, the correct skills and change management a project is doomed. Businesses need enterprise class, scaleable social tools, social processes and knowledgeable assistance to pull off this level of business transformation.

Earlier this week some colleagues announced a partnership that is both good news for businesses that want to do social transformation projects but also an indication that social business is growing up.

I think Michael is right.

I also had a discussion with one of the founders, Michael Krigsman, on Twitter that their product diagram looked like it was designed by a committee and was difficult to understand. I am looking forward to how things develop on that front.

Does SaaS ERP exist?

There is currently a debate on the ITToolbox site about whether ‘proper’ ERP is available as a Software-as-a-Service (SaaS) offering – Does SaaS ERP really exist?

I don’t believe the debate has been resolved either way, but I found some comments interesting:

“Perhaps there are some ERP vendors that have made the leap to true SaaS, but, keep in mind, in the long run, you will pay more money for a SaaS model. Typical payback times are between 2-2.5 years to where it becomes more expensive to operate with the monthly fees (you never “own” the license), vs. paying up front for a perpetual license. Due to the strategic nature of an ERP investment that may not be changed out for 10+ years, the SaaS model typically does not make much financial sense.”

“One major TCO benefit surfaced right to the top in favor of SaaS. We call it the “Six Year Pinch”. We all agree that the payback for on-premise is within the five year time frame; however, growing enterprises require upgrades to the on-premise applications, infrastructure, and personnel (new hires and training). When you factor these costs into the TCO model, the on-premise ERP became 3x more expensive than the SaaS ERP since the investment for SaaS remained linear whereas the on-premise had a investment requirement every 5 to 6 years. True SaaS ERP vendors have one code base (i.e you are always on the latest and greatest version of software). The SaaS vendor manages the deployments behind the scenes and the customer is responsible for enabling new functionality through switches as necessary. On another note, the companies we interviewed who are using SaaS ERP chose the solution not because it is a SaaS solution, but chose it because the functionality met their requirements – the most important decision in any business system selection. The SaaS model was a secondary benefit.”

SaaS applications down-side

There is a lot being written about software-as-a-service (SaaS) for business applications. Just recently I learnt the downside of SaaS business software.

A company using Salesforce.com has found that it doesn’t do what they wanted. The only money the company invested in the application was the monthly rental, that’s all. So guess what they can do to Salesforce.com? When the company now selects an on-premise application, they will have to make a serious decision and provide serious commitment because the investment will be more significant.

I’m glad we don’t provide SaaS solutions if that’s how quickly customers can switch.

Update: Dennis Howlett has made some valuable comments following from this blog – what he considers the the wrong question, and pointing out a real problem.

My take on latest analyst views

My favourite analyst site, AMR Research, often has raises some issues on its ‘First Thing Monday‘ page that provide me with blogging ideas:

A Google chrome comment – summarises the prospects of Chrome from an enterprise perspective as a

browser, a platform for Google Apps, omni-client platform strategy and a replacement for the Windows environment for desktop and mobile applications

The state of enterprise software skills in the US – AMR now believes only 2 ERP vendors, SAP and Oracle, are the main players in the US. I wonder what Microsoft thinks of that?

I find the Gartner site to be pretty poor in terms of getting quick news analysis, but one of their analysts was on ClassicFM last night (again) discussing some discontinuities that are coming from the Internet. At least he was aware of SA’s local issues around the Internet, e.g., why Software as a Service (SaaS) is not taking off here due to our Internet bandwidth problems. Also discussed was the future impact of social software – very much aimed at the big corporates rather than SMB market – which makes it sound unimportant to the majority of SA companies.

Where SaaS ERP will fail

ERP applications delivered as a SaaS (software as a service) will struggle against on-premise products while the danger of a service interruption is still regarded as likely.

The major cloud computing services (Amazon, Google) have recently had problems, preventing people from using their applications. It isn’t too serious when those applications are word processing and email, but try saying that to a financial director whose company’s business relies on the ERP transactions going through.

Two other recent articles (Nick Carr, Business Week) make the same point, and go into more detail.

SaaS – for consumer or enterprise

A post by Judith Hurwitz warning about SaaS (Software as a Service) advises business that they need to know what they are getting into before they make a hasty decision. Some of the questions like should be asking are around their use of and attitude towards their data, and what are the third-party software integration issues they need to understand.

Sadagopan lists a number of applications that lend themselves to SaaS: “HR/Payroll; Procurement, Financial management; Business-to-consumer (B2C), e-commerce/product catalogs including dynamic pricing models, Loyalty management, Marketing & Sales promotions”

It seems to me that SaaS has a better in the consumer arena than in the enterprise. I haven’t come across a single company that has just one set of software application that runs the operations of the enterprise – either in finance and admin, distribution or manufacturing.

As for the data question, there may be some data that a business will let someone else manage, but every business has some data that they consider too confidential or proprietary to let someone take it over. How would a SaaS application handle that scenario?

Then there are the issues of country-specific regulation, whether in accounting, governance, safety regulation, data privacy, HR (which here in South Africa would include BEE – black economic empowerment).

I see Anshu proclaiming Oracle’s position in the SaaS stakes. I wonder how he would respond?

Whereto SAP Business ByDesign?

I am intrigued by the variety of comments about the recent release of SAP’s Business ByDesign (BBD, or A1S as it was previously known). It seems to be a potentially disruptive technology, but no one is quite sure by how much and how long it will take to see an impact.

On the doubting side is AMR’s Bruce Richardson (now requires subscription):

I’d love to get our CFO to switch to a new single-vendor, integrated SaaS architecture, but it’s too much of an uphill sell.

and discussing a problem in SAP’s marketing message:

SAP Business ByDemand is sandwiched between its two on-premises products: SAP BusinessOne for companies with less than 100 employees and SAP All-in-One for firms with more than 500 employees.

Another AMR analyst is reported making the following comment:

we have yet to see whether the market for SAAS-based ERP products is viable. Overcoming the skepticism of CIOs to have all their enterprise data hosted outside their firewall is no small undertaking. Demonstrating to partners that there is a profitable reality to participating in the evolving ecosystem to support this new application will not be easy.

Larry Ellison is also negative, reckoning SaaS and the SMB market isn’t a good place to make money

You spend a lot of money developing a whole new product for the low end. But you also need an all-new sales force because we don’t call on those customers. We don’t call on small businesses, and it’s very expensive to call on small businesses. It’s very expensive to do ERP implementations in small businesses. The cost of sales is high. The cost of implementation is high. There are virtually no synergies in sales, marketing, and product development and support.
“We just haven’t figured out a way to make a substantial profit in that market. We think it’s hard to make money.”

 Somewhere on the fence is Nick Carr.

On the vaguely positivie side is Dennis, and even more positive are Zoli, and Josh Greenbaum who summed up the release:

Even if SAP falls short of its ambitious goals for BBD, the onus is on its competitors to upgrade their vision and positions and products to meet and/or exceed SAP’s positioning. That competitive struggle alone will make the BBD launch more important than anything else that happened this week in the market, and, potentially, for a long time to come.

Phil Wainewright comments that SAP is prepared to take its time building the BBD business

SAP knows that in Business ByDesign it has something powerfully explosive on its hands and the last thing it wants it to have it blow up its face. It would rather risk burning the fuse so slow that it might even blow out altogether

For me, Dennis sums it up 

Once again, SAP gives us all pause for thought about a story that will run and run.

Mobile apps adoption

Adopting some of the new social network apps – Twitter, Facebook, Google Reader – has exposed me to the mobile solutions that those apps provide (for use on my cell phone). I am now quite used to spending some time viewing my RSS feeds on Google Reader mobile, updating Twitter on Twitter mobile, and checking things out on Facebook mobile - while I am waiting, usually in the car for a family member.

The way these mobile versions have been skillfully adapted, made user-friendly, and provide information in a concise manner, makes me wonder whether the next wave of ERP apps should focus rather on mobile solutions rather than Software as a Service (SaaS). The young generation, like my kids, are very familiar with using a cellphone as an Internet platform and for social networking (in SA they use Mxit), and it is getting common to see business people checking emails on their phones.

SaaS and Web 2.0 may be a sexy new wave for the IT people in the developed countries, but in developing countries the lack of good telcoms infrastructure makes it a luxury. However, many developing countries have good mobile communications, so applications that could be used on a cell phone might have a lot more traction.

So why have ERP vendors not started adapting their user interfaces for mobile use? There are obviously some ERP functions for which a small screen on a phone won’t work, but activities like approving a purchase order or leave/vacation application, or completing a timesheet, could be provided as a mobile application, and I am sure there are many others.

The technology is obviously available, as my mobile usage can attest, but it is the foresight, and creative insight and ability to re-design information layouts on a cellphone screen that seem to be lacking at the moment in enterprise vendors. An example of this creativity is the Opera Mini browser on my phone which allows me to view normal websites (I see they are adding more functionality as well).

On-premise vs SaaS

A comment recently by Vinnie that Oracle is ‘going retro’ with its plethora of ‘on-premise’ apps, as opposed to SaaS (Software as a Service) apps, makes me wonder about the on-premise vs. Software as a Service (SaaS) debate as applied to enterprise software.

I can see why an app like FreeAgentCentral can be effective as a service, but how could that be applied for big apps that need significant customisation? In the space that my company operates – complex manufacturing and project ERP – many installations have unique customisations and need guarantee of high availability, neither of which I can see SaaS offering. But there is a bunch of commentators - Phil Wainwright, Nick Carr et al – who seem to think that SaaS is the way to go. One analyst group is also putting SaaS as the next wave of adoption for enterprise software. 

In the on-premise vs. SaaS argument, Dennis made the point that this is ‘not an either or world’. Add to that coverage by Thomas of Hasso Plattner’s comments on the Lego analogy . Although this refers to the argument by the Software As Services (SOA) proponents that ”the ‘enterprise’ is a series of interconnected businesses that can be snapped together on demand”, it seems to me to be something that the SaaS followers also use. As a key founder of SAP, Plattner knows how enterprises work and has said that Lego is “not the model for corporate or enterprise software. Lego bricks are not the model for architectural models. No architect in the world uses Lego for models, and they are a few magnitudes simpler than enterprise software.”

SaaS apps for business tend to be focusing on specific requirements within certain functions. That is creating the old problem of ’silos of information’ within those companies that have adopted SaaS. One reason why companies in the 1990s adopted ERP was to get away from those silos to a system that promised an integrated view of the organisation.

Since Gartner’s prediction in 2001/2 of the rise of ERP 2 (ERP between enterprises – ERP 1 was within enterprises), which still hasn’t happened, I am sceptical of analysts like the one on the Sandhills blog who forecasts mainstream adoption of SaaS in the next few years.

The key point to my mind is the magnitude of complexity of enterprise systems. So what do you do to handle complexity, you abstract it to smaller blocks or layers that can be more easily managed. What then would be the layers for an enterprise SaaS? Could they be technical (as in database, application, rules, presentation) or functional (payments, receipts, order management, inventory control, etc)?

When it comes to customisation, how would a vendor provide a highly configurable, multi-tenanted system where an implementer could also provide add-on applications for unique requirements? There are probably some very bright people who know this answer, but I haven’t heard from them.

I am not discounting that SaaS will have an impact on us enterprise software geeks. The guys at Microsoft are getting into SaaS for enterprise apps , and Thomas regularly comments about SAP’s excursions into SaaS. But I doubt that, outside the US and a few other places, we will see companies changing their on-premise apps for SaaS ones in the next few years. New enterprise systems require not only extensive technical work but also extensive change management, and organisations have been through a lot of that with traditional ERP in the recent times to want to go through it again soon.