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This is an online forum to share experiences, lessons and learning about the selection, implementation and return on investment for Enterprise Resource Planning (ERP) Systems. We also like to discuss Customer Relationship Management software (CRM) systems, Social CRM (SCRM) & social media, Manufacturing Systems, Supply Chain Management (SCM) systems and Payroll & HR Applications.




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ERP Industry Update with Chris Selland

Top Customer Requests Include Simplification, Diversification and Risk Sharing

What issues are giving Enterprise Resource Planning (ERP) software customers the biggest challenges? According to Chris Selland, an ERP consultant and analyst in Needham, Mass., the biggest concerns among his clients are the problems of ongoing system complexity, worries about continuing vendor consolidation and finding ways to share deployment risks with vendors and consultants.

Selland is the managing director of Selland Capital and a longtime IT analyst, investor and business development and marketing executive, and he reiterates that one of the major issues keeping ERP customers up at night is the ever-growing complexity of ERP applications and the continuing desire to simplify those complexities. "ERP software has always been such a broad idea for companies," he said. "It's been an umbrella term since the 1990s. It was originally seen as software for companies that make money by making stuff, then integrating and bringing all the processes and data together."

But much of the market for ERP software today, he said, seeks business systems that no longer take one or more years to implement. "What is going on these days is more and more demand for solutions that can be up and running more quickly," he says. "On-demand ERP is also capturing the attention of the marketplace" because it means just using the business system services a company needs without having to invest in and maintain an elaborate infrastructure and complex applications. "People just want to get things running. They don't want to be running the IT in many cases anymore."

That kind of user interest in making ERP systems simpler is growing all the time, Selland said. Often businesses are finding that they don't have to use big-iron ERP applications in their remote offices or divisions, even when their headquarters is running one of the big brand ERP systems like Oracle, SAP or Infor. "They don't want to have to buy all the servers or maintain a large staff or big data centers. More customers are looking at hosted ERP or software as a service."

Many of the biggest enterprises, including the Fortune 500 companies and Global 1000, are slower to move toward such simplification, he said, because they're not as nimble and can't make fast changes. "I definitely see the Software-as-a-Service (SaaS) software movement continuing to get pieces of the market in the future," especially among mid-sized companies.

"Obviously, though, SAP and Oracle are not going away anytime soon. I have seen more acceptance of putting non-critical pieces of ERP on SaaS," such as CRM or human resource portals and other non-mission critical applications where it's not a big risk. "If your hosted HR portal is down for a few hours, your company is not out of business."

Meanwhile, ERP software vendor consolidation continues to be another ongoing concern for customers as they worry that their vendor will be acquired and eventually leave them with a dead-end, costly and proprietary software boat anchor. Many of the major vendors, from Oracle to Microsoft to SAP, have been busy in the acquisition mode over the last several years.

"SAP has generally been slow to grow by acquisition, but they've started to change that," Selland noted. "With Oracle, I think that's been their whole operation. So you have to ask if your smaller vendor will remain independent" as you take a look at partnering with a vendor. "That's something that you should factor into the decision process. It doesn't make things any easier."

At the same time, mergers and acquisitions have been going on for a while, so it won't be shocking news to most companies, he said. "'So far, the big ERP vendors have been doing a good job of maintaining and continuing to serve customers who are still running acquired product lines," he said. "Oracle, with the acquisitions of PeopleSoft and JD Edwards, has continued to serve those customers, but at same time they would like to incent customers to come over to their main products. Some of those fears have been overwrought; that the original products will be acquired and ended."

An interesting trend that Selland has been seeing much more of lately is clients who firmly approach their ERP vendors and consultants with risk sharing agreements. "It's a big investment in ERP software for these companies," Selland noted. "So users have said that it would be great to impose 'risk-sharing' in pricing agreements. Then if it doesn't work out, the vendor assumes some of the financial risks."

These kinds of demands and arrangements mainly involve mid-market companies, he said, that are looking to better protect themselves from failed ERP implementations. A typical contract might include pricing that also lays out measurable milestones that must be met over prescribed time frames during the ERP project, he said. If the milestones are met, the vendor receives the agreed upon payment for services. If not, the vendor isn't paid until they are met, and shares in the risk.

This type of vested vendor interest and risk sharing is largely exists in today's SaaS model - for if the implementation doesn't succeed, the ERP system doesn't work as advertised or the vendor fails to provide adequate support, the customer has an annual option not to renew their subscription and move on to another system. Changing SaaS ERP systems isn't easy, but its a whole lot easier than changing on-premise ERP applications.

Selland believes more of this type of risk-sharing will spread beyond just SaaS systems he said. "There's definitely been a strong desire for that kind of pricing and I don't think that it's really been met yet. I've heard it in quite a few places, that customers want the ERP companies and the IT integrators to share the financial risks. I think it's something you'll be hearing more about."

That's good advice, and just one more thing to add to your list of questions and requests for your prospective ERP vendors.

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