It’s been a busy few days. First a post on ZDNet by Eric Lai invented a few problems for Cloud, or rather SaaS, and especially multi-tenancy: inflexible, less secure, less powerfull and maybe more costly – is what Eric claims multi-tenancy SaaS to be.
Thomas Wailgum neatly nailed that via a counterpost, as did Frank Scavo, to whose post Eric commented, and back again
The circle of Inspiration? Yes, it evolves hardest and finest on Twitter. And here are my thoughts: we need to grow up
First, now I’ve got your attention anyway, a minor disappointment maybe: ERP in this title and post doesn’t stand for SAP, but for the epitome of enterprise IT as we know it
Good and bad arguments were made in all posts and their comments, but there was a lot of comfortzone involved – and I’m challenging that very comfortzone: enterprise IT is a multi-billion dollar industry where customers get very, very little value for money
Surely it employs many people and that huge discrepancy between investment and return gave a great boost to India and other low-labour-cost countries, but let’s face it: this industry needs to mature
1. The foundation of IT
In the beginning, there was a bit.
Then, it was assembled into bytes.
And bytes formed a double-word – and then the story really started
A poetic attempt at sketching the genesis of computers, but I really want to stress the fact that IT all started with hand-crafting something out of nothing.
Over the past decades, however, standardisation and tooling slowly took away the burden of doing everything yourself. Compared to writing, you could buy ink and goose feathers in stead of making your own. You could go out and buy paper, in stead of making your own parchment
In IT, various “straight jackets” saw the light: hardware first, then software, and in between the wiring: network protocols. Choices became economically limited to a few dozen, and those became half a dozen. Standardisation always starts at the infrastructural level, at the very bottom of the IT foodchain. Compared to housing, the foundation is standardised exceptionally well across the globe as the choices are simply very limited when you have a cost-efficient solution in mind
Right now, in Enterpise IT, we have a few choices in hardware. Half a dozen choices in operating systems. Over a dozen choices in programming languages. A few dozen choices in program language interfaces, and over a dozen dozen (sic) choices in applications: the closer you get to humans, the more diverse the choices you have
2. The IT exception and rules
The odd one out there is ERP. There’s SAP and there’s SAP. And then there’s Oracle. Wait a minute – we’re 1-on-1 customer-facing and we only have 1.5 choices? That can’t be right…
It isn’t, in my point of view. The diversity fans out bottom-up.
One more time, with feeling:
- We’re settling into the infrastructural machine layer all the things that we take for granted: the simple, static stuff that doesn’t change, is highly structured, rigid even. The data, the smallest building blocks, bits and bytes. Order reigns here, where everything is subjected to business rules, and automation can thrive. It’s boring and it should be: it’s the foundation to our “homes”
- Facing the very end, humans, the opposite takes place: we encounter complex, dynamic stuff that changes all the time, unstructured, flexible itself and requiring the greatest flexibility at the same time. It’s where knowledge and information flows freely, uncapturable. Chaos thrives here, exceptions are the rule, and automation usually is impossible. It’s where Social sees the light
3. How the one-size-fits-all oxymoron survived
So how come ERP is where it’s at? Well, only because it’s customised to death. I’ve been told that you can buy ERP for amount X, and will need to spend an additional amount of 7 X’s to make it work for you. That is caused by three phenomena:
- An enterprise-wide system is high up in the IT stack, yet if you want to ship & sell it off the shelf it needs to be as “flat” as possible: offer as little rules as it can (and that’s rather easy to achieve, and achieved). There are no global rules, nor exceptions
- All kinds of industry-specific, national, regional, local, partner-specific, customer-specific and department-specific rules and exceptions, as well as regulatory compliance issues, are impossible to keep up with by one global system. Technically, as well as economically.
Here’s where Push is replaced by Pull (John Hagel and John Seely Brown can enlighten you on this one). There are many local rules, and exceptions - Vendors, but particularly System Integrators, love to provide you with people on a Time & Material basis to achieve your goals, meaning: building in all the business rules and exceptions that you need. This might take many months, even years. The long payback time on ERP investment usually means any cost here gets sanctioned
Invest a few million in getting ERP, then being confronted with having to invest yet another few times that in actually getting what you want, slam onto that the annual “support” fee of 22%, and you’ll be glad to pay off that initial investment before you die – it’s an obscene lock-in. That initial 3-year horizon and payback time will slowly turn into a 20-year one, and keep you from further growth even.
A proper ERP implementation will lock you in for 15-20 years
4. The blame game and the solution
Is it the fault of ERP? Of SAP? Of Oracle? No. We still adhere to our Genesis: hand-craft from scratch.
ERP mainly is a, albeit rather huge, manifestation of our desire for one-size-fits-all customisation – which is an oxymoron by default
Look at housing: the fundament is standardised, as are the bricks, but everything else is up for grabs
Look at transportation: the roads are standardised, but you can pick a variety of vehicles to travel upon them
Look at the sky: the airports are fixed, but the variety of carriers is offering you all the choices you’d like
And then, look at IT: one choice of ERP is all it offers. Well, 1.5 maybe…
The message is clear: standardisation at the bottom allows for customisation on top of that. Customising the standardised parts itself? Ridiculous
Software as a Service comes to the rescue here: it will offer standardised solutions. Multi-tenancy, of course. They will offer you vanilla out-of-the-box and not much else. It’ll be old-fashioned ERP as it came on the CD, yet pay-per-use
Where will the required standardisation come from? The need to comply with regulatory laws?
5. Turn the tide
From another SaaS, of course – or you can build it yourself, or maybe someone will offer it on-premise – or all of that combined. Do you need a business case for that? You could shop together your desired functionality online, just like a regular consumer. I hope Marc Benioff is paying attention…
SaaS will make this industry mature. It will straight-jacket enterprise IT buyers, and finally put an end to the ridiculous customisation on top of multi-million dollar ERP packages. Much like the car industry, it will force you to choose a brand, make and type, and allow you a few accesories – and that’s it. If you need anything else, go get it and plug it into your Enterprise Integration Hub
SaaS your tertiairy business processes, or get them off-the-shelf.
SaaS your secondary business processes, or find a local shelf to pull them off from.
SaaS the boring core of your primary business processes, and create the specials yourself just like currently ERP makes you do so. But now, you can choose to buy local, Private SaaS them, or make – or any combination of that
That will leave you with a few disparate solutions to integrate – but SAP nor Oracle have solved that problem for you, now have they? At best, ERP’s lack of strategy and consistency regarding Integration has cost you dearly.
And you know my answer and solution to that last question, of course
IT needs to mature, and become an adult industry. Pun intended. That’s a multi-billion dollar business as well, yet I hear a lot less customer complaints from them.
(Cross-posted @ Business or Pleasure? - why not both)
Hi Martin,
nice post, I agree with most points, with 2 remarks:
First “So how come ERP is where it’s at? Well, only because it’s customised to death.”
But it is quite often not ERP vendors fault, but customers who want to have “THEIR UNIQUE” processes built into the solution and don’t think around the corner to have a standardized solution with the same outcome (i rather guess a lot of those companies are afraid of change management internally..)
Second regarding the point “The IT exception and rules”:
In my opinion there is a bias in analysts and blogosphere opinion. Yes there is the other
“very end, humans, the opposite takes place: we encounter complex, dynamic stuff that changes all the time,”
But this is most in Service Industry (or broader named “knowledge based industries” and service departments of companies), where we as IT and consulting people come from. There are still so many manufacturing companies out there, where the other “very end” consists of work processes with “simple, static stuff that doesn’t change”
Hardcore example: Look at Foxconn building Iphones, you see dynamic workers & knowledge flows? But I am still sure, if you speak to a Foxconn manager he would not like to have a standard IT-supported process, as in their opinion Foxconn is “special”.
So it is a transition. There are a lot of companies where a proper “classic” ERP systems as “foundation” helps to manage the business and make the right decision (Still there are even in the US and other “saturated” markets a lot of companies who don’t even have ERP). As their business models evolve, those companies have to think about where to adapt the front-end, and there are the SaaS offerings quite a (more or less) perfect fit to be more agile.
Integration of those solutions is another topic..
Excellent points Matthias!
It’s the customer request on the one hand, and SI and vendor supply on the other that cause this situation to perpetuate. Yet, any package out there is so flat that it at least needs some customisation – but one can always overdue it, or “get overdone” if you catch my drift
Your point wrt humans is very valid as well. I use the same distinction in my socbiz book where I use an MQ on product and humans, driven and facing. Foxconn would be indeed most boring, and unfit for social, as it is product-driven as well as product-facing: rules rule!
And yes, ask a CEO what makes his business so special and he’ll answer “we distinguish ourselves from the competition by…” – meaning “we’re in the same biz and support the same boring stuff, but we just support a few exceptions that they don’t”
Hi Martijn, great post, thanks for that!
Most of our customers come back from an ERP since
1/ their ERP contains too much functionality, much more then they need, and complicates their processes.
2/ their ERP contains not enough functionality in very specific aspects (those are the aspects that are specific to their situation/business/size/…). Logic, since ERP is targetting every business (and hence, no business at all).
3/ they want to differentiate from competition by doing things differently (deviate from the standard), and standard ERP supports commodities. Differentiation can only via custom software.
- They realize that custom software, only solving what they really need, no more no less, is a better investment at the end of the day.
- Moreover, this custom soft can follow their needs as their business evolves over time. A standard ERP package is never as flexible as custom software.
- And last, we see a trend that writing custom software is becoming less and less expensive, given the great development tools, tons of open source projects, and new methodologies that the ICT industry has adopted over the past years.
Thanks for sharing that info Pieter, are those your own / company’s experiences?
ad 1) yes you pay for other people’s functionality, and vice versa: you overpay for packages to begin with
ad 2) yes no matter how much is customised, a large part of your functionality will never be in it
aqd 3) that’s what I mean by “We distinguish ourselves from our competitiors by…”
Look at clothing, cars, housing: they all serve us off-the-shelf, and that really is off-the-shelf. Talking in terms of Buy before Make, only people with an awful lot of money can afford to Buy and then Make that into what they want. Very expensive, time-consuming, and does it ROI? You tell me
The closer you become to core business, customers and key users, the more customisation you will need, because that’s where your added value is. But below the water surface, the iceberg is huge and can be just the same as any other iceberg around
Great post, the ERP is not dying as many are predicting, but evolving and migrating to the cloud.Tapping into the cloud to roll out ERP/CRM and other solutions is an approach that is bound to be successful. ERP solutions on the cloud will increase scalability and efficiency, clouds are also ubiquitous thus enabling global accessibility.The future of ERP is most certainly bright and on the cloud.Just read an informative whitepaper, Choosing the right ERP solution for your organization @ http://bit.ly/zSEOXf
I always find it funny to see that people think ERP, in SaaS-mode, will be the one size fits all, magic, solution and they will live on happily ever after.
It’s not. The first SaaS ERP solution that will cover every major process in a company still needs to be developed. For the record, even though I know SAP invested a lot in Business By Design, it’s not a proper solution. While for CRM there are already succesful vendors, Salesforce, Microsoft, where the solution can be customized in an easy way, to the needs of the customer. An ERP is much more complex, it’s not a simple customer database, as to what I compare CRM to. For the OnPremise world, SAP has a very solid and proper solution, it’s called Best Practices. Unfortunately, even this software is not a complete answer, as the processes covered, still need to be adjusted or even replaced, to fulfill the needs of the customer. Besides this matter, there is also the point of ROI.
OK, you could have 50€ or 100€/user/month agreement for the SaaS model. However the SaaS environment still would need to be customized/configured to the needs of the customers. This part is also very expensive. On shortterm you only save the price of the hardware and cooling, if you don’t have the infrastructure. On longterm, you will lose money, because once you configured your ERP environment, you will not just change over to another one, because you would need to go through all the hassle (Configuring, Uploads, Training…) again. ERP Saas would be the solution for a startup company, with 1 to 25 users, with very simple processes and as such no history.
Hi Jos,
thanks for that.
We all share a common basis, hence my suggestion for tertiary and secondary processes: those should be pretty default for most.
With regards to ERP, at least 50% is default for all, and the exceptions are closest to the customer. Who knows, maybe a few basic sets of exceptions (that does sound awkward, doesn’t it?) will get offered via SaaS, while half of your ERP stays on-premise as it is.
The challenge there for SAP: to stay sexy. I can’t imagine SAP not offering hybrid and -in a later stage- full SaaS for some of their now existing functionality. It will cannibalise them partly, but maybe it will do them good in the long run