Last month Chrysler announced it will stop using Powerway. GM and Ford did the same over the last 2 or 3 years.

The concept was sound - enabling faster, better communication throughout the supply chain via the Internet. The scope of the communication was product quality information about how to make cars efficiently with minimal defects. The business process is called APQP or advanced product quality planning. It entails the creation of documents by the supplier outlining the key product quality characteristics of the part or assembly and the method for manufacturing the part and assuring its quality.

This is great stuff. Powerway was positioned well to really improve the automotive supply chain through automating the APQP process. How did it go off the rails?

Supplier Fees
I don't know how many times I have heard auto suppliers complain about the fees they paid versus the value they received. The OEMs mandated the suppliers use Powerway, but Powerway charged many thousands of dollars for the means to upload files to the OEM. The main benefit to the supplier was that they could continue to do business with the OEM.

Supplier-Side Functionality
The suppliers may have felt better about the fees if they had tools to help them author the required documents such as FMEAs, Control Plans and so on. As it was, they needed to buy other products to do this or, worse, use spreadsheets and word processors.

OEM Functionality
When documents were uploaded to the OEM, they were little better than paper. Most often in .pdf format, the documents had to be reviewed by a human to determine their validity. If electronic formats had been used (XML or even EDI), many checks could have been done automatically. For instance, if the RPN or risk priority number is above a certain value, the supplier and the OEM staff could be alerted and the document put on hold.


A great deal of money was spent by the OEMs and the suppliers on a solution that never overcame its own weight and poor vision. A viable solution will need to be inexpensive/free to the suppliers or provide value beyond simply uploading files.

Conventional Wisdom is Neither

Conventional wisdom had been that SaaS is only for point solutions such as CRM or HCM or for very small companies who cannot afford the care and feeding of an on-premise solution. This notion is, of course, perpetuated by those with the most to lose -- traditional software companies. Microsoft has too much baggage (channel, multiple platforms) to shift gears. They talk about SaaS, but have done NOTHING to create an on-demand ERP product.

Indeed, even Herr Kagermann from SAP, is aiming Business by Design at companies with less than 500 employees. The Wall Street Journal quotes "...Mr. Kagermann says that these [SaaS] systems will complement, not replace, traditional business software."

The Market is Changing Rapidly

Think SUV vs. compact car in terms of the speed of market change. Today, dealers can't give away an Explorer or Yukon.

Some industry analysts have said matter-of-factly that 2007 was a real inflection point for SaaS ERP. I have noticed a dramatic increase in awareness and interest in the SaaS model. Plexus tends to win because of the completeness of its functionality and its ease of use. The delivery model was always an afterthought. More and more, companies are seeking Plexus out because they absolutely want the on-demand model.

Not Just for Small Companies

The average customer size for Plexus is increasing. We continue to appeal to companies with 50 to 500 employees to be sure. However, we are winning more and more at companies with over 1,000 and up to 5,000 employees. A $1.5billion company (4,000 employees on 3 continents) spinning off from Delphi Corporation recently chose to replace SAP with Plexus Online. They had "been there and done that" and did not want to go there and do that again.

Even sophisticated CIOs and IT Directors realize that they can add a lot more value to their company with a SaaS solution. The head of IT at a $350million manufacturer running its global operations on Plexus Online happily acknowledges that there is no way they could have accomplished what they did (9 months full shop floor, quality and ERP at all plants) with SAP or Oracle.

IT Headcount Reductions Driving Fresh Look

Many IT departments are being asked to reduce headcount. I know many manufacturers now considering SaaS solutions. They can't keep up with maintenance needs of legacy packages or homegrown software.

SaaS is here to stay because it just makes sense -- for large companies as well as small ones.

MRP => MRPII => ERP => ???

The capabilities have evolved and expanded over the years. MRP was focused on answering the question "How much do I need to order and when to be able to meet customer orders?" MRPII helped answer more questions. ERP covered still more areas but has been largely a tool of so-called "knowledge workers" in an enterprise. It is relegated to the office. The shop floor workers can't be trusted or bothered to interact with a system.

ERP Has Run Its Course

That is all changing now. Most mid-size and larger organizations have spent big dollars on ERP implementations. The benefits have been in centralized, standardized purchasing, invoicing, planning and treasury functions. All good, but now more is needed.

The next frontier for manufacturers is integrating the shop floor with the rest of the enterprise. The idea is to capture transactions as close as possible to where and when they originate. This provides more timely and accurate information and it eliminates rekeying of data.

Many have taken small steps with point solutions or homegrown applications. This is what has driven SOA - integration across silos of information, across the boundaries of the enterprise. But customers don’t want labels, and the don't want enormous integration projects. They want the software functionality they need to run their business. More and more, manufacturers are choosing to implement comprehensive business management solutions that encompass ERP, MES, SCM, Quality Management and more. When writing about one ERP provider's expanding footprint, Bruce Richardson of AMR Research noted that "...customers come to see the benefits from having a single integrated system and set of dashboards as opposed to operating a spider’s web of piece parts." (6-13-08)

Next Generation Suite is Gaining Traction Rapidly

With its relatively narrow suite, Netsuite is looking to expand into manufacturing and challenge SAP. Netsuite is combining traditional ERP features with CRM, light inventory and kitting. That won't be near enough for the needs of real manufacturers who require scheduling, labor tracking, inventory traceability, quality management and much more. They are proving, though, that an integrated whole is much better than assembled parts. Likewise Plexus Systems is growing at a 40% rate.

Focus is Critical

This new breed of software is highly verticalized, because the functions needed by each industry are so highly specialilzed. Customers want something that meets their specific requirements, rather than something that fits neatly into a category. It is impossible to be all things to all people. The product gets too confusing and hard to use.

The winners in the next generation of business applications for manufacturers will be the companies who offer the most comprehensive, integrated solution - no matter what the label is.

When I moved to Boston in 1982, some of the big names in computers were DEC, Wang, Prime, Data General and Apollo. By 1989 most had disappeared, unable to adapt to the times and stay relevant and independent.

I see a similar sea-change occurring right now in the ERP marketplace. Already, some of the better known names of the 1980's and early 1990's - MAPICS, JD Edwards, ASK, M2M - have been relegated to a very uncertain future in vast, murky amalgams of aged, overlapping solutions.

Technology has advanced. New business models have emerged. Software vendors who insist on clinging to on-premise, client-server, slowly-changing solutions will fade away just as rapidly as the minicomputer makers on Route 128. It doesn't matter how big the installed base was. If customers don't see a clear path forward, they will look at other solutions.

The ERP solutions that were installed in a hurry in the late 90s were old at that time. Now, 8 or 9 years later, those customer are looking at what's next. The key factors in the decision this time around are:
- Agility - The software needs to rapidly adapt to changes in the business. Those adaptations need to be protected as the software grows and evolves. The software has to be available wherever the company finds itself doing business. Setting up a heavy infrastructure doesn't make sense.
- Global - Even $10million companies are opening operations in China, Eastern Europe, Mexico and elsewhere. A single instance of the software needs to be able to support global businesses.
- Extended Supply Chain - All the participants in the supply chain need to interact easily and quickly to adjust to changes.
- Capital Preservation - Large upfront software expenditures are a thing of the past. Subscription pricing is here to stay because it just makes sense.
- Comprehensive, Integrated Solution - SOA is a hot topic right now. However, most buyers of application systems would rather have the functionality they need in a single, integrated solution rather than a patchwork of offerings from many vendors.

All of these factors point to ERP2 delivered on-demand. ERP2 is extended to include shop floor/MES functions as well as the integrated supply chain - from the customer through to all suppliers. Single-instance, multi-tenant, SaaS solutions are the only way to deliver all of these capabilities.

SAP has acknowledged this with Business by Design. Oracle has a back-door through NetSuite. Microsoft, QAD, Epicor, Infor, Consona and many others have no answer anywhere on the horizon. Don't be looking for them in the next five years.

SaaS ERP is Here to Stay
This business model just makes sense - for the customer and the software provider. The awareness is growing. More and more companies seeking ERP solutions are specifying the hosted model. They don't want to wait 2 years for a new release. They don't want to buy and manage servers, databases, backup equipment and all that. They realize that any SaaS provider worth its salt will protect its data way better than the customer could themselves. It just makes sense.

Microsoft Insulated from Customers
The Microsoft channel is not clamoring for a SaaS solution. With the exception of Michael Merfeld of Avanade, most Microsoft partners don't see any uptake in SaaS ERP. They are using the hammer because they only have a nail. They find reasons not to believe SaaS ERP is the next logical step. The average Microsoft reseller isn't talking to their prospects about not needing servers, getting constant software updates, not waiting years between releases, not having to tune databases, not worrying about security and backups. Microsoft isn't hearing the message from the market - SaaS Just Makes Sense!

More Value, Not Less
Mr. Merfeld seems to imply that customers choosing a SaaS solution value their ERP less than those who want an on-premise solution. That is the exact opposite of what we are hearing. Our customers see their ERP (and MES, Quality and SCM!) as a competitive advantage. They want it to stay constantly up to date. They don't want the drudgery of applying patches and the disruption of performing upgrades. They want the software to change and grow rapidly as their business grows and their needs change.

A Plan is Needed
The Dynamics product line has a great installed base. Netsuite, Intacct, Plexus and a 'host' of others will be taking share away. I would love to partner with Microsoft. However, the SaaS model is where everything is headed. It won't be easy, but the smart folks at Microsoft will figure out a way to create opportunity for its channel while delivering a SaaS ERP solution.

There are plenty of headlines about the economy. Are we in a recession? Is a recession coming? Can we avoid one? Who will be affected if there is one?

Tony Friscia from AMR assures us in his piece called "Recession Reality Check: This Is Not 2001 All Over Again" that things are different this time around. He highlights the irrational spending leading up to 1999/2000 bubble and the subsequent, giant burst. Tony goes on to outline sectors that will continue to spend on IT initiatives and the areas in which those budgets will be spent.

We are seeing a significant additional impact of tight credit markets. Companies want to continue to improve their processes and capabilities but want to conserve cash. This is leading more and more consumers of technology to choose Software as a Service for more and more applications.

Cash is King. Executives are asking themselves why they would tie up their precious capital in software and servers. A weak economy is encouraging more and more people to investigate "this SaaS thing". They can get the benefits without the large upfront cash outlay.

Great idea!

What a difference a year makes


A year ago, we still had to explain what SaaS is and why it makes sense for manufacturers. We faced resistance, uncertainty and confusion. Now it seems nearly everyone "gets it". By everyone I mean the small companies up through the high end of the SMB market and even the multi-billion dollar global enterprises.


Cash is King


This is even more true in today's tight credit market. A manufacturer has lots of uses for capital - new plants, equipment, tooling, lift trucks. Spending hundreds of thousands of dollars on a new ERP system ends up low on the priority list regardless of the potential ROI.

Recently a $300million manufacturer selected Plexus Online as its enterprise business solution (ERP, MES, SCM, Quality). The customer wanted a perptual pricing model. We obliged and agreed to a purchase price well north of $1million. The final approval step was the board who looked at all the capital investments in plant and equipment they were making around the world and put a hold on all new capital projects that did not provide a specified return within a very short time period. Now the company has a much better understanding of the value of subscription pricing and is working to move ahead under that approach.

This is just one example of similar decisions being made around the world. It just makes sense.


Mass Appeal


Smaller businesses understood the benefits of SaaS very quickly. They don't have the scale to be able to afford a datacenter and top IT talent.


These days, the IT staffs at larger companies are being asked to reduce headcount and expenses while increasing services to the business. Many are now adding SaaS applications to their portfolios as a cost-effective alternative to costly on-premise solutions or homegrown software.


Can the Established Providers Make the Switch?


QAD, Epicor, Exact, Infor, Oracle and SAP will all have to address this sea change. QAD among others has started to offer 'on-demand' solutions which really constitutes running their legacy code on servers at a third-party datacenter. They then charge the end customer on a subscription basis.

How will these public companies deal with the side effects of the SaaS model - lower upfront revenue, lower cash, high expenditures on datacenters? More importantly, how will they make the transistion to a service provider from a software vendor?

I predict a significant shakeout in 2008.

I am often asked what our offshoring strategy is. The answer is that we keep an eye on it as an option, but have not yet seen the value for our business.


The appeal of a much lower unit cost for development is enormous. Even though prices are being bid up in India, Malaysia and elsewhere, the delta in pay rates between the US and the Low Cost Countries is still compelling, often 4x or more.


Offshoring seems to work best when there are structured releases that can be managed as projects with detailed design documentation and the whole works. Formal requirements definition, database design, user interface design and all the rest can be created and packaged, then sent offshore for coding. Code can be developed in Asia while we sleep and then reviewed and tested during the day here in the US. The developers show up the next day with comments and course corrections to guide the day's activities. Many software companies have gotten very good at managing this process.


But what if the software vendor has a shorter release cycle and an iterative approach? Plexus, for instance, does not rely solely on product marketing, choosing instead to work with real customers on real problems. The tight iteration cycle allows developers to understand the business problem and get a solution in the users hands very quickly. Then, it is tuned and adjusted very rapidly. This has lead to software that is not only very useful, but also easy to use.

With a SaaS model, vendors can release changes every day. They also need not be concerned with supporting multiple operating systems, databases, versions and so on. All of the effort can be focused on providing features that customers will actually use.

This agile, rapid, joint development approach makes it difficult to manage a 10,000 mile supply chain.

Too many top business managers think that an enterprise software selection decision is best left to the technical folks. They think it is a technical issue. In fact, though, it is one of the most critical decisions facing many businesses. The question is: "Who is in the best position to choose ERP software for a manufacturer?"

Consultants?

IT consultants can be a great help in the selection process. The best are those that have hands on experience with a wide variety of solutions at companies similar to the one having to make a choice. It is important that advisors have in-depth knowledge of the manufacturing firm. This deep understanding can come from previous projects performed for the company. Many times, though, it is gained at great expense to the manufacturer as they walk the consultants through every phase of their business operation explaining all the intricacies of their current processes.

The consultants may have other factors that come into play - relationships, market pressures and the like. For instance, the very large firms such as Deloitte and Accenture make their money doing large scale implementations of major products that require a lot of customization and other services - such as SAP and Oracle. They will make the selection process look open and fair. In the end, they are justified in recommending Oracle or SAP because those are market leaders - and the source of a great gravy train for these firms - regardless of fit and total cost of ownership.

IT Department?

There is no question that the IT staff should have a role. The CIO, IT Director, IT Manager typically has the skills to evaluate the technical aspects of competing solutions. However, many IT professionals have limited understanding of the real business needs. They see software solutions through a very different lens. John Soat describes the evolving role of the CIO in a recent Information Week article.

If the IT department is close to the business users it will understand the needs and be out in front of the process acting as the facilitator or quarterback. Too many are in the habit of reacting to requests from users and are put in a position of explaining why the solution the business user wants will not work.

Finance?

In many organizations IT still reports up to the Finance department. That arose because the accounting and finance folks were the only ones using the enterprise system. Nowadays, the true broad and deep ERP solutions are used by nearly everyone in the company. The best solution for the finance department may be a horrible fit for the rest of the company, resulting in massive customization and very high total cost of ownership (TCO) and risk to the organization. Finance should have a voice, but production, scheduling, shipping, procurement, quality and others must also be heard.

Users?

"What do they know?" is the dismissive statement used by many a sage IT professional. The end users are more likely to know what they need for their every day job. They can evaluate whether a solution will enhance their job or create undue and non-value-added work for their department.

Where things have gone astray in the past is when there is lack of alignment between IT and the business users. It starts with the "hidden backlog". These are requests that users don't even bring to the attention of the IT staff because they know it won't get addressed in any reasonable time frame.

Next comes the "shadow IT" solutions - homegrown databases or applications to solve a business need. These are disconnected from the official system of record and often not properly maintained or backed up. Data is rekeyed between systems and the audit trail is broken.

Finally, the business users become aware of a solution that will meet many of their needs. They review it, learn about it, hear all the sales talk and then bring it to the IT department as the solution they want to buy. Nothing good happens from here on out. The IT folks want to do the rigorous evaluation and may suggest other solutions. The users feel IT is just out of touch and denying them what they need to do their jobs.

Facilitator Needed to Manage the Process

In the end, a facilitator is needed. Whether a consultant, the CIO or a strong operations manager, the facilitator needs to ensure that:

• the needs of the organization are fully understood
• appropriate solutions are considered - even if they don't fit the technical preference of the IT staff
• and that the selection is based on what is best for the business as a whole.
  

ERP consolidated a lot of applications when the concept first came into being. Standalone general ledger, accounts receivable, billing and order entry solutions, for example, were offered in one integrated solution.

Businesses and technology have continued to evolve. ERP was meant to cover the whole enterprise. Why then do we have standalone applications for:

• MES (manufacturing execution system)
• SCM (supply chain management)
• CRM (customer relationship management)
• and other industry-specific solutions?

The 'niche' vendors of solutions for MES, SCM, CRM, etc. are now expanding their footprint causing overlap and confusion. Ultimately, customers are not searching for TLA software (three-letter-acronyms). They are looking for software to run their business.

This has led to a new kind of application that has not yet been labeled. The closest idea would be vertical-industry solutions - those that seek to serve all the needs of a given type of business. Prior to joining Plexus Systems, I had only seen this in very tiny microniches such as dairy farm or lumber yard management.

In upcoming whitepapers and blog entries, we will outline how Plexus Systems has been able to develop a very broad and deep solution for a large vertical --- manufacturing. The key enabler has been the on-demand business model coupled with agile development and a clear, focused, disciplined vision.

I am very grateful for all the attention being paid to the SaaS market these days. It takes a great deal of stress off our marketing budget. SAP, for example, is spending lots more than we could to educate ERP buyers about Software as a Service. Ditto for Salesforce.com.


What fascinates me is the traditional ERP software vendors who compete head-to-head against Plexus claiming that the on-demand or SaaS model is not proven or is just too scary for the customer to contemplate. Then, when the customer says they prefer SaaS, these same software vendors turn 180 degrees and explain that their tired old client-server software can also be delivered on demand. They go on to say that when the customer changes their mind or grows (or something) they can take the solution back in house.


My first question is, if SaaS is a good idea now, why would the customer later change their minds and bring it in house? Some thoughts come to mind:

• The software vendor is not committed to the concept. They see it as a passing fad, just like that world wide web thing they have read about.


• The software vendor does not have a real SaaS solution and is buying time until they do have a viable offering.


• The vendor cannot offer a competitive price for a SaaS solution, probably due to an immature architecture.

The next question then is what is SaaS? There has been lots of writing about the concept. Wikipedia has a detailed definition. That definition is relatively generous saying that maturity level one is still SaaS. This is basically the same as an on-premise solution (individual customized copy of the software) except that it is on someone else's premises. This only adds cost to the vendor-customer relationship. Whoever is providing the premises (servers, OS, DBMS, etc.) must make a profit too. When a new software version comes along, each instance must still be upgraded. This just shifts the pain and annoyance of keeping traditional software up to date to a third party.

Compare this with Maturity Levels 3 and 4. All customers run off the same core software which is updated constantly. Changes are automatically available to everyone. Upgrades for new DBMS, Operating System, Hardware, etc. are all done in the background. The software is also more bandwidth-friendly since it was written directly to the web. 100% of the screens are accessible via a browser, not just the 'portals'.

Buyers Beware! Make sure you are getting a real SaaS solution that will yield all the benefits vs. a hosted legacy application that will just add cost and complexity to the customer-vendor relationship.

Have you heard the one about the lawyer who dies and is given a choice between heaven and hell? Well, the devil shows him around his place and it looks great - everyone is happy and there are parties all night long. Then St. Peter shows him around heaven - very nice, beautiful and pleasant, but a little dull. So the lawyer chooses hell. He arrives to find constant torture, fire and abuse. When he asks the poor slob next to him what happened to the dancing girls, he replies simply - "oh, you must have seen the demo!"


Powerpoint vs. The Software

It is essential to see the actual software. Many software salespeople are powerpoint wizards and masters of obfuscation. When we hire reps away from competitors they are horrified to learn that we show the software to our customers early and often. They spent their careers hiding the software until absolutely forced to show it. As a buyer, you need to see how the data will actually be captured and how easy it is to use. Insist on a full demo of the real, currently-released software.


User Based Pricing

One of my pet peeves is user based pricing models. This is fine for narrow, point solutions where the user base is very clear, but not for a comprehensive ERP. Plexus Online was built from the shop floor out, not accouting down like our competitors. In a manufacturing enterprise, 80%+ of the transactions originate on the shop floor or at the shipping/receiving docks. Why not capture and validate those transactions as they happen?


There is a direct correlation between the number of people using the system and the validity, timeliness and usefulness of the information. User based pricing discourages broad use and results in suboptimal implementations. Vendors are able to present a low initial price that seems very appealing. Then, when the customer wants to deploy beyond the front office, they pay and pay. Follow on sales are a major revenue source for our competitors.


Plexus Online changes the definition of who is a knowledge worker. It is priced on an enterprise basis so our customers can deploy the software to everyone in the facility and know what their costs will be. The result is timely, accurate, actionable information for running the business.


What's a DBA?


Providers of traditional, on premise software often pander to the IT departments, not the business users. The vendors tend to downplay to the business users the number and skillsets of people needed to operate a comprehensive ERP solution. I have found that enlightened CIOs love SaaS. It frees their team from the drudgery of backups, patches and upgrades so they can focus on making sure the business users are getting the full value from the software. Most manufacturers, especially in the mid-market, cannot attract and retain the kind of IT talent needed to keep their data safe and their systems evolving with the business.

Estimated Implementation Effort

None of our competitors will do fixed price implementations. Nor will most IT consulting firms. Why do you suppose that is? We have all heard stories of massive cost overruns on ERP implementation projects. The goals of the implementation team and the business are not in alignment when the meter is allowed to run. The business wants the system in to start earning their ROI. The implementation team has a perverse incentive to keep the project going. I began my career at the Biggest of the Big 8/6/5/4. I understand the economics.


It is hard work to stay focused on the key Critical Success Factors and not be distracted by every request to get a report "just like the one I had in the old system". It also takes a lot of custom programming to make a 'generic' or horizontal solution work for the very specific needs of a manufacturer. At Plexus we don't try to serve all industries. The software doesn't get 'overdeveloped' with features for schools, retailers, restaurants and law firms. It is manufacturing all the time. That's what allows us to give our customers cost certainty when it comes to getting the software implemented and providing value to the enterprise.

Upgrades Are Simple

OMG! RU KIDDING? The typical upgrade process for on premise software still looks like this:

• wait 6 months or a year for the upgrade from the vendor
• evaluate whether the new features are useful for your business
• plan the upgrade (new hardware, operating system patches, dbms, etc.)
• execute the upgrade (praying that all the planning went well and didn't overwrite any customizations)
• test the system
• train the users

What usually happens is that mid-market companies get too busy, too customized or the upgrades don't appeal to them and the software stagnates. With a SaaS solution the software is always on the latest release (and the latest hardware, OS and DBMS). Upgrades happen constantly without customer intervention. Users are made aware of new features via pop-up notifications and online help.

Summary

The SaaS model evolved to drive out costs and complexity in the relationship between the software vendor and the customer. It addresses many of the problems that have arisen over the years. However, software buyers must remain vigilant and:

• demand to see the actual software,
• see the software in use at a similar company,
• find out why there can't be a fixed price implementation
• truly understand how many users will be needed to get the full value from the system.

SAP's much-heralded Business by Design solution is important not because it is new or groundbreaking (it's not), but because the largest software maker in the world is recognizing a fundamental shift in the market - though perhaps a little too late. It will be exceedingly difficult for a very large, rigid company like SAP to do what is needed to succeed in the SaaS environment.

The 'S' Stands for Service

The biggest challenge will be moving from a software company mentality to that of a service provider. SAP has gotten very used to the idea of receiving a big check and shipping a standard version of its software, then letting consultants deal with making it work for the customer. SAP's huge partners, largely the SIs like Deloitte and Accenture have gotten very comfortable with this idea also.

Now the economics change dramatically. Marc Benioff has compared the relationship between the SaaS provider and its customer as a marriage. You are both in for the long term and are committed to making it work. SAP's history on the other hand, says the colorful Benioff, is more like a series of one night stands.

Even if the software is simple to install, a big part of an implementation is helping the customer change. This can't be overlooked in the SMB market. Who is going to work with the 250-person company? SAP? Accenture? EDS?

Who's Going to Sell It?

As Larry Ellison points out, it is tough to sell to smaller companies. Oracle tries from time to time and has never found the formula. Small to medium businesses may be a $15billion market (according to SAP), but it will take a whole different sales mechanism.

BTW, The Other 'S' Stands for Software

More and more customers are buying software that fits their business rather than 'generic' software that requires many costly modifications. Business by Design is rather generalized at this point. It is meant to appeal to virtually any type of company. It's as if small to medium businesses as a group were a vertical focus. Manufacturers, distributors, retailers, service firms and others have very, very different needs. How much commonality is there among those types of firms? I foresee another 'all things to all people' product that is a great fit for no one in particular.

The software is not true SaaS. The benefits of a hosted, multi-tenant solution are proven to be enormous. SAP seems to be stopping short. This will not take the cost, complexity and delay out of the software company-customer relationship that a true SaaS solution would.

SAP finally unveiled (and named) its much-awaited on-demand software solution. I don't know what the fuss is about.

Herr Kagermann says that "a new era" has begun. Actually, the new era began at about the turn of the century when several innovative software suppliers recognized the importance of the Internet and the problems with on-premise software. We released Plexus Online, a secure, multi-tenant centrally hosted application suite, in 2000 and have been growing rapidly ever since. Procuri, RealPage, and of course NetSuite and Salesforce.com are some others that have proven the model in their markets.

What's new here is SAP's recognition that large companies don't innovate as well as smaller ones, that the giant fell behind. Goliath also realized that his previous attempts to address the mid-market have gained no traction. Indeed, my fellow on-demand veterans predict that SAP will fail once again to provide a compelling, comprehensive, affordable solution to the mid-market.

I am thrilled to have SAP enter the on-demand ERP market. If executives at mid-size companies had any lingering doubt about the viability of ERP on-demand, SAP's scurry into the market should put that to rest. The behemoth is slowly awaking to see that the train has not only already left the station, but it is around the bend and has already picked up a lot of passengers.

I am eager to see SAP climb the same learning curve that Plexus and others have already done. There is much more to this on-demand business than meets the eye. I'll elaborate on that later.

SAP's long-anticipated on-demand strategy will be unveiled in New York according to ComputerWorld. The product, code-named A1S, is SAP's third offering targeted at small and medium businesses. There is much speculation about the announcement.

Which industries will be targeted? SAP's traditional strength is in manufacturing. Will this be where they start? Is the product broad enough to meet manufacturers' needs on the shop floor as well as the office? It's reported to be a whole new code base. It would be very impressive if A1S came out of the box with rich features for manufacturers such as scrap, downtime, quality, labor tracking, bar coding and so on.

How broad a solution is it? Finance and CRM are a given. That's where they need to be to compete with NetSuite and Salesforce. Will it have robust procurement and shop floor capabilities? How much support for vertical markets will be there?

How will it be sold? The traditional approach of direct sales and large partners won't work here. Will users buy over the internet?

Who will help implement it? SMEs typically don't spend tens of millions of dollars to implement ERP software. Will there be a whole new type of partner on a smaller scale than DeloitteTouche and Accenture?

I absolutely welcome SAP's foray into on-demand. The move speaks volumes about SAP's view of the future of our industry.

Plexus Systems has delivered our comprehensive manufacturing ERP solution on-demand for the last 7 years. We have learned an enormous amount over that time about delivering software as a service. I am eager to have others climb that learning curve.

What will SAP announce? I don't know, but I welcome them to our marketplace.

Many IT professionals fear SaaS will put them out of a job. They fear loss of control. They fear change in general. They know what they know - PL/SQL, Java, VB, RPG, Cobol or whatever. Many are afraid to learn new technologies much less the business reason for the technology. These folks should be afraid.

Two Types of IT Types

Throughout my career in IT consulting and now with a leading SaaS ERP company I have met lots and lots of IT types. I have found two main categories:

1. Those focused on what's going on inside the data center and

2. Those that are most concerned with the business and then what they can do to help the business users.


How to Tell the Difference
I visit a lot of manufacturers. I like to ask "what kind of equipment are your running in the plant?" This always determines which camp a person is in. The type 1 people will quickly rattle off details about the processors, disk and RAM found in the data center. They can tell me about the most recent OS patch or the need to upgrade their SAN. They normally can't tell me about the presses, weld cells or other manufacturing equipment out on the shop floor. In fact, they don't often venture out there.


Type 2 - Aligned with the Business
The second type of IT people know immediately what I am asking and can tell me the tonnage, bed size, capacity or other characteristics of the various production lines. They can tell me what kinds of problems the business has - too much inventory, missed ship dates, excessive overtime, quality issues and so on. They understand when we describe what our software can do to improve the business. Most of them welcome the idea that the solution is On-Demand. It frees them up from the drudgery of applying patches, doing and checking backups, planning and executing upgrades, etc.


Type 1 - "Don't SaaS Me"
Sometimes, the IT hierarchy can kill a SaaS solution before users can catch a whiff of what's possible. They are often doing their employer a disservice. Many business users would choose the SaaS solution for its feature set and total cost of ownership. Type 1 IT managers fear for their fiefdom, their comfort zone, the air-conditioned luxury of the data center, the soothing hum of the servers. They create FUD around security, reliability, interconnectivity and ease of change. Those myths have long since been debunked.


True Value-Add
The enlightened IT leaders realize that their true value to the enterprise is ensuring that the business users get the tools they need to do their jobs more efficiently at a lower cost. They still need to manage networking, training, and vendor relationships. More importantly, though, they need to understand the business needs and bring solutions to the table - on-premise or SaaS - that can help build a competitive edge. Aligning with the business and becoming a real business analyst involves skills such as data mining/analysis and change management. Many business users also fear change. Getting help from someone who speaks their language and understands technology is very welcome.

I have often thought of this analogy, but I have never seen it as eloquently stated as it is here by Nicholas Carr in his book "The Big Switch - Our New Digital Destiny"

A hundred years ago, businesses began dismantling their waterwheels, steam engines, and generators. After producing their own mechanical power for centuries, they suddenly had an alternative. They could plug into the newly built electric grid and get all the electricity they needed from central stations. The cheap power pumped out by electric utilities didn't just transform how businesses operate. It set off a chain reaction of economic, social, and cultural changes that brought the modern world into existence.

Today, a new technological revolution is under way, and it's following a similar course. Companies are beginning to dismantle their private computer systems and tap into rich services delivered over the Internet. This time, it’s computing that’s turning into a utility. The shift is already remaking the computer industry, bringing new competitors like Google and Salesforce.com to the fore and threatening stalwarts like Microsoft, SAP, and Dell. But the effects will reach much further. Cheap, utility-supplied computing will ultimately change society as profoundly as cheap electricity did.

This is a fundamental sea-change for the industry, not a passing phase.

There is much confusion in the marketplace about On-Demand software solutions. This confusion is largely caused by software vendors playing catch-up and offering 'quick-fix', 'whipped cream on roadkill' answers to a more fundamental movement in the industry.


If your software vendor is offering an On-Demand solution, get some details. Often, as with QAD's 'new' release, you will find that you are merely paying someone else to deal with the problems of traditional, on-premise software. When Customer A signs up, the provider (often a third party, not the software vendor) will buy a rack of servers and disk space and create a fresh instance of the software specifically for Customer A. When Customer B signs up, they buy another rack of servers and disk space for the new customer. When Customer A wants to upgrade the software, someone (the Customer or the provider) still needs to go through the planning and upgrade process for just that customer.


Multi-tenant, hosted solutions such as Salesforce.com, NetSuite and Plexus Online offer distinct advantages. Chief among these is the ease with which the software is kept current and the cost savings associated with a shared infrastructure. Some of the cost savings come from using a simple web browser to perform any transaction in the system - not just those that have been 'web-enabled'. Ask the software vendor to demonstrate the entire system from one of your computers without loading any software on it beforehand.


The 'Outsourced' model just adds cost. There is no less equipment or hassle and the provider has to make a profit for taking the hassle off your hands.

Consumers of ERP solutions now understand software as a service (SaaS). Many wonder why they would ever buy and implement an on-premise solution again. The benefits are well-documented:
- simpler, faster implementations (everyone just uses a browser to do their job)
- software is always up to date (no painful migrations, upgrades, losing customizations)
- lower total cost of ownership
- vastly better ease of use
- ease of integrating the supply chain, giving both customers and suppliers views into the process.

This is causing major disruption for the more established suppliers. After years of fighting SaaS and spreading fear and uncertainty among potential customers about SaaS, companies like QAD, SAP, Oracle and Microsoft are scrambling to come up with a SaaS offering. QAD in particular is feeling the pain and is scrambling for an answer. SAP has outlined its strategy for delivering software and implementation services over the web. Oracle is still in denial.

In the near term, these companies are taking the easy way out and lining up third party service firms to host their applications. This just adds more cost and confusion to the mix. When a new customer signs up, the third party buys servers and software to operate that business. They need to make a profit, as does the software vendor. When there is a problem, who do you call - the software provider, the hosting company or the consulting firm who implemented the solution?

A web-native, multi-tenant solution will drive down the cost of supplying software and provide the best software that is always up to date.