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Plex Online - ERP without Software

Software as a Service or SaaS has become mainstream. Just as individuals and companies no longer have to generate their own electricity, they no longer have to write and maintain their own ERP systems. They can simply "plug in" to the service and be up

Updated: 2015-11-23T10:01:54.110-05:00


Zombie Software Companies


You have likely heard about zombie banks - those without the resources to make new loans. I have heard industry analysts begin to talk about zombie software companies. These are the former icons of the ERP market who no longer have the resources to invest in new technology and win new customers.

Is All Revenue Equal?
This is a chart of the license fees and EBITDA of one of our larger, publicly-traded competitors with a 3-letter name. As with others of its ilk, it keeps topline revenue somewhat flat (vs. a dramatic decline) through acquisitions, increasing maintenance fees and cannibalizing professional services revenues from its partners. License revenue is the true indicator of the health of a software company. EBITDA, of course, is an indicator of whether the company is creating value for its shareholders and whether its customers value what it delivers.
SaaS is Where the Growth Is
It seems all the revenue growth is coming from SaaS companies. is a $1billion company. Netsuite is over $100million. RightNow, Ultimate and many others are doing well even during these dark times.
Plex Systems posted 33% growth in 2008 over 2007. The first quarter of 2009 is on pace to be roughly 25% above Q1 2008. We are facing the same macro conditions as QAD, SAP, Infor, Epicor, Lawson, Exact and the rest. SaaS just makes sense. It is the only sustainable model for the years ahead.
Beware the Zombies!

...melting away resistance to change


A recent article by AMR Research discusses the challenges facing the industrial supply chains. In part they say "There is nothing like the potential for additional layoffs to melt away an organization’s natural resistance to change."Changing CourseMany smart manufacturers are preparing themselves to emerge stronger and more competitive and profitable when the recovery begins. Andy Grove is famous for saying: “Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them.” It is becoming easier to see who's who now that the receding tide is exposing rocks (too much debt, bad business models, etc.) and smashing some companies to pieces. It's not smooth sailing for anyone. However, some organizations are battening the hatches and trimming their sails for a new course that will get them to the recovery faster and in better condition than their competitors.Eliminate Non-Value-Add ActivitiesOne thing these companies are doing is investing in automation and improved processes. Productivity always rises as a result of recession. Trying times shock managers into seeking better, more efficient means of doing things. They take a hard look at every job in the company and think about whether it adds value to their customer. Success can breed complacency - and fat - in an organization. That fat gets trimmed during recessions - the reluctance to change is stripped away.Automate, Integrate, Make Visible!These three concepts are vital to ongoing improvement. You can't improve what you can't see. If obsolete inventory blocks a doorway, you know you have a problem. The key is to make waste 'visible' long before it becomes a huge problem.Automating manual processes is a high-value opportunity to drive out costs. Capturing and validating data at the point of origination makes for timely, accurate and, therefore, actionable information for all other users in the enterprise. If the production scheduler (whether a human or computer) knows that material or tooling or labor is not available to run one job, it will schedule one that can be executed. If purchasing knew that we just scrapped or RMA'd 1,000 pieces or just got a surprise order today, they could rapidly adjust order quantities.Automation is most powerful when coupled with integration. Many organizations have automated functions here and there with "best of breed" solutions only to find that the data hits a dead-end or must transit a cobbled-together interface to enterprise systems. Tying together traditional ERP with Shop Floor (MES), Quality, Supply Chain, CRM, etc. in one solution is the optimal way to drive out costs.Rapid Improvement without a Capital OutlayWith SaaS, manufacturers can streamline their business very quickly without the costs and trouble associated with traditional implementations. These days it is hard for even good companies to get a lease on servers, backup equipment, storage and so on. Companies are turning to SaaS to conserve their credit for their core business needs....melting away resistance to changeThere is nothing like traumatic stress to cause people to change long-held beliefs and habits. Like the heart patient who makes dramatic lifestyle changes after bypass surgery, manufacturers are focusing on the essentials and outsourcing the rest. This includes extensive use of SaaS to support core business processes to survive the downturn and even to thrive.Mark Symonds, CEO of Plexus Systems, Inc., is an operations expert with 25 years of experience. His blog is about the convergence of ERP and the on-demand (software as a service) delivery model, and its impact on manufacturers.[...]

Hey...You...Get off of my cloud!


Harry Debes, Larry Ellison, Bill McDermott - get off of my cloud. You are all predicting the demise of cloud computing and software as a service. You think you have created an unpenetrable barrier to entry for competitors. Indeed, Mr. Debes believes your collective customer base is incurably addicted as if on cocaine because... "It’s too difficult and expensive to switch [traditional software] providers once you’ve invested in one."

Well, many of your former and prospective customers are in serious rehab. They don't see the vague and unnamed dangers in multi-tenancy purported by Larry Ellision and the thundering herd at Oracle. They know that products like Plex Online can offer depth and breadth for manufacturers unlike the "half-baked applications from SaaS upstarts" cited by Mr. McDermott.

Painful as it is for companies to walk away from the piles of money they have invested in stagnating, on-premise software and infrastructure, they are doing so in rapidly increasing numbers. As Phil Wainwright points out, it is better to be attacked than ignored. Traditional vendors who have not modernized their offerings are desperately increasing the amount of Fear Uncertainty and Doubt they are dumping into the marketplace about SaaS.

The fact remains that SaaS just makes sense.

SAP Predicts SaaS 'Disillusionment'


On January 7, 2009 John Foley wrote about an interview with Bill McDermott, SAP's president and CEO of Global Field Operations. Mr. Bill is echoing SAP's rapid retreat from SaaS.

In 2007, Herr Dr. Kagermann, SAP's CEO, touted Business by Design, SAP's SaaS offering, as "the most important announcement in the history of the company." I think it is SAP that is disillusioned, not the customer. An excerpt:

'McDermott contends that now more than ever companies need a full-featured, integrated applications platform for running global business operations -- mySAP, for example -- not half-baked applications from unproven SaaS upstarts. He points to SAP's 36 years of experience developing a "stable core" of enterprise software and a service-oriented architecture that makes it easy to add on third-party and custom applications. "It will take another 36 years for software-as-a-service vendors to do the same thing in the cloud," he says.'

Sounds to me like they just couldn't figure out how to do what Plex Systems and others have done. I am surprised and, frankly, disappointed that SAP is choosing to throw in the towel on SaaS after only five to eight years and countless millions.

Fortune forecasts lots of "clouds" in 2009


Fortune Magazine predicts a huge uptick in "Cloud Computing" and SaaS. It just makes sense. More and more IT departments are asked to do more with less, to support more users and applications with fewer people and other resources. The clear answer is cloud computing.

The rate of change is accelerating. More and more applications and resources are being provided in the cloud every day.

The Echo Boom is Upon Us


ERP Boom in 1990s
An enormous number of companies installed ERP solutions in the 1990s in the run-up to Y2K. It was a huge bulge, much like the baby boom in the 1950s. My children are part of what is called the echo boom - the upsurge of births from baby boomer parents like me.

Huge Number of Aged Implementations
The ERP installations from the boom time are now 10 to 20 years old. We are at the start of a huge replacement cycle. The world of technology (image) has changed dramatically during the past 20 years. Cobol, RPG, and Progress have given way to HTML and Java. Big iron and expensive Unix machines have given way to commodity Wintel servers. Traditional disk storage has been eclipsed by SANs and NAS.

Enormous Business Drivers to Replace ERP Now
The ERP (or often MRPII) implementations in the 1990s were driven by the finance and accounting people who wanted standardization across the enterprise. That wave did consolidate many disparate packages and homegrown applications but the focus was relatively narrow - the front office, the "knowledge workers".

Many argue that the big ERP implementation projects undertaken over the last 15 years did not generate the ROI that was expected. In my opinion, that is because they didn't address the core of the enterprise. Most of the activity in a manufacturing company occurs on the shop floor and on the shipping and receiving docks. These areas are not under the purview of legacy ERP solutions. There is a tremendous amount of savings to be gained by automating and integrating all the operations within a company, not just the financial and procurement functions.

New Generation of Software
Today, there are software products that make everyone in a manufacturing enterprise a "knowledge worker", that tie together the shop floor and the "top floor" seamlessly. It just makes sense to capture and validation transactions as they happen rather than write down the details for a so-called knowledge worker to keypunch into the system later.

Echo Boom Will Resound for the Next Several Years
The move to replace aging legacy ERP solutions will accelerate over the coming years as more manufacturers realize they can run a comprehensive, next generation ERP2 solution for about the cost of just maintaining the long list of applications they are using now.

SAP Validates SaaS for Larger Companies


Today SAP announced plans to develop SaaS offerings for large enterprises. I couldn't be happier!

This move helps to further validate that SaaS just makes sense and that the software delivery/pricing model is receiving a warm welcome from customers. SAP has spent years and many millions of dollars developing Business By Design, their SaaS solution for small to medium enterprises. That product so far has been a failure.

I am certain SAP will get it right one day. In the meantime, they are helping build market awareness for SaaS ERP and saying to customers that "it's okay to buy SaaS solutions".

Another big name (Infor) says SaaS is the future


Today Infor announced its first SaaS ERP offering. Prior to today, Infor's stance had been denial and disinformation. When competing for business against on-demand suppliers like Plexus Online, Infor has thrown all kinds of FUD (fear, uncertainty and doubt) around to dissuade customers from selecting a SaaS product.

Faux SaaS...
Now, Infor is saying SaaS is an important part of their future and they have a product. I strongly encourage prospective customers to look carefully. The press release was very carefully worded to imply that the new ERP offering is true SaaS. It is based on the aging, Progress-based Syteline solution. I would be very surprised if the product conformed to the generally-accepted definition of SaaS as outlined by Gartner's Chris Pang:

SaaS can come in all kinds of shapes and forms. “It is important to differentiate SaaS from hosting or application management or application outsourcing,” said Chris Pang, principal analyst at Gartner.

"Due to the fact that SaaS/on-demand market is red hot, many vendors started rebranding their hosting, application management and application outsourcing capabilities as SaaS/on-demand.

Clearly, everyone wants a piece of SaaS nowadays. However, as Gartner notes, it is important to keep in mind that the true SaaS/on-demand is comprised of the following:

  • Delivery of multi-tenant service
  • From a remote location
  • Over an internet protocol (IP) network
  • Via a subscription-based outsourcing contract "

Suppliers who conform to this definition can deliver the true benefits of SaaS. The pretenders cannot. They just add cost and complexity to the vendor-customer relationship.

Here we go...1980's all over again


"Elliott offers $9.50 per share for Epicor"

"Lawson misses and lowers Q1 2009 outlook"

"QAD reports Q2 loss; CFO leaves company"

"Softbrands trades below $1/share"

I made the case in earlier comments that the mid-market ERP space reminds me of the 1980s minicomputer marketplace. Do you remember Wang, Data General, Prime, DEC, Apollo, Perkin Elmer, etc.? They all disappeared rather quickly after being darlings of the industry. I think we are seeing the same phenomenon today among ERP providers to the SMB space.

Climate change killed the dinosaurs. This current economic storm will kill many of today's mid-market ERP companies who have not updated their technology and/or business model.

Infor and Consona have tried to consolidate and roll up several vendors already. They are now feeling the cash crunch and have dramatically slowed their acquisition binges. They are also not pursuing and winning new accounts. Rather, they are cutting costs and cross-selling to their lucrative, but shrinking installed bases. That formula will only carry them so far.

The winning combination will be SaaS and Suites

SaaS turned the corner in 2007. It "crossed the chasm" from early adopters to more mainstream usage. It just makes sense.
  1. Conserves Cash - Customers don't need to write a big check for software, servers, backup equipment, etc.
  2. Improves Operations More Quickly - Faster time to value is a key benefit of the SaaS model. The lead time to order, install and configure infrastructure components goes away.
  3. Software Changes More Rapidly - Instead of waiting 1-2 years for the next release, customers can get fully-supported enhancements in days or weeks.
  4. Focused and Integrated - Suites will carry the day. The moving parts and finger-pointing involved with point solutions will prove unbearable for most companies. A comprehensive suite of offerings focused like a laser on a vertical such as discrete manufacturing, property management, leasing or whatever offers way more value to businesses.
  5. Accessible Anytime, Anywhere - True SaaS is 100% accessible with just a browser from anywhere in the world. Traveling employees, customers or suppliers don't need to install anything on their client.

Just as drastic climate change killed the dinosaurs and ushered in new forms of life, so will this dramatic business climate change shake out the companies that have not adapted their business models to today's reality.

Software Suites are the Logical Conclusion


CIOs don't want long list of solutions with customized integration. They can manage a comprehensive suite much more easily. The winners in the coming shakeout will be vendors with broad suites tailored to specific vertical markets.

Let's take a brief look at some of the point solution markets:

CRM - Siebel did very well for a while. When their opportunities diminished over time, they were acquired by Oracle. is enjoying a great ride. However, their growth rate is slowing and they need to augment their offerings. They are choosing to do that with and partners developing applications that integrate. Most believe they will be acquired by a major ERP provider.

SCM - i2 Technologies is the latest poster child. JDA is acquiring i2 to broaden its offerings. Many other SCM pioneers have been swallowed up by suite vendors.

HCM - Peoplesoft recognized long ago that it needed to expand beyond a limited horizontal offering. It bought JD Edwards, a more complete ERP product. Dave Duffield is starting again with Workday, but will go beyond HCM to add some ERP functionality right off the bat.

MES - The Manufacturing Execution Systems space is highly fragmented with many smaller players and various niches. SAP, noting the need to provide its own shop floor functionality, recently acquired Visiprise. I fully expect Oracle to follow suit.

Quality - This area has been more on the fringes of the manufacturing space. Some vendors have done well with standalone solutions. They have partnered to a degree with various ERP providers. Now, though, there is pressure to consolidate quality functionality directly into the MES and ERP solutions.

It's obviously difficult to be all things to all people. I argue that it is also difficult to survive in enterprise application software by being just "something" to all people. The winning combination is to serve all the needs of a focused group of customers.

At Plexus, for instance, we focus on discrete manufacturers. We provide virtually everything needed to run a global manufacturing enterprise. We don't have features for retailers, banks, insurance companies, accounting firms, etc. Our single-source, multi-tenant model allows us to rapidly build capabilities into the core product that appeal to virtually all of our customers.

We combine ERP, MES, SCM, Quality, HCM and some CRM into one, consistent, powerful solution. Some of our software areas don't compete as well with standalone solutions in some markets such as CRM, but they have more than enough capability for most manufacturers. Other areas such as MES, SCM and Quality stand out as best of breed even as standalone solutions. They are unbeatable when implemented as part of the whole.

It seems clear to me that suites are the logical conclusion to enterprise application software evolution. Vendors should be challenged to serve all the needs of a focused group of customers.

Long-term, SFDC, Netsuite and others cannot exist alone without dramatically broadening their footprint.

Can you afford to do nothing?


Credit is scarce. Businesses are failing. Customers are paring their supplier lists. Competition is more fierce than ever.

What are you going to do about it? Wait it out? Cut to the bone? Freeze all investment in new projects? Or will you meet the challenge head on and increase your market share at the expense of your competitors?

The risk of doing nothing is higher than it has ever been. If your customers are looking to reduce their supplier base, will you be the one staying on and getting more business? Or will you be deemed expendable?

There is a strong temptation to cut all spending and curtail investment in the business when the storm clouds are looming. The long-term winners will take that time to retool the business, improve systems and operations and impress their customers with their capability to perform. They ensure that they will be tops on the preferred supplier list.

Powerway - Poor Execution of a Good Idea


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.

SaaS ERP Goes Up Market


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.

ERP is Dead - A New Term is Needed


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.

Just like 1989...


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.

Microsoft Needs a Plan


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.

Tough Economy? SaaS Makes Even More Sense


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!

There is no turning back - SaaS ERP is here to stay


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.

Offshoring is not for Everyone


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.

Who Should Make the ERP Selection?


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 [...]

ERP Isn't Enough


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.

Now, suddenly everyone is SaaS?


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

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.

Lies My Software Vendor Told Me


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 SoftwareIt 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 PricingOne 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 EffortNone 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[...]

SAP must do more than publish new software


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.

Much Ado About SAP's Business By Design


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 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.