Enterprise Resource Planning for Services: Has Software as a Service Become Service-oriented Architecture for Small to Medium Businesses?
Written By: Neil Stolovitsky
Published On: September 7 2009
Originally published - February 14, 2007
In a market where labels define software vendors, the power of the enterprise resource planning (ERP) acronym has permeated the small to medium business (SMB) market. Tier one and best-of-breed vendors are embracing the ERP label as the message of choice to its clients, especially in the services sector where ERP is less mature. As organizations seek enterprise solutions to meet their business requirements, they are faced with the challenge of deciphering which solutions best suit their needs.
Everywhere one turns, a services component is incorporated into the latest and greatest offering pitched by ERP vendors. For many vendors targeting the enterprise market, service-oriented architecture (SOA) is the technology of choice; for those targeting the SMB market, software as a service (SaaS) is the technology of choice. These new approaches to selling ERP solutions are claimed to be more efficient, affordable, and simpler ways to reduce costs and address integration issues common in company-wide ERP implementations. By leveraging the Internet, the services model offered by SOA and SaaS has made ERP more attractive to all market segments.
In the past, smaller organizations would not consider ERP initiatives due to ERPs exorbitant costs. ERP implementations were associated with multimillion dollar engagements that demanded the support of a team of consultants that was hired to overhaul an organization's entire information technology (IT) infrastructure and operational systems. The entire process would be spread out over many months, and in some cases, years. With the recent trend of software vendors offering SaaS business models, ERP implementations have become a viable solution for even the smallest of organizations. SaaS has empowered small businesses to reap the benefits of full-blown ERP systems without the costs of maintaining a comprehensive IT infrastructure or the initial investment of purchasing software licenses. Consequently, ERP initiatives have recently piqued the interest of SMB organizations in a number of service sectors.
Defining SOA and SaaS
At a high level, SOA is a technological platform that organizations employ to standardize the interaction and collaboration of disparate applications. Although this can be achieved through various means, web services have become popular methods employed by ERP for services vendors when implementing an SOA framework. Numerous organizations implement SOA in which web applications interact with each other with standard protocols that can include extensible markup language (XML) running over hypertext transfer protocol (HTTP), universal description, discovery, and integration (UDDI), and simple object access protocol (SOAP). The benefits of SOA include a cost-efficient way of responding to changes in an organization by reusing services to modify business processes as needed without re-architecting entire systems. In addition, the incremental modular deployment and platform independence of an SOA framework is another advantage that is commonly promoted by vendors.
From a cost and benefit point of view, the SaaS business model delivers similar advantages to the SMB marketplace. By leasing software from vendors as needed via the Internet, organizations can implement a full-blown ERP system in a cost-effective manner. Similar to an SOA philosophy, SaaS enables SMB organizations to quickly implement or modify applications by using the Internet as a single source (platform) to run their businesses. The main difference lies in the management of an organization's infrastructure and applications. For vendors offering ERP for services, SOA is typically designed for organizations to manage their ERP systems internally. SaaS, on the other hand, is fully managed remotely by the vendor delivering the ERP system to SMB organizations, many of which do not have the expertise, infrastructure, or financial means to manage these systems themselves.
ERP for Services: Integrated Versus Best-of-Breed
Today's ERP for services marketplace has upped the ante in delivering affordable, fully integrated ERP systems. The rising popularity of SaaS as a delivery model has pitted integrated ERP systems against best-of-breed solutions for SMB organizations in the services sector. SaaS has "leveled the playing field" among integrated ERP solutions like NetSuite and niche ERP and professional services automation (PSA) players like Openair and QuickArrow by providing an affordable delivery model and eliminating the complexities of on-site implementations. In light of this, niche ERP and PSA players are faced with the challenge of developing strategies that provide end-to-end solutions for their clients in order to compete with full-blown ERP systems. A number of PSA vendors have developed SaaS partnerships in order to deliver competitive ERP offerings. In fact, PSA vendor OpenAir exemplifies this strategy by delivering a seamless, integrated ERP offering in conjunction with accounting vendor Intacct. Consequently, SaaS has empowered a number of vendors to deliver affordable, integrated ERP solutions through both single and multiple offerings by reducing the risk and cost typically associated with large scale ERP implementations.
"ERP for SMB"? Or "Accounting on Steroids"?
Since the recent rise in popularity of SaaS and the entrance of tier one vendors into the SMB market, the ERP acronym has extended its definition to include accounting and financial software vendors that have serviced this market segment since the eighties. Leading vendors such as Sage, Intuit, and Microsoft have taken advantage of ERP's expanded definition. These vendors have branded their accounting solutions as ERP for SMBs by delivering an integrated offering through a SaaS business model. Microsoft has its Service Provider License Agreement (SPLA) partner program to deliver its SaaS offering, whereas Sage and Intuit have online subscription models for a number of their products. The SaaS business model has enabled vendors to deliver affordable, integrated ERP solutions to SMBs simply by providing add-on components to their accounting packages. Hence, SMB service organizations are presented with a variety of options offered from basic accounting solutions that can quickly deliver ERP solutions by leveraging the Internet as the platform of choice. QuickBooks' Online Edition exemplifies this point by allowing the smallest of service organizations to subscribe to its service. Quickbooks provides SMBs the option to include online add-ons that can integrate salesforce.com for CRM and Projector PSA for their project time and billing requirements, thereby delivering a seamless ERP offering. Although by no means will QuickBooks identify itself as an ERP solution, nevertheless, QuickBooks' SaaS model empowers small organizations to build a solution that can meet most of their business needs.
The ubiquity of the Internet has opened the ERP door to many vendors that have not had access to this market before. By leveraging the Internet, the SaaS model has allowed software vendors that specialize in back-office systems to embrace the ERP acronym. The definition of ERP has broadened to include all integrated systems that automate and streamline an organizations operations. Formerly, ERP systems focused specifically on delivering enterprise-wide solutions to large manufacturing organizations; today, users are faced with the challenge of sifting through the ever growing pool of solutions branded ERP. As a result, this has left user organizations with a wide range of systems that pitch ERP solutions, but these systems may or may not provide fully integrated functionality to support users' business requirements. In the SMB world, systems range from full-blown ERP systems (like NetSuite) to basic accounting systems (like Quickbooks). Although labels can be misleading, at the end of the day, users need to be diligent in determining their business requirements to find the solution that fits best.
Vendors That Offer ERP for Services in SaaS Business Models
To facilitate the ERP initiatives of SMB organizations in the services sector, there are a number of vendors that have leveraged the SaaS business model. Keep in mind that the majority of organizations benefiting from this model fall within the category of lower midsized and small organizations. Vendors that fit the bill include the following:
- Sage offers a SaaS option in both its Accpac and MAS product lines. Sage Accpac online provides SMB organizations with Sage Accpac 100 ERP for small organizations and Sage Accpac 200 ERP for midsized environments through an on demand model. Both products offer a solid accounting package for both market segments. However, they are not as strong in areas such as CRM and PSA. In addition, Sage MAS 500 delivers a stronger SaaS offering because of its application service provider (ASP) partnership with IBM. Lastly, MAS 500 delivers a more complete PSA offering for project-centric organizations.
- Intuit delivers ERP-like functionality primarily for smaller organizations via its QuickBooks online offering. Through its strategic relationships with salesforce.com and Projector PSA , QuickBooks delivers basic ERP functionality specific to very small professional services organizations over the Internet at an affordable price.
- Intacct offers a SaaS financial package for the SMB marketplace. Through its technology partnership with Openair, one of the leading niche PSA players, Intacct delivers a fully integrated ERP suite. Moreover, Openair's original equipment manufacturer (OEM) relationship with Intacct offers best-of-breed functionality in PSA and accounting, making it an excellent contender to NetSuites ERP solution.
- NetSuite is likely the best example of a fully integrated ERP system offered through a SaaS model for the SMB market. Delivering complete back-office (accounting, human resources [HR], purchasing, financials, etc.) and powerful CRM capabilities, NetSuite offers users a fully integrated, Web-based solution in a single source code. Its capabilities are better suited for the services sector, such as professional services organizations, nonprofits, and advertising, with modules in financials, CRM, purchasing, payroll, and inventory. However, portfolio management and resource management capabilities critical to project-centric organizations are not as strong as those delivered by niche PSA vendors.
- Microsoft offers its range of ERP solutions through its Dynamics product line. Dynamics SL is Microsofts PSA solution that provides complete project accounting capabilities. Dynamics GP offers a light ERP system that delivers mostly back-office functionality. For larger organizations, Dynamics AX offers stronger back-office capabilities with the deeper ERP functionality required for more complex organizations, such as those in the upper mid and enterprise markets. Microsoft delivers its SaaS model for these products through its SPLA partner program, which allows service providers to deliver Microsoft solutions through an online subscription model.
- SAP offers its Business One ERP solution for the SMB market. Although better suited for the distribution and manufacturing industries, Business One delivers strong back-office and CRM functionality to the services sector. As for the companys SaaS offering, SAP provides its partners with the option of holding licenses and having their users pay a subscription fee to access an online, hosted version of Business One.
- Oracle delivers its ERP offering to the SMB market with its Oracle eBusiness Suite Special Edition. Similar to SAP, Oracle's SMB offering is stronger for the distribution and manufacturing sectors. In terms of delivering solid back-office and CRM capabilities, Oracle is worth considering for SMB organizations in the services sector. From a SaaS point of view, Oracle has a well developed on demand program to host its ERP applications. However, Oracle has not yet fully embraced the SaaS model, and the vendors clients are still required to purchase licenses and maintenance for its applications.
In todays marketplace, the SaaS model has empowered the smallest "S" in SMB to benefit from ERP technology. Where at one time ERP systems were enormous investments, today vendors have leveraged the Internet to deliver robust, integrated systems that can run an organization's entire operations with minimal infrastructure and cost. Traditional ERP players, such as SAP and Oracle, have focused their efforts on providing affordable solutions to the SMB market. Moreover, niche ERP vendors like NetSuite have focused on the SMB market around a SaaS model to quickly gain momentum in capitalizing on the growth of this massive market. As a result, the accessibility of ERP through SaaS has allowed PSA to extend its offering to deliver a complete ERP for services solution that includes back-office functionality and CRM capabilities. The question remains: Will the SaaS model be fully embraced by the traditional ERP vendors? If so, the accessibility to ERP can "level the playing field" for even the smallest of organizations.