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Should you buy SaaS ERP or best-of-breed enterprise software?

The major ERP providers are pushing their customers to their cloud offerings. It makes sense, but there are plenty of SaaS alternatives

Leading enterprise resource planning (ERP) firms are fleshing out their software-as-a-service (SaaS) portfolios and even acquiring pieces of technology to build out a more complete offering. Their strategy is clear – to lure customers into buying everything from a single supplier.

For instance, Oracle executives referred to “cloud services“ six times in the transcript of the 45-minute, third-quarter 2019 earnings call in March, posted on the Seeking Alpha financial blogging site. Similarly, SAP executives made three long statements regarding “as-a-service” in their fourth-quarter 2018 earnings call in January 2019, according to the transcript on Seeking Alpha.

As well as pushing the enterprise SaaS strategy, the major software companies have also gone on a spending spree, snapping up smaller software businesses to fill gaps in their product portfolios, enabling them to demonstrate to prospective customers that they are a one-stop-shop for enterprise IT. In January 2019, SAP completed the $8bn acquisition of experience management business Qualtrics, which competes with Adobe.

Meanwhile, Adobe recently announced it was spending $1.68bn to acquire the Magento e-commerce platform, putting it in direct competition with SAP’s Hybris product. Incidentally, in September 2018, Adobe spent $4.75bn to buy marketing automation platform Marketo, a tool that Qualtics can integrate with.

Oracle has also made a number of strategic acquisitions in recent years, such as its 2015 purchase of Maxymiser, the web and mobile customer experience platform. In October 2018,  it also acquired DataFox, a business specialising in using artificial intelligence (AI) to provide company-level information.

Analyst Forrester argues that IT decision-makers should not necessarily put too much emphasis on how closely an enterprise software provider’s product portfolio fits in with their business requirements. Instead, they should inquire more deeply into their openness and ability to integrate with third-party products.

Enterprise platform versus best of breed

These recent acquisitions, and the sentiment of the company leaders during their respective earnings calls, illustrates that in the era of cloud computing and SaaS, where it is possible to mix and match offerings from different providers, major software companies are out to entice customers to buy more from a single source.

However, a recent paper by Forrester urged CIOs to consider the risks of standardising on a single software provider for enterprise systems.

Its report, Create a modern software strategy with AI-driven platforms and their ecosystems, warned: “Overdependence on one vendor creates commercial and technical risks. In most cases, strong strategic partnerships and preferred sources for getting lower prices, better service and more efficient operations can be beneficial. But clients who take those partnerships too far can run into problems quickly.”

According to Forrester,  relying on a single enterprise software provider may make it more difficult to negotiate when the business faces price increases or there is a licence compliance dispute. Dependency on a single software provider’s products may also become a technical handicap.

Forrester warned that the software provider may fail to keep up with the market. It may discount heavily or bundle software to encourage the purchase products under the guise of standardisation, even if these represent poor choices, which could put the entire business in jeopardy.

Read more about enterprise cloud software

  • There are several factors – including business size and cost – that organisations should carefully consider when determining whether a cloud ERP system is the right choice.
  • Before deciding which cloud ERP vendors and cloud ERP software to evaluate, it is important for a business to determine its unique business needs and situation.

A recent survey by Forrester found that many organisations are not convinced that buying most of their enterprise software from a single provider – in this case, Oracle – is the right choice.

Although Forrester has rated a number of products in Oracle’s SaaS portfolio highly, principal analyst Duncan Jones noted that, according to the findings of the Forrester Analytics global business technographics software survey 2018, few Oracle customers are considering moving to its SaaS portfolio.

Explaining the risks of standardising on a single provider’s enterprise software portfolio, Jones said: “Business leaders won’t trade off innovation in the name of corporate standardisation.”

He warned that having a single vendor sourcing strategy, where IT decision-makers choose brand and integration over functionality, often fail. Even if the overall cost works out less, he said: “No one wants to give up business agility or access to features their users need in the name of cost reduction or adherence to corporate strategy. Forrester clients pursuing new SaaS offerings often cite innovation and experience as the drivers for their choices.”

Upgrading older ERP systems

Jones said he had spoken to many Forrester clients that run heavily customised ERP suites. The software provider usually wants the customer to move to the latest cloud-based product suite.

According to Jones, for many businesses, these product offerings can represent a highly disruptive and often risky leap sideways. Any upgrade from an on-premise ERP to these modern SaaS-based enterprise suites will inevitably require companies to revisit all their business processes to make them more automated.

“There is less willingness to do a huge shift,” he said. “If you are not happy with HR, put in a new HR system.”

Similarly, if the business wants to start offering subscription-based billing, but its existing billing system doesn’t support this, the company could simply plug in a new billing system, rather than implement an entirely new ERP system. “It doesn’t mean you have to change everything,” said Jones.

A single platform is unrealistic

Looking at the two leading ERP providers, Jones said there does not appear to be massive synergy across either SAP or Oracle’s software product portfolios – nor can an ERP claim to hold all an enterprise's data.

“They don’t have all your data,” he said. “Some of the data is not transactional. You need to suck in data from all sorts of sources.”

The cold transactional data from an ERP system is no longer sufficient, said Jones. “You need warm data from customers and suppliers, inventory availability data and live, hot, real-time data.”

Inevitably, organisations wanting to gain greater insight will need to use application programming interfaces (APIs) to pull in data from multiple sources. For instance, a business may have its preferred software for customer sentiment analysis or running surveys, even if the likes of Oracle and SAP have products that can do these jobs.

Jones urged IT decision-makers to ensure that whoever they choose for their cloud-based ERP, they should ensure that APIs are open and integration with third-party products is available. When looking at how to upgrade from an existing ERP, he said: “Our recommend is: don’t pick one vendor.”

Ideally, there should be a shortlist of six possible providers that meet the requirements to manage business processes in each of the functional areas required by the organisation, he said.

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