ERP Definition and Solutions

• What is ERP?
• How can ERP improve a company’s business performance?
• How long will an ERP project take?
• What will ERP fix in my business?
• Will ERP fit the ways I do business?
• What does ERP really cost?
• When will I get payback from ERP—and how much will it be?
• What are the hidden costs of ERP?
• Why do ERP projects fail so often?
• How do I configure ERP software?
• How do companies organize their ERP projects?
• How does ERP fit with e-commerce?
• How do on-demand and software-as-a-service ERP applications work?
• How do I know my ERP data is any good?
• Just how important have ERP systems become?

How do on-demand and software-as-a-service ERP applications work?

A small but growing number of vendors now offer on-demand or software-as-a-service (SaaS) ERP applications. These HR and finance applications are hosted by a third party, so there's no software to install on your company's servers and PCs. Instead, users access the ERP applications via a Web connection, and on-demand/SaaS vendors are trying to make their applications more "user friendly" than traditional on-premise applications. (Though, to be fair, traditional on-premise ERP vendors are also trying to make their applications easier to consume.) The three main selling points that on-demand/SaaS vendors employ are:

• faster implementation times (there's no software to install on-premise, and that literally shaves months off installation periods);
• easier and more frequent upgrades (they can happen automatically because the vendor manages the applications and can roll out patches and bug fixes more regularly); and
• cheaper up-front costs (the software price tag can be much cheaper than traditional on-premise applications because of subscription pricing that is on a "per user, per month" basis as well as big reductions in integration and consulting fees).

Many businesses and their ever vigilant IT departments still have concerns about keeping their mission-critical and highly sensitive ERP data on a third party's servers rather than on their own. An October 2007 CIO magazine survey of IT executives who currently had an ERP system installed found that just 9 percent reported using a non-traditional on-premise model. Those alternatives included SaaS, open-source tools and various in-house applications. Nearly 54 percent of those responding to the CIO survey said they probably or definitely would not consider moving to an alternative ERP model. And while 35 percent of CIOs said they would probably or definitely consider trying something different, they're not actually doing it yet.

The majority of early adopters of the on-demand/SaaS ERP alternative are small and midsize businesses, though large companies, perhaps burned by a costly or lengthy ERP rollout, have started to experiment with on-demand/SaaS rollouts in certain areas or departments at their companies.

How do I know my ERP data is any good?

When you start talking about data integrity and just how "clean" your enterprise data is, you'll usually hear about the goal of getting to "one version of the truth" with your ERP data. As usually is the case, the bigger the company, the more systems it has with more employees that need to touch those systems, and the more complicated it becomes to keep data accurate and timely. Most of time, companies don't want to know just how dirty their data is. But when companies do start "peeling back the onion" in an attempt to remedy their data ills, what they typically find is a hodge-podge of systems and anywhere from a dozen to hundreds of financial and HR data sources. Therefore, the job of new data management techniques, such as master data management (MDM), is to rectify those inconsistencies by creating an integrated and standards-laden system that automatically fixes data discrepancies. (Beware: It's not easy.) Because ERP systems are the backbones of most businesses, they are a key piece of any data-management overhaul. General ledgers, financial data repositories, reporting applications, purchase orders, invoices, customer contact information, inventory data, performance management tools—they will all be apart of any company's data management initiative.

Just how important have ERP systems become?

An October 2007 CIO magazine survey of nearly 400 IT executives who had an ERP system installed found that more than 85 percent of them agreed or strongly agreed that their ERP systems were essential to the core of their businesses, and that they "could not live without them." Though there has been recent IT scuttlebutt that ERP systems are now shrugged off as legacy inside 21st-century businesses, almost 80 percent of those surveyed disagreed or strongly disagreed with the statement, "My company views ERP systems as legacy systems and no longer invests in them." And when asked if their company would be able to live without its ERP systems within the next five years, more than 80 percent disagreed or strongly disagreed. For better or worse, ERP systems are here to stay.

Senior Editor Thomas Wailgum can be reached at twailgum@cio.com.

Related article: The ABCs of Supply Chain Management.