ERP as a Service in SMEs?

Last week I was lecturing ICT governance for SMEs at Nyenrode Business Universiteit in the Netherlands, where I had an interesting conversation with some of the students about the promises of Cloud Computing and the impact on SMEs. Some of the students were very clear and believed that the cloud was going to make it for SMEs on all fronts. Others (amongst them, myself) believed that ERP as a service will be not so easily adopted as the other cloud services.
Indeed, software as a service (SaaS) and infrastructure as a platform (IaaS) are looking very promising for SMEs. Both models allow SMEs to achieve more efficient use of their IT hardware and software investments: they increase profitability by improving resource utilization. Pooling resources into large clouds cuts cost and increases utilisation by delivering only for as long as needed. Cloud services tend to be very cost effective and offer scalability. SMEs can therefore grow without to worry about software and hardware upgrades. The tiered pricing models provided by cloud services are reducing barriers to enter the markets for ERP. More and more ERP solutions are now offered in the cloud. Since most SMEs are now at the dawn of implementing a real ERP system, a move with ERP together with a move to the cloud is at stake.
However the move to the cloud implies that the information system (IS) in an organization is in a stable modus, meaning that the system is fully used and that it is running in a regime modus. Before the regime modus can be reached, the SMEs need to go through a process of change. This is the modus of transition characterized by a high share of uncertainty, testing, experimenting, conversions, fine tuning, and developments. In that period is it well known that the system is not stable at all! However the transition period is an obstacle that SMEs must overcome, before they can harvest the fruits of their ERP investment. Most SMEs are looking at the ripe fruit, shown by the vendors in their glossy brochures illustrating the benefits of their ERP solution, but tend to forget that before one can harvest, there is a though period of preparation, cleaning, changing, growing and very important, maturing, one needs to go through. Any farmer will tell you that. The transition period will also take time, especially for the these SMEs who lack the necessary IT management capabilities. And last but not least, in the transition period the risks for an IS failure are fairly high.
The implementation phase is a costly period by which the SME needs to invest in time and support given by a caring independent IT vendor or IT consultant, leading the SMEs trough the transition period. In the transition period the cloud will not be of any use or does not bring a tangible advantage.
And there is more. The expenditures of an ERP implementation are now roughly divided as follows: 20% hardware costs, 20% licenses costs and 60% implementation costs. Hardware and licenses costs can certainly be affected by a move to the cloud, although these costs will of course not completely vanish. The implementation costs however stay ever high in the expenditures pie chart. Before an ERP system is running in a stable modus in an SMEs, a time of one up to two years can be needed. During that time the cloud can be used, but will not offer a real benefit.
Only when the SME has come at regime with his ERP system, the move to the cloud can be really beneficial. But let us not try to run before we can walk!
jan devos

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About jangdevos
I'm an IT/IS professor, a late Baby Boomer, married with Ann and father of Hélène and Willem, a Stones fan and interested in almost everything. I work at the UGent (campus Kortrijk), Belgium. My research domain are: IT Governance in SMEs, IT/IS Security, IT Management, IT Project Management, IT Trends and IT/IS failures.

One Response to ERP as a Service in SMEs?

  1. This is absolutely gold. I was not expecting that I’d get so much out of reading your write up! You’ve just earned yourself a returning visitor 🙂

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