Microsoft's ERP "Live", Duffield's Workday, and the Future of Software as a Service
At announcements two continents apart but spiritually joined at the hip, Microsoft unveiled its plans for SaaS versions of its Dynamics ERP suite on the same day that PeopleSoft founder Dave Duffield threw his hat in the ring with the announcement of his new Workday SaaS company. Both events, not too coincidentally, highlight a growing reality that SaaS is becoming a viable alternative to the license-and-implement model of traditional ERP software. The question -- no longer "if" or even "when" -- now focuses on "how much": How much of a company's ERP functionality can and will eventually be run as a service, instead of as an often expensive and resource-draining on premise implementation?
The answer is relatively simple, as long as you don't need your answers to be too comprehensive: There's no doubt that a fair amount of ERP back office functionality -- the HR, finance, and other basic needs of a company, including contact management-- are more than ripe for a SaaS alternative. When done in the most basic and generic way, which fits the needs of many of the SMB's that Microsoft targets and that Workday will find in its early adopter program, these functions contribute nothiing to the strategic profile of a company. Meanwhile, they consume IT resources and divert attention, personnel, and budget away from the things that actually make a company more competitive. This is the basic concept of focusing on core competencies, and, it's clear, there's lots of generic back office functions that should no longer be part of a company's IT core.
The SaaS model hits its limit at the point of delivering specific competitive advantage based on company-specific processes: SaaS is highly uneconomical for both provider and user when the need to manage extensive customizations and one-off processes become essential. At that point, it becomes imperative that an internal IT shop help develop, manage, and modify these leading edge functions in order to keep the company ahead of its competition. As long as there is innovation and company-specific competiveness to be delivered through IT, the on-premise model will be needed.
So Microsoft ERP "Live", Workday, and others are sure to have a major impact on the market. But don't believe anyone who says that the ERP market is now changed forever by these, or any other, SaaS offerings. The world of ERP, and the larger enterprise software market in which it operates, is in a continual state of dynamic tension between innovation and commoditization. What SaaS is good at is delivering the commodity layer in the most cost-effective manner. But innovation requires a lot more than what SaaS can offer, and, until innovation is dead (which will happen sometime between hell freezing over and first sighting of a flying pig), traditional on-premise software will be essential to the functioning of a competitive company. There's just no other way to get the job done.