MARKET SEGMENTS OF ERP SYSTEMS (STUDY OBJECTIVE 5)
There are at least two tiers of ERP systems within the market for ERP soft ware. Tier one includes software often used by large, multinational corporations. Tier two describes software used by midsize businesses and organizations. As discussed in an earlier chapter, software vendors attempt to expand the market for their software products by appealing to a market segment outside their nor mal market. For example, tier one vendors attempt to make changes in their software that make it appealing to smaller companies in the tier two market. Likewise, tier two vendors attempt to scale up their products so that they appeal to larger companies that may be tier one companies. The typical tier market ERP systems are explained next.
TIER ONE SOFTWARE
Tier one software is usually implemented in very large organizations and is extremely expensive. A minimum cost to purchase tier one ERP software is approximately $350,000. Often, the cost of the software with all desired modules exceeds $1 million, and consulting fees to implement the software can add an extra $1 million or more. The three most popular ERP systems in tier one are SAP, Oracle, and Peoplesoft.
SAP
A brief history of SAP was given earlier in this chapter. The company called SAP was formed in 1972 by five former IBM employees. Their intent was to develop and sell application software for real-time processing of business processes. In 1973, they released version 1 of their software, called SAP R/1. The “R” stood for real-time processing. In the 1980s, SAP incorporated multinational currency capability and other enhancements into the software release entitled SAP R/2.
In the early 1990s, SAP modified its ERP software system to be based on client–server architecture. This version, SAP R/3, became the top selling ERP system in that decade and into the early 2000s. SAP R/3 was a true ERP system that included modules for financials, human resources, logistics, sales and distribution, and other typical ERP process modules.
After 2000, the company evolved the ERP system to become Web-centric. This ERP version incorporates Web-based functionality to fully support e-business and e-commerce. SAP continues to be the top-selling tier one ERP system in the United States.
Oracle
Oracle was founded in 1979 as a database software provider. In 1992, Oracle began offering an ERP software system for business application processing. Oracle moved this software to client–server architecture software in 1993. In 1998, Oracle incorporated a CRM module into its ERP software. Oracle ERP software is the second best selling tier one ERP software system.
The current ERP system, Oracle Applications®, offers a fully Internet-enabled application. Oracle advertises this release as a version that fully integrates back office and front office applications. The back office modules are the ERP modules such as financials, manufacturing, supply chain management, procurement and logistics, and human resources applications. The front office modules, such as customer relationship management (CRM), include customer interfacing applications for sales, marketing, service, and call-center functions. Oracle suggests that the Internet business solutions aspect integrates the back office and front office processes of a company's business.
Peoplesoft
Peoplesoft, founded in 1987, developed a client–server-based human resource application system. Peoplesoft continued adding other modules around this HR application to build it into an ERP system. In 2000, Peoplesoft introduced the first “pure Internet” architecture, with no programming code residing on the client computer.
In 2003, Peoplesoft acquired another ERP software system called J.D. Edwards. Part of the purpose of this acquisition was to make Peoplesoft a larger company and, therefore, a more difficult acquisition target. However, Oracle began working on its acquisition of Peoplesoft in late 2003. That acquisition was completed, and Peoplesoft is now part of Oracle. For the foreseeable future, Oracle plans to continue upgrading and supporting Peoplesoft ERP software.
TIER TWO SOFTWARE
Tier two ERP software is intended for organizations in the range of approximately $25 to $250 million in sales. There are many ERP software systems in the tier two market. Some of the popular ERP systems are Axapta, Epicor, MAS 500 ERP, Microsoft Dynamics® ERP, and Macola ERP. ERP software systems such as these have a price range between $30,000 and $100,000.
CLOUD-BASED ERP
The market tiers continue to evolve as tier one vendors attempt to attract smaller companies as customers and tier two vendors attempt to scale up their software to appeal to larger companies. Therefore, the differences between tier one and tier two software are becoming less definitive. In addition to this trend, all ERP vendors have developed ERP products for cloud computing. For example, SAP offers a cloud-based ERP system for small to medium-sized entities (SMEs) called SAP Business ByDesign. Customers who use this cloud-based software need only a small IT system. The ERP system can be used through a computer with Internet access and a Web browser.
THE REAL WORLD
SkullCandy, founded in 2003, is a manufacturer and seller of headphones exclusively tailored for snowboarders, skateboarders, and other action-sports enthusiasts. It has experienced tremendous growth over the past decade. During one period, it grew 300 percent over four years. The growth became explosive when its products were accepted by Best Buy, Circuit City, and Target. In response to this growth, SkullCandy sought a business software system that would meet its accounting and reporting needs but could also easily scale to match the company's growth. The company chose SAP Business ByDesign, a cloud-based system, as its ERP system.
Each of the ERP software vendors mentioned in this chapter, and the many additional vendors, have developed cloud-based ERP software. The example preceding mentions the SAP cloud product. Microsoft recently announced it will make its Dynamics ERP system available as a cloud-based system, making the entire functionality of Dynamics available as a cloud-based system. There are too many software vendors to give examples of each, but the point is that there are many ERP options, and companies need to determine whether some or all of its ERP system should be cloud-based.
There are many benefits, as wells as risks, in cloud-based ERP systems. Those benefits and risks were discussed in Chapters 2, 4, and 7 and will not be repeated here. However, one risk is worth mentioning again. One of the largest risks of ERP systems in the cloud is the potential service outage that might cause the system to be unavailable. Even though cloud vendors work very hard to avoid outages, they can happen unexpectedly, even for mundane reasons.
THE REAL WORLD
On leap day, February 29, 2012, Microsoft's Azure cloud experienced outages that, in some cases, lasted up to 16 hours. The outages occurred in cloud data centers in Chicago, San Antonio, and Dublin, Ireland. After investigation, Microsoft determined the outage was triggered by a security system bug related to leap day itself. The system sets expiration dates for security certificates in the virtual machines that run software for customers. Those security certificates, by default, expire one year later. The system tried to set the security date to February 29, 2013, a nonexistent date (since 2013 is not a leap year). This was the initial cause of the crash that Microsoft had to quickly fix.
A company must weigh all the benefits and risks in determining which ERP system best fits its needs.