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New ERP Software Pricing Model Could Save Industry $Billions Annually
ERP software pricing has not been a challenge nearly so much as it has been the ultimate rip-off to the client. Sometimes it pays huge dividends to read with your mind wide open and think about what is passing through your eyes. It could be worth $millions.
A recent article posted by Toolbox.com made the comment that 70%ish of ERP implementations fail. It also stated that Gartner estimates that the total mid market ERP spend is about $25B per year, so we are talking about $17,000,000,000 in wasted capital. The writer went on to say that we continue to repeat the ERP failures project after project, vendor after vendor, company after company. It's time for this cycle of insanity to end. He concluded by saying that the problem is in how ERP vendors are compensated. The article ended as per the following three short paragraphs.
"This one is one of the most important - some consider it THE SECRET to ERP success. It has to do with how vendors are compensated.
A golden rule of business, of life actually, is compensation drives behaviour. ERP vendors are no different.
So the rule is this - develop a compensation model that aligns the ERP vendor's pay directly to the ultimate success of the project. The vendor MUST have some amount of their fees at risk based on the final project signoff otherwise they have no incentive to deliver the agreed-to scope on time and on budget."
My response to their article is as follows:
You are right.
It is time for this stupidity to stop.
It is obvious that ERP vendors are compensated for all the wrong reasons. What is even more startling is that they have led the public into believing that what they are offering them is as good as it can possibly get.
I have some very good news for you! There is a different, a much fairer way, a way that works.
Some businesses might be able to afford to continue with this madness in some parts of the world, but where I come from, businesses cannot afford to continue paying for this stupidity.
Let's face it head on! Businesses are struggling in a slow economy here in North America. Even though a lot of people, particularly the younger generations, don't realize what it means to do so, but as businesses we must become a lot more efficient and highly productive. Getting a lot more innovative would be a good idea as well as that will add to our diversity in terms of both product and ability to assert new geographical growth.
I appreciate the suggested solution to the problem as it is very close to zeroing in on what has to happen. My intention of this comment is to help you with that – the zeroing in part that is.
Before I do that I first need to state my views on the situation.
For many years companies in the business of supplying ERP systems have unwaveringly convinced themselves that the only way to provide ERP systems is on a module by module basis. Corporations pay for each module and then the modules are integrated as an additional price to the ERP solution. There is a lot more than software purchase and integration services to take into consideration when calculating the cost of an ERP, but, by far and wide, integration cost is the big one. Regardless of the complexity or the purpose of the ERP, the basic thought process of software developers and VARs centres around modules. The number of modules tends to determine the revenue derived from the sale of the ERP. I met with a company in Ontario recently and the sales manager`s comment was he could not see how he could make money if he couldn`t sell modules. This model is universal to the software industry. Their commitment to the seller is the provision of x number of integrated modules, not the ultimate results achieved by the client.
But it is time to change the model. It is time to change it for two very good reasons. Number one, because the old model no longer works and secondly, because we can.
We have a new model. By engineering default, in our Ram Centric ERP there are no modules, at least not as we have all customarily come to know them. And, because there are no modules, there are no integration services fees levied for any modules either. We cannot charge for modules because modules as such simply do not exist. We have replaced modules with unlimited accounting ledger definition. The truth is each one of these definitions represents a unique module but we really don`t concern ourselves with the numbers of them that exist or what they are used for. Most companies have around a dozen but one client in particular has 47 unique definitions or so called modules but the number has nothing to do with the cost of our software or our services.
Our model is based on a fee per user service, not modules. Our objective with our clients is to provide a solution that works for them. If it takes 4 modules or 40, it really doesn't matter to us. It in fact may be the case that the more modules or definitions there are defined, the easier it is for us to meet our objective. Our right to continue helping our customers is based on their success with our services, not the revenues we can suck out of them for additional modules and integration services. On occasion we do charge for new functionality because it does involve extensive programming but the fees for the new function are extremely small as compared to adding a new module and integrating it as is the normal situation in the traditional ERP model.
This presents a brand new philosophy in providing ERP services. The cost to the purchaser to get started is very low as compared to traditional ERP suppliers model. The required time line to get fully functional is very short – measured in days or weeks, not months or years. Best of all, our ERP software price is backed by our service. If we fail to produce, we simply fail to get paid.
When other companies decide to develop and implement this form of philosophy towards their clients, the problem with billions of dollars being expended for non-productive failures will pretty much disappear.
In the meantime, as developers of what is a much fairer policy for doing business, we will lead the way. There is a lot to be said for the future of seamless workflow EREP. In our new model, our future is dependent, not on the number of modules we can sell and integrate, but rather on the success of our clients.
About the Author
Ron Bunn, author and joint founder of unERP technologies, is an accountant by trade and an information systems designer and computer programmer by desire. His first personal home computer purchased in the late 1970's, costing approximately $74,414.00 in terms of to-days dollars, was his launching pad to an exciting and challenging career in information technologies. He lives in Rothesay, N.B., Canada where he continues to spend his time in nurturing the development of new ideas to simplify both accounting and computer system user activities within all levels of administration. ERP Management Software
Brian M ft. Mc Bunn - Vengeance
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