Pay-per-view ERP

Take the situation at Circle L Roofing Inc. Circle L, which serves customers ranging from Fortune 500 housing developers to individual homeowners, has 900-plus employees scattered across 10 locations in Florida. The ongoing housing boom and a string of devastating hurricanes over the past few years have kept the roof maker very busy, straining the company's IT department. Compounding the problem: hurricanes that help plump up business also threaten Circle L's own network of computers in Florida.

When management at the Bradenton-based business began shopping for its first ERP system, it decided immediately that the company needed something that would keep pace with Circle L's breakneck expansion. On-demand ERP technology, which is quite scalable, fit the bill. What's more, with financial information stored on the out-of-state servers of the third-party software provider (Intacct Corp.), Circle L's managers now pay more attention to business strategies than to data-recovery strategies. Says company CIO Abraham Elias: "There's real power in not having to worry about backing up data, or wondering how we are going to adjust if four hurricanes hit the region."

Elias estimates that the Intacct system generated more than $100,000 in savings during its first year of use. He also calculates the hosted software reduced the cost of purchasing and maintaining financial systems by half.

You've Been Upgraded!
On-demand apps are not only maintenance savers, they're also a heck of a lot easier to deploy than conventional software. An on-site or proprietary system must be carefully tested for server compatibility, performance, and other hardware-related issues. By contrast, deploying a Web-based program typically requires just a few weeks of prep work (mostly spent configuring the software, scrubbing data, and training users). At Circle L, Elias says he was surprised by how easy it was to roll out the on-demand application.

The hosted approach also tends to take the hurt out of updating software. "With on-demand, everybody gets upgraded at the same time," notes Robert DeSisto, research director of CRM at Gartner Inc., a technology research firm headquartered in Stamford, Connecticut. "There's no need to plan a rollout strategy, which can make upgrading cheaper and faster."

That's a big selling point, particularly for managers currently coping with several versions of one program. Likewise, Web-based ERP technology is especially alluring to businesses competing in fast-changing markets or sectors being reshaped by mergers and acquisitions. "Whenever a company buys another company, it has to integrate all of these systems in a short period of time," says IDC's Pang. "So they might look to an on-demand ERP vendor to help smooth that process."

But Randy P. Remdenok, president of Troy, Michigan-based Peerless Steel Co., warns that businesses should never attempt to turn an existing on-site ERP application into an on-demand system. He believes it's best to start from scratch. "Take the time to review your business processes and make the changes you need to improve your business," says Remdenok. "You'll really gain benefits by doing that rather than just taking a bad system and putting it out onto the Web."

On-demand ERP software comes with other caveats as well. For one thing, absolute vendor control means that customers stand to lose much of their ability to tweak ERP software to meet their own particular needs. While most third-party hosts offer an extensive menu of service and feature options, the choices still may not be sufficient for businesses with unique requirements.

Moreover, on-demand programs raise a welter of compliance concerns. Vendors may host the software, but when a regulatory concern crops up, all roads lead back to the finance chief's corner office. "[Hosted ERP software] customers figure that if a compliance issue arises, it's the CFO's problem regardless of where the software sits," says Bruce Richardson, AMR Research's chief research officer. "Outside the firewall they may not have control over it, but they're still responsible for it."

Transcendental Remediation
Worse, if a material weakness is discovered in the internal controls of a company that outsources its ERP system, remediation promises to be a fun-filled adventure — one that involves several participants. "The hosting partner might not necessarily be the software vendor itself," says Pang. "And there might be other [problems] concerning control and data ownership introduced into the picture."

So far, Elias says, Circle L hasn't run into any compliance problems with its hosted ERP system. The software has enabled the company to consolidate its financial IT operation, which was dispersed across numerous sites and several business lines, into a unified, online location. That's crucial, since each line of business maintains a separate P&L, and some offices support all the lines of business. "Before we started using Intacct," says Elias, "it took a tremendous amount of time to combine the results from different locations and business units."

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