Industry issue:

The changing face of ERP software

04 April 2019

Recent years have seen some significant changes in accounting and ERP software and the way it is sold and used.

Foremost amongst these is the acceptance of “Cloud” accounting. As little as five years ago few clients were receptive to accounting systems and data being in the Cloud, preferring instead to stick with the in-house server approach, largely on grounds of privacy and security. While occasional massive data breaches make headline news, most organisations seeking to replace accounting software will now at least consider a Cloud offering, even if they ultimately opt for an in-house solution. Often it is simply the legacy IT infrastructure that persuades businesses to keep their new accounting system in-house (“it’s there, so we may as well use it”).

The change has been facilitated by the introduction of a range of extremely powerful Cloud packages, with functionality that was previously only available in very sophisticated or specialist suites, at considerable cost. Packages such as Xero and NetSuite are examples of such software and they have changed the market irrevocably, competing successfully with some of the big names in accounting and ERP applications at lower cost and promising wide functionality and ease of use.

Some older packages (often revamped to run in the Cloud, or at least in remote data centres) now show their age and origins as products from different authors and a different era, that have been bolted together to provide the full, but perhaps not fulfilling, ERP experience. Looked at side by side with a built from scratch browser-based application, the look and feel of the two can be worlds apart.

The advent of the” Appstore” for add-ons provides hundreds of specialist applications with the same look and feel as the Cloud accounting system they work with and even larger businesses that in the past might have sought a “big” in-house system can now often be serviced by one or another of the Cloud solutions. 

Where the traditional “big” systems still win out is in international Groups and in highly specialist businesses where the functionality demanded is specific to the sector, but even there, inroads are being made by newer Cloud packages. Also, if there is an in-house data centre and IT department, the benefits of outsourcing the hosting of the accounting system may not be as apparent.

Along with Cloud accounting applications comes a different way of paying for software. Rather than through the purchase of one-off licenses for a given number of users with an annual support fee (of around 22%), the Software as a Service model is adopted, whereby there is an ongoing monthly fee per user that includes support and perhaps upgrades. The key difference of course is that under the traditional purchase method there is an up-front capital cost, but for the SaaS model there is no capital cost but an ongoing inclusive (operating) cost. When deciding between the two options a full-life-cost approach needs to be taken to level the playing field.

The Software as a Service model has some advantages for the smaller growing business because of the lack of an initial capital requirement and because without this investment it is far easier to change packages as the business grows or takes a different direction. Of course, the downside is that it is never fully paid for.

John Dennison
Principal – BDO Technology Advisory Services