Overview of Alternatives
Firms in the market to purchase an ERP product have a number of vendors to choose from aside from Oracle. Some of the top competitors that offer comparable services are SAP, Microsoft Dynamic AX, and Infor Lawson. Although, many of the services are relatively similar across vendors, such as application integration, business intelligence and analytics, there are some features and capabilities that differentiate these competitors. For IVK, finding a system that provides a competitive advantage that is difficult to replicate could be the deciding factor in determining which system is best (Austin, Nolan, & O’Donnell, 2009, p. 74).
SAP ByDesign is a software as a service (SaaS) product that offers a low up-front cost and would be appropriate for IVK since it is intended for use with 100-500 employees (Panorama, 2013, p.3). Notable features include integrated quality assurance / quality control and good compliance management (Panorama, 2013, p.4).
Microsoft Dynamic AX offers industry specific applications and is recognized for ease of customization, flexibility, and an interface that is familiar to Microsoft users (Panorama, 2013, p. 5).
Infor Lawson ERP’s special features include invoice automation and enhanced collaboration through informal tools similar to social media forums or posts (Infor, 2014).
Here’s a quick look at how these three systems compare in regards to cost, value and risk.
Cost
In terms of software costs for approximately 400 users, SAP is the most expensive at $2.55M; followed by Oracle ($2.25M), Microsoft Dynamics ($1.8M), and Lawson ($1.31M) (Panorama, 2013, p. 14, and Aberdeen, 2007, p. 4) (The average software cost per user also follows the same trend.) Table 1 shows this cost comparison, as well as a cost per user.
Table 1. Software Cost Comparison of ERP Systems, based on 400 users (Panorama, 2013, p. 14, and Aberdeen, 2007, p.4).
| |
Software Costs |
Cost per user |
| Oracle |
$2,250,000 |
$5,625 |
| SAP |
$2,550,000 |
$6,375 |
| Microsoft Dynamics AX |
$1,800,000 |
$4,500 |
| Lawson |
$1,312,925 |
$3,282 |
The maintenance expenses for each system averages 16% of the original software costs, with the highest cost of 17.8% seen with Oracle (Aberdeen, 2007, p. 5 and Nucleus Research, 2004, p. 7). Service costs, also estimated as a percentage of the original software costs, are the most expensive with Lawson at 94% (Aberdeen Group, 2007, p. 5). The service costs for SAP are comparable to Oracle ERP at 88%, while Microsoft Dynamics AX service costs are somewhat less at 66% (Nucleus Research, 2004, p. 8). Overall, Oracle ERP and SAP cost structures are comparable and more expensive than Microsoft Dynamics AX or Lawson’s ERP offerings. Graph 1 depicts these values.
Graph 1. Service and Maintenance Costs of comparable ERP systems, based on 400 users (Nucleus Research, 2004, p. 8, and Aberdeen, 2007, p.4).
The total initial investment for these systems can be calculated by adding up the values shown in Table 1 and Graph 1 for the respected systems. The largest investment would be SAP, followed by Oracle, Microsoft Dynamics AX and finally, the cheapest is Lawson's option.
Value
Ideally, ERP systems will create value by “eliminating redundant processes and making data more usable” (Gallaugher, 2014, p. 920). Being able to evaluate both quantitative and qualitative value is important in evaluating how well systems meet this objective. Ultimately, the true test of value will how well these solutions support the firm's strategic objective and generate a faster operational tempo relative to competitors (McAfee, 2014).
SAP
With a variety of alliance partners, SAP provides a network of third-party suppliers who can provide add-on programs as well as solutions for companies of various sizes and across a variety of industries. Its applications provide industry-specific functionality, scalability and standardization (Panorama, 2014, p. 3). IVK could benefit from this system while the company expands and requires specific resources enhance sales.
Microsoft
Microsoft AX offers industry-specific functionality while enabling customization, flexibility, ease of integration, traceability, and improved cloud capabilities (Panorama, 2014, p. 5). Not only are these attributes attractive, but the implementation period of Microsoft Dynamics is shorter than both SAP and Oracle.
Lawson
As discussed in the Aberdeen Group study (2007), Lawson appears to have the most bang-for-its-buck. Lawson provides lower average software costs and greater performance improvement compared to other vendors in regards to reduced inventory, operational, and administrative costs; as well as improved complete and on-time shipments (Aberdeen, 2007, p. 5-6).
Risk
Each of the three systems discussed present specific risks that could offset potential benefits of implementation.
SAP
In addition to the high cost of SAP, it is the most difficult system for an organization to customize (Panorama, 2014, p.3). Implementation periods for SAP tend to run 2 ½ months longer than planned and have the highest rate of operational disruption (Panorama, 2014, p.19).
Microsoft
Microsoft, overall, had the longest delays in implementation – four months longer than anticipated (Panorama, 2014, p. 9). It also had the longest period for the organization to realize any payback from the system at 24 months (Panorama, 2014, p. 12).
Lawson
Although Lawson has the lowest overall cost of the three, it is not a fully SaaS product and lacks multi-tenancy (Rabaya, 2013, p.773) Multi-tenancy means that a single instance of the software runs on a server serving multiple tenants. This can be beneficial for customization, but it also increases operation costs and complexity to administer and deploy improvements with each separate version of the ERP as number of users increases (Rabaya, 2013, p.773).
Explore how SAP and Microsoft AX can be used together.
In evaluation of cost, risk and value, it seems as if the best option for an ERP tool is either Oracle or Microsoft AX. In general, most projects are based on cost and requirements. The cost of Oracle is significantly higher than Microsoft Dynamics AX, but the value is about the same for a general type of system. If a project is being guided more by requirement, then Oracle seems like it is a better option. It allows for full customization, down to a per user level, which ends up maxing out efficiency for every user of the system. Also, the cloud storage options allow for full integration of business functions in real time. The risks for both systems are about the same in regards to project delays, but are not unreasonable for a project of such magnitude as implementing an ERP system. While SAP and Lawson are still comparable products, these products either are not cost effective or do not provide the value needed for an enterprise resource system of this type.
References
Austin, Robert D., Nolan, Richard L., O’Donnell (2009). The adventures of an IT leader.
Boston, MA: Harvard Business Press.
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Gallaugher, J. (2014). Information systems: A manager’s guide to harnessing technology
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Panorama Consulting Solutions (2013). Clash of the Titans 2014: An independent comparison
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McAfee, A. (2014, May). Leading digital transformation. Harvard Business Review. [Webinar].
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Rabaya, A., Dweib, M. & Abuzir, Y. (2013, October). Implementing cloud computing in ERP.
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