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Is on-demand transaction software ready for prime time?

That’s the beauty of accessing information from a single, offsite location via the Web. But given recent headlines about high-profile network breaches (Sam’s Club, et al.), it’s hardly surprising that some potential on-demand ERP adopters fret about the technology’s potential security vulnerabilities.

Such concerns may explain why scores of banks, brokerages, aviation companies, government contractors, and other businesses that undergo close government scrutiny have yet to embrace on-demand ERP software. “Health-care organizations tend to want to have control over the systems they rely on,” says IDC’s Pang. “They don’t necessarily want to outsource or let somebody else take care of their data.”

There haven’t been any security leaks so far — or at least any that have been publicly reported. But that’s probably cold comfort to CFOs who worry about sending very private operational data over the very public Internet. “It’s one thing to be afraid that someone might get access to your customer list,” says Richardson. “It becomes thermonuclear when you stand to lose access to other elements of your business process. The ERP side has got all of your financial data, orders, inventory, and so on.”

Many observers believe CFOs might be worrying needlessly, noting that authentication technologies have improved considerably over the past five years. “It’s funny: we trust our payroll data, which has some very sensitive information, to ADP,” says Richardson. “But we’re very concerned about having other stuff outside of our firewall.”

Rewards Program

Peerless Steel’s Remdenok isn’t one of those people. He deployed a hosted ERP program (from Plexus Systems) at the steel distributor some five years ago, making the Michigan company something of an ERP pioneer. Remdenok says the rewards of the hosted approach have far outweighed any risks to the business. The proof? Peerless Steel has consistently achieved an annual ROI of at least 20 percent on its hosted ERP investment.

Most of Peerless Steel’s returns have come from downsizing its IT department. That’s hardly surprising: hosted software is basically a form of business-process outsourcing. “When you eliminate eight salaries,” notes Remdenok, “the cost to operate [the software] is less than what we’re paying for our existing staff.”

In Florida, Elias also feels he’s blazing a new and groundbreaking technology trail. “This is the future,” he insists. “Three years from now, I don’t think there will be any companies that develop software through the traditional route.”

John Edwards, who covers technology for CFO, is the author of The Geeks of War.

License to Bill
Project of revenues from ERP software licensing and hosting (in $ billions)
Revenue Source 2004 2005 2006 2007 2008 2009 Growth Rate*
Licensing $16.1 16.6 17.8 19.0 20.2 21.8 6%
Hosting $1.1 1.5 1.9 2.3 2.7 3.1 22%
Source: AMR Research
Program Guide:
Three Methods for Delivering Software
Custom Applications
Created in-house or by external developers exclusively for a specific business, which then owns the product
On-site Licensed Applications
Developed by commercial software publishers for a wide range of businesses, usually running on the licensee’s own servers
Subscription Applications
Accessed by customers via the Web and run on servers supplied by the software provider or an authorized third party
software cost
High Moderate Low
Customer owns the software Yes No No
Customer’s ability to customize the software High Moderate Low
Upfront hardware costs High High Low
Software maintenance/
upgrade costs
High Moderate Low
Compliance protection High Moderate Low
Vendor lock-in High Moderate Low


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