Závěrečné práce - IS MUNI

Masaryk Universi ty

Faculty of Economics and Administration

Field of Study: Business management

ERP SYSTEM, NEW TRENDS, PROCESSES OF

SYSTEM SELECTION, SALES,

IMPLEMENTATION AND SUPPORT

ERP systém, nové tendence, proces výběru, prodeje,

implementace a údržby

Diploma thesis

Thesis supervisor: Author:

Ing. Jaromír Skorkovský, CSc. Bc. David DURANTI

Brno, 2014

Name and surname of author: Bc. David Duranti

Ti t le of the diploma thesis : ERP system, new trends, processes of

system selection, sales, implementation

and support

Ti t le of the diploma thesis in Czech: ERP systém, nové tendence, proces

výběru, prodeje, implementace a údržby

Academic department : Business management

Thesis supervisor: Ing. Jaromír Skorkovský, CSc.

Dissertat ion year : 2014

Annotation

Subject of the thesis “ERP system, new trends, processes of system selection, sales, implementation

and support” is analysis of providing ERP as a Service which is compared to the predominant

on-premise model. In the theoretical part, the technology of cloud computing, ERP system

and the implementation process are described. In the practical part of the thesis analysis of the

vertical solutions "PrintVis cloud" for the printing industry is conducted. This solution is

compared to traditional on-premise variants of the same product.

Anotace

Předmětem diplomové práce „ERP systém, nové tendence, proces výběru, prodeje, implementace a

údržby“ je analýza poskytování ERP systému jako služby a srovnání se současně

převládajícím „on-premise“ modelem. V teoretické části práce je představena technologie

cloud computing, ERP systém a proces implementace. V praktické části práce je analyzováno

vertikální řešení „PrintVis in cloud“ pro polygrafický průmysl. Toto řešení je srovnáno

s tradiční „on-premise“ variantou stejného produktu.

Keywords

ERP, cloud computing, on-premise, SaaS, IaaS, PrintVis, MS Dynamics NAV 2013,

Implementation of an ERP system.

Klíčová slova

ERP, cloud computing, on-premise, SaaS, IaaS, PrintVis, MS Dynamics NAV 2013,

Implementace ERP systému.

Declaration

Hereby I declare that I disposed the Diploma Thesis “ERP system, new trends, processes of system

selection, sales, implementation and support” by myself under the supervision of Ing. Jaromír

Skorkovský, CSc. and that I stated all the used literary resources and other scientific sources according

to legislation, internal regulations of Masaryk University and internal management acts of Masaryk

University and the Faculty of Economics and Administration.

In Brno 14th May 2014

Si gna t ur e o f t he au t ho r

Acknowledgement

Here I would like to express my gratitude to my supervisor Ing. Jaromír Skorkovský Csc., for valuable

comments and expert advice, which contributed to the development of this thesis. In addition, I would

like to thank companies NAVERTICA a.s., ARDAN S.r.l. and NovaVision A/S for their time,

information and provided opportunity to participate on cloud pilot projects without which this thesis

couldn’t be conducted.

TABLE OF CONTENTS

INTRODUCTION ................................................................................................................................ 13

THEORETICAL PART ...................................................................................................................... 13

1 CLOUD COMPUTING ................................................................................................................ 16

1.1 ESSENTIAL CHARACTERISTICS ................................................................................................. 16 1.2 SERVICE DELIVERY MODELS .................................................................................................... 17

1.2.1 Software as a service (SaaS) ............................................................................................ 17 1.2.2 Infrastructure as a service (IaaS) ..................................................................................... 18 1.2.3 Platform as a service (PaaS) ............................................................................................ 18

1.3 DEPLOYMENT MODELS ............................................................................................................ 18 1.3.1 Private cloud .................................................................................................................... 18 1.3.2 Community cloud .............................................................................................................. 18 1.3.3 Public cloud ...................................................................................................................... 18 1.3.4 Hybrid cloud ..................................................................................................................... 18

1.4 SUBSCRIPTION PRICING MODELS ............................................................................................. 19 1.4.1 Pay as you go ................................................................................................................... 19 1.4.2 Pay per user ..................................................................................................................... 19

1.5 ECONOMICS OF THE CLOUD ..................................................................................................... 19 1.5.1 Supply-side savings .......................................................................................................... 20 1.5.2 Demand-side aggregation ................................................................................................ 21 1.5.3 Multitenant efficiency ....................................................................................................... 21 1.5.4 Overall impact .................................................................................................................. 22

2 ERP ................................................................................................................................................ 24

2.1 EVOLUTION OF ERP ................................................................................................................. 24 2.2 ERP DELIVERY MODELS .......................................................................................................... 25

2.2.1 On-premise ERP ............................................................................................................... 26 2.2.2 Cloud ERP ........................................................................................................................ 26 2.2.3 Hosted ERP ...................................................................................................................... 26

2.3 PROCESS OF SALE AND SELECTION .......................................................................................... 26 2.3.1 Buying decision making.................................................................................................... 26 2.3.2 Customer lock-in .............................................................................................................. 27 2.3.3 Marketing ......................................................................................................................... 28 2.3.4 Try-it-Buy-it model ........................................................................................................... 29

2.4 PROCESS OF IMPLEMENTATION ................................................................................................ 30 2.4.1 Critical success factors .................................................................................................... 30 2.4.2 Knowledge management................................................................................................... 31 2.4.3 Cloud ERP implementation .............................................................................................. 32

2.5 PROCESS OF MAINTENANCE ..................................................................................................... 33 2.5.1 Maintenance tasks ............................................................................................................ 33 2.5.2 Cloud ERP maintenance .................................................................................................. 34

PRACTICAL PART ............................................................................................................................ 36

3 PRESENTATION OF THE COMPANIES AND PARTNER MODEL .................................. 36

3.1 PARTNER MODEL ..................................................................................................................... 36 3.1.1 NAVERTICA ..................................................................................................................... 37 3.1.2 NovaVision Software ........................................................................................................ 37 3.1.3 ARDAN ............................................................................................................................. 38

4 MICROSOT DYNAMICS NAV 2013 ......................................................................................... 39

4.1 FOCUSED ON CLOUD ................................................................................................................ 39 4.1.1 Rapid implementations .................................................................................................... 41 4.1.2 Multitenancy in MS NAV R2 2013 ................................................................................... 41 4.1.3 Customizations ................................................................................................................. 43 4.1.4 Licensing .......................................................................................................................... 43

4.2 PRINTVIS 2013 ...................................................................................................................... 44 4.2.1 Licensing .......................................................................................................................... 45

4.3 PRINTVIS 2013 IN CLOUD ...................................................................................................... 46 4.3.1 Accelerated Sales Process ............................................................................................... 47 4.3.2 Accelerated Implementation Process ............................................................................... 49

4.4 WINDOWS AZURE .................................................................................................................... 50 4.4.1 Interface ........................................................................................................................... 51 4.4.2 Pricing examples .............................................................................................................. 52 4.4.3 Comparison with on-premise ........................................................................................... 53

5 MARKET ANALYSIS ................................................................................................................. 55

5.1 GLOBAL ERP MARKET ............................................................................................................ 55 5.1.1 Cloud-born players .......................................................................................................... 56 5.1.2 ERP delivery models ........................................................................................................ 58

5.2 NEW TRENDS IN ERP ............................................................................................................... 60 5.3 ERP MARKET IN SOUTH AFRICA ............................................................................................. 62

5.3.1 Cloud computing .............................................................................................................. 63 5.4 ERP MARKET IN THE CZECH REPUBLIC .................................................................................. 64

5.4.1 IT service spending .......................................................................................................... 64 5.4.2 Current ERP market ........................................................................................................ 64 5.4.3 EU cloud computing incentives ....................................................................................... 65 5.4.4 Printing industry .............................................................................................................. 65

6 SWOT ANALYSIS ....................................................................................................................... 68

6.1 CUSTOMER’S PERSPECTIVE ..................................................................................................... 68 6.1.1 Strengths .......................................................................................................................... 68 6.1.2 Weaknesses ...................................................................................................................... 69 6.1.3 Opportunities ................................................................................................................... 70 6.1.4 Threats ............................................................................................................................. 70 6.1.5 Customer’s perspective evaluation .................................................................................. 72

6.2 VENDOR’S PERSPECTIVE ......................................................................................................... 73 6.2.1 Strengths .......................................................................................................................... 73 6.2.2 Weaknesses ...................................................................................................................... 73 6.2.3 Opportunities ................................................................................................................... 74 6.2.4 Threats ............................................................................................................................. 74 6.2.5 Vendor’s perspective evaluation ...................................................................................... 75

7 CASE STUDY ............................................................................................................................... 76

7.1 PROJECT OVERVIEW ................................................................................................................ 76 7.1.1 Model Company ............................................................................................................... 76 7.1.2 Model assumptions and limitations ................................................................................. 76

7.2 TCO FOR PRINTVIS 2013 ........................................................................................................ 77 7.2.1 Up-front costs .................................................................................................................. 78 7.2.2 Divestment costs .............................................................................................................. 80 7.2.3 Operational costs ............................................................................................................. 81 7.2.4 Comparison ...................................................................................................................... 82 7.2.5 Discounted cash flow model ............................................................................................ 84

7.3 PROPOSED SOLUTION AND NOTICE TO THE RESULTING CONTEXT .......................................... 85

SUMMARY, CONCLUSIONS AND FUTURE RESEARCH ......................................................... 87

PROPOSED MEASURES ................................................................................................................... 90

REFERENCES ..................................................................................................................................... 91

LIFT OF PICTURES ........................................................................................................................... 96

LIST OF TABLES ............................................................................................................................... 96

LIST OF FIGURES ............................................................................................................................. 97

LIST OF ACRONYMS ....................................................................................................................... 97

LIST OF APENDICES ........................................................................................................................ 99

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INTRODUCTION

Enterprise resource planning (ERP) is a core business application practically for every single medium

and large enterprise. This market segment is becoming extremely saturated, thus prompt vendors

to look for new opportunities. ERP systems are becoming no longer a fancy solution only for large

businesses; smaller companies also want a piece of the action. On the other hand due to its costs,

complexity and inflexibility, ERP still remains out of reach for most of them.

One of the current biggest phenomenon, which seems to address these obstacles and pushing barriers

of business applications further is cloud computing. This technology is still emerging and walking

on its cutting edge might be challenging and risky but at the same time highly lucrative

as Gartner (2011) says: “There is always a risk of adapting the technology too soon, but there is

also a risk, perhaps a bigger risk, of adapting the technology too late.” It looks like newly cloud

adopters have achieved tremendous growth during the past five years focusing on the unpenetrated

SME segment. Today’s major ERP companies are seeing this transition and they also want to join

the “cloud-run”. Nevertheless adopting the cloud approach means rethink the whole ERP business

and alternating established selection, selling, implementation, and maintenance processes.

This thesis research focuses on the ERP in cloud approach which is compared with the traditional

on-premise model. For the practical application the “Microsoft Dynamics NAV 2013 in cloud”

with a vertical solution “PrintVis in cloud” for printing industry will be chosen. These products are

Microsoft’s respond to the paradigm shifting towards cloud ERP, and both were released just recently.

Motivation for this thesis research is the newness and unexplored nature of the subject. This thesis is

dedicated for ERP implementation partners and clients who are looking to adopt the ERP in cloud with

the particular focus on printing industry. The main goal of this thesis is to describe the changes

in the selection, selling, implementation and maintenance processes with the application on the above

mentioned ERP system. Furthermore, outline the benefits and drawbacks of the ERP in cloud

and the potential market segment. Research questions and hypothesis are determined as following:

Q1: “What are the estimated costs and time of implementation of the cloud solution in comparison

with on-premise model?”

Q2: “Could the cloud solution of PrintVis be the future for the printing industry? Main

benchmarks are estimated number and size of possible clients feasible for this solution,

other metrics will be outlined in the thesis.”

H1: “PrintVis in cloud solution implementation project can reduce up to 30% of both customer’s

budget and implementation time.”

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H2: “For companies in the printing industry below fifty employees considering an ERP adoption

PrintVis in cloud represents a better solution than on-premise PrintVis in the horizon of ten years.

Metrics will be outlined in the thesis.”

Structure of the thesis

The theoretical part is subdivided into two chapters. First chapter defines the cloud computing.

During last decade there was no clear and widely accepted definition of Clouds in the literature that

should help to determine the areas of research and explore new application domains for the usage

of the Clouds. National Institute of Standards and Technology (NIST) novel comprehensive definition

released in 2011 should be now accepted as a way for standardization of cloud services for both

providers and consumers. The first chapter is also dedicated to the underlying economics of cloud

computing examined by Microsoft. The second chapter focuses on the ERP, its evolution through

time, delivery models, and the changes linked with the cloud approach in selection, selling,

implementation, and maintenance processes.

The practical part is subdivided into five chapters, covering thus chapters 3-7. The third chapter

describes the companies involved in this thesis research, presenting the interrelation between them

with focus on NAVERTICA which is the main recipient of this thesis research. The fourth chapter

describes the MS Dynamics NAV 2013 and PrintVis 2013 with the weight given on the cloud

approach. In the end of this chapter, the Windows Azure cloud platform is described. The fifth chapter

is dedicated to the market analysis. Firstly, the global ERP market is analyzed, new trends are outlined

and then NAVERTICA’s strategic markets – South Africa and Czech Republic are analyzed in more

detail. In the end of the chapter a quick financial analysis of the printing industry in Czech Republic is

conducted. The sixth chapter consist in a SWOT analysis of the cloud ERP solution from both

customer’s and vendor’s perspective. In the final chapter a case study is conducted. The case study is

based on an actual implementation of PrintVis for a NAVERTICA’s client. The implementation was

delivered as on-premise, in our case study we reengineer this project as cloud-based and build

a comparison model.

Data Collection

The literature review is conducted mainly from recent articles and complementary data are collected

directly from Microsoft and NovaVision, as no unifying literature on this subject was found

both in Czech and international resources. The relation between key terms is discussed

with consultants in NAVERTICA.

Due to explorative nature of the subject, semi-structured interviews are chosen as this enables

also refining the questions and answers, if needed. Validity of interview data can be verified

from complementary data sources and interviews can be used for exploring relationships

of phenomena and for creation of new hypothesis (Regnell, 2011, p. 16).

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The target group of interviewees is employees in the companies NAVERTICA, NovaVision,

and ARDAN. Within this group heterogeneous respondents who would offer a different perspective

on the cloud solution are spotted. Interviews are adjusted for each respondent based on his role

in an implementation project of an ERP solution. All the respondents have deep understanding of ERP

business. Interviews for NovaVision aims on the cloud solution of PrintVis which they started

to implement through pilot campaigns since April, 2013. Example of the interviews question can be

found in the Appendix G. The series of interviews will be conducted over a long period starting

with my internship in ARDAN in July – November. Afterwards interviews will continue until April,

2014.

Table 1: Respondents overview

Respondent Role Company

Guido Codini Project manager, Consultant ARDAN

Kit Tomshøj Salesperson NovaVision

Jörg Hüner Senior Consultant NovaVision

Tomáš Miklík Consultant NAVERTICA

František Vymazal Project manager, Consultant NAVERTICA

Petr Turek Salesperson NAVERTICA

Source: author

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THEORETICAL PART

1 CLOUD COMPUTING

Cloud systems are hardware-based services offering compute, network and storage capacity where

hardware management is highly abstracted from the buyer, buyers incur infrastructure costs as variable

OPEX and infrastructure capacity is highly elastic (Forrest, 2009, p. 12). Cloud computing represent

nowadays one of the most important trends in ICT and IS technologies (Basl, 2011, p. 45).

In the hype period of cloud computing software vendors were often advertising their solutions

as cloud-based without actually meeting the criteria which a cloud solution requires. The expectations

were high and cloud was more of a fuzz word which stood for a cutting edge technology. Cloud

computing wasn’t standardized and there were many different definitions available in the literature

often contradicting each other. Apart from the technological innovation cloud computing is linked

with new business model that need to be understand. Vendors that haven’t understood this model can’t

perceive nor provide the benefits of cloud computing and they put the entire concept in a bad light.

CEO of NetSuite, which is a cloud-born ERP company, claims: “There are real clouds and fake

clouds. The fake clouds are people who are taking existing technology and saying, ‘We can host it for

you, and that’s the cloud’” (Nelson, 2010). The cloud computing was standardized in 2011

by the National Institute of Standards and Technology (NIST).

1.1 Essential characteristics

NIST (2011) defines five essential characteristics that must embrace a system to be qualified

as a cloud solution. There characteristics are:

• On-demand self-service: A consumer can unilaterally provision computing capabilities,

such as server time and network storage, as needed automatically without requiring human

interaction with each service provider.

• Broad network access: Capabilities are available over the network and accessed through

standard mechanisms that promote use by heterogeneous thin or thick client platforms

(e.g., mobile phones, tablets, laptops, and workstations).

• Resource pooling: The provider’s computing resources are pooled to serve multiple

consumers using a multitenant model, with different physical and virtual resources

dynamically assigned and reassigned according to consumer demand. There is a sense

of location independence in that the customer generally has no control or knowledge

over the exact location of the provided resources but may be able to specify location

at a higher level of abstraction (e.g., country, state, or datacenter). Examples of resources

include storage, processing, memory, and network bandwidth.

• Rapid elasticity: Capabilities can be elastically provisioned and released, in some cases

automatically, to scale rapidly outward and inward commensurate with demand.

To the consumer, the capabilities available for provisioning often appear to be unlimited and

can be appropriated in any quantity at any time.

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• Measured service: Cloud systems automatically control and optimize resource use

by leveraging a metering capability 1 at some level of abstraction appropriate to the type

of service (e.g., storage, processing, bandwidth, and active user accounts). Resource usage can

be monitored, controlled, and reported, providing transparency for both the provider

and consumer of the utilized service.

1.2 Service delivery models

Cloud services can be provided to customers through many different delivery models. Nowadays

three models have been widely recognized (Xu, 2012, p. 3). Other are still under development as cloud

computing evolves1. These models mainly vary in the level of control which is given to the customer

alongside with the user’s cost of the service. The figure 1 shows the control of each layer associated

with particular delivery model.

Figure 1: Service delivery models

Source: Harms and Yamartino (2010, p. 11)

1.2.1 Software as a service (SaaS)

In this model the capability provided to the consumer is to use the provider’s applications running

on a cloud infrastructure. The applications are accessible from various client devices through a thin

client interface such as a web browser (e.g., web-based email) (Basl, 2011, p. 46). The consumer does

not manage or control the underlying cloud infrastructure including network, servers, operating

systems, storage, or even individual application capabilities, with the possible exception of limited

user-specific application configuration settings (Celar et al., 2011, p. 1-2). SaaS is nowadays the most

common delivery model for an ERP. The customer has full control only of its data. The hardware,

operating system and the middleware is “in the cloud” managed by the provider.

1 Besides the standardized three types, literature recognized also: Desktop as a Service (DaaS), Monitoring as a

Service (MaaS), Communication as a Service (CaaS), and Anything as a Service (XaaS).

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1.2.2 Infrastructure as a service (IaaS)

In this model the capability provided to the consumer is to provision processing, storage, networks,

and other fundamental computing resources where the consumer is able to deploy and run arbitrary

software, which can include operating systems and applications. The consumer does not manage

or control the underlying cloud infrastructure but has control over operating systems; storage,

deployed applications, and possibly limited control of select networking components (e.g., host

firewalls) (Celar et al., 2011, p. 1-2). Infrastructure as a service is also used in the ERP in cloud

solution as an underlying platform, where the system is deployed e.g. Windows Azure. This type of

delivery model offers bigger possibilities in terms of management for the customer. He can control its

data, middleware and also the operating system.

1.2.3 Platform as a service (PaaS)

This type of service is nowadays not used in the ERP in cloud solutions. In this model the capability

provided to the consumer is to deploy onto the cloud infrastructure consumer-created or acquired

applications created using programming languages and tools supported by the provider. The consumer

does not manage or control the underlying cloud infrastructure including network, servers, operating

systems, or storage, but has control over the deployed applications and possibly application hosting

environment configurations (Celar et al., 2011, p. 1-2).

1.3 Deployment models

Deployment models differentiate between where the underlying cloud computing hardware is placed

and which part of data are shared between users.

1.3.1 Private cloud

In the private cloud data and processes are handled as a one to one. Private clouds don’t share the

application, thus significantly undermine the multitenancy condition. The multitenancy occurs only on

a hardware level by resource pooling in a data centers. Private clouds can be used

for deploying an ERP system. In this case, the ERP can be customized at the cost of multitenancy.

This approach is nowadays typical for LE that chooses a cloud service.

1.3.2 Public cloud

The public cloud services are offered via the internet; the supplier provides a control mechanism for its

users only. Public cloud is the only deployment model that satisfies all the conditions for cloud

and brings all the benefits and drawbacks of cloud computing. This model is most common for the

ERP solutions, where the application is shared across a large number of clients.

1.3.3 Hybrid cloud

Hybrid cloud is a combination of a public cloud interacting with a private one.

1.3.4 Community cloud

Community cloud is controlled and used by a group of organizations that share the same interests.

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1.4 Subscription pricing models

Cloud computing applications are sold under “new” pricing models which enables the flexibility

of these solutions. The most common models include “pay-as-you-go”, “pay-per-user”.

1.4.1 Pay as you go

In this model the customer pays only when he uses the service per a given unit e.g. per time,

per gigabyte, per processor time etc. This model associates directly provided cloud resources

with the customer usage of the service.

1.4.2 Pay per user

In this model the customer pays a fixed price per user per a given time unit (mostly month).

This model is less flexible but on the other hand the customer knows in advance how much he is going

to pay for any period of time. For example NetSuite CRM price begins at 79 USD per month

for users2. These models can be combined with each other and also combined with a fixed price.

For example a price of a cloud ERP can figure in a fixed price for implementation + price per user

accessing the service + price per computing power consumed.

1.5 Economics of the cloud

In this chapter we will outline economic efficiency of the cloud. “Underlying economics have a much

stronger impact on the direction and speed of disruption as technological challenges are resolved

or overcome through the rapid innovation we have grown accustomed to” (Harms and Yamartino,

2010, p. 3).

Cheaper technology is high likely to be adopted over time. For example we can look at a shift

from the mainframe terminal model to the client/server model during 1989 to 1995. This technology

shift could be considered as an equally big shift, from an architectural perspective, as cloud computing

is today (Höllwarth, 2012, p. 46-47). Figure 2 shows the adoption curve within the period 1989-1995

Figure 2: Adoption curve of a client/server model

Source: “How convention shapes our market” longitudinal survey, Shana Greenstein (1997)

2 According to publicly available pricelist in 2012. Source: http://www.erpsoftware-news.com/2012/10/netsuite-

pricing-.html

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From the figure 2 we can see that the “Mainframe Only” approach have dropped from over 75%

to less than 25% within 15 years. The technology that was initially viewed as a “toy” technology

gradually replaced the mainframe model (Harms and Yamartino, 2010, p.3). A similar shift then

happened later with emergence of server virtualization. Several concerns from security issues to a

vendor lock-in raised and yet underlying economics of 20 to 30 percent savings3 compelled vendors to

overcome these concerns, and adoption quickly accelerated. Table 2 shows the technological and

economic aspects and related business model of the three above mentioned approaches.

Table 2: Cloud opportunity

Technology Economic Business Model

Mainframe Centralized compute and

storage

Optimized for efficiency

because of the high cost

High up-front costs for

hardware and software

Client/Server PCs and servers for

distributed compute,

storage, etc.

Optimized for agility

because of the low cost

Perpetual license for OS

and application software

Cloud Large DCs, ability to

scale, resource pooling,

broad network access

Optimized for efficiency

and elastic demand

Ability to pay as you go,

and only for what you use

Source: Author based on Harms and Yamartino (2010, p. 3)

The cost savings of the cloud are all about economies of scale. In economic terms, economies of scale

refers to the situation in where the cost of producing an additional unit of output (i.e., the marginal

cost) of a product (i.e., a good or service) decreases as the volume of output (i.e., the scale

of production) increases (Oza, 2012, s. 2). The economies of scale for the cloud can be divided in three

separate areas, which are supply-side savings, demand-side aggregation and multitenancy efficiency.

1.5.1 Supply-side savings

The supply-side provided computing power can be measured in MIPS. Figure 3 shows comparison

between mainframe, client/server and cloud cost per MIPS.

Figure 3: Supply-side savings

Source: Harms and Yamartino (2010, p. 3)

3 According to Dataquest Insight: Many Midsize Businesses Looking Toward 100% Server Virtualization.

Gartner, May 8, 2009

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Reasons for the supply-side economies of scale are lower cost of electricity; lower infrastructure

labors costs and buying power of large DCs. Cloud computing is directly associated with Large DCs

because the computing power can be delivered anywhere via the internet.

The cost of electricity represents 15-20% of Total Cost of Ownership (TCO). Large DCs can pay less

than one-fourth of the national average electricity rate through bulk purchase agreements4.

The cloud service is provided through internet, thus the data center can take advantage of geographical

variability in electricity rates.

Infrastructure labor costs drops significantly at any scale due to “on demand self-service” character

of the cloud computing. While a single system administrator can service approximately 140 servers

in a traditional enterprise, in a cloud DC it would be thousands of servers. In closing infrastructure

deals operators of Large DC can get discounts up to 30 percent over smaller buyers thanks to their

buying power (Harms and Yamartino, 2010, p. 4).

1.5.2 Demand-side aggregation

The overall cost of IT is determined not only by the cost of capacity, but also by the degree to which

the capacity is efficiently utilized. In a non-virtualized data center, where each workload typically runs

on its own physical server the utilization has been extremely low around 5 to 10 percent.5 This low

level of utilization is a consequence of highly variable over time workloads which often demand large

amounts of resources in one minute and virtually none the next. The high variability arises from

service utilization randomness, time-of-day patterns, uncertain growth patterns etc.

A key economic advantage of the cloud computing is its ability to address variability in resource

utilization. By pooling resources, variability is diversified away, evening out utilization patterns.

The larger the pool of resources, the smoother the aggregate demand profile, the higher the overall

utilization rate, and the cheaper and more efficiently the IT organization can meet its end-user

demands (Harms and Yamartino, 2010, p. 8).

1.5.3 Multitenant efficiency

The previously described supply-side and demand-side economies of scale can be also achieved

to a certain extend by using virtualization and server hosting. But there is another important source

of economies of scale that can be harnessed only in true cloud multitenant architecture.

4 Source: U.S. Energy Information Administration (July 2010) and Microsoft. While the average U.S.

commercial rate is 10.15 cents per kilowatt hour, some locations offer power for as little as 2.2 cents per kilowatt

hour.

5 Based on: The Economics of Virtualization: Moving Toward an Application-Based Cost Model, IDC,

November 2009

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In this type of architecture, customers share the application. This brings substantial economies of scale

in the maintenance process thanks to amortization of fixed costs over a large number of customers.

In a single-tenant instance, each customer has to pay for its own application management (i.e. labor

associated with update and upgrade management, incident resolution etc.). In a multitenant

architecture this application management is shared bringing overhead costs per tenant to zero (Harms

and Yamartino, 2010, p. 10).

Application can be entirely multitenant or they can achieve partial multi-tenancy by leveraging shared

services provided by the cloud platforms. The greater the use of such shared services,

the greater the application will benefit from these multitenant economies of scale (Harms

and Yamartino, 2010, p. 10).

This implies that the economic benefits from multi-tenancy are not linear, in fact they increases

exponentially from a certain amount of users/tenants, as it is shown in the figure 4.

Figure 4: Economies of scale related to amount of customers

Source: author

Initially a small amount of application could be shared between users, but as a number of users

growth, their resemblance in data allows to start sharing the service and as a consequence the vendor’s

overhead costs per user starts to fall dramatically with each new user.

1.5.4 Overall impact

The overall effect of supply-side savings, demand-side aggregation and multitenant efficiency leads

to powerful economy of scale. Microsoft has built a cost scaling model to estimate

the magnitude. Figure 5 shows the output for a workload that utilizes 10 percent of a traditional server.

The model indicates that a 100,000-server datacenter has an 80% lower total cost of ownership (TCO)

compared to a 1,000-server datacenter (Harms and Yamartino, 2010, p. 10).

Number of users

Over

hea

d c

ost

s per

use

r

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Figure 5: Total cost of ownership in the cloud

Source: Harms and Yamartino (2010, p. 10)

Microsoft’s partners argue that renting a cloud infrastructure from a third party, for example Windows

Azure, can’t drive profits to them (Miklík, 2014). The above figure shows that this is actually not

the case. Large data centers provide economies of scale up to 80% of Total Cost of Ownership (TCO),

thus delivering profit to themselves, partners and customers.

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2 ERP

There are many definitions of ERP systems in the literature; moreover the definition has been

changing alongside with the evolution of ERP systems. Klaus el al. (2000, 141) have summarized

more than 100 articles related to ERP systems and defined ERP from three perspectives:

“First, and most obviously, ERP is a commodity, a product in the form of computer software. Second,

and fundamentally, ERP can be seen as a development objective of mapping all processes and data

of an enterprise into a comprehensive integrative structure. Third, ERP can be seen as the key element

of an infrastructure that delivers a solution to business.”

2.1 Evolution of ERP

In the early days of business applications most organization designed, developed and implemented

own in-house computing systems. These were legacy systems based on programing languages such

as COBOL, ALTGOL and FORTRAN (Liaquat and Hossain, 2002, p. 4). In 1960 IBM have

developed the first software for material requirement planning – MRP (Vymětal, 2010, p.26). Besides

General Ledger, MRP was the first off-the-shelf business application (Orlicky, 1975, p. 37). MRP

supported the bill-of-materials across all products and parts in one or more plants. Furthermore, this

solution contained bill-of-materials processors (demand-based planning) and forecasting algorithms

(Klaus et al., 2000, p.144). From technological perspective MRPs ran on mainframes, thus requiring

huge upfront investments.

Many other companies started to build their own MRP solutions. SAP, Oracle and Infor were born

in 1970s. Under the pressure of these companies development of MRP accelerated significantly

and in the late 1970s, Material Requirement Planning evolved into Manufacturing Resource Planning

– MRP II (Vymětal, 2010, p.26). Production planning became much more complex and accurate, as it

is shown in figure 6.

Figure 6: Production planning within MRP II

Source: author based on (Klaus et al., 2000, p. 145)

In the late 1980s the MRP II approach was extended in order to include all business-administrative

and technical functions of a company, although integration of these functions remained an issue.

The late MRP II systems included shop floor, distribution management, project management, finance,

human resource and engineering, thus becoming already very close to what is known as today’s ERP

(Liaquat and Hossain, 2002, p. 4). The ERP term started to appear in the literature.

21

In 1992 SAP R/3 system was released, which was the first integrated ERP. This started a new stage

as marketplace gained considerable momentum after 1995 accompanied by strong ERP coverage

in the trade press (Klaus et al., 2000, p. 152). From technological perspective ERP systems started

to run on a client/server architecture model lowering significantly hardware costs, thus allowing

medium enterprises to afford these solutions.

After 1995 vendors started adding more modules and functionality to their core modules giving birth

to the “extended ERP” or ERP II. Basl (2008) defines ERP II to cover following areas (above the

standard ERP):

• Supply Chain Management (SCM),

• Customer Relationship Management (CRM), and

• Business Intelligence (BI)

The core difference is the Business Intelligence functionality which combines data gathering, data

storage and knowledge management with analysis to provide input to the decision process (Negash

and Gray, 2008, p. 175).

Cloud computing is considered to be a next step in the history of enterprise software e.g. Luoma

and Nyberg (2011, p. 3-4); Gartner (2012) and others. Despite the idea of cloud computing is rather

old, first ERP systems started to occur in the New Millennium. These first pioneer solutions were

provided by „Application service providers” and they were basically hosted solutions. The cloud

computing took off in the mid-2000s and during a very turbulent era many under radar ERP solutions

were born. The “cloud-run” started after the economic crisis of 2008 for two reasons.

Firstly, the restricted loan policy, which took place, has frozen large investment in on-premise ERP.

Secondly, the saturation of the LE market has prompt ERP vendors to look for new opportunities.

New cloud born players such as NetSuite and Salesforce have gone through an astonishing period of

growth during 2009-2014. This didn’t remain unheeded by the major three ERP players (SAP, Oracle,

Microsoft), which have responded to the market demand releasing own cloud solutions of their on-

premise ERPs during the period 2011-2013.

2.2 ERP delivery models

The response of existing players gives ERP customers today a range of deployment options. They can

choose on-premise ERP, hosted ERP, cloud-enabled ERP, or a hybrid deployment of any of them.

The varied responses by traditional ERP providers to the threat from new cloud-only ERP vendors

have created market uncertainty (Scavo et al., 2012).

22

2.2.1 On-premise ERP

On-premise ERP solutions are usually sold via a license model. The software is then loaded onto

servers and computers in-house. The enterprise controls the infrastructure and platforms. Furthermore,

the enterprise handles and absorbs the costs of maintaining the servers and the space they require,

as well as disaster recovery (Fesak et al., 2012, p. 2).

2.2.2 Cloud ERP

Cloud ERP systems are sold via a subscription pricing model, see chapter 1.4 and delivered

to the customer via SaaS. Cloud computing essentially enables an outsourcing arrangement

of the IT department, where enterprise software is hosted on a SaaS vendor’s or third party

infrastructure and rented to a customer at a fraction of the costs compared with on-premise solutions

(Faasen et al., 2013, p. 36). Cloud-based ERP solutions appear to provide a number of benefits related

to sizable cost savings, competitive advantage enhancements, and flexibility of the solution.

Many authors agree on the unwillingness of SMEs to adopt on-premise ERP software due to the high

up-front costs and risk involved (Buonanno et al., 2005, p. 420) and for example Forrest (2009, p. 20)

claims: “Cloud offerings are very cost effective for SME primarily because of the subscription based

pricing schemes that typically re-quire significantly lower upfront investments”.

2.2.3 Hosted ERP

Hosted ERP systems are a hybrid solution where a customer rents the hardware from the vendor and

lease the license. The ERP is delivered in a private cloud, thus with a limited multitenancy efficiency.

This solution was provided in early 2000s by Application service provider (ASP).

2.3 Process of sale and selection

Nowhere is the buying experience changing more than in the software industry. In order to sell cloud

ERP to SMEs a whole new business model is required. The following chapter will describe the impact

of cloud ERP on customer’s perception of the service, buying decision making and service marketing.

2.3.1 Buying decision making

Large IT sales transaction between a vendor and its customer are the result of negotiations based

on a common understanding of several parameters (Brill, 2013, s.2). The basic relationship

is captured in the figure 7.

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Figure 7: Information and the Commercial Negotiation

Source: Brill (2013, p.2)

Both the vendor and the customer have imperfect and mutually influenced assessments

of the negotiation based on their perception of the highly complex parameters involved. The customer

makes a buying decision based on the six parameters of commercial negotiation outlined

in the figure 7. “Use-cases & Future growth” usually plays the highest role (Brill, 2013, p.2).

Traditional on-premise selling model consists in a series of presentations called demos where the sales

team does its best to make a prospect6 understand how the system handles his typical business cases.

While prospects get a demonstration of the product capabilities, they usually don’t have opportunity

to get hands-on experience with the product.

Reducing the risk of limited knowledge of the product is one of the biggest advantages of the cloud

solution. According to Domergue (2009) when selling cloud solutions the real value is unveiled

to the customer. Since cloud solutions are available through internet, there is no need to install

the system in customer’s facilities and the customer can try the solution with demo data online.

This typical SaaS sales process often leads to an initial sale of only few seats. This is certainly

a drawback for a vendor, but a small initial sale implies a relatively low initial price, which minimizes

the requirements for drawn-out evaluations of return on investment. Moreover if the system proofs its

real value, it will inevitably acquire more users within an organization (Chappell, 2012, p.11).

2.3.2 Customer lock-in

Customer lock in is a common phenomenon in ERP business because of large investment needed,

information asymmetry and high switching costs. The customer buys the product without actually

knowing if the solution will meet his expectations. On the other hand the vendor’s interest is to sell

the product no matter what. Once the solution is live high switching costs keeps the customer locked

6 In the ERP business a potential customer is referred as prospect.

"The Deal"

Vendor

Commercial Negotiation

•Expected vs. Actual budget

•Competitive information

•Use-cases & Future growth

•Licensing & Pricing rules

•Complete Purchase History

•Assets in the IT Environment

Customer

24

in a vendor’s application. Brill (2013, p.3) describes this situation as “The Fog of Business” as shown

in the figure 8.

Figure 8: The Fog of Business and Decision-making

Source: Brill (2013, p.3)

For the SaaS model the situation is slightly different, since cloud solutions are typically sold through

Try-it-Buy-it model, see chapter 2.3.4. This enables better decision-making and fact-based dialogue

since the customer will have hands-on experience with the solution and vendor can better understand

customer’s need. Anyway even without large investment in an up-front license, the customer-vendor

relationship is built on trust and the switching costs still took place (implementation costs, training

of employees, etc.). This creates an interesting situation for new entrants in the SaaS ERP market.

While with the traditional ERP systems big market players benefited from the guaranty of a certain

quality of their ERP product, in the SaaS market any cloud ERP, that shows real value, can be chosen

by customers.

2.3.3 Marketing

“Marketing is the activity, set of institutions, and processes for creating, communicating, delivering,

and exchanging offerings that have value for customers, clients, partners, and society at large.” (The

American Marketing Association, 2013)

Today’s customers are self-informing themselves by using search engines, visiting vendors’ websites

and using social media. They generally engage with a vendor far later in their buying process,

when their opinions are already formed. Traditional marketing methods are almost useless in this

environment (Abrahams et al., 2013, p.9).

Customers today often avoid salespeople until much later in the sales cycle, especially in the SME

segment. In fact, they don’t want to be “sold” anything. Instead, they want to be helped to buy.

Traditional sales processes simply do not match with current customer preferences and expectations

25

(Abrahams et al., 2013, p.9). The engagement point of on-premise compared to cloud (SaaS) is shown

in the figure 9.

Figure 9: Buying cycle evolution

Source: Chappell (2012, p.11)

Internet has become a key element in software business, and it is crucial for the marketing strategy

of software firms throughout the business cycle. Areas that have been affected by internet include

for example promotion, sales, payments, downloading the product, after-sale services, updates,

and monitoring accounts. Internet is especially potential marketing medium for smaller software firms,

because it can help them to better compete with larger competitors (Hu and McNaughton, 2011,

p. 107).

2.3.4 Try-it-Buy-it model

The line between Sales and Marketing is blurred for Cloud ERP partly because of the Try-it-Buy-it

model. The whole idea is rooted in providing the software to the customer before he buys it

for a limited time period or with limited functionality. Customer is than more willing to buy

the product, since he has perceived its real value.

The concept is not entirely new, proprietary packaged software was and still is commonly offered

as shareware, trial ware which is based on the same concept. Offering ERP systems via this model was

unthinkable before cloud computing. This approach was immediately adopted by cloud-born ERP

players like NetSuite, Salesforce and others7.

For example NetSuite offers a “test drive”8 of their ERP for a trial period of 14 days. The customer has

to do an online registration where he specifies basic details of his company. Afterwards he gets the

access to a demo company tailored to the industry segment he specified. He is also assisted by a

specialized consultant. Furthermore he gets the access to the manual which guides him through the

“test drive”.

7 Already many partners started to offer Dynamics NAV in cloud; these partners use the Try-it-Buy-it model. For

example: http://www.saasplaza.nl/dynamics-nav-azure-cloud.html

8 Source: http://www.trajectoryinc.com/ns_evaluationsales.html

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2.4 Process of implementation

Process of implementation of an ERP is the most critical, as well as, the most resource consuming

phase of the project (Haddara and Zach, 2011, p.4). LI et al. (2006) divides the ERP implementation

process into six stages: initiation, adoption, adaptation, acceptance, routinization and infusion.

Microsoft has developed a similar six stage methodology called “Sure Step” for its ERP systems,

which can be seen in the figure 10.

Figure 10: Implementation project stages

Source: author based on Microsoft’s “Sure Step” methodology

The diagnostic phase defines the project scope and project plan, initial training is given

to the customer. In the analysis phase business processes are identified and document at high level.

Main goal of the design phase is conduct a fit/gap analysis9 and re-engineer business processes

in order to match them with the ERP system. The output of design phase and therefore the targeted

functionality of the ERP system have to be agreed and signed with the customer. In the development

phase all the programming work is conducted, this includes mainly customization of the ERP system.

This phase includes also data migration. This is usually also the most time-consuming phase

of the implementation project. In the deployment phase the ERP system is installed and configured.

Beside installation, configuration and feature deployment, the phase focuses on testing at system level.

When the system is ready to go live the implementation enters the operation phase. Here additional

training and support is given to the customer.

The whole implementation process is accompanied with workshops, trainings, project current state

evaluation etc. The Sure Step methodology is very specific in particular tasks that are related

to the project. This standardization is critical to make the project plan and management effective

and therefore the whole implementation process smoother.

The Sure Step methodology recognizes “Rapid Implementation” which is applicable for the cloud

solutions. The Rapid Implementation skips the Analysis, Design and Development phases because it

delivers a packaged business specific solution with minimal or no customizations. This solution is

applicable for the environment where customer’s business processes are not considered as complex

and the vendor is already familiar with the main business process specific to the industry.

2.4.1 Critical success factors

Despite the standardization, implementation projects still fail to meet the budget and buyer’s

expectations in most of the cases (Austin et al., 2003, p.3), also 2014 ERP Report (2014, p.11),

9 The analysis consists in identifying whether the present system fits the requirements, and if any such gaps are

identified, they are recorded in a prescribed format.

Diagnostic Analysis Design Development Deployment Operation

27

and 2013 ERP Report (2013, p. 13). This is due to the variability within ERP implementation projects

which makes them hard to standardize and forecast possible obstacles in the implementation project.

Various authors have offered many sets of critical success factor for the implementation phase

of an ERP system. LEYH and CRENZE (2010, p.229-230) have conducted a research over 185

relevant papers and identified top three following critical success factors:

- Project management

- User training

- Top management support.

Implementation of a cloud ERP in small enterprises differs from an on-premise implementation

mainly in the second identified success factor which is the “user training”. In cloud the training is

conducted mostly online and via e-learning materials. This “Do-it-yourself” approach is crucial

to keep the low budget, however it loads a lot of critical tasks on the customer-side. Krishnamurti

(2014) claims that key people in small enterprises are already overloaded with work thus collaborating

on the ERP implementation is always challenging.

2.4.2 Knowledge management

Knowledge management has been identified as one of the most important critical success factors in

ERP implementation (LI et al., 2006), (Deng and Bian, 2008). The implementation project length,

therefore cost, is deeply influenced by the experience build from previous implementations. LI et al.

(2006, p. 167) quotes in their research of the impact of KM on ERP implementation: “Although

realizing ERP is an implementation process, it is also a process of knowledge creation,

storage/retrieval, transfer and application from the knowledge management perspectives.”

Despite recognizing KM as significant factor during ERP implementation the magnitude of the impact

remains uncertain. Figure 11 shows the possible impact of knowledge accumulated during

implementations based on Li et al (2006) research.

Figure 11: Impact of knowledge accumulation on costs of the implementation

Source: author based on Li et al. (2006).

Number of implementations

Co

st r

educt

ion [

%]

28

Figure 12 shows that in the first implementation, there is a lot of to be learned. The diagnostic and

analysis phase together with workshops eats-up for a big slice of the budget. Every implementation

consists in learning customer’s and industry’s specific business processes, in order to do the best setup

of the ERP system. Vendors than use this know-how in future implementations, this is also referred as

“building best practices”. When the partner has build-up a lot of experience with the solution, the

impact of the knowledge accumulated from one additional implementation is nearly zero. According

to Miklík (2014) the initial effect could be around 20-30% of cost reduction per implementation. This

also depends on the company’s knowledge management system, especially how the knowledge is

stored.

Cloud ERP systems enable much higher level of knowledge building-up since they are focused

on high volumes, more implementations imply greater knowledge accumulation. The standardization

in the cloud is also easier. As a consequence costs of cloud implementations will fall more rapidly

than in the case of on-premise implementations and they will be also easier to forecast. On the other

hand the knowledge is an also a prerequisite in the cloud. In order to conduct a rapid implementation

significant knowledge about the business processes specific for the industry are necessary.

2.4.3 Cloud ERP implementation

Microsoft emphasized that in order to offer to a customer additional value of the Cloud-based solution,

the implementation must be far faster. All aspects of the implementation must be streamlined

significantly, as the hereinafter graphic illustrates, for the following reasons (Abrahams et al., 2013,

p.32):

1. User training becomes self-serve and web-based. Overall, better product design also drives

down the need for training.

2. Reporting becomes more “packaged”, and the need for custom reporting declines as result.

3. Configuration and setup is Cloud-based, “templatized” and automated.

The figure 12 above shows a comparison of tasks affected during the implementation process of a

cloud solution.

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Figure 12: On-Premise vs. Cloud implementation

Source: Abrahams et al., p. 32

The figure 12 shows that most of the savings occurs in tasks related to the migration

in the “Development” milestone and also in the training of users during “Deployment”

and “Operation”. Microsoft forecast a reduction in costs of around 50% in these tasks for the cloud-

based solution.

2.5 Process of maintenance

Once the implementation process finishes, the ERP does not remain static. It must be maintained

to meet rapidly changing business needs given the strategy followed by the firm. In addition,

ERP professionals have to correct bugs, deploy new versions, take into account user requirements,

and continue improvements to the system. If the company does not properly maintain the ERP system,

failures will arise, performance will decrease, and the expected benefits will not be obtained

(Salmeron and Lopez, 2012, p. 440)

Celeste et al. (2002, p.13) defines maintenance objectives as following:

• To keep the system running,

• To adapt to a changed environment in order to operate well (legislature changes etc.),

• To provide help to the system users un using the system,

• To realize benefits from the system (best business processes or practices, improved system

integration, operational cost effectiveness), and

• To keep the system a supported-version and meet the vendors requirements for standard code.

2.5.1 Maintenance tasks

Based on these objectives Chapin (2000) have identified 12 types of software maintenance activities:

training, consulting, evaluative, reformative, updating, grooming, preventive, performance, adaptive,

reductive, corrective and enhancive. According to Celeste et al., this classification, while valuable, is

30

believed to be deficient in an ERP context because it does not consider the benefit of doing

maintenance. Celeste et al. (2002, p.14) then defines activities and their initiators in an ERP Customer-

Vendor relationship. These are outlined in table 3.

Table 3: Activities in ERP maintenance

Activity Initiator

Implementing internal change-requests ERP-using organization’s system users and IT staff

Responding or handling user-support requests ERP-using organization’s system users

Upgrading to new versions/releases Vendor

Performing patches Vendor

Source: author based on Celeste et al, p. 14

Implementing internal change-requests entail changes to the system properties such as data

dictionary, programs, screens, user interfaces, and/or documentation. These comprise data correction,

adaptation to the external environment, and enhancement of the existing functionality, and additional

functionality.

Responding or handling user-support requests is usually related to software system training, and

consultation on the system usage and functionality. In a case study conducted by Celeste et al., this

accounted for 59% of total maintenance effort10.

Upgrading to new versions/releases occurs usually over a longer period of 3-5 years and its costs are

strongly based on the complexity of the system. The complexity is reported to be a function

of the system size, system age, quality of the original system, the amount of maintenance done

previously, and software development practices (Banker et al., 1989, p. 254). The biggest factor

in the maintenance complexity is the amount of customization done during implementation and post-

implementation (Banker et al., 1989, p. 255). Customizations slow the whole maintenance efficiency

because each modification may cause extra effort in impact analysis, and re-testing the whole system

(Celeste et al., 2002, p.14). Therefore maintenance costs are increasing over time. Consequently this

may result in situations where the upgrade costs exceeds costs of a implementing a solution from

scratch.

Performing patches comprise following areas: Fixing bugs that are found in the standard code,

Adapting the ERP system to conform to a changed environment, such as Government regulations,

and Keeping the existing system up to the vendor’s standard version. These activities usually accounts

for the smallest part of maintenance.

2.5.2 Cloud ERP maintenance

Many authors11 claim that maintenance of a cloud ERP solution is much cheaper. The reasons behind

consider mainly energy, infrastructure and upgrade costs. Infrastructure and energy costs are moved

10 The percentage based on a single case study a single SAP implementation, therefore cannot be adopted as

wide-applicable.

31

from the customer-side to the vendor-side and upgrade costs are shared across a large amount

of customers due to multitenancy. Taking into account the economics of scale because of falling

overhead costs per customer outlined in chapter 1.5.3, the impact of cost savings in the maintenance

process is significantly bigger than in the selling, selection or implementation process.

From the vendor’s revenue perspective the cloud solution is also interesting. ERP maintenance is

an important source of incomes. A report (Jaconson, 2007) indicates that this revenue represent

around 36 percent of total ERP revenues. Cloud maintenance consists almost solely of training and

support services which have nowadays the highest profit margin around 70-80% among all

maintenance tasks described.12 Therefore despite having much lower amount of revenues, the profit

may look very promising for the cloud. Codini (2013) says that: “Cloud enables the true consultancy

potential of the ERP vendor, which should be the ultimate target of every ERP consulting company”.

In other words cloud delivers packaged know-how.

11 According to literature research done by Fesak (2012) 12 NetSuite profit margin on maintenance in 2012-2013.

32

PRACTICAL PART

3 PRESENTATION OF THE COMPANIES AND PARTNER

MODEL

3.1 Partner model

Microsoft Dynamics products are sold through partners all over the world. Partners act like Value

Added Resellers (VARs). Kelly (2012, s. 205) defines VARs as “partners who adds services that

an ISV cannot or do not wish to provide, such as an additional line of support, or support in the native

language.” In Microsoft VAR model, VAR handles the sales process; provide additional know-how

and localization of the product. They also provide professional services to help customers use

the product or integrate in into their existing systems i.e. customizations. The risk and revenues are

shared between Microsoft and its partners.

Complex add-ons or vertical solution can be developed by a third-party entity, which is basically

a company that develops a software build on some Microsoft Dynamics solution e.g. MS Dynamics

NAV. These companies act like Independent Software Vendors (ISVs). Gartner (2013) defines ISVs

as “a company whose primary function is to distribute software.” These ISVs sells the vertical solution

independently from Microsoft.

This research is a result of cooperation with NovaVision - the ISV selling the PrintVis solution and

both NAVERTICA and ARDAN which are Microsoft’s and NovaVision’s VARs. The relation

between these companies is shown in the figure 13. ARDAN was chosen to contribute to this research

because of extensive experience with the PrintVis solution and company strategy shift towards selling

PrintVis in cloud.

Figure 13: Partner model

Source: author

Figure 14 shows the cooperation between Microsoft, the ISV partner, and VARs partners. NovaVision

have to pay a commission for developing a vertical-solution based on MS Dynamics NAV and for

33

reselling licenses. NAVERTICA (or ARDAN) have to pay for reselling licenses of MS Dynamics

NAV and the vertical solution to NovaVision.13 Other costs involve maintenance fees.

3.1.1 NAVERTICA

NAVERTICA a.s. has been involved in the development and implementation of ERP systems since

1990 (previously under the name, FUTURE Engineering). NAVERTICA are headquartered in the

Czech Republic, with offices in Prague, Brno as well as in Bratislava, Slovakia. Additionally, the

company has a presence in Southern Africa with NAVERTICA SA, a daughter company with offices

in Johannesburg, South Africa.

NAVERTICA has continually fulfilled the requirements necessary to obtain Microsoft Gold Certified

Partner status since 2002 and was awarded many times as Microsoft Dynamics President’s Club.

NAVERTICA specialized in ERP and CRM solutions based on Microsoft Dynamics. In addition to

this, they manage a division, that is dedicated to the delivery of solutions such as intranet and

customer portals based on Microsoft SharePoint and also provides consultation services in the area

of integrated management systems (ISO 9001, ISO 14001, ISO 27001, etc.), with the former often

serving as an essential step in the delivery of a complex ERP or SW system.

Years of experience in the engineering has provided the know-how to deliver substantial added value

alongside ERP and SW systems. This added value is often higher than the value of the supplied system

and hence NAVERTICA commitment is to deliver “A Better Bottom Line” for the customer14.

In cooperation with partners NAVERTICA have developed and implemented Vertical Solutions for

the following segments:

• Service management

• Property management

• Rental and leasing management

• Health care

• Retail optical

• Government sector

• Manufacturing

• Engineering

• Printing industry

• Steel service and processing

• Material cutting/allocations

3.1.2 NovaVision Software

NovaVision Software A/S was founded in 1997 with goal to create an ultimate IT solution for printing

industry. The vision was also, to create a piece of software that could be implemented without many

13 Prior to NAV 2013, the VAR had to buy separately the standard MS Dynamics NAV from Microsoft

and the vertical solution from the ISV. 14 Source: navertica.com

34

customizations and thereby securing upgradeability for our customers.15 NovaVision choose to build-

up the solution on Microsoft Dynamics NAV which had proven to be the best possible platform to

obtain this goal. NovaVision has more than 250 customers around the globe with 30 partners

representing more than 40 countries.

3.1.3 ARDAN

ARDAN is a consulting company based in Milan, founded in 2010 as part of group “Gruppo i3”. The

company specializes itself on printing industry within the SME area. ARDAN provides practical and

innovative solutions, able to respond to the information, organizational, managerial and technological

need of a company. ARDAN implements “PrintVis” based on MS Dynamics NAV or “Print &

Packaging” based on MS Dynamics AX. ARDAN has around 20 clients, of which many companies

represent the biggest market players in the Italian and European printing industry.

15 Source: NovaVision profile presentation for partners available:

http://www.printviswiki.com/w/images/8/88/NovaVision_Profile_Presentation.ppt

35

4 MICROSOT DYNAMICS NAV 2013

“ERP systems are like wine: they get better with age” (ROYS and BABIC, 2008, p. 7). Microsoft

Dynamics NAV 2013 is the latest product of the Dynamics NAV family for small and midsize

businesses. It features new Office 2013 looking interface, closer integration with other Microsoft’s

products such as SharePoint, Outlook and Excel and better Business Intelligence. The Role-Tailored

client, which was firstly introduced in the Microsoft Dynamics NAV 2009 as an addition

to the “Classic” client has now murdered his older brother. Role-Tailored client offers a different

interface of the ERP system based on user’s assigned role. The user interface hides the complexity

of the system away from the users. This helps users to see only the relevant part of the ERP for them.

A real change has been done beneath the surface in the new three-tiered architecture

(ROYS and BABIC, 2008, p. 8). This goes far beyond the subject of this thesis, thus shortly put the

three-tiered is a precondition to have a scalable system that handles more users, internal departments

or even companies. With the three-tiered architecture it is also possible to expose any part

of the system as a Web service on the internet The NAV 2013 features a full web client, which has

been connected to the three-tier architecture. This is essential for having “a true cloud” architecture.

Together with other changes this made MS Dynamics NAV 2013 a first cloud-enabled Dynamics’

family product. Other features of this release are outlined in the picture 1 below.

Picture 1: Microsoft Dynamics NAV 2013 features

Source: Microsoft

4.1 Focused on cloud

The Cloud means both substantial opportunity and the requirement to change. The emphasis on cloud

computing in the market today has been on deployment to the cloud to reduce costs. This is

an opportunity to re-imagine business applications that deliver rich experiences with services,

36

information, and capabilities from cloud and on-premise solutions in ways that today are too costly

or impractical (Statement of Direction, 2012, p.7).

Microsoft is well aware of these trends and don’t want to lose its slice of market. On its last

conference in Spain new features in the CRM module and more cloud options were announced.

Dynamics AX will follow Dynamics NAV in moving into the cloud (Hernandez, 2013).

Concluding the above stated, partners should pay a lot of attention to Microsoft’s Dynamics strategy

shifting since they are more or less locked by the Microsoft’s partner model. The cloud deployment

option of the new client which today is an opportunity tomorrow could be the only choice16,

like the Role-Tailored client that chucked out the Classic client just within two releases. The picture 1

shows the roadmap for MS Dynamics NAV products from 2009 to 2015.

Picture 2: MS Dynamics NAV product release timeline

Source: Statement of Direction, p. 15

The MS Dynamics NAV 2013 R2 clients is in the picture referred as NAV “8”. Microsoft is cleverly

abandoning to include the year in the product name as this is a first-sight drawback when numerous

partners around the globe are still selling an outdated product. This is due to fast rolling out of new

versions of NAV which many partners can’t keep up with. The predicted new features for following

roll-out of NAV “9“don’t reveal much.

16 Analytics predict that this scenario is highly probable as this would allow Microsoft to gain also profits from

the infrastructure (Windows Azure). See: http://www.saasplaza.nl/dynamics-nav-cloud.html

37

4.1.1 Rapid implementations

Rapid implementations are among the targets of Dynamics NAV. The situation for the three major

market players (SAP, Oracle, Microsoft) is shown in figure 14.

Figure 14: Average Time to Implementation (Planned vs. Actual)

Source: Clash of the Titans 2014, p. 10

Average implementations of a MS Dynamics solution (both Microsoft Dynamics AX and Microsoft

Dynamics NAV) have taken 12.5 months for the year 2013. Although Dynamics solution has beaten

its competitors, the number is less impressive when considering the market segment17 and a second

look on the planned vs actual project duration doesn’t give many points either. In this discipline, SAP

projects have the shortest overrun time-wise (2.5 months).

To fight back MS Dynamics NAV 2013 have developed a new RapidStart tool in order to make

the data migration phase, thus the whole implementation process, quicker and provide a better

overview. RapidStart Services for Microsoft Dynamics NAV helps reduce implementation time

by automating and simplifying the recurrent processes in an implementation project. RapidStart

Services for Microsoft Dynamics NAV quickly configures core application setup data to meet specific

business needs using tailored templates. The templates are provided by Microsoft and are extended

and enriched by partners, to share best practices and solutions within the Microsoft Dynamics NAV

ecosystem (Microsoft, 2012, p. 6)

4.1.2 Multitenancy in MS NAV R2 2013

In a standard single-tenant model each company has its own computer or virtual machine that hosts

the Microsoft Dynamics NAV web server instance, Microsoft Dynamics NAV Server instance,

and Microsoft Dynamics NAV database. Companies or instances do not share resources

(Microsoft, 2013a). Figure 15 shows the single-tenant model typical for on-premise implementations.

17 MS Dynamics NAV solutions targets SME companies and MS Dynamics AX, which targets large enterprises,

have only small market penetration. On the other hand SAP and Oracle major markets are large enterprises.

1617,5

8,5

18,5

22,5

12,5

0

5

10

15

20

25

SAP Oracle Microsoft Dynamics

Planned (months)

Actual (months)

38

Figure 15: Single Server Instance

Source: Microsoft (2013a)

With the multitenant deployment architecture introduced in Microsoft Dynamics NAV 2013 R2,

a single application is used by two or more companies that store their data in separate databases.

This makes maintenance of the solution easier (Microsoft, 2013b).

The traditional NAV database has been split into two: one for the application data and one

for the customer data. Every customer has its own customer database containing tables like Sales

Header, Windows Login, and Windows Access Control etc. This configuration is shown

in the figure 16.

Figure 16: Multitenant architecture

Source: Microsoft (2013a)

With this configuration, companies share a Microsoft Dynamics NAV Server instance and application

database, but have their own business database. The application database contains tables

and information that describe the Microsoft Dynamics NAV application and is not specific

to companies. The business database, which is referred to as a tenant, stores business data that is

39

specific to the company (Microsoft, 2013a). This configuration is essential to exploit full benefits of

the cloud solution.

4.1.3 Customizations

Customization is the ability to modify the system to fit customer needs. One of the arguments in favor

of a Microsoft-based ERP platform is the widespread availability of people who can customize

the system (Cox, 2009, p.22). On the other hand in the maintenance process, we have demonstrated

that customizations are inefficient. Gartner (2014), as a world’s leading IT research and advisory

company, claim in their research that: “any heavily customized ERP system will soon become

obsolete... Many business executives are nowadays concerned about the lack of flexibility in their

business application portfolio”.

On the other hand business stakeholders still want the same qualities from the ERP system, but now

they assume that these qualities will be present in any software solution, and their requirements have

switched to the twin concerns of lowering IT costs and seeking increased flexibility (Gartner, 2014).

This need can be satisfied only by selling already highly tailored solutions specific to an industry.

Customizations are now acceptable only when they can be applied to a wide-range of customers.

These wide applicable customizations are afterwards packaged as add-ons and lead to a highly tailored

solution.

Many consultants will discourage this approach claiming it impossible to achieve thus defending

customization as a profit-driver for the vendor. Gartner (2014) claims that this conviction is a

consequence of 15 years of customization era where vendors secured themselves a prosperous future

by utilizing lucrative continuous service contracts that went beyond implementation into extensive

customizations.

Example of highly tailored solution is PrintVis 2013, which when combined with local add-ons can be

used without heavy customizations. ARDAN have managed by implementing this solution to drive

down the number of customization from over 300 to 17 in their upgrade from a previous PrintVis

release (Codini, 2013).

4.1.4 Licensing

License costs made up for almost fifty percent when talking about on-premise NAV implementations

with a reasonable level of customization.18 The cost of a license has to be usually paid upfront

but many providers offer “a leasing”, where customers pay a monthly fee and after he has paid all

the repayments, he owns the license. When choosing an on-premise license a customer buys the rights

to use the software forever and install it on their own server wherever that may be hosted on vendors’

18 The level of customization plays a significant role in the total implementation price; “reasonable” in this case

means that the customization costs will not exceed 10% of the total implementation budget

40

servers which are then rented to the customer. Many vendors claim that this is the cloud, even though

this solution has nothing to do with it.

For NAV 2013, Microsoft have opted for the title “Perpetual Licensing”, this is a bit confusing since

previous license models were also perpetual; however, it does the job of differentiating on premise

and subscription based (cloud) solutions which are packed under the title “Subscription Licensing”.

When choosing a subscription license a customer buys the rights to use the software for a limited

period when he is paying the subscription and deployment occurs on a cloud enabled server which is

chosen by the vendor. Table 4 summarized the license options described in the paragraph above.

Table 4: License options

License type Payment basis Right to usage Deployed

Perpetual Paid upfront Forever On-site

Hosted

Leasing Forever On-site

Hosted

Subscription Monthly subscription Paying period Hosted in cloud

Source: author

Basically both of these models works by deciding on the functionality required then adding

the number of users. For NAV 2013 Microsoft has also changed the licensing of the functionality

which is now adapted to the role based user-type structure. NAV now defines two types of users listed

as “Full user” and “Limited user”. Full user has write and read access to every object in the system.

Limited user has limited write access but unlimited read access of the objects. The price of a limited

user is around 17% of a full user.19

4.2 PRINTVIS 2013

PrintVis is a comprehensive standard ERP/MIS vertical product for the printing industry developed

by a small Danish company NovaVision A/S founded in 1997. Since then Nova Vision’s main goal

was to create an ultimate ERP solution for the printing industry. PrintVis is built on and certified

for Microsoft Dynamics NAV. Since MS Dynamics NAV is a highly customizable ERP platform

designed for firms involved in distribution and manufacturing, it is ideal core to build a print company

on. NovaVision claims that their system PrintVis will fulfill the most advanced needs for all the tasks

and processes in the administration and production of prepress, press and postpress. PrintVis can be

adapted to client’s specific needs. PrintVis is marketed, sold and implemented globally by a network

of highly skilled partners over the globe (PrintVis, 1997-2014).

PrintVis handles printing, newspapers, flexo print, packaging, book production, magazine and

publication manufacturing, large format printing and commercial print (PrintVis, 1997-2014).

Modules within PrintVis include estimating, planning, production, e-commerce specific to the printing

industry. Other modules like finance, stock management, human resources, supply chain management,

19 The price varies based on the number of objects to which the user has the write access.

41

fixed asset management are “taken” from the standard MS Dynamics NAV solution. The firm can

always choose which module they are going to use and this vary the price of the final product/service.

According to discussion with consultants,20 PrintVis competitive advantage lies, besides the benefits

of the MS Dynamics NAV, mainly in the high level of detail provided, especially the imposition,

which shows how the various part of the order are placed on the printed paper. Since the paper

consumption is the main KPI for the printing industry this feature is a significant competitive

advantage. Another advantage is the JDF21 capability. PrintVis fulfill the standards of JDF which

allows machines to communicate directly with the ERP system. Picture 3 shows the interface of

PrintVis with the imposition.

Picture 3: Job details with imposition

Source: author

4.2.1 Licensing

PrintVis 2013 has derived its three basic user types from the MS Dynamics 2013 limited and full user

types, as it is shown in the figure 17.

20 Interview with Codini (2013).

21 Job Definition Format (JDF) is a technical standard being developed by the graphic arts industry to facilitate

cross-vendor workflow implementations of the application domain.

42

Figure 17: PrintVis user types

Source: author

The table 5 shows the functionality of the above three PrintVis user types.

Table 5: PrintVis user types

PrintVis full user PrintVis Remote Salesman User PrintVis Registration User

This user type is needed for all

users that need full access to all

NAV functionality, to create G/L

entries and administrate PrintVis

by using the setup.

This user type is perfect for

office staff and estimator as

well as the outside sales force,

which can monitor orders on

the go.

This user type covers the typical

functionality needed for shop floor

machine operators, shipping clerks

and warehouse workers.

• Comprehensive Estimating

Tools

• Total Order Management

• Purchasing and Invoicing

• Create Cases, Quotes and

Orders

• Run Sales Reports

• Create/Maintain

Customers

• Print Job Tickets

• Production Plan Overview

• Time

Registration/Documentation

• Materials Documentation

• Status Updates Report to Admin

Source: author

4.3 PRINTVIS 2013 in cloud

PrintVis in cloud was released in December 2012. In fact, NovaVision was among the first

of Microsoft’s partners to shifts its vertical solution “up in the clouds” - almost immediately after

Microsoft released Microsoft Dynamics NAV 2013 which was the first cloud-enabled Dynamics

solution.22 NovaVision also achieved an important triumph in being the first to deploy a cloud solution

on Windows Azure platform.23

NovaVision offers two basic options of how the partner can sell and implement PrintVis in cloud:

The standard way where the implementation partner has the possibility to buy the subscription licenses

at 50% of the end-user price, quoted in table 22 of the case study, and charge for the implementation

and deployment on an IaaS platform or much more fixed “package implementation” consisting

22 On February 4th 2013, the print broker company Production Facilities from Copenhagen, Denmark, went live

on their new PrintVisCloud solution.

23 On May 1st the first PV customer went live on Azure. In fact, this is the first in the world NAV on Azure to go

live

Full user PV Full user

Limited user

PV Remote Salesman user

PV Registration user

43

in selling the solution through “Accelerated Sales Process” and implementing it on Windows Azure

through “Accelerated implementation process”.

4.3.1 Accelerated Sales Process

This process is used for selling the PrintVis in cloud solution below 120 implementation days.

The Accelerated sales process complies with the current changes in the sale and selection process

outlined in chapter 2.3. This process is derived from the Microsoft’s campaign for MS Dynamics

NAV 2013 called “Road to Repeatability”. The underground philosophy is a “Five Call Close”

and online approach. In online meetings an extensive emphasis is put on mutual understanding

in order to avoid mutual uncertainty described in the chapter 2.3.1. The table 6 outlines several key

messages from today’s customer perception of the ERP selection and selling process and proposed

impact on partner’s way of selling the solution. NovaVision already adopted this strategy

for the PrintVis 2013 in cloud.

Table 6: Road to Repeatability

Key message Partner impact

ERP projects are always rooted in emotionally charged

business challenges.

Partners must understand the 4-6 primary business

drivers that force/compel prospects to upgrade their

core business system.

Prospects will find you online long before you find them

and want to understand your solution before they engage.

Partners must position themselves to be “found” by

potential prospects, through SEO, SEM and active

online presence.

Prospects will look to their social networks such as

linkedin.com and online communities for guidance and

validation before they reach out to vendors.

Be active in targeting prospects ‘online

communities.

Prospects will remain anonymous through much (up to

65%) of their buying process.

Speed of response and adding value early in the

engagement experience is critical to creating

differentiation and compressing the sales cycle.

Prospects often know more about their industry

challenges, and potential solutions than many sales

professionals.

Identify the business challenge driving the initiative

through intelligent discovery and introduce

vertically relevant information that is new to the

prospect.

Operational project leads are often reluctant to engage

their executives in the discovery process.

Respectfully handle objections by focusing on how

the project lead benefits by changing his or her

mindset

Misunderstandings can easily take place during the

discovery process.

Send solution specific e-mails to validate prospects

business challenges and impacts.

Create positive emotional bias early in the sales cycle by

showing how your solution solves one of the prospect’s

primary project driver.

Understand and listen for the 4-6 change drivers and

have pre-configured 5-10 minute demos prepared for

remote delivery.

Direct BANT24 qualification and poor listening skills

undermine trusts and disclosure.

Exercise a customer-centric discovery process (what,

how, why) to effectively profile a lead/opportunity.

To prospects, most software applications look very

similar, if not identical. Capital preservation and speed

can be as important as solution functionality.

Configure concise industry specific solution demos

and offer solutions that are available on a

subscription basis that can be deployed quickly.

24 BANT = Budget, Authority (to purchase), Need and Timeframe. It is widely used by sales teams all over the

world. Its premise is simple, “if sales people discover the following four pieces of information, they are more

likely to succeed in winning the deal.”

44

Most sales professionals e-mail proposals with no insight

into prospect’s objections and concerns and wait for a

response.

Configure and deliver a 6-8 slide proposal

presentation to project stakeholders via webcasts,

and then deliberately ask for commitment.

Prospects want a smooth buying experience and to

complete their transaction as soon as they have made

their decision.

Simplify contracts to as few pages as possible and

make in easy to execute signatures digitally.

Source: Road to Repeatability (2013)

The accelerated sales process is built to address the above mentioned key messages and as it was

already mention consist in five calls (meetings). The following three phases are recognized.

Phase I – Qualify (1st and 2nd phone call)

The majority of the heavy lifting and positioning is completed during Qualify; which effectively

compresses the first three phases of a traditional complex sales model. Coming out of this phase 1 the

sales professional will have:

• validated the opportunity meets pre-defined “accelerated” criteria

• qualified the prospect based on layer 1 (BANT) and layer II (solution/partner specific criteria)

• secured an understanding of the selection process and selection criteria

• aligned the prospect’s buying process with the partners selling process

• secured access to the BDM (business decision maker)

• delivered a 15 – 20 minute buy-in demo

• confirmed the desired solutions set and fit to partner offering

• determined proof activities required to move to contracting

• validated all of the above through a mutual alignment/action plan

Phase II – Proof (3rd and 4th phone call)

The Proof phase focuses exclusively on providing the comfort required to proceed to contract

and surfacing, then handling all outstanding objections. The primary Proof activities are:

• Satisfying outstanding technical concerns

• Educating and demonstrating to a broader stakeholder group

• Managing a trial process (Buy-It-Try-It model, see chapter 2.3.4)

• Aligning the prospect with a recommended close plan

Exit criteria for the Proof phase are the elimination of all outstanding objections and agreement

to proceed to submitting a proposal. Goal in this phase:

• Align business challenges with solution capabilities

• Validate capabilities

• Remove the barriers to commitment

Phase III – Close (5th phone call)

The Close phase focuses exclusively on the mechanics of handling hidden or unconscious objections

and mechanically closing the transaction. The primary Close activities are:

• Developing and presenting a proposal

• Handling outstanding objections

• Contract execution (ask for the order)

45

Exit criteria for the Close phase are contract execution and a successful hand off to delivery. Microsoft

claims that total average time spend on the buying cycle before closing the deal is 6 hours and 15

minutes on 5 calls (Road to Repeatability, 2013). In comparison traditional sales and selection process

for a project of 200 implementation days involves around 150-160 hours on 20-30 meetings and more

than 50 telephone calls (Turek, 2014). We must notice that the Accelerated Sales Process is applicable

only on projects below 120 implementation days (Tomshøj, 2014) which will follow the accelerated

implementation process.

Extensive focuses on social network marketing, building-up online help and become an expert on the

solution are other key messages outlined from the table 6. The partner can generate leads through

PrintVis cloud website (cloud.printvis.com) or through own marketing.

In order to become a cloud partner a participation in a cloud campaign is required. The campaign

consists in a series of meetings and homework where partners are taught how to generate leads in

cloud, the accelerated sales and implementation process and the translation of the website in

corresponding language is made.

4.3.2 Accelerated Implementation Process

Cloud PrintVis is deployed following a standardized implementation project. This project plan is

designed for “small” projects deployed on Windows Azure, which saves time with setting-up,

delivering and testing the architecture. This combination of SaaS and IaaS shortens “Time to Value”

of the implementation.

The budget for an implementation is fixed and depends on the region. For Czech Republic it will be an

equitant of 7 500 EUR which all goes to the partner. The project plan for the implementation package

consists in 10 man-days + 2 days follow-ups. This translated to man-hours accounts for a total of 88

Mh, which are distributed between the Finance Consultant, Printing Consultant and Customer’s

“homework” for Bookkeeper and Printing resource. Detailed project plan can be found in the

Appendix B. Table 7 describes resources needed for the implementation.

Table 7: Implementation package

VENDOR CUSTOMER

Task Finance

consultant

Printing

consultant

Printing

resource

homework

Bookkeeper

homework

ClickOnce deployment on Azure 0.5 0 0 0

RapidStart setup 4 7 0 0

Excel sheets for migration 2 2 7 15

Test, learn and change cycle 3 4 10 2

5 reports changes 2 2 0 0

GoLive & Follow-ups 5 11 0 0

16 support calls 4 4 0 0

Total implementation [Mh] 20.5 30 17 17

Source: author

46

Table 7 contains tasks included in the implementation package and estimated man-hours.25 Estimated

man-hours are based on NovaVision practice and are valid for partners who have extensive knowledge

of the solution. The customer is charged only for the time on the vendor’s side. As you can,

the implementation time from the vendor’s side accounts for a total of 50.5 Mh. From the customer’s

side a lot of effort is required, totally 34 man-hours, where probably a lot of support from the vendor’s

side will be needed, thus the worst-case scenario can lead up to 84.5 Mh invoiced. NovaVision is

comparing this cloud implementation to a model implementation of on-premise solution, where based

on their practice a similar implementation would take from 13 to 16 man-days, a total of 104-128 Mh.

This represents a 19-34% of average decrease in time-budget from the vendor perspective

in the implementation process.

In order to complete the implementation within the outlined fixed budget a lot of effort from both

partner and customer side is required. A consultant from NAVERTICA claims: “I can only imagine

this online approach if we had someone who has extensive knowledge of the solution who would

nimbly react to customers’ needs and do the right setups during the implementation” (Miklík, 2014).

Another key success factor is the willingness of customer to take this leap of faith in doing everything

online. According to Hünner this was one of the hardest things during their cloud implementations.

NovaVision is also prepared to cooperate with partners, who want to join the ‘cloud-run’ in order

to improve the mutual knowledge on this solution (Hünner, 2014). Together with partners,

NovaVision have already achieved four successful implementation of this solution. NovaVision has

also developed a database of self-training videos for end-users, the complete structure can be found in

the Appendix E. Each session takes 90 minutes. Live online training with consultants are also

available for 450/900 EUR half/full day.

4.4 Windows Azure

Windows Azure is the IaaS platform build by Microsoft which offers almost unlimited scalable

computing power where client pays based on the computing power consumed per time unit. This

enables true cloud efficiency, faster deployment and faster return on investments.26 Table 8 outlines

key values of PrintVis deployed on Windows Azure.

Table 8: NAV on Windows Azure key values

Key value Description

Increased flexibility and lower total cost of

ownership

Easily scale infrastructure up or down as needed to

meet business needs. Never worry about running out

of resources, or paying for overcapacity. Examples of

peak usage times include holiday shopping season,

month/year

25 A man-hour is the amount of work performed by the average worker in one hour. It is commonly used in

project management for estimation of the total amount of uninterrupted labor required to perform a task. 26 Source: http://community.dynamics.com/dynamicbusiness/b/theedge/archive/2013/06/18/microsoft-dynamics-

partner-abakion-expect-to-gain-25-in-revenue-through-hosting-on-windows-azure.aspx

47

end close, and so on. Replace infrastructure, hardware,

and IT management costs with highly efficient

automated processes in Windows Azure.

Receive detailed usage reports and only pay for the

computing resources you use each month. Refocus IT

resources from managing infrastructure to working on

strategic projects.

Accelerated deployment

Get up and running in hours instead of weeks by

removing the need to scope, purchase, deploy, and test

infrastructure

Anywhere access Securely access your business data in the cloud from

anywhere at any time using the Microsoft Dynamics

NAV Web client on virtually any device.

Enterprise-grade infrastructure and support

99.95% availability guarantee when working with two

or more instances in availability set. 24x7 global

support from Microsoft experts. Robust security,

backup and privacy controls enabled by Windows

Azure running in geographically dispersed datacenters

that comply with key industry standards, such as

ISO/IEC 27001:2005.

Source: Microsoft (2014)

4.4.1 Interface

The Windows Azure interface is web-based and user-friendly. MS Dynamics NAV can be installed

just with few clicks or by running a simple script, which allows automation of the whole deployment

process. The picture 4 shows the installation of Microsoft Dynamics NAV in Windows Azure

environment.

Picture 4: Windows Azure MS NAV 2013 deployment

Source: Microsoft Dynamics NAV 2013 R2 available in the Windows Azure Portal under MSDN

subscription (2014)

48

The Windows Azure environment allows at the moment of creation a virtual machine a library

containing images of whole range of software. Just by clicking on the “Microsoft Dynamics NAV

2013” the deployment is done.

4.4.2 Pricing examples

Windows Azure pricing works with the “Pay-as-you-go” model, where the user is charged for

• Computing power usage (price per hours of usage based on the configuration)

• Storage usage (price per GB of data stored)

• Network traffic usage (price per GB of data transferred)

This already gives an idea, that the calculation of the final price will be not easy. Furthermore the

pricelist for Windows Azure offers numerous options, discounts and services that can be included,

thus the calculation of the final price would easily be enough to write another thesis on this subject.

Therefore we will only show relevant example already completed calculations for the MS Dynamics

NAV 2013 (or PrintVis) deployment on Azure.27

The architecture supports multitenant or single-tenant deployment of MS NAV 2013, see chapter

4.1.2. We will show an example calculation for 50 concurrent users. The table 9 shows the calculation

for a multitenant deployment.

Table 9: Pricing example for PrintVis 2013 deployment (multitenant)

Shared multitenant Size Price

AD Server Azure A0 (Shared cores, 768 MB

RAM)

11.09 EUR

NAV Service tier Azure A2 (2 cores, 3.5 GB RAM,

225 GB SQL Storage)

99.74 EUR

SQL server Web edition Azure A3 (4 cores, 7 GB RAM,

1000 GB SQL Storage)

224.40 EUR

Local Storage 300 GB 15.64 EUR

Storage transactions 50 millions of operations 3.75 EUR

Outbound traffic 50 GB 4.03 EUR

Total average monthly price 358.65 = 7.173 EUR per user28

Azure automatic backups (300 GB) 109.85 EUR per month

Source: NavTechDays (2014)

This is the basic configuration, but still offering a good/acceptable timeframe of task completed.29

NavTechDays (2014) recommends including the Azure automatic backups. This option will cost

109.85 EUR per month but saves a lot of time with doing the backups manually.

27 Example calculation are made by NavTechDays (2014)

28 Microsoft offers various discounts to build-up their client-based on Windows Azure; with no commitment the

discount of 20% is applicable, with 6 month commitment 22.5%, with 12 month commitment 25%.

29 Microsoft have conducted benchmarks, where based on the number of users and type of architecture

the configuration is suggested. Nevertheless the risk of underrating the configuration is compared with on-

premise irrelevant because it can be scaled-up just in few clicks.

49

Now we will consider a single-tenant architecture for 8 clients (tenants) (each has own NAV tier), but

they are sharing one SQL server. Each client has the tier designed for 50 concurrent users. The table

10 shows the price calculation for this scenario.

Table 10: Pricing example for PrintVis 2013 deployment (single-tenant)

Shared 8-tenants Size Price

AD Server Azure A0 (Shared cores, 768 MB

RAM)

11.09 EUR

SQL server Web edition Azure A3 (4 cores, 7 GB RAM,

1000 GB SQL Storage)

224.40 EUR

Local Storage 300 GB 15.64 EUR

Storage transactions 50 millions of operations 3.75 EUR

Outbound traffic 50 GB 4.03 EUR

Monthly price for dedicated NAV tier (50 users) 258.91 / 50 = 5.178 EUR per user

Shared SQL Server Azure A2 (2 cores, 3.5 GB RAM,

225 GB SQL Storage)

99.74 / 8 = 12.468 EUR per client

Total average monthly price per client per user 17.65 EUR

Source: NavTechDays (2014)

As you can see from the table, the cost of this deployment has more than doubled. This is an example

of how multitenancy efficiency drives down the total costs. Nevertheless, in cases where multitenancy

cannot be applied (required customizations) or desired this approach can be used. We must also notice

that the calculation for “single-tenant” architecture would vary based on the number of clients sharing

the SQL server.

4.4.3 Comparison with on-premise

We can compare the above Windows Azure pricing with the hardware required for an on-premise

implementation for 50 concurrent users. Such implementation would require a server costing 27 308

EUR30 and yearly costs of 7 300 EUR31. The yearly costs for a multitenant Windows Azure

deployment will be 4 304 EUR and 10 590 EUR for a single-tenant Windows Azure deployment. The

figure 18 shows the comparison of the three above described deployment options.

30 Calculated as following: Server costs for an on-premise implementation for 25 concurrent users = 3 603 EUR

* 2 + Software costs = 10 051 * 2 = 20 102 EUR = 27 308 EUR. 31 Yearly operating costs are from the case study see chapter 7.2.3. Electricity costs are 1.5 the amount for a 25

concurrent and server administration costs are equal because we do not suppose more work for 50 users than

in case of 25 users.

50

Figure 18: Windows Azure costs (multi/single tenant) compared to on-premise

Source: author

The efficiency of multi-tenancy overcome the two other deployment options. This magnitude of

savings is compliance with the theory outlined in chapter 1.5.4. The single-tenant architecture reaches

a break-even point with on-premise in the eighth year. The model is simplified because does not incur

upgrade costs for on-premise hardware and the clients stations both for cloud and on-premise are left

out. Furthermore the software for on-premise includes additional applications which we did not

include for Windows Azure. NavTechDays (2014) claims, that all of their new clients since 2013 have

chosen the Windows Azure deployment (at the moment still single-tenant) instead of hosted or on-

premise.

0

20000

40000

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180000

Year

0

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Co

st [

EUR

]

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On-premise

Windows Azure(multitenant)

Windows Azure (single-tenant)

51

5 MARKET ANALYSIS

In order to quantify the potential market for the PrintVis in cloud solution we will analyze the current

situation in the ERP market globally and locally. We will forecast future growth in the segment and

analyze new trends in the market. Furthermore we will conduct a simplified financial analysis of the

printing industry in Czech Republic.

5.1 Global ERP market

To better visualize current situation on the global ERP market we will be using the Boston Matrix

originally developed by Bruce D. Henderson for the Boston Consulting Group in 1970. The Boston

Matrix classifies a firm’s products according to their Relative market share and Market growth.

These products are then classified according the following key.

Figure 19: Boston matrix

Source: McDonald (2011, p. 173)

The somewhat picturesque labels to each of the four categories of products give some indication of the

prospects for product in each quadrant according the table 11. A company should invest the cash

surplus generated by Cash Cows to the Stars and some selected Question Marks.

Table 11: Products classifications

Classification Definition

Question

Marks

(Babies)

Products which have not yet achieved a dominant market position and thus a high cash flow,

or perhaps They once had such position but have slipped back. They will be a high user of

cash because they are in a growth market

Stars Products which are probably a newish and has achieved a high market share and which are

probably more or less self-financing in cash terms.

Cash cows

These products are leaders in markets where there is little additional growth, but a lot of

stability. These are excellent generators of cash and tend to use little because of the state of

the market

Doggies

These products often have little future and can be a cash drain on the company. While it is

possible that such products are necessary to support more successful products, they are

probably candidates for divestment.

Source: author based on McDonald (2011, p. 173-174)

52

Janstål (2012) have conducted an analysis of the current ERP market with particular focus on the

European market. The outcome of the analysis is the Boston matrix in the figure 20.

Figure 20: Boston Matrix of ERP systems

Source: Janstål (2012)

The ERP solutions highlighted in yellow represents cloud ERPs, the rest are traditional models. The

research is two years old, thus some new cloud solutions are missing e.g. SAP Business All-in-One.

We can also identify the Dynamics NAV solution in the bottom-left quadrant. The solution is

classified as “Cash Cow” but it is also disturbingly near the barrier with the “Doggie“quadrant.

5.1.1 Cloud-born players

Many cloud-born ERP companies have entered the market in recent years. The current market leader

is Salesforce.com with more than 104,000 customers32. For comparison the Dynamics NAV solution

has 94,000 customers33. However Salesforce.com major product is CRM, their ERP solution called

“Inforce” accounts only for a small slice of market. Anyway total market capitalization of Salesforce

is 33.28 Billion which is impressive for example to compare SAP has market capitalization around 90

Billion. The figure 21 shows market capitalization and share price growth from the company’s IPO to

the end of previous year.

32 The number of customers is based on data published in Abrahams (2013, p. 11).

33 The number of customers according to Henning (2013).

53

Figure 21: Salesforce.com shares price

Source: finance.google.com

The second big player, much more relevant competitor, which specializes strictly on ERP solutions

running in cloud is NetSuite Inc. Company has around 7,200 customers mainly in the United States

but it is also penetrating the APAC and EMEA market the figure 22 shows market capitalization and

share price growth from the company’s IPO to the end of previous year. Furthermore, NetSuite is

positioning its ERP system against Microsoft Dynamics Solutions thus driving customers away from

Microsoft.34

Figure 22: NetSuite Inc. shares price

Source: finance.google.com

The shares have grown by 163.21% in the period from December 28, 2007 to Dec 31, 2013. Current

market capitalization is around 7.69 Billion. As you can see from figures of both companies, the

growth is astonishing, but Microsoft claims: “As impressive as the success of these players is, it is

really only the tip of the iceberg. There are also numerous new entrants in virtually every market

worldwide that operate largely ‘under the radar’ and are privately held“(Abrahams, 2013, p. 11).

34 Source: http://www.netsuite.com/portal/press/releases/nlpr04-09-13.shtml

54

5.1.2 ERP delivery models

Panorama Consulting Solutions conducts every year an independent research of the ERP global

markets. The survey examines more than 150 companies, which are currently running an ERP

implementation project or have implemented an ERP in the recent year. Last research also shows the

ratio of “Cloud”, “On-premise” and “Other” delivery models. There is a misconception where delivery

models are divided to “SaaS” and “Cloud” separately, for purpose of this thesis these two categories

has been merged. Cloud implementations include hosted implementations which are typical for fake

clouds. The confusion between various models goes even further in previous researches which makes

then impossible to do a y-o-y comparison. The figure 23 shows the market share of various delivery

models.

Figure 23: Service delivery models

Source: Panorama Consulting Solutions (2013, p. 9)

Unsurprisingly the on-premise model with 61% is dominant on the market, but Cloud and SaaS

delivery models accounted for an impressive 26%. The rest is left to “Other” and this category is not

further specified. This part probably accounts for hybrid implementations. The research (Panorama

Consulting Solutions, 2013, p.9) also pointed out that despite the growing market share; companies are

still reluctant to adopt this solution. The figure 24 shows the most common reason for doing so.

61%

26%

13%

On-Premise

Cloud, SaaS

Other

55

Figure 24: Cloud perceived risks

Source: Panorama Consulting Solutions (2013, p. 9)

The majority of respondents - 40% wouldn’t choose a cloud ERP because of lack of information

or knowledge about the offering on the market we think this number will fall drastically during

the following years as the awareness about cloud ERP solution is spreading exponentially. This trend

is apparent in the figure 25.

Figure 25: Google searches for "cloud ERP"

Source: author based on Google Trends

Figure shows number of Google searches for the phrase “cloud ERP”. It is measured as percentage

on the vertical axe, where the highest point stands for the highest number of hits, which was reached

in April 2014. The growing trend is evident. The shift and impact of customer self-education through

the search engines was already mentioned in the selection process, see related chapter. Risk of security

breaches was chosen in the questionnaire as number one concern. Controversially the research quotes

that overall experience has shown cloud provider’s solutions as “more secure and reliable than any

internal IT group ever could.” (PANORAMA CONSULTING SOLUTIONS, 2013, p.9). Remaining

21% were afraid of data loss, this is another very controversial perception as servers in clouds are

commonly running in large grids in order to benefit from the economies of scale with daily backups

and data mirroring across multiple locations. Sadly the research doesn’t provide the data classified per

39%

40%

21%

Risk of security breaches

Lack of information or knowledgeabout the offerings on themarket

Risk of data loss

56

company-size. However, the survey shows the structure of the sample of respondents by number of

users, which is shown in the figure 26.

Figure 26: Number of Named users

Source: Panorama Consulting Solutions (2013, p. 4)

The “Named user” stands for a user that access the ERP system under its own login name and

password. For the cloud solutions the most interesting is the 26% for the group 1-30 named users,

because the penetration within the small implementation is generally higher for cloud ERP solution.

With the increasing number of uses, the total amount paid in subscription fees starts to overcome the

up-front savings and the long-term TCO for cloud ERP rises significantly.

5.2 New trends in ERP

In order to distinguish viable technologies from the buzz a professional and objective view on the

market is needed. A world leading IT consultancy company Gartner conducts yearly a study of the IT

market and builds a curve called the “hype cycle”35. The hype cycle measures the maturity

and adoption rate of technologies and applications (Basl, 2011, p.28). Furthermore it measures how

these technologies are potentially relevant to solving real business problems and exploiting new

opportunities (Gartner, 2004). The Hype Cycle distinguishes following five stages:

Technology Trigger: A potential technology breakthrough kicks things off. Early proof-of-concept

stories and media interest trigger significant publicity. Often no usable products exist and commercial

viability is unproven.

Peak of Inflated Expectations: Early publicity produces a number of success stories—often

accompanied by scores of failures. Some companies take action; many do not.

35 Similar analysis conducts also G. Moore (2008), which uses the term „chasm“, instead of hype.

26%

22%

18%

7%

11%

16% 1-30

31-100

101-250

251-500

501-1000

1000+

57

Trough of Disillusionment: Interest wanes as experiments and implementations fail to deliver.

Producers of the technology shake out or fail. Investments continue only if the surviving providers

improve their products to the satisfaction of early adopters.

Slope of Enlightenment: More instances of how the technology can benefit the enterprise start

to crystallize and become more widely understood. Second- and third-generation products appear from

technology providers. More enterprises fund pilots; conservative companies remain cautious.

Plateau of Productivity: Mainstream adoption starts to take off. Criteria for assessing provider

viability are more clearly defined. The technology’s broad market applicability and relevance are

clearly paying off.

Gartner also forecasts “Years to Mainstream Adoption” which indicates how many years are needed

before the technology reaches the last stage – Plateau of Productivity. Figure 27 shows the Hype cycle

for ERP systems and related technology.

Figure 27: Hype cycle for ERP 2012

Source: Gartner (2012)

For our research are particularly relevant “Cloud ERP for Small or Midsize Businesses” which are

currently almost at the peak of inflated expectations with five to ten years to mainstream adoption.

Another relevant term is “Cloud ERP for Large Enterprises” with five to ten years to mainstream

adoption which has just started to climb along the curve.

58

According to Gartner the adoption rate for SME is still very slow with market penetration from 1 to 5

percent. The cloud is particularly popular for administrative ERP, but remains less prevalent

for manufacturing due to lack of cloud ERP solutions for this segment, complexity and security

concerns. Gartner also confirms that adoption of cloud ERP will remain ahead for SME rather than in

Large Enterprises (Gartner, 2012).

We must keep in mind that the research quoted above is two years old and the situation in the cloud

ERP market is now quite different as many ERP vendors have released their cloud solutions in the last

two years e.g. Dynamics NAV. More recent research from Gartner is restricted only for the paying

audience, but fragments from newer researches can be found in related articles where Gartner have

made the following previsions (Gartner, 2014), (Gartner. 2013):

• By 2018, at least 30 percent of service-centric companies will move the majority of their ERP

applications to the cloud.

• The use of cloud computing is growing, and by 2016 this growth will increase to become

the bulk of new IT spend. The 2016 will be a defining year for cloud as private cloud begins to

give way to hybrid cloud and nearly half of large enterprises will have hybrid cloud

deployments by the end of 2017.

• The concept of a single ERP suite that meets all of an enterprise's needs is dead, and has been

replaced by a hybrid ERP approach that combines cloud point solutions with a smaller "core"

of on-premises ERP function.

5.3 ERP market in South Africa

South Africa (SA) is one of the strategic markets for NAVERTICA. In order to analyze the SA ERP

market we will be using currently researches of the local IT market with a forecast for next 5 years

conducted by BMI (2013b) and AMR Research (2007).

According to AMR Research (2007), emerging markets such as Brazil, Russia, India, China and South

Africa (BRICS) will be the major area of growth for future ERP markets and the majority of the

companies would be SMEs.

Other research (Faasen et al., 2013, p. 42) outlines lack of control and vendor trust as a dominating

factor in the SA environment. Additionally BMI reports two major risks in the local market which are

lack of access to credit: “Lack of access to credit remains a significant barrier to IT investments by

smaller firms, as they are generally regarded by lenders as a greater risk” (Business Monitor

International, 2013b, p. 49). Furthermore continuing electricity hikes have a negative effect on the

market. In early 2013, The National Energy Regulator of South Africa (NERSA) granted power utility

Eskoman 8% average increase per annum over the next five years. This is in addition to the more than

170% increase seen over the past five years (Business Monitor International, 2013b, p. 43).

59

These two last risks specified can be partially overcome with cloud computing due to low upfront

investments, increased energy efficiency and elastic pricing.

5.3.1 Cloud computing

In South Africa cloud computing deployments are positioned to be the dominant delivery mechanism

for enterprise software, where on-site deployments have little legacy. We expect new cloud computing

offerings and increased competition in the SaaS market to fuel further demand from end-users to

utilize this technology. Another factor driving growth is the weakening economy, with organizations

adopting SaaS as they look for innovative ways to reduce costs, as well as for better and more

effective deployment of IT resource (Business Monitor International, 2013b, p. 39).

Although lack of reliable bandwidth, has proven being challenging in these markets. However the

broadband connection has improved greatly in the last years. Table 12 shows the Internet access

historical and forecast data for SA.

Table 12: Internet access - Historical Data and Forecasts South Africa

2010 2011 2012 2013e 2014f 2015f 2016f 2017f

No. of internet users (‘000) 6500 15500 21250 24491 26913 28137 28829 29262

No. of internet users/100 inhabitants 13.1 30.9 41.9 47.9 52.1 53.9 54.7 55.0

e/f = BMI estimate/forecast. Source: BMI (2013b)

A major leap can be seen from the table; penetration has jumped from 13.1 to 41.9 during the period

2010-2012 due to large investment into infrastructure including new submarine, growth of wireless

network as well as optical-fiber networks. The heated up market is forcing major local broadband

providers such as Telekom, Neotel, Vodacom and MTN to lower the prices. Cloud service providers

are seeing this and in order to meet the demand, many datacenters facilities are currently under

construction. BMI forecasts that at the end of 2017 the penetration will reach 55%

ERP remains the most popular enterprise software application with South African businesses, with a

growing number of them now using this tool. Vendors have reported excellent growth in SAP

implementations. SAP recently launched a referral program in South Africa aimed at SAP partners and

non-partners. The program pays about 5% of the value of a software license deal, after the deal is

closed. Municipal and local authorities are also starting to implement cloud services. In 2011, the IP

EXPO survey found that 46% of South African large businesses had already introduced some form of

cloud computing. This share was projected to be close to 60% by 2013 (Business Monitor

International, 2013b, p. 40-60).

According to a study conducted by Lamb (2011) research possibilities of Green IT to overcome

energy hikes and power outages. Green IT or ICT sustainability is a concept which include designing,

manufacturing, using, and disposing of computers, servers, and associated subsystems effectively with

minimal or no impact on the environment. The study suggests that clouds have great promise at data

centers not historically tightly governed and managed.

60

The concept was born after the economic crisis in 2008-2009 (Basl, 2011, p. 48). The ICT around the

globe consumes around 153 TWh which represents 1% of global energy consumption and the

consumption doubles every five years. Cloud computing lowers greatly ecological impact of the

hardware, since less hardware is required, the hardware last longer in professional datacenters and it is

used efficiently in terms of performance and energy consumption.

5.4 ERP Market in the Czech Republic

In order to analyze the local ERP market we will be using currently last available research of the IT

market in the Czech Republic with a forecast for next 5 years conducted by The Business Monitor

International (BMI). BMI is a leading, independent provider of proprietary data, analysis, ratings,

rankings and forecasts covering 195 countries and 24 industry sectors.

5.4.1 IT service spending

The research forecast flat real GDP growth in 2013, while private final consumption will decline

by 1%. Total spending on IT services in the period 2010-2017 is described in the table 13.

Table 13: Czech Republic IT services spending

2010 2011 2012 2013f 2014f 2015f 2016f 2017f

IT services spending [CZKmn] 29,033 30,349 31,096 32,201 33,755 35,888 38,187 40,441

f = BMI estimate/forecast. Source: BMI (2013b)

The medium-term outlook predicts faster growth as the economic environment improves, and forecast

CAGR36 of 5.86% 2013 to 2017m with the market increase to 40,441.

5.4.2 Current ERP market

According to the research the ERP market is a relatively mature in the whole CEE region, and demand

for enterprise software is saturated in some large business segments. Many larger organizations

already have an ERP system and these accounts are now more about upgrades for an installed based

and maintenances. This caused a slowdown in new clients’ acquisition and shifted vendor’s attention

to new areas. Demand is still strong with potential growth for areas like customer relationship

management (CRM) and business intelligence. The growth is also forecasted for the exporters

such as pharmaceutical and discrete manufacturing that need enterprise software in order to compete

on the global market.

The report confirms that the demand for ERP in the SME is rising. Many vendors are launching

slimmed-down versions of their software for smaller companies. The enterprise software market is

dominated by market leader SAP, followed by MS Dynamics and Helios. Together, these three players

have more than two-thirds of the market. The strongest growth for these major players now comes

from the SME segment. After 10 years of fairly strong investment by larger Czech manufacturing

36 Calculated as 𝐶𝐴𝐺𝑅 = (𝐸𝑛𝑑𝑖𝑛𝑔 𝑣𝑎𝑙𝑢𝑒

𝐵𝑒𝑔𝑖𝑛𝑖𝑛𝑔 𝑣𝑎𝑙𝑢𝑒)

(1

# 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠)

− 1 = (40,441

32,201)

1

4− 1 = 0.0586

61

companies in ERP and other enterprise solutions, the market is approaching saturation in some

verticals (Business Monitor International, 2013a, p. 41).

5.4.3 EU cloud computing incentives

Local cloud computing market is growing fast and its popularity is spreading beyond the initial core

application area of CRM. According to the research spending on cloud services was estimated to grow

by around one-third in 2012.

In September 2012, the European Commission adopted a strategy for “Unleashing the Potential

of Cloud Computing in Europe”. The strategy outlines actions to deliver a net gain of 2.5 million new

European jobs, and an annual boost of €160 billion to the European Union GDP (around 1%),

by 2020. The strategy consists mainly in 3 key actions (European Commission, 2012a):

1. Standardization and certification of the cloud services in order to enhance trust,

2. Safe and Fair Contract Terms and Conditions, and

3. Promoting a common cloud services for public sector

Other support of this technology through grants is also anticipated. This could have huge impact

on the cloud ERP market, since nowadays many companies are using EU grants to finance ERP

implementations.

A survey conducted by Aspectio Research (2011) found out that almost 70% of SMEs in the Czech

Republic had never hear of cloud computing and only 25% knew the correct meaning of the term.

This implies the objectives for marketing ERP cloud solutions.

Table 14: Internet access - Historical Data and Forecasts Czech Republic

2010 2011 2012 2013e 2014f 2015f 2016f 2017f

No. of internet users (‘000) 7,225 7,743 7,995 8,158 8,350 8,535 8,711 8,879

No. of internet users/100 inhabitants 68.5 73.0 75.0 76.2 77.7 79.2 80.6 81.9

e/f = BMI estimate/forecast. Source: BMI (2013b), OECD, EC, ITU

When evaluating the potential market for the cloud computing technology, access to the broadband

internet connection must be taken into account. According to the research the number of internet users

will rise to 8.88mn by end-2017, with 81.9% penetration (Business Monitor International, 2013a, p.

20). This is certainly a positive outcome for technologies such as cloud computing which are delivered

through the internet

5.4.4 Printing industry

As a manufacturing sector, the printing industry processes and reproduces texts and images in print A

definition of the different operations in the sector can distinguish three phases; prepress - the

preparation of printing, press - the printing proper, and postpress - completion task (Printing Industry -

Czech Tradition in Whirl of New Technologies, 2011, p. 24). Short delivery time, accurate cost

62

calculation, product variety, material planning, and process sequence optimization – these are the key

factors to which printing industries are facing every day.

According to the classification CZ-NACE 18.137 printing industry includes processing the information

into tangible products such as newspapers, books, magazines, mercantile and packaging. This market

represents only 0.6% of the overall Czech manufacturing sector (MPO, 2012) and it’s under constant

pressure by the wide-spread of technologies such as in online newspaper, e-book readers etc.

Nevertheless the number of printed books is still growing, but with diminishing margins. The only

sector which remains unaffected is the packaging segment. Table 15 shows the number of printing

companies in the Czech Republic across the reporting period 2006-2012.

Table 15: Number of printing companies in the Czech Republic

2006 2007 2008 2009 2010 2011 2012

Number of printing companies 7 873 8 908 9 008 8 996 8 785 7 977 7 800

Source: MPO (2012)

The table shows that, the number of printing companies had hit its peak in 2008 and has been falling

since. According to MPO, the majority of printing industries are micro and small enterprises. The

figure 28 shows sector y-o-y change38 in productivity, sales and Added Value (VA)39, compared to the

whole manufacturing industry in the period 2006-2012.

Figure 28: Financial indicators for printing industry (Sales and Added Value)

Source: author based on MPO (2012)

37 The Statistical Classification of Economic Activities in the European Community

38 A method of evaluating two or more measured events to compare the results at one time period with those

from another time period (or series of time periods), on annualized basis i.e. ∆𝑦 =𝑣𝑎𝑙𝑢𝑒 𝑖𝑛 𝑦𝑒𝑎𝑟 𝑦

𝑣𝑎𝑙𝑢𝑒 𝑖𝑛 𝑦𝑒𝑎𝑟 𝑦−1∗ 100

39 Value added is calculated as 𝑉𝐴 = 𝑆𝑎𝑙𝑒𝑠 𝑝𝑟𝑖𝑐𝑒 − 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡𝑠

80859095

100105110115120125

[%]

Sales

Sales CZ-NACE 18.1

Sales manufacturing industry

80859095

100105110115120125

[%]

Added Value

Added Value CZ-NACE 18.1

Added Value manufacturing industry

63

In the reporting period we can observe a significant drop in Sales and consequently Added Value

in the year 2009 when the financial crisis hit the Czech market. The recovery was significantly slower

for the printing industry than for the rest of the manufacturing industry. In the end of the period, we

can see a convergence of the printing and whole manufacturing industry. The following two charts

in figure 29 shows productivity measured as added value per employ and gross operating margin

measured as added value minus labor costs.

Figure 29: Financial indicators for printing industry (Productivity and Gross operating margin)

Source: author based on MPO (2012)

On the other hand the productivity, of the printing industry remains stable during the period with a

slight drop in last two years. This was caused mainly by a drop in number of employees, which have

fallen by 11.2% during the period. Gross operating margin have fluctuated significantly during the

period. We can observe a downgrade trend for the printing industry which is certainly not good.

Falling gross margin drives the need to cutting costs in general this means accurate estimation of every

product, this should be feasible with a good ERP/BI solutions. On the other hand the above stated

financial situation doesn’t allow companies in this sector to invest large amount of money in IT

solutions.

80859095

100105110115120125

[%]

Productivity

Productivity CZ-NACE 18.1

Productivity manufracturing industry

80859095

100105110115120125

[%]

Gross operating margin

Gross operating surplus CZ-NACE 18.1

Gross operating surplus manufracturingindustry

64

6 SWOT ANALYSIS

SWOT analysis is based on the analysis of the internal environment in the context of external

environment. SWOT analysis distinguishes Strengths, Weaknesses, Threats, and Opportunities

(Myšík, 2010, p. 10). In order to be able to understand the benefits and drawbacks of a cloud ERP

compared with traditional on-premise ERP a SWOT analysis for the customer and the vendor

perspective was conducted. The analysis was based on literature research and interviews with

consultants of the PrintVis solution but in a large extent is applicable on any cloud-based ERP.

6.1 Customer’s perspective

We start with the customer’s perspective. Outcomes from this perspective are useful for the vendor

in order to target main strengths and opportunities of the cloud solution and be prepared to argument

against the weaknesses and threats.

6.1.1 Strengths

S1: Lower upfront costs

Cloud computing substantially reduces the capital expenses incurred by an enterprise in order

to implement an ERP system (Marston et al., 2011, p.185). Customers pay for the solution based

on a “pay-as-you-go” or “pay-per-user” model. Customers perceive all the costs as OPEX instead

of CAPEX. This benefit is applicable for public and hybrid clouds but with a limited extent to private

clouds due to the character of the service, see chapter 1.3. This benefit is also diminished

for companies that have recently acquired new hardware for running their business applications thus

the age of the hardware must be taken into consideration.

S2: Lower and predictable operating costs

The OPEX is lower when applying the Total Cost of Ownership model because of cuts of personnel,

electricity costs, and other IT staff costs and efforts. The OPEX and also TCO are strictly linear

for the cloud ERPs. This benefit is applicable mainly for SMEs due to small IT departments which can

be outsourced to the cloud.

S3: Rapid implementation

As was mentioned in chapter 2.4, cloud ERP implementation is always faster, thus cheaper and takes

fewer risks.

S4: Scalability

Scalability is without doubt the biggest advantage of a cloud-based ERP. Resource poling and rapid

elasticity are outlined in the five main characteristic of cloud computing. This enables faster time

to market (Marston et al., 2011, p.178), strategic flexibility and improved competitiveness. Customers

pay only for the computing power he uses, and in case he needs more he doesn’t have to buy more

servers. As was mentioned in chapter 1.5.2 the amount of utilization of the computing power

for in-house servers is below 5% in 90% of their up-time. This feature is reported as a possible

advantage that is particularly relevant for SMEs (Fesak et al., 2012, p. 6).

65

S5: Rapid upgrades

Since upgrades are done for multiple clients on ERP systems with almost no customization, the

updates and upgrades can take place rapidly. Upgrade of an on-premise solution requires a lot

of analysis, planning and tides up capital because customizations usually needs to be reprogrammed to

fit the newer version of the system, for more details see chapter 2.5.1.

S6: Improved accessibility, mobility and usability

Cloud ERP is available via a web interface or via the Windows Azure platform; in both cases

the system is accessible from any point and on mobile devices such as tablets. If the customer has

more affiliates he can access one ERP system from any of them. This benefit applies mainly to LE.

S7: Risk outsourcing and technical support

Running an own IT infrastructure brings risks which must the customer handle on its own. Cloud

providers ensure measures such as backup routines, fallback and recovery procedures, conditioned

power etc. of higher quality than most SMEs do in-house (Fesak et al., 2012, p. 7). All other risks can

be managed by the SLA agreement between the vendor and the customer.

S8: Cash-flow optimization

The implementation and maintenances costs for a SaaS application are more predictable. Together

with subscription pricing model SaaS provides a smoother revenue growth than the up-and-down sales

of traditional software licenses as you can see in the figure 30.

Figure 30: Revenue SaaS and on-premise application

Source: Chappell (2012, p.9)

6.1.2 Weaknesses

W1: Subscription expenses

An explicit part of cloud-based ERP additional costs is widely used periodic subscription fees that do

not depreciate over time, in contrast to capital investments in traditional ERP software

(Fesak et al., 2012, p. 7). The subscription costs might also cause that the cloud solution becomes

more expensive in a long period.

66

W2: Customization limitations

Customizations in a cloud ERP are almost impossible from the definition of cloud computing, see

chapter 1.1 and 3.2.3. The only possibility to bypass this limitation is when using private cloud.

W3: Dependency on the service provider.

Dependency on the provider of the service means that the customer is willing to outsource his critical

business application to a vendor. Increased dependency is furthermore enforced by the absence or

reducement of IT staff that is not need when running ERP in cloud.

W4: Obligation to upgrade

Customers are obligate to automatic upgrades even if they are fully satisfied with the current version

and doesn’t need or want an upgrade. For example they are used to the old interface of the ERP

system. Automatic upgrades are derived from the multitenant architecture, see chapter 2.5.2

6.1.3 Opportunities

O1: Independency on internal human resources and their fluctuation

Outsourcing the service makes the company independent on internal IT experts and their fluctuation.

O2: Access to last available technology with potential growth

Cloud computing ERP systems and other cloud business applications are among newborn solutions

which offer the latest technology and functionality. On-premise solutions are in many cases still build

on the core that has been developed more than 20 years ago with the rise of the ERP era. This is valid

for cloud solutions that were developed.

6.1.4 Threats

T1: Performance and outage risks

The performance of the ERP system is highly dependent on the bandwidth. The cloud ERP system is

always subjected to an outage risk. In other words cloud doesn’t mean fail-safe (Byrne, 2009, p. 40).

T2: Security risks

Security and confidentiality risks are among the most reported and top concerned risks for any

software running in the cloud. Many resources e.g. Marston et al. (2011, p.178) outlines this risk also

valid for the ERP in cloud solution. According to discussions with many consultants of the PrintVis

vertical solution (Hünner, 2014) and (Fesak et al., 2012, p. 8-10) this risk is very controversial.

A company that chooses not to use an in-house developed ERP system is in any cases handing its

sensitive data over to the ERP solution provider. The provider of the ERP solution has the access

to the client’s entire database as long as the contract is in force. This is both valid for the on-premise

and cloud model. On the other hand there is another perceptible risk for cloud solution. According

to Talbot (2010, p.38-40) whenever your data runs via the Internet, there is an increased threat that

someone could hack into your database and abuse of your sensitive data. Customer could also perceive

these risks as a psychological barrier, see related chapter. Despite the above mentioned we found this

67

risk negligible for the PrintVis cloud solution as Microsoft have strong architecture standards for the

cloud architecture that should minimize the risk of a potential invasion.

T3: Psychological barriers

One of the current biggest threats according to discussion with consultants is the customer attitude

to the ERP system. The first barrier perceived by customers is the concept of ownership. People are

taught that it’s good to own things. Moreover when customers invest money in such a fundamental

product for running their business they want to have it fully under their control.

So why rent when you can own? From a short term cash-flow perspective, the biggest advantage is

that renting ties up less capital. Business can invest their money saved on the ERP system elsewhere.

A printing company can for example invest into new machines in order to boost their production

output. Some small businesses can’t even afford to own a fancy ERP system. From a long term view

there are several factors to put into account, like the number of users and size of the company.

Security issues are another big psychological barrier. This was already mentioned above but not from

a psychological point of view. Customers are scared to have their entire business “online”. They are

scared that their data will be stolen by hackers and we think that in a certain way rightfully. We will be

witnesses of many hackers’ attacks on cloud-based applications in the early future as the technology

becomes more widespread and stealing valuable sensitive data will become an attractive goal.

However, big cloud providers such as Microsoft, IBM, Amazon, Salesforce, SAP etc. should have

their clouds encrypted and well-secured. Anyway hackers’ attacks on the less secured cloud solutions

will undermine the cloud credibility in general. In conclusion according to Symantec most sensitive

data frauds are committed by own employees who have access to company’s data.

Last but not least is the fear of change. People generally don’t like changes, change is uncomfortable.

This applies both for customers and vendors. The software has been sold for more than 60 years as a

product. You can either choose to shift and potentially grow with the cloud solution or to defend the

on-premise business against cloud solutions.

T4: Vendor bankruptcy risk

The customers are also scared because of possible vendor insolvency that may cause him to bankrupt,

thus they lose the access to their ERP system. Hünner (2014) have claimed that all PrintVis customers

running in cloud have raised this concern. However, in case of PrintVis in cloud the solution runs

on Windows Azure, thus on Microsoft’s datacenter. The Service-level agreement40 in this case assures

that a customer can obtain data directly from Microsoft, which is unlikely to go bankruptcy.

40 A service-level agreement (SLA) is a part of a service contract where a service is formally defined.

68

Nevertheless in case of litigation the European Windows Azure datacenter is located in Ireland,

therefore it is subjected to local law and all litigation must take place in Ireland, this could be an

inconvenient for the customer from abroad. Hünner (2014) confirms that this concern was also raised.

T5: Increase in a subscription price

The customer has no guarantee that after his contract expires, the price of the service will be still

the same, quite the contrary because many nowadays SaaS models are figuring in an increase of the

service fee every year41.

6.1.5 Customer’s perspective evaluation

Table 16 summarizes the strengths, weaknesses, opportunities, and threats outlined in the SWOT

analysis from the vendor’s perspective. Based on these internal and external factors a pair analysis is

conducted and four strategies are outlined. Resulting pair factors are marked in bold.

Table 16: Customer's SWOT for cloud ERP

Strengths (Internal) Weaknesses (Internal)

S1: Lower upfront costs

S2: Lower and predictable operating costs

S3: Rapid implementation

S4: Scalability

S5: Rapid upgrades

S6: Improved accessibility, mobility and usability

S7: Risk outsourcing and technical support

S8: Cash-flow optimization

W1: Subscription expenses

W2: Customization limitations

W3: Dependency on the service provider

W4: Obligation to upgrade

Opportunities (External) Threats (External)

O1: Independency on internal human resources

and their fluctuation

O2: Access to last available technology with

potential growth

T1: Performance and outage risks

T2: Security risks

T3: Psychological barriers

T4: Vendor bankruptcy risk

T5: Increase in a subscription price

S+O = Growth

strategy

W+O = Expansion

strategy

S+T=Make-up

strategy

W+T=Defense

strategy

S3/O2: Access to last

available technology with

potential growth gives

rapid implementation.

S4/O2: Access to last

available technology with

potential growth gives

scalability.

S5/O2: Access to last

available technology with

potential growth gives

rapid upgrades.

O1/W1: Independency on

internal human resources

overcomes subscription

expenses.

O2/W2: Access to last

available technologies

overcomes customization

limitations.

S7/T2: The risks are

outsourced including

security risks, which can

be managed by a good

SLA.

W3/T4: Dependency on

the service provider can

be lowered by using a

third party IaaS platform

like Windows Azure,

therefore the risks

associated with the

vendor bankruptcy are

lowered.

Source: author

41 For example the TCO calculator that compares On-premise and SaaS is figuring in a 15% increase in a

subscription price at end of each term of 3 years, see: http://www.softwareadvice.com/tco/

69

6.2 Vendor’s perspective

The SWOT analysis from the vendor’s perspective, offers factors to be taken into consideration when

making the strategic decision whether migrate the ERP system to the cloud, or choose a defensive

strategy to stay with on-premise.

6.2.1 Strengths

S1: Regular source of income

The subscription payment represents a regular source of income which has a positive impact on cash-

flow planning. The on-premise has usually a big income linked with the license purchase, investment

in architecture and implementation project, following income comes from maintenance which is not

even mandatory and depends on the type of contract. Usually the contracts are closed for a time period

of 1-3 years after which the customer can withdraw. Other support to the customer is highly gusty and

unforeseeable for the vendor.

S2: Economies of Scale

Cloud ERPs enables economies of scale due to multitenancy and takes effect mostly in the

maintenance process. That means the more cloud implementation a vendor does the cheaper is

maintenance per tenant, see chapter 2.5.2. These economies of scale do not occur for on-premise

solution because every client needs dedicated application management.

S3: Flexible solution

Vendor offers a highly scalable solution that can react to a changing demand due to economic cycles

and also satisfy a much larger audience.

S4: Rapid implementation

Rapid and repeatable implementations enable high volume selling. Vendor’s capacities are freed up

more quickly and the efficiency of implementations increases significantly.

S5: Pure consultancy

ERP in cloud means selling packaged know-how. This enables the true consultancy potential of the

ERP vendor, the consultancy services are linked with much higher profit margins than IT software

development.

6.2.2 Weaknesses

W1: Initial investment in the infrastructure

The vendor usually needs to build-up the infrastructure like the server with large bandwidth that will

be used for providing cloud services, or choose a hosting partner were the ERP system will be

deployed. In case of PrintVis in cloud the recommendation is to use Windows Azure platform that is

cloud-ready, doesn’t require any investment and partners can manage to obtain good deals from

Microsoft (Hünner, 2014).

70

W2: Need to adopt a new business model

The cloud ERP is a fundamental change in the way ERP systems are sold, implemented and

maintained; see chapter 2. The vendor has to make a prior investment in training and build-up practice

with the solution.

6.2.3 Opportunities

O1: Build better best-practices

More rapid implementations imply building better best-practices; see chapter 2.4.2.

O2: Low market saturation

The saturation among the cloud ERP market is currently very low. The cloud ERP market is still

growing in double digits numbers; with growth rate from 20-30% In comparison with the sluggish

growth rate of 2.2% of the worldwide ERP market (Columbus, 2013).

O3: Diversify portfolio of services

The vendor can diversify the portfolio of services adding the cloud ERP as a delivery model. This will

target new customers especially from the SME area.

O4: Lower costs of maintenance

Due to multitenancy the vendor can achieve lower overhead costs related to maintenance and upgrade

of the solutions as the cloud customer-base growths. See chapter 2.5.2.

O5: Target global customers

The cloud ERP allows targeting global customers since the service is delivered almost entirely online.

Despite the vendor might not be familiar with abroad accounting standards and legislature for the

finance management, he can still sell other modules of the ERP.

O6: Cloud computing gives knowledge

The application that runs in cloud can be monitored by the vendor in order to have a feedback from

customers about how the users operate system’s particular functionality. Consequently vendors can

understand how to make their solutions better for future users. Neither MS Dynamics NAV

nor PrintVis offers nowadays this kind of feedback algorithm, but this could be just a matter of time.

6.2.4 Threats

T1: Global competition

The market of cloud ERP is a global market, similarly as the vendor can target global customers,

the competition can do the same with his local market.

T2: Poor customer-base

If the vendor doesn’t succeed in selling the cloud-based ERP, the economies of scale associated with

cloud solutions won’t take place and the initial investment in re-designing the business model might

not return.

71

T3: Assurance of 24/7 availability of the service and data security

The vendor must guarantee 24/7 availability of the service. In case of a third party hosting the vendor

takes the risk of outage on himself. The vendor must also assure security of the client’s data against

potential intruders. The SLA for cloud ERP usually includes high penalty fees for loss of data or

outage of the system. Windows Azure SLA assures 99.95% availability, disaster recovery and data

security, see chapter 4.4.

6.2.5 Vendor’s perspective evaluation

Table 17 summarizes the strengths, weaknesses, opportunities, and threats outlined in the SWOT

analysis from the vendor’s perspective. Based on these internal and external factors a pair analysis is

conducted and four strategies are outlined. Resulting pair factors are marked in bold.

Table 17: Vendor's SWOT for cloud ERP

Strengths (Internal) Weaknesses (Internal)

S1: Regular source of income

S2: Economies of scale

S3: Flexible solution

S4: Rapid implementation

S5: Pure consultancy

W1: Initial investment in the infrastructure

W2: Need to adopt a new business model

Opportunities (External) Threats (External)

O1: Build better best-practices

O2: Low market saturation

O3: Diversify portfolio of services

O4: Lower overhead costs

O5: Target global customers

O6: Cloud computing gives knowledge

T1: Global competition

T2: Poor customer-base

T3: 24/7 availability of the service and data security

S+O = Growth

strategy

W+O = Expansion

strategy

S+T=Make-up

strategy

W+T=Defense

strategy

S3/O2: Growth by

accessing a new low

saturated market with a

flexible solution.

S4/01: Growth best-

practices by doing more

implementations.

W2/O3: Diversify

portfolio of services by

adopting a new business

model.

W2/O4: Lower overhead

costs by adopting a new

business model.

S4/T2: The customer-

base can be build-up

quickly because of rapid

implementations.

S5/T1: The consultancy

services provided in

respect to the local

market and language can

overcome global

competition.

W1/T3: Initial investment

in the infrastructure is not

necessary for Windows

Azure which also assures

the availability and data

security of the service.

Source: author

72

7 CASE STUDY

The case study was built on figures from a confidential service-level agreement (SLA) between the

vendor and the customer.

73

SUMMARY, CONCLUSIONS AND FUTURE RESEARCH

Purpose of this thesis was to define the ERP running in cloud and therefore sold as a service, compare

this solution with the traditional on-premise approach, analyze the current ERP market and quantify

possible benefits and drawbacks for both customers and vendors.

In the theory part the ERP running in cloud was defined. This has proved challenging since there is

almost none unifying literature on this subject. Various literatures consider separately Cloud

Computing and ERP. Therefore to define these concepts various recent articles were used. Key

concepts of the Cloud Computing and ERP and their relations were defined in chapter 1 and 2.

Particular contribution to the subject is the sub-chapter 1.5, where economics of cloud computing was

outlined. Chapter 2 also included the impact of cloud computing on the Sales, Selection,

Implementation, and Maintenance process of an ERP. This chapter was based on assumptions outlined

in a Microsoft cloud “guide” and assumptions were discussed with consultants. Another obstacle was

the inconsistency between various resources in key concepts and time, for example the interchanging

of terms SaaS and Cloud Computing is a common phenomenon in literature before 2011,

when the cloud computing was standardized.

The practical part begins with the chapter 3, where the partner model and companies involved

in this thesis are presented. In chapter 4 the new cloud enabled release of Dynamics NAV 2013 and

vertical solution for the printing industry PrintVis 2013 was introduced. The chapter contains the

description of cloud key characteristics defined in chapter 1 and the impact on sales and

implementation process described in chapter 2. Particular contribution is the sub-chapter 4.4, where

the Windows Azure platform was described. The last part of this chapter defines Windows Azure

platform as IaaS.

In chapter 5 the market analysis of cloud ERP was conducted, examining new market players, current

market trends using the Gartner’s hype cycle and a separate analysis of NAVERTICA’s strategic

markets for PrintVis was conducted. In the last part of this chapter a quick financial analysis

of the Czech printing industry was made. Chapter 6 was dedicated to a SWOT analysis of cloud ERP

from both customer’s and vendor’s perspective.

Last chapter was dedicated to a case study of an on-premise implementation of PrintVis from which

a two scenario model was derived. In the first scenario the implementation was conducted

as on-premise and in the second as cloud. These scenarios were compared in term of costs

and break-even point.

Goal of this thesis was to answer research questions and hypothesis outlined in the introduction.

The research question Q1: “What are the estimated costs and time of implementation of the cloud

solution in comparison with on-premise model?” can be answered together with the hypothesis H1.

74

The overall hypothesis H1: “PrintVis in cloud solution implementation project can reduce up to 30%

of implementation time and therefore customer’s ERP budget.” can be separated for evaluation

in two sub-hypothesis H1a, H1b.

H1a: “PrintVis in cloud solution implementation project can reduce up to 30% of implementation

time”.

H1b: “PrintVis in cloud solution implementation project can reduce up to 30% of customer’s budget”.

Despite the theory outlined in chapters 2.4 suggests significant time savings and rapid implementation.

Findings from our case study from the chapter 7.3 did not support this argument and therefore we have

to rejects the sub-hypothesis H1a. The cloud ERP lowers the time-budget because time-consuming

tasks like training are moved on the customer’s side. This “Do-It-Yourself” approach lowers

the project price, but at the same time increases the risks due to the possible backfiring of the self-

learning processes. The quality of self-learning materials is also in question and future PrintVis users

might not understand the solution properly.

The second sub-hypothesis H1b hypothesis is supported by the findings from our case study.

The overall up-front costs fall by 57.78%. This is a fundamental condition in order to achieve market

penetration in the unsaturated SME segment due to their limited resources.

In comprehensive evaluation, we must therefore reject the overall H2 hypothesis due to rejection

of the H2a. But we must notice that our study is limited to a single case implementation of the PrintVis

solution, which is only the second implementation of this solution of the NAVERTICA holding.

Evaluation of this hypothesis would require a multiple-case analysis from more experienced

NovaVision partners. Hünner (2014) claims that reduction outlined in the H2 hypothesis can be easily

achieved with more customers, due to multitenancy efficiency, falling overhead costs per customer

and knowledge accumulation. Despite we have outlined in chapter 2.4 and 1.5.2 the importance

of these three factors, their magnitude still remains undiscovered and cannot be measured on a single

case. Therefore the rejection of H1 based on a single case cannot be generalized to a large extent

and future research on more case studies within companies that have numerous implementations

of this solution is required.

In order to evaluate the hypothesis H2: “PrintVis in cloud for companies in the printing industry below

fifty employees represents a better solution than on-premise PrintVis in the horizon of ten years.

Metrics will be outlined in the thesis” we will consider besides hard metrics from the case study also

the outcomes from the SWOT analysis in chapter 6. The case study demonstrated that the TCO for a

decision period of ten years is lower for the cloud solution by 2.45% without discounting and 12.5%

using a discounted cash flow model. The cloud solution has numerous advantages - immediate

scalability, predictable costs, and easy upgrades without additional expenditures are particularly

relevant for SME. Adding these benefits to the metrics from the case study supports

the H2 hypothesis.

75

Q2: “Could the cloud solution of PrintVis ne the future for the printing industry? Main benchmarks

are estimated number and size of possible clients feasible for this solution.”

To answer this question we must look in the chapter 5 where we have analyzed the global ERP market

and chapter 6 where a SWOT analysis was conducted. The global demand shift towards cloud

computing ERP systems was acknowledged by multiple resources. Using the Gartner’s hype cycle we

have outlined that the first shift will occur within the period of 5 years and will take place firstly

in the SME sector where the saturation of ERP systems is generally low due to limited resources.

In the outlook from 5-10 years the shift will also take place within the LEs where the main reasons

for choosing the cloud ERP solution will be the global accessibility, and maintenance efficiency

of one data center compared with many in-house servers.

In order to estimate the number and size of the possible market for this solution respectfully

with NAVERTICA strategic markets we have conducted a separate marketing analysis for Czech

Republic and South Africa.

The ERP market in the Czech Republic is already saturated for the LEs and the new demand is coming

from the SME area. The investments into new IT technologies will be staidly rising by the rate

of 5.86% in the period 2013-2017. IT spending on cloud services is estimated to growth by 33% solely

in 2012. The Czech cloud ERP market could also potentially benefit from Europe-wide regulations

for data security and the incentive program “Unleashing the Potential of Cloud Computing

in Europe”. The global and European regulation will play a crucial role in the local cloud computing

market, since according to Turek (2014) the majority of customers are concerned about the data

security in cloud. This is rooted in biases about the Cloud Computing flourished by the poor

knowledge of this technology among local businesses. We have noticed that the data security

of a service, deployed on a reliable IaaS platform like Windows Azure, is actually higher

than any in-house deployment. Additionally, the cloud ERP was found as more convenient for smaller

projects42 within the unsaturated SME segment.

The ERP market in the South Africa, as in other emerging economies, remains unsaturated. The cloud

computing have suffered from an unreliable broadband connectivity. Nevertheless the broadband

connectivity improved by 30% solely in the period 2010-2012, which have stimulated the demand

for cloud computing ERP. The cloud computing is particularly important for the local market because

it enables green ICT, which addresses the local electricity price hikes due to limited energy resources.

The limitation of this thesis research is the absence of data for conducting a multiple-case analysis

with focus on the maintenance process. Despite the case study have outlined some cost benefits of the

cloud solution, these benefits are not of such magnitude as outlined in the theoretical part and would

not explain the major shift towards cloud ERP which is currently happening on global markets.

42 NovaVision defines smaller projects as a project under 120 mans-days.

76

PROPOSED MEASURES

Confidential content

77

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82

LIFT OF PICTURES

Picture 1: Microsoft Dynamics NAV 2013 features .............................................................................. 35

Picture 2: MS Dynamics NAV product release timeline ....................................................................... 36

Picture 3: Job details with imposition .................................................................................................... 41

Picture 4: Windows Azure MS NAV 2013 deployment........................................................................ 47

LIST OF TABLES

Table 1: Respondents overview ............................................................................................................. 15

Table 2: Cloud opportunity .................................................................................................................... 20

Table 3: Activities in ERP maintenance ................................................................................................ 34

Table 4: License options ........................................................................................................................ 44

Table 5: PrintVis user types ................................................................................................................... 46

Table 6: Road to Repeatability .............................................................................................................. 47

Table 7: Implementation package .......................................................................................................... 49

Table 8: NAV on Windows Azure key values ...................................................................................... 50

Table 9: Pricing example for PrintVis 2013 deployment (multitenant) ................................................ 52

Table 10: Pricing example for PrintVis 2013 deployment (single-tenant) ............................................ 53

Table 11: Products classifications ......................................................................................................... 55

Table 12: Internet access - Historical Data and Forecasts South Africa................................................ 63

Table 13: Czech Republic IT services spending .................................................................................... 64

Table 14: Internet access - Historical Data and Forecasts Czech Republic ........................................... 65

Table 15: Number of printing companies in the Czech Republic .......................................................... 66

Table 16: Customer's SWOT for cloud ERP ......................................................................................... 68

Table 17: Vendor's SWOT for cloud ERP ............................................................................................. 71

Table 18: Model assumptions ................................................................................................................ 77

Table 19: Project tasks analysis ............................................................................................................. 78

Table 20: Server and client station costs ............................................................................................... 79

Table 21: Model company license pricing on-premise .......................................................................... 79

Table 22: Model company monthly subscription in cloud .................................................................... 81

Table 23: Comparing on-premise and cloud PrintVis TCO for 10 years .............................................. 82

Table 24: TCO Break-even point On-premise vs. Cloud ...................................................................... 83

Table 25: Net Present Value .................................................................................................................. 85

LIST OF FIGURES

Figure 1: Service delivery models.......................................................................................................... 17

Figure 2: Adoption curve of a client/server model ................................................................................ 19

Figure 3: Supply-side savings ................................................................................................................ 20

Figure 4: Economies of scale related to amount of customers ............................................................... 22

Figure 5: Total cost of ownership in the cloud ...................................................................................... 23

Figure 6: Production planning within MRP II ....................................................................................... 24

Figure 7: Information and the Commercial Negotiation ........................................................................ 27

Figure 8: The Fog of Business and Decision-making ............................................................................ 28

Figure 9: Buying cycle evolution ........................................................................................................... 29

Figure 10: Implementation project stages .............................................................................................. 30

Figure 11: Impact of knowledge accumulation on costs of the implementation .................................... 31

Figure 12: On-Premise vs. Cloud implementation ................................................................................. 33

Figure 13: Partner model ........................................................................................................................ 36

Figure 14: Average Time to Implementation (Planned vs. Actual) ....................................................... 41

Figure 15: Single Server Instance .......................................................................................................... 42

Figure 16: Multitenant architecture ........................................................................................................ 42

Figure 17: PrintVis user types ................................................................................................................ 46

Figure 18: Windows Azure costs (multi/single tenant) compared to on-premise .................................. 54

Figure 20: Boston matrix ....................................................................................................................... 55

Figure 20: Boston Matrix of ERP systems ............................................................................................. 56

Figure 21: Salesforce.com shares price .................................................................................................. 57

Figure 22: NetSuite Inc. shares price ..................................................................................................... 57

Figure 23: Service delivery models ........................................................................................................ 58

Figure 24: Cloud perceived risks ........................................................................................................... 59

Figure 25: Google searches for "cloud ERP" ......................................................................................... 59

Figure 26: Number of Named users ....................................................................................................... 60

Figure 27: Hype cycle for ERP 2012 ..................................................................................................... 61

Figure 28: Financial indicators for printing industry (Sales and Added Value) .................................... 66

Figure 29: Financial indicators for printing industry (Productivity and Gross operating margin) ........ 67

Figure 30: Revenue SaaS and on-premise application ........................................................................... 69

Figure 31: On-Premise vs. Cloud break-even point ............................................................................... 84

LIST OF ACRONYMS

APAC – Asia-Pacific

ASP – Application Service Provider

BANT – Budget, Authority (to purchase), Need and Timeframe

BI – Business Intelligence

BMI – Business Monitor International

BRICS – Acronym for Brazil, Russia, India, China and South Africa

BRL – Business Ready Licensing

CEE – Central and Eastern Europe

CRM – Customer relationship management

DC – Data Center

EMEA - Europe, the Middle East and Africa

ERP – Enterprise resource planning

EU – European Union

HW – Hardware

IaaS – Infrastructure as a Service

ICT – Information and Communication Technologies

IPO – Initial Public Offering

IS – Information System

ISV – Independent Software Vendor

JDF – Job Definition Format

KM – Knowledge Management

KPI – Key Performance Indicator

LE – Large Enterprise

MBP – Module Based Pricing

Mh – Man-hour

MIPS – Million Instructions Per Second

MPO – Ministry of Industry and Trade

MRP – Material Requirements Planning

MRP II – Manufacturing Resource Planning

MS – Microsoft

NAV – Microsoft Dynamics NAV

OPEX – Operating Expenses

PaaS – Platform as a Service

SA – South Africa

SaaS – Software as a Service

SCM – Supply Chain Management

SME – Small and Medium Enterprises

SLA – Service-level agreement

SW – Software

TCO – Total cost of Ownership

TWh – Terawatt hours

VAR – Value Added Reseller

LIST OF APENDICES

Appendix A – Financial Analysis of CZ-NACE 18.1

Appendix B – Accelerated Implementation Process Project Plan

Appendix C – Example Server Configuration (25 Concurrent users)

Appendix D – PrintVis implementation project plan

Appendix E – Online training for PrintVis 2013

Appendix F – Net Present Value

Appendix G – Example of interview with NovaVision

APPENDIX A: FINANCIAL ANALYSIS OF CZ-NACE 18.1

Sales

Year Sales CZ-NACE 18.1 [CZK]

ΔSales CZ-NACE 18.1[%]

Sales manufacturing industry [CZK]

ΔSales manufacturing industry [%]

2006 37 708 347 Kč 100.0 3 029 353 956 Kč 100.0

2007 40 084 885 Kč 106.3 3 317 853 476 Kč 109.5

2008 41 138 592 Kč 102.6 3 271 606 761 Kč 98.6

2009 37 396 263 Kč 90.9 2 738 224 010 Kč 83.7

2010 36 945 304 Kč 98.8 3 048 245 454 Kč 111.3

2011 35 098 632 Kč 95.0 3 299 037 641 Kč 108.2

2012 33 643 731 Kč 95.9 3 390 420 676 Kč 102.8

Added Value

Year Added Value CZ-NACE 18.1 [CZK]

ΔAdded Value CZ-NACE 18.1 [%]

Added Value manufacturing industry

[CZK]

ΔAdded Value manufacturing industry [%]

2006 12 065 174 Kč 100.0 754 989 335 Kč 100.0

2007 12 088 820 Kč 100.2 812 965 759 Kč 107.7

2008 12 738 675 Kč 105.4 775 017 614 Kč 95.3

2009 11 602 173 Kč 91.1 666 867 397 Kč 86.0

2010 11 425 443 Kč 98.5 729 358 869 Kč 109.4

2011 10 704 511 Kč 93.7 769 142 333 Kč 105.5

2012 10 341 114 Kč 96.6 777 552 413 Kč 101.1

Productivity

Year Productivity CZ-NACE 18.1 [CZK]

ΔProductivity CZ-NACE 18.1 [%]

Productivity manufacturing industry

[CZK]

ΔProductivity manufacturing industry [%]

2006 628 252 Kč 100.0 631 168 Kč 100.0

2007 633 131 Kč 100.8 663 720 Kč 105.2

2008 657 802 Kč 103.9 634 437 Kč 95.6

2009 674 231 Kč 102.5 625 465 Kč 98.6

2010 687 232 Kč 101.9 700 978 Kč 112.1

2011 662 981 Kč 96.5 722 542 Kč 103.1

2012 644 283 Kč 97.2 731 756 Kč 101.3

Gross operating surplus

Year Gross operating surplus CZ-NACE

18.1 [CZK]

ΔGross operating surplus CZ-NACE

18.1 [%]

Gross operating surplus manufacturing industry

[CZK]

ΔGross operating surplus manufacturing industry [%]

2006 6 051 210 Kč 100.0 381 118 503 Kč 100.0

2007 5 509 233 Kč 91.0 401 276 260 Kč 105.3

2008 5 802 704 Kč 105.3 332 480 419 Kč 82.9

2009 5 322 214 Kč 91.7 271 856 599 Kč 81.8

2010 5 237 893 Kč 98.4 328 007 762 Kč 120.7

2011 4 530 982 Kč 86.5 346 429 189 Kč 105.6

2012 4 212 548 Kč 93.0 341 372 865 Kč 98.5

APPENDIX B: ACCELERATED IMPLEMENTATION PROCESS PROJECT PLAN

Confidential content

APPENDIX C: EXAMPLE SERVER CONFIGURATION (25 CONCURRENT USERS)

Confidential content

APPENDIX D: PRINTVIS IMPLEMENTATION PROJECT PLAN

Confidential content

APPENDIX E: ONLINE TRAININGS FOR PRINTVIS 2013

The structure of the training session is as following.

• Workflow training (3 sessions)

o Training Session W1: Case Flow, Views and Adaptations

o Training Session W2: Case Documents and Folders

o Training Session W3: Job Costing

• Estimation training (8 sessions)

o Training Session E1: Estimation, Tool Box Overview

o Training Session E2: Making Quotes with PrintVis

o Training Session E3: Estimation, Deep Dive

o Training Session E4: Sub-Contracting and Job Ticket Description

o Training Session E5: Estimation Wizard Setup

o Training Session E6: Sales Orders and Finished Goods Templates

o Training Session E7: Customer Finished Goods

o Training Session E8: Price Concepts and Price Lists for Customers

• Scheduling training (3 sessions)

o Training Session S1: Scheduling and Planning Setup

o Training Session S2: Getting Started on Production Plan Scheduler

o Training Session S3: EQ Plan Gantt Board Setup

• Finance training (8 sessions)

o F1: Basic Finance Setup

o F2: Sales and Purchase Invoicing

o F3: Old orders, Customers and Vendors

o F4: Posting Journals, Application and Reminders

o F5: Budgeting, Month-End and Year-End Closing

o F6: Stock Count and Inventory Value

o F7: Import of Own General Ledger

o F8: Items, Item types and Item setup

APPENDIX F: NET PRESENT VALUE

On-premise Cloud Cost benefit of

cloud Year PVi NPVi PVi NPVi

0. -167 176 EUR -167 176 EUR -70 589 EUR -70 589 EUR 57.78%

1. -14 899 EUR -182 074 EUR -26 271 EUR -96 860 EUR 46.80%

2. -13 795 EUR -195 869 EUR -24 325 EUR -121 184 EUR 38.13%

3. -20 027 EUR -215 897 EUR -22 523 EUR -143 707 EUR 33.44%

4. -11 827 EUR -227 724 EUR -20 855 EUR -164 562 EUR 27.74%

5. -16 835 EUR -244 559 EUR -21 639 EUR -186 201 EUR 23.86%

6. -15 898 EUR -260 457 EUR -17 879 EUR -204 080 EUR 21.65%

7. -9 389 EUR -269 846 EUR -16 555 EUR -220 635 EUR 18.24%

8. -8 693 EUR -278 539 EUR -15 329 EUR -235 964 EUR 15.29%

9. -12 621 EUR -291 160 EUR -14 193 EUR -250 157 EUR 14.08%

10. -9 455 EUR -300 615 EUR -13 934 EUR -264 091 EUR 12.15%

11.

year

-6 901 EUR -307 516 EUR -12 168 EUR -276 260 EUR 10,16%

12.

year

-10 019 EUR -317 535 EUR -11 267 EUR -287 527 EUR 9,45%

13.

year

-5 916 EUR -323 451 EUR -10 432 EUR -297 959 EUR 7,88%

14.

year

-5 478 EUR -328 929 EUR -9 660 EUR -307 619 EUR 6,48%

15.

year

-8 635 EUR -337 564 EUR -9 214 EUR -316 833 EUR 6,14%

16.

year

-4 697 EUR -342 260 EUR -8 282 EUR -325 114 EUR 5,01%

17.

year

-4 349 EUR -346 609 EUR -7 668 EUR -332 783 EUR 3,99%

18.

year

-6 313 EUR -352 923 EUR -7 100 EUR -339 883 EUR 3,69%

19.

year

-3 728 EUR -356 651 EUR -6 574 EUR -346 457 EUR 2,86%

20.

year

-3 684 EUR -360 335 EUR -6 179 EUR -352 636 EUR 2,14%

21.

year

-5 012 EUR -365 347 EUR -5 636 EUR -358 272 EUR 1,94%

22.

year

-2 960 EUR -368 307 EUR -5 219 EUR -363 491 EUR 1,31%

23.

year

-2 740 EUR -371 047 EUR -4 832 EUR -368 323 EUR 0,73%

24.

year

-3 979 EUR -375 026 EUR -4 474 EUR -372 798 EUR 0,59%

25.

year

-2 428 EUR -377 454 EUR -4 174 EUR -376 972 EUR 0,13%

26.

year

-2 175 EUR -379 629 EUR -3 836 EUR -380 808 EUR -0,31%

APPENDIX G: EXAMPLE OF AN INTERVIEW WITH NOVAVISION

1. How many new customers on the cloud solution have you added? Compare it with number of

sold on-premise licenses in the same period.

2. What partners are implementing cloud solution of PrintVis?

3. Why is the implementation period for PrintVis cheaper/shorter in cloud?

a. HW setting up

b. Multitenant architecture?

c. Can you/some partner give me an example project plan (GANTT) for a Cloud

project?

4. How many of the prospects undertaking the demo then buys the cloud solution (Cloud

solutions should show better its real value, so the acceptance rate is supposed to be higher)?

5. What is the customer knowledge about cloud solutions, do they ask for this solution?

6. Is the margin on current cloud projects for cloud solutions higher, if not do you forecast a

growth in the early future (I presume cloud PrintVis still represents a change of business

which require additional resources to invest in learning and understanding the solution –

management of change)?

7. Can you tell, what are the major differences in the sales process for PrintVis in cloud?

a. Accelerated sales process (Road to Repeatability)?

b. Online selling via web page?

i. I know that you track traffic on your website any positive trends discovered?

ii. What is the success rate of selling PrintVis online?