Why pay licensing fee when you have open source?

This is not exactly a blog about open source vs. closed source ERP and why?

By Pooja Bedi November 2, 2018 General 2 comments

This is not exactly a blog about open source vs. closed source ERP and why? For starters, you can find approx. 59,50,000 pages describing the pros and cons of both but more importantly it is BORING!!! Especially for a non-tech person like me. I am interested in running a business and my function efficiently – I couldn’t care less about the technical differences in offerings between the two types of ERP. Having said that, I do have a business to run, so I cannot shy away from the fact that I need my business information stacked in a manner that makes sense to me and others. I will not discuss which is better and what you should choose. I only intend to provide a lay[wo]man’s business perspective on this.

When we start out a business the good old MS Excel comes to our rescue, right from procurement of raw materials to point of sale – anything can be managed on it. In a yearly pack of Microsoft Office 365 costing less than 100 $, you can pretty much do everything. The number of employees is few, payroll is simple, the number of SKU’s, customers, vendors are limited, the number of transactions is not crazy – so excel works best. But all this starts to change as we grow. Well, there is one universal truth – all businesses want to grow! So, I say it’s a good problem to have. Having said that- It is indeed a problem! Indian businesses typically in growth stage look to Tally to get a handle on their increasing number of transactions and when management of their customers/ vendors becomes unviable on Excel. Tally does solve one problem [Accounting] for a limited period of time. However, we are suckers for growth – so we don’t stop, but Tally capability stops after a while and then you start looking to other solutions available in the market. When you reach a scale, you need to understand your sales better, your expenses even better and manage your customers well. A plain accounting software does not give you the insights required to proactively manage your business. Armed with analytical resources and insights you can plan how, when, where and why to grow. That’s when most business heads start to look out for an ERP.

On the other hand, large enterprises and multinational companies have implemented proprietary ERP in their organizations, and do not face these issues of small and medium businesses. However, they need to be obsessed about their bottom line and cost of doing business as margins start to erode. A closed source ERP costs millions of dollars in licenses which is a cost that has no direct derivative value to an organization. Overtime, most large companies also struggle with quality of output and introduction of new features and functionality which are restricted by water-tight agreements signed with proprietary service providers. So, they are stuck with a very sophisticated tool which costs them tons of money but does not measure up in equalizing value. Ask an IT head of a large sized enterprise [small businesses don’t typically have a dedicated IT head for several years] and his biggest nightmare are these 100-page contracts drafted by BIG Law firms for multi-billion-dollar revenue service providers which basically restricts them, binds them and locks them up for many years limiting their ability to manage business expectations. The fees may be a one-time licensing fee, monthly subscription, or on a per-usage basis but almost always builds up and becomes an eye-sore of a cost for the CFO. These licenses act as nothing but tools in the hands of the service provider and basically you are limiting up your technical capabilities to those of these organization. It is also somewhat clear that most innovation happens outside of such large IT service organizations and not within them. So, what they sold you today becomes irrelevant or outdated in 2 years, but you negotiated a 20% discount for signing up 10-year contract- too bad. Either buy more from them or use your termination clause and exit by paying tons of penalty- either ways they win. I am a lawyer by qualification so I know how this works.

That said, open Source ERP has problems too – it is almost always confused with freeware. Phew – not the case at all. Yes, it is open for public use and those who download the software from the vendor have full access to the model, including the ERP software code, yes can customize it to the needs of your company using your own IT department and there’s no need for you to pay for outside assistance or additional licensing or customization fees. However, for an excellent deployment, you need sophisticated IT resources and a clear road map to success.

Most organisations shy away from using open source as they see that the service provider behind that software is a small company with limited number of developers and most CTO’s cannot convince their CFO to take this risk – often times referred to as business risk. My provocation is this -if it’s the fall-back option we are looking at being with a proprietary service provider, it is not essentially devoid of this risk. In fact, they cover their back on failure more often than not in written commitments and small print agreements. So, it’s a perception of security and comfort that is created – yes, a large sized organisation will not vanish over-nite but risk of delivery and modern solution is the same if not more. On the other hand, if you choose an open source ERP but with an in-house technical capability you can achieve much more and manage these risks. If you become self-reliant on your open-source ERP by taking adequate training and investing in comprehensive hand-holding, you don’t necessarily have any risk of service provider vanishing since typically large sized deployments can take place within 6-9 months’ timeframe depending on requirements. Embracing it comes with long term commitment on right kind of resources, for sure.

The open source software model not only bestows full licensing rights for a system to each user or organisation that downloads and installs it. There’s typically nothing to pay for this – except some small recurring fees for updates and renewals. Organisations using open source ERP systems can customise their platforms to meet the specific needs of their businesses – by making alterations to the program code themselves or by asking the service provider, adding modules obtained from the project’s development community, or by outsourcing development work to members of the project community. These could be a combination of paid and unpaid services, yet nothing compared to costs of a proprietary software. Security and privacy are managed almost similarly in both formats of ERP and risks of breach comparable. Your hosting preference may change some of that in both cases.

Taking open-source and building your company’s Enterprise resources with technically skilled IT professionals in-house could be a win-win. Yes, it’s a difficult choice with many variables but if you are able to implement with success, an open-source ERP lets you do so much at so little cost that you can become your businesses delight. There is a reason why these large sized proprietary service providers are also moving on to open source – right? because that’s the future – the smart CFO’s and CTO’s are not falling for tricks, talks and suits. They want to get to business, get work done without unnecessary frills or hassle- be plain vanilla, try open source because if done right it gets the same work done with minimum fuss.
Pooja Bedi
Pooja Bedi
"In-house Counsel with Uncommon Wisdom & Common Sense, redefining the way businesses think about the legal function."
2 comments
Mark Jcobs November 23, 2018

Love the unique way of telling the facts. Yes, all those Open source vs Closed source blogs are boring! Useful information with a catchy writing style. I've never found reading about ERP Software this interesting before.

Raghunandan Jagdish December 1, 2018

Good article.. Makes sense

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