Paper on ERP licensing, comparing the Free and Proprietary options

1. ERP Licensing
Perspectives on Adoption
of ERPs in Small and
Medium-sized Enterprises
Rogerio de Atem Carvalho,
Nucleo de Pesquisa em Sistemas de Informação
(NSI), Instituto Federal Fluminense (IFF), Brazil
Björn Johansson,
Department of Informatics, Lund University,
Sweden

2. Introduction
• ERP systems experienced an implementation peak
during the pre- and post-Y2K periods
• After that period, the ERP market started to saturate
and major ERP vendors started to seek for new business
opportunities, in special towards SMEs
• Increased interest on ERP versions for SMEs, on both the
demand and the supply side, creating a recent
movement towards simplified versions of P-ERP and
FOS-ERP

3. The research question
• It is clear that the merge of P-ERP,
FOS-ERPs and SMEs is a multi-
faceted topic yet to be more
explored.
• This article focuses on the licensing
terms, which represent the most
visible difference between the two
kinds of software

4. A Framework for the
exploration
• The GERAM (Generalized Enterprise
Reference Architecture and
Methodology) framework provides a
description of all elements
recommended in enterprise
engineering, providing a template to
analyze ERP selection, deployment,
and evolution

5. The GERAM framework

6. Analyzing FOS-ERP and P-ERP
adoption - Concept
• Involvement in customization tasks varies
depending on the licensing terms
– In the case of FOS-ERP, the adopter can
contribute to a project, or at least making the
necessary customization by itself
– For P-ERP, the involvement comes in another
shape, since they are often delivered under a
partnership model

7. Analyzing FOS-ERP and P-ERP
adoption - Requirements and
Preliminary Design
• Evaluating P-ERP involves comparing
alternatives under the light of
functionality, Total Cost of Ownership
(TCO), and technological criteria.
• In the FOS-ERP case other criteria related
to FOSS in general, such as the maturity
level of the project, its survivability, and
its partner network strength, must be
taken into account.

8. Analyzing FOS-ERP and P-ERP
adoption - Requirements and
Preliminary Design
• In the case of P-ERP, best practices are
built on top of many years of experience
• FOS-ERP, being younger projects, offer
less experimented practices.
• In FOS-ERP, an adopter can use the
modules based on standardized
procedures - such as payroll - as is and for
free; and then expend its resources on
adapting solutions related to more
strategic tasks

9. Analyzing FOS-ERP and P-ERP
adoption - Requirements and
Preliminary Design
• In FOS-ERP the adopter must decide
to behave as a simple consumer,
only getting the solution from the
vendor, or become a prosumer, by
mixing passively purchasing
commodity parts of the system with
actively developing strategic ones by
itself

10. Analyzing FOS-ERP and P-ERP
adoption - Detailed Design and
Implementation
• In the case of FOS-ERP, if the adopter
chooses to assume a more active
role, more resources for getting
knowledge on the platform and
framework, developing and
maintaining parts of it, and
managing the relationship with the
project community will be demanded

11. Analyzing FOS-ERP and P-ERP
adoption - Detailed Design and
Implementation
• In FOS-ERP adopter can assume different
grades of involvement for different parts of
the system. For ordinary modules, let the
community do the work.
• For strategic modules, it can take an active
role keeping the competitive advantage.
• In P-ERP it is easier to keep parts of the
system on secrecy, by properly contracting a
P-ERP vendor; however, adopter will become
vendor dependent

12. Analyzing FOS-ERP and P-ERP
adoption - Detailed Design and
Implementation
• In P-ERP if the adopter decides to
develop add-ons, it has to consider
that it could be problematic in the
future when new versions of the core
product are released.

13. Analyzing FOS-ERP and P-ERP
adoption - Operation
• In the FOS-ERP case, during operation the adopter
can decide at any moment, unless specific
contractual clauses hinders, to shift to another
vendor (of the same system) or to assume the
system’s maintenance by itself
• Also in FOS-ERP case, historically only commercially
sponsored projects have the necessary maturity
• In the P-ERP case the adopter exchanges
independency on the software vendor for a high
grade of support, depending on if the adopter chose
to sign a service contract or not

14. Differences between Free and
Proprietary ERP
• On the economic side, the most obvious, is that the current
lower TCO for both FOS-ERP and P-ERP open new
opportunities for SME to become ERP adopters
• However, lower costs can also mean that adopters have to
deal with lower service levels
• Entering the P-ERP partner network can be more expensive
than entering the FOS-ERP network.
• On the other hand, the P-ERP partner networks rely on more
mature consulting processes and experiences

15. Final Considerations
• Size of the company makes a difference.
• For small enterprises, the SaaS model seems to be
the solution, and the adopter must evaluate,
besides the functionalities demanded, service levels
and pricing, regardless the licensing model
• For medium enterprises, if the company has enough
resources and already uses other open source
applications, it could consider an FOS-ERP solution,
analyzing carefully the maturity of the project.
• On the other hand, if the company does not have
the resources or do not want to invest on
customization by itself, and if it already uses – and
is satisfied with a partner, it should definitely
consider to stick to P-ERP, considering, again,
whether a SaaS model should be adopted
• However, an interesting finding is that FOS-ERP and
P-ERP development become more and more similar