New technologies like cloud computing, artificial intelligence (AI), machine learning (ML) and the Internet of Things (IoT) are changing the way markets operate and to survive, companies are looking for IT-driven flexible systems that provide them the agility required in an environment of constant change.
This is driving digital transformation, which is the single biggest IT trend across all industry verticals, irrespective of the size of companies. According to a research report, the global digital transformation market, which was valued at US$261.94 billion in 2018, is expected to be worth US$1.05 billion by 2026, growing at a compound annual growth rate (CAGR) of 18.2 per cent. The Asia-Pacific region, with its technology-savvy population, is one of the fastest growing regions as far as digital transformation is concerned.
So, what does this mean for Asia-Pacific companies, particularly small and medium-sized enterprises (SMEs), which comprise a vast majority of businesses in the region?
The answer is simple. The technology tsunami raging across the world has presented all organisations with both an opportunity, as well as a challenge. Opportunity because a digitally enabled business provides competitive advantage and a way to rapidly scale up. Missing the digital bus, on the other hand, could mean a stagnating business and a loss of market share.
Understanding what needs to be done is the easy part. It is far more difficult for managements to identify which systems are the best fit for the company’s requirements in its digitalisation journey, given the sheer number of options and customisations available in products like ERP for small businesses. For this reason, most companies, instead of going direct to enterprise technology vendors like SAP, prefer the services of third-party resellers.
VARs vs. SIs vs. ISVs: What is the Difference?
Typically, they are value added resellers (VAR), systems integrators (SI) and/or Independent Software Vendors (ISV). While all three help customers navigate through the plethora of technologies that are available, at the granular level, they offer different types of services. SMEs need to understand what works best for them and then deal with the right kind of reseller.
An SI, for example, sells equipment and systems, sourced from different vendors and gets them all to work together. Typically, a customer tells an SI what their requirements are in terms of functionality and services. The SI then mixes and matches products from various vendors to provide the solution that best fits the requirement.
A VAR, on the other hand, sells products and value-added services. These services could include customisation, IT consulting, as well as maintenance.
Finally, an ISV, as the name suggests, sells software products that they have developed themselves. These products are usually sold at a lower price point than similar software made by large enterprise technology vendors. The functionality of the ISV products, are however, often less than that of similar products from the large vendors.
Despite a relatively lower level of functionality, ISV products are often a good option for companies who are looking for enterprise software tools, but are not yet ready for the increased complexity and higher cost of products from major enterprise software vendors like SAP and Oracle. Two good examples of ISVs are Xero and QuickBooks, both of whom offer enterprise accounting software, amongst other products.
Advantages of Engaging VARs and SIs
One of the major advantages of dealing with a VAR or SI for IT products and services is that they have substantial buying power – as compared to a single end-user because they buy in bulk, sometimes even more than large enterprises with thousands of employees. As a result, they get good discounts from original equipment manufacturers (OEMs). Some of that discount is offered to their own customers.
Another major advantage is that they have the experience of working on multiple projects and have a track record of helping businesses solve common problems like regulatory hurdles, reporting standards and others, often for companies in the same industry as their current prospect or customer. They bring this expertise to the table and help build the right solution.
VARs and SIs work with multiple Original Equipment Manufacturer (OEM) vendors and they have a better idea of which combination of products works the best to solve a problem. Customers get components that are best suited to their needs from multiple sources and they do not have to use whatever is available off-the-shelf from an OEM.
For OEMs, it makes perfect sense to give preferential pricing to VARs and SIs since they offer repeat business opportunities, as opposed to selling to a single end-user who may not be back in the market for a decade or so. Feedback from resellers are well regarded by OEMs since they are often in a better position to understand the needs and challenges of the end-customers as they work directly with them.
A VAR or SI can act as the single point of customer centric contact for certain products and solutions. They are often better positioned to understand the customers’ challenges and offer the kind of expertise that ensures satisfaction.
VARs, SIs and ISV are collectively referred to as the channel and they have always been considered an essential part of the IT ecosystem.
The Role of the Channel in the Cloud Computing and SaaS Era
Interestingly, with the rapid rise of cloud computing and the software-as-a-service (SaaS) model over the past decade, there was initial speculation that the traditional channel model would be disrupted.
The logic behind that thinking was that the business model of channels would no longer be valid in a cloud-centric world. At first glance, this would appear to be a legitimate concern as traditional revenue streams of VARs and SIs, including on-premise system installation and maintenance, are usually not required in a cloud environment where everything is available as-a-service. However, this line of thinking does not consider that VARs and SIs have also upgraded their offerings and expertise to compete in a cloud-first environment.
Cloud computing and SaaS vendors have realised that the channel still remains a valuable part of the IT ecosystem since most SMEs and mid-sized companies prefer to deal with channel partners who, apart from actual product implementation, help out with advice and education, often doubling up as the IT support for companies that do not have strong in-house technology teams.
This preference for the channel is backed by data. According to an industry research survey, more than half of end-users want to make their purchases from a third-party cloud services provider – defined (in the survey) as a VAR, solutions provider or other channel organisation.
Finding the Right Cloud ERP Implementation Partner for Small Businesses
It is not hard to understand why customers still prefer engaging a channel partner. Consider the implementation of a cloud-based ERP for small businesses. An ERP implementation is a complex project, even for large enterprises with dedicated IT staff. SMEs and even mid-sized businesses require handholding and advice to successfully implement a complex cloud-based ERP system that could take many months to complete. VARs and SIs provide the necessary guidance and advice since it does not make sense for a large, globally focused OEM to do so.
Most companies who are moving to the cloud are looking for a hybrid cloud model, which is a combination of a public cloud and a private cloud. In a hybrid environment, some applications that are less sensitive, like email, could sit in a public cloud. More critical applications, on the other hand, would be run out of a private cloud, which is often located in an on-premise server. The challenge is to enable a secure and seamless linkage between the private and public elements within a hybrid cloud.
While a hybrid cloud setup is considered an optimum solution from a business ROI perspective, setting up the system and maintaining it is a complex task. IT consulting, typically provided by VARs and SIs, helps a lot.
The Right ERP Implementation Partner Must Play an Advisory Role
Apart from specific hybrid cloud implementation, channel partners can guide customers in a proactive way and offer the flexibility and choice that managements seek. VARs and SIs that have acquired the necessary technological expertise to function in this new digitalised, cloud-first environment have emerged as clear winners as they help customers choose the right systems and services and play an advisory role that allows them to build a long-term relationship.
A good example of a channel partner helping a company upgrade its IT systems is Axxis Consulting, an SAP software partner and VAR.
Axxis Consulting helped Japanese electronics materials trading company, Kyoei Denki, upgrade its legacy on-premise SAP Business One ERP solution into a modern cloud-based system.
After a detailed discussion to understand the requirements of Kyoei Denki, Axxis Consulting helped to move their ERP system to the cloud. This immediately reduced the cost and friction for Kyoei Denki’s business. It was not just a one-off systems implementation. Kyoei Denki is now working with Axxis Consulting to explore more ways to improve their SAP Business One solution.
Channel partners play a critical role in building, extending, customising, and enriching the technology platforms developed by OEMs. This helps to meet the needs of customers all over the world. Each partner brings their own unique blend of expertise, skills, and services to help deliver the right solutions to their customers.
VARs and SIs are particularly useful for SMEs who may not find it practical to work directly with large globally focused enterprise software vendors. A regional VAR or SI understands the local market much better than the OEM and can navigate the peculiarities of the market, including local regulations, and thus provide solutions that best suit their customers’ needs.