Is ERP too important and strategic to move to SaaS?

“ERP has been considered the last frontier for SaaS and we have seen tremendous resistance from even organisations who were otherwise open to the idea of SaaS,” said Krishnan Subramanian from Aberdeen Group.

He added that one reason was that SaaS ERP offerings, unlike CRM applications were not seen as robust enough for deployment. “Many organisations consider ERP to be too strategic to let go of the control.”

Is this still true? One of the key selling points of SaaS ERP is the notion of operational efficiency and speed to market. Why invest precious resources in building an IT infrastructure when you can essentially outsource that function to a reliable vendor?

Whatever the benefits of SaaS, on-premise ERP is not going away, said Srinivas Anne, head of the upgrades centre of excellence at Infosys. “Large packaged ERP software cannot be replaced by SaaS services. SaaS services are appropriate for small transactional operations and not for ERP.”

Amitava Sharma from Indian IT service provider Wipro Technologies, added: “Customers feel that ERP is too mission-critical to be on a SaaS platform, which is not yet proven to be reliable and secure.”

A recent Forrester survey of 2,403 IT decision-makers showed that only 15% of organisations plan to implement ERP SaaS before 2013. Two-thirds (10%) of planned implementations will use ERP SaaS to complement existing ERP on-premise services.

Similarly, Gartner said on-premise spending was still 8.5 times higher than spending on SaaS in 2010, although the compound annual growth rate for the SaaS enterprise application market is expected to be 15.8% by 2014, compared with growth of 5.3% in the overall software market.

Yet now maybe the time to take the leap to SaaS for those brave enough. “We are in the middle of an ERP system replacement cycle, when systems installed at the turn of the century are ageing and being replaced by newer, more robust and less expensive solutions,” said Denis Pombriant, CEO at Beagle Research Group.

Roger Newman, senior vice-president at Mahindra Satyam, believes more customers, particularly consumer-facing companies, are using SaaS-based products to extend ERP applications, for example CRM, SCM, enterprise mobility and analytics.

Ray Wang, CEO at Constellation Research, said the adoption of SaaS offers companies the chance to refresh legacy software, which would otherwise require additional resources and support systems. “Typically, large organisations are trying out ERP in particular divisions or departments as two-tier ERP. This often becomes a conversion piece, with the two-tier becoming the first tier,” he said.

However, Sharon Mertz, research director at Gartner, added that SaaS providers often add on extra storage and additional features costs. “These are nuisance charges. Unless the SaaS solution is strictly a one-off purchase, companies want to integrate it with the back office [which incurs extra costs].”

So how can you decided whether to stick with an on-site ERP or move to Saas? According to Eric Kimberling from Panorama Consulting Solutions there are five key differentiators when comparing SaaS with traditional ERP.

1) Simplicity. In general, SaaS is simpler to deploy from a technical perspective because you don’t need to purchase additional servers or physically install the software in yourself.

2) Flexibility. SaaS is generally less flexible than traditional ERP in that you can’t completely customize or rewrite the software.

3) Control. With SaaS many companies find that they don’t have control over the software they would like. This is especially true of mid-size or large companies with well-defined business processes.

4) Accessibility. Since SaaS is entirely accessed through the web, you are in a world of hurt of the internet goes down.

5) Cost. In general, SaaS can be deployed at a much smaller initial cost, which can be attractive to smaller businesses. However, the ongoing annual payment can be higher for SaaS becuause you’re paying to use the software.

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