A new method of deploying ERP solutions that appears to be gaining a significant amount of momentum is the Software as a Service, or SaaS ERP model. Companies that have have traditionally purchased a license and deployed in their own data center can now rent a turnkey package that includes the delivery infrastructure. While SaaS ERP is making inroads, it will take some time until it makes a serious dent in on-premise deployments. Forrester believes it will account for 4% of the overall ERP market by 2015.
It seems that the volatility of the business cycle is contributing to the SaaS market momentum as companies wish to scale their systems on demand, while looking to avoid tying up cash in heavy, up-front investments. Although SaaS ERP may be more expensive in the long run, companies are drawn to the lower initial investment requirements. While a significant shift to cloud-based ERP has started, all the major business drivers should be analyzed to determine if it is right for your organization.
Advantages of SaaS ERP
While SaaS ERP usage is generally associated with smaller companies, it is gaining traction with much larger organizations. A smaller organization sees the attractiveness of minimizing up-front costs, reduction of IT expenses, ease of deploying new functionality and updates, as well as the flexibility in scalability. High-growth startups particularly see this option attractive to get functionally rich software with minimizing up-front cost that allow them to grow and add users as business dictates.
SaaS ERP applications allow you to deploy new functions faster, ensure updates are more current, reduces IT workload, and provide increased security and backup capabilities. Though many organizations see security as a negative against the SaaS model, the application providers are many times far superior to the company evaluating the alternative in this area.
SaaS ERP Considerations
Despite the fact that SaaS is rapidly coming into the mainstream for many organizations, every organization is different and needs to analyze their situation carefully. SaaS ERP solutions are cheaper up front, but the monthly fees can add up to be substantially more expensive than a traditional “on-premise” solution. SaaS vendors tend to over-inflate the costs of in house IT while “on-premise” vendors underestimate these costs. Additionally, there is nothing to keep a SaaS vendor from increasing the monthly fees down the road unless specifically noted in the contracts.
The possession of data is another area that requires additional scrutiny as some vendors have inconsistencies in this area. Additionally the web-based interface causes some performance concerns in intensive “heads down” data entry functions like order entry. And finally, since many SaaS vendors are popping up with Venture Capital or other equity money, it is important to understand the long-term viability of the vendor.
The SaaS model of ERP deployment is gaining ground as an exciting alternative for a number of companies both large and small. There are a number of points to consider as every organization is unique and has their key business drivers and decision points. While the above points are by no means all inclusive, it could help to have an independent ERP consultant guide you through this process.
If you’re in the midst of an ERP selection project and considering SaaS ERP, give us a call and let us help.