Top 10 drivers for selecting On Premise or SaaS ERP model

Last 3 years have seen a lot of action in Enterprise applications space and one of the trends identified by most of the leading analysts was emergence of SaaS model for ERP deployment and it was touted as the most transformational innovation since almost 12 years back when ERP access became web based and did not remain as client machine based. It was seen as a boon especially for those organizations which are tight on capital expenditure budget but would like to harness the power of ERP for further growth and expansion. This very premise of selling the SaaS model became it main growth deterrent also, as larger organization somehow started feeling that this is a poor man’s option and must have some serious side effects. They wanted this model to evolve fully before they have a look at it.

A year back, when the world was trying hard to come out of the recession, the business case of going towards SaaS became stronger as it not only takes care of converting your heavy capital expenditure to operating expenditure thereby saving on cash outflow in difficult times but also offered less running maintenance cost. We also saw emergence of good product options in this space in last few years like NetSuite, Plex systems, Activant etc. which provided chance to the interested companies to try these solutions out.

Still, the growth of SaaS ERP model is not at the same pace which was expected as per the leading analysts and this forces me to think what may be the drivers for an organization that guide them to take a decision whether to go for an on premise ERP model or SaaS ERP model. I did some research and found that below said points certainly contribute in the decision cycle of the CIO as well as CEO for choosing the correct ERP Model for them:

1. Upfront costs – Software Licenses & Implementation
2. Cost of hardware and IT staff
3. Running cost & degree of difficulty in maintaining ERP Model – Total cost of Ownership
4. Best fit solution match
5. Ability and willingness to deploy resources (IT and other) in ERP deployment
6. Data security concerns
7. Perceived risk
8. Level of customization required
9. Existing investments in hardware, IT resources, licenses etc.
10. Level of controls wanted over upgrades, localizations etc.

There are a few other drivers too that contribute to the decision cycle in selecting the ERP Model but I am sure that for at least coming few years, cost will remain as the most influential driver for moving towards SaaS and data security (and more controls) will remain the factor in favor of on premise ERP model. Toady’s smaller factors, can take the place of the larger factors one the SaaS model evolves further and proves itself a better option in future. These smaller factors which we need to look for are:

• Richness of functionalities
• Ease of use
• Ability to personalize/soft customize without programming
• Pace of implementation
• Ability to seamlessly integrate with multiple applications (SaaS or on premise)
• Industry solutions availability

What are your driving factors to take a decision on selection of ERP model?