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?

Are on-premise ERP days are over?

Gartner, recently came out with "Top End User Predictions for 2010" which are published below:

• By 2012, 20% of businesses will own no IT assets
• By 2012, India-centric IT service companies will represent 20% of the leading cloud aggregators in the market
• By 2012, Facebook will become the hub for social networks integration and Web socialization
• By 2014, most IT business cases will include carbon remediation costs
• In 2012, 60% of a new PC’s total life greenhouse gas emissions will have occurred before the user first turns the machine on
• Internet marketing will be regulated by 2015, controlling more than $250 billion in Internet marketing spending worldwide
• By 2014, more than three billion of the world’s adult population will be able to transact electronically via mobile and Internet technology
• By 2015, context will be as influential to mobile consumer services and relationships as search engines are to the Web
• By 2013, mobile phones will overtake PCs as the most common Web access device worldwide

I feel interested most for the very first point. Does it say that all ERPs will move to clouds or at least towards SaaS model? If we go little deep into the report, we will find statements like, "Cloud computing, which abounds with opportunities to shift IT resources outside the enterprise, help boost liquidity and rebalance short and longer term financial commitments" which again points us towards the same result. I understand that 20% is not a large number but this is definitely a shift from the earlier strategy of deploying on-premise ERP solutions by almost all organizations specially in medium to large category and SaaS models were largely limited to smaller organizations. As usual , ERP world is changing and at a good pace!  

7 Benefits that will help you bringing clouds down to earth

Enterprise applications has started moving to a new concept of cloud computing more than a couple of years back and though unfortunately this could not pick up immediately after come to fore, due to recession but as the economic situation is becoming better, they are sure to grab a large pie of enterprise applications. The current scenario is such that the top management is still insisting on justifying new IT investments in terms of return on investment and total cost of ownership and that is completely fare. We still have to weigh a proposed solution’s advantages and disadvantages and convert them, where possible, into quantifiable benefits and costs and in the process need to evaluate on premise application services versus cloud based application services.

I am a big fan of cloud computing and one of my strongest feelings is that the time is not far when all on premise applications will start moving to clouds and will in turn bring the clouds down to earth. I am not saying that clouds only have advantages and are a sure shot case for everybody to start moving towards them as soon as possible. Looking at the current scenario, there seems to be more than handful advantages that on premise applications hold over clouds so it is a fair game where each technology style will strive for improvement and evolution in next years (or shall I say quarters?). Let me list down the major advantages that cloud offer over on-premise or applications:

• No Capex: The most obvious one is zero capital expenditure in clouds as compared to heavy capex in on-premise applications. With clouds you pay a monthly fee to the service provider and you need not buy expensive servers, earmark space for keeping the servers, hire database administrators to maintain servers etc.
• Move from License to Subscription: With clouds, you do not need to buy expensive licenses from enterprise product vendors as it is normally done by your service provider and hence the ROI increases for you. It is seen multiple times that even after buying licensing for multiple modules, organizations are not able to use all of them due to multiple reasons and that license cost becomes an overhead for the organization. Whereas, in clouds you subscribe the service as you subscribe to a magazine or a cell phone service which can be started anytime and can be stopped anytime
• Flexibility of change: How many times, it happened that you thought of shifting to another ERP because it offered a few functionalities that have become critical to your business but these are not available in your current ERP? In my experience, I have seen this more often than not but since it is not easy & cost economical to move towards the other ERP, we keep on sticking to the existing one and instead work with the product vendor for fixing the issues which either include customization or workarounds or changing the process. Sometimes, this takes you away from the best practices in those areas and hence reduces the organizational efficiencies. Clouds ensure that you do not have to worry about this any more and if you want to shift to a new and better product from another vendor, just close your subscription and move to the new one almost immediately
• Full functionality available: Unlike on-premise application where you need to buy separate licenses for modules and functionalities which you want to use, you get the full functionality available to you by most service providers in case of clouds. Then, it does not depend on whether you have just 20 users or 200 users. Not only this, you organizational size does not decide the level of scalability, reliability and the performance. You get the same features. You get the same features and the same global solution that the larger organizations get
• More data security: Yes, contrary to the myth that your data will not be safe in case of clouds, it is in much more safer hands most of the times. All organizations are not experts in safeguarding their data. If you think that since it is sitting in your servers, it is safer than sitting in somebody else’s servers – you might be wrong. In today’s world when hacking is not a new word, data security and storage expertise is something that is best left at the experts. The on demand service providers ensure that they follows the highest safety standards on data security and storage and hence you can rest easier knowing that your data is in the cloud and well protected
• No support infrastructure required: Normally, after ERP implementation at your premise, you would engage a product support team that will help resolving the bugs in the application and helps users to get over them. This incurs lot of cost and often it is difficult to retain the talent in this high demand category. If you engage a vendor’s team for this purpose, even then you will to bear huge cost in this area. In the case of clouds, the service provider will not only provide you all the functionality but also will support your application so that the operations are seamless and without break. Your expenditure on business continuity and disaster recovery moves to the service providers and you just a monthly fee to them for ensuring this for you. You will be least worried about any unscheduled outages that can hamper your business as major service providers are experts in managing these on their own
• Ease of implementation: On-premise implementations take long time and involve the business as well as IT resources completely for a substantial period. In addition, the customizations those creep in after the discussions on the requirements and subsequent fit gap analysis, consume decent size of resources. With clouds, the level of difficulty as well as period of deployment is reduced considerably and the main thing is that the pain that business goes through while on-premise application implementation is missing in case of on demand application based on clouds.

The list is not exhaustive and I am sure that entry of world class service providers in this area will bring more and more benefits and the clouds will come down to earth.

ERP Strategy: Implement ERP as SaaS and increase ROI

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These days, we keep talking about the same thing again and again and that is, to reduce the cost and increase the return on investment specially return on IT investment as though IT is an enabler of growth but there is no tangible return on investment immediately after deploying a new system or upgrading a system. Coming to my favorite topic i.e. ERP - it normally requires sizeable investments and the best in class organizations expect the ERP to return its cost back to business in almost 2 years. This is important to justify continued investments in ERP in these troubled times.

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Software as a Service or SaaS as it is popularly called, is generally gaining ground on the basis of this very logic. I tried to list down the benefits that a SaaS ERP model offers and wanted to share with the readers with two objectives - One is to make them a little more awaree of this new phenomenon that is leading the latest ERP wave even in this downturn and 2nd is to build this list with more points so that it is easier for organizations to genuinely compare the capex heavy traditional on premise ERP and service oriented SaaS model. Let's go through the list as below:

• Faster ROI: As we all know that due to today’s economic downturn, ROI is more critical than ever. SaaS ERP implementations streamline all stages of the lifecycle including requirements gathering, process mapping and improvements, Building customizations, testing and training. contrary to the belief, a SaaS implementation is a complete, prebuilt application implementation done at the providers end but with full involvement of the customer's business. It is also more cost-effective to scale to multiple locations or suppliers/customers, and keep current with the most updated version of the systemas it is the reponsibility of the provider to present a time bound roadmap to the customer for upgrading the application in future
• Capex down to minimum: Since we are buying a servcie and not the servers, we are not bothered on the the cost involved on the server acquisition and maintenance. I understand that the cost of the equipment will be inbuilt in the service cost but since it will be a staggered cost and not upfront, it is a huge benefit in today's scenarios. The pay per drink model minimizes risk because an enterprise can roll in applications based on business need (for instance implementing just the order management first, inventory management next and so on) as appropriate to the business need
• Minimized Operational costs: The costs and resources required for ongoing maintenance, support, system performance and version control all go away with SaaS implementation. Data security, globalization, feature enhancement, connectivity, and safety are the responsibility of the SaaS vendor, freeing up the manufacturer to concentrate on core tasks. In addition, true multi-tenant architecture makes every customer instantly benefit from system enhancements
• No plan needed to retain technical talent in turbulent market conditions: Since the ERP is run by your provider forever and you just based on outcome or transactions or number of users as the case may be, you are not required to keep costly technical consultants on your rolls. Please note that retaining ERP consultants after you go-live is much more difficult task than hiring them and SaaS model helps you overcome this hurdle too
• Integrations simplified: Gartner estimates that up to 35 percent of the implementation costs associated with on premise ERP applications is for integration. SaaS ERP makes integration with other applicationsor hardware faster, easier and less risky
• More choices available: SaaS has really evolved in last 3 years and there are many choices available for the customers to choose as per their specific business needs. This is contrary to the fac that still theer are just 3 or 4 major vendors for the on premise ERP that have captured most of the market
• Flexibility added to your plan: As you will be paying as you drink and anytime you can switch loyalties towards another drink if you do not like the first one, it offers magnificent flexibility in planning your business needs vis-a-vis costs, functionality available and market trends - and all this at no extra cost, no depreciation worries etc.

I will stop here as the list of benefits that I could gather, are finished. Now I will look forward to the the readers to contribute and let us know if we more benefits of SaaS over on premise ERP, and yes please highlight the down side also so that we all can get a clearer picture before we take a decision.