Can SaaS work with ERP?

August 19, 2008

Add to del.icio.us     Digg this

On Aug. 15, Gartner released a report that leaves some doubt as to the success of SaaS (Software-as-a-Service) at least as it relates to complex ERP (enterprise resource planning) applications for larger enterprises.

Gartner analyst Denise Ganly writes in the "SaaS Impact on ERP" brief that enterprises' real need for a suite of integrated and efficient ERP solutions is not something that SaaS vendors can reliably deliver, at least not right now.

Ganly says "because of the complexity of most ERP suites, SaaS offerings for administrative and operational functions typically have provided functionality that is confined to just one area, such as sales force automation, or one business process, such as payroll. So we think that ERP SaaS suite offerings are still immature at this point in time."

Additionally, Ganly notes that despite all the current hype, there are sound reasons why SaaS ERP suites aren't quite ready for prime-time enterprisewide deployments. Some of her other findings include: SaaS ERP suites won't be viable options for large enterprises during the next five years.

"Except for use in two-tier ERP deployments," she notes, "large organizations should completely ignore this segment."

Ganly first urges CIOs and business-technology leaders not to be "deceived" by impressive SaaS ERP growth data. "Much predicted growth in this market will be driven by the adoption of human capital management SaaS and financial SaaS point solutions. The growth rate for SaaS ERP suites will be a small proportion of the overall market growth, because mature robust solutions are unlikely to emerge by 2011," said Ganly.

Next, she points out that one of the big drivers of SaaS ERP is the extreme IT staff constraints faced by many organizations, and the SaaS model "appeals to organizations because it can free up staff to concentrate on more-strategic, value-adding processes." In addition, many of these organizations believe that SaaS ERP is "instant on," which means that it can be implemented with little or no intervention.

Ganly said "you just turn it on and you go... But the business still must be re-engineered, processes redefined, integration points need to be re-implemented and so on and so forth."

Ganly continued by saying that other inhibitors to more widespread SaaS ERP adoption relate to total cost of ownership (TCO). TCO of "SaaS ERP suites likely will be significant and may not compare favorably with on-premises solutions," she adds. This problem applies to vendors as well. SaaS vendors "often have unrealistic expectations of their operating costs," she writes.

"The multitenant architecture needed for SaaS ERP suites results in high internal efforts and costs for the initial setup and the ongoing maintenance and upgrade of the system," Ganly warned.

In other words "the so-called 'instant-on' perception that drives adoption also makes it an inhibitor in and by itself, which isn't always a good thing for some large enterprises," said Ganly.

"Additionally, security has also been an issue with many SaaS ERP offerings, especially with regard to financial data and sensitive corporate information. SaaS vendors must prove to organizations that are considering SaaS ERP deployments that their security and privacy concerns are unfounded through super low-cost or no-cost, proof-of-concept trials, encouraging early adoption through value pricing and getting early adopters to share their success stories," said Ganly.

She recommends that IT organizations must be proactive when it comes to SaaS. "Engage the business before it decides to 'go it alone' on SaaS ERP initiatives," she writes.

Even with the successes that SaaS ERP efforts are having in the SMB space, Gartner Dataquest predicts that SaaS will constitute just 16.7 percent of the total ERP market in three years from now.

"Overall, SaaS ERP will continue to grow, particularly at the administrative level, but the complexities of integrated ERP suites, along with a lack of credible vendor interest in this segment, means that truly integrated offerings such as SaaS ERP suites for large enterprises are unlikely to emerge in the near future," warned Ganly.

Specifically, Gartner urges large enterprises to not consider SaaS ERP suites as viable options in the near term. Although the entry fees for SaaS are much lower than for on-premises solutions, beware of unexpected 'hidden' costs, such as "customized sandboxing", testing and development, storage and integration.

These may substantially affect the TCO for your SaaS deployment, Gartner recommends.

Add to del.icio.us     Digg this

Source: Gartner.

Bookmark this Tech Blog by clicking here.

         Tech Blog is hosted by Avantex