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ERP Software-as-a-Service (SaaS)

Software-as-a-Service (SaaS) business applications have clearly been the single greatest technology disruption within the business software industry in the last ten years. SaaS solutions first became widely accepted within the Customer Relationship Management (CRM) software market, however, in recent years the growth of SaaS Enterprise Resource Planning (ERP) software systems is accelerating and analysts predict continued growth of SaaS ERP systems through at least 2012.

SaaS ERP applications have matured to the point where ERP as a service is a strong consideration for many astute companies looking to upgrade their ERP applications. For most companies, the hosted delivery model requires no initial cash outlay for IT resources, a faster software implementation, on-demand scalability and improved ROI. These factors collectively create a material reduction in total cost of ownership (TCO) and acceleration of time-to-market benefits realization.

A Brief Background
SaaS ERP software systems are typically delivered through and used with an internet browser. Hosted business applications are typically either hosted by the software manufacturer or through a third party hosting firm. Regardless of hosting company, the SaaS host owns, manages, and supports the hardware infrastructure and application software. SaaS business systems often operate in a multi-tenant architecture whereby multiple client company information systems are partitioned within the same application and infrastructure stack (e.g. relational database, operating system). This shared services infrastructure model lowers operational and administrative costs which ultimately benefit customers.

However, while the multi-tenant SaaS model was the first multiple instance deployment method, many of today's most popular SaaS ERP solutions such as SAP, Oracle and Aplicor leverage an isolated tenancy hosting model. With isolated tenancy, customers continue to share a common hardware infrastructure, however, each customer operates their application within an individual database. Individual database ownership provides additional benefits in the areas of information security, data access (for ad hoc report writing or system integration) and added flexibility with software customization.

First version SaaS business systems provided significant benefits such as lower costs, faster implementations and fewer administrative headaches, however, were limited in terms sophisticated integration and software customization. The current version of SaaS solutions have surpassed these initial limitations by leveraging industry standard technologies such as service oriented architectures (SOA), XML and web services. ERP software vendors have constructed their systems around the building block concepts of SOA, while making them easily accessible to web services using a variety of common tools. These methods provide customers with relatively simple but deep capabilities for system integration and software customization. The combination of these technology advancements with the change in pricing models and delivery methods has revolutionized the upside potential of ERP within the SaaS model.

SMB (small and midsize businesses) enterprises have traditionally had a tremendous challenge in making the leap to ERP because of costly up front licensing, significant recurring maintenance costs, challenging implementations and scarce internal IT resources. The SaaS movement is lowering these barriers and opening up the world of ERP to entirely new customer markets. In parallel, middle market and enterprise companies are adopting SaaS ERP systems and realizing the benefits at a magnified rate. This SaaS ERP evolution is evident as SaaS systems have become multi-company, multi-site, multi-currency, multi-lingual and multi-warehouse enabled, thereby extending into the realm of larger, global businesses.

The SaaS ERP Value Proposition
The first step in making an informed decision is understanding both the advantages and disadvantages of ERP as a service. Once the benefits and pitfalls are recognized, they can be assessed against any particular company's business goals and objectives.

The most commonly cited and universally appreciated SaaS ERP benefit is lower total cost of ownership. The more recognized SaaS ERP systems deliver top-tier functionality for significantly less cost than traditional on-premise software applications. The sticker shock of initial licensing fees is eliminated and customers avoid having to make initial investments in IT infrastructure, resourcing and annual maintenance costs as the on-demand ERP solution is hosted, managed, and maintained by the vendor. Nearly all on-demand costs are included in a period-based subscription fee. The subscription pricing structure varies from solution to solution, however, most are priced on a “per user, per month” basis.

As any analysts, consultant or experienced user knows, the cost of internal IT resourcing for application support exceeds the software procurement costs. ERP SaaS solutions provide the biggest cost advantage by including managed application support which thereby frees up internal IT resourcing to focus on core competencies and higher priority objectives. This outsourced maintenance has a particular appeal to SMB companies which are often understaffed or simply do not have internal IT resources in place. For larger firms, the advantage lies in freeing up resources that were previously consumed by burdensome legacy software support and hardware maintenance. Software version upgrades along could consume the majority of internal IT resource time before other tasks are even considered. Either way, ERP SaaS systems allow IT resources to focus on business strategy, rather than upkeep.

ERP SaaS implementations are typically much shorter than a traditional locally-installed ERP applications. Since SaaS solutions are simply 'provisioned' and not installed, the entire software installation cycle is eliminated. Because SaaS ERP systems are written on a common code base that is used by dozens or hundreds of other customers, the implementation process is typically free of the software bugs that are so prevalent while implementing an on-site application. This shorter implementation deployment cycle facilitates the company to get up and running faster so they start seeing the return on their investment sooner. This is especially advantageous to SMB companies, which do not have the time nor the resources to wait for their heavy investment to pay off.

A third material advantage of ERP delivered as a service is that it is easily scalable and flexible to changing business requirements, which is particularly beneficial for growing, seasonal or cyclical businesses who wish to adjust their user base to meet their scalability requirements. Adding or removing users can be done on-demand and will simply change the monthly subscription fees.

As SaaS business systems are proven to deliver many strategic benefits, they are not a panacea nor without risks. For most companies, initial concerns revolve around information security, systems reliability, integration flexibility and customization capability.

Security is a serious concern for any entity, and it can be especially sensitive when trusting private data to an outside hosting service. When SaaS CRM software pioneered the on-demand software revolution, early customers were quick to point out that their most valuable information assets were their customer lists and sales information - and these assets had to remain secure or their business models could be compromised. SaaS business software solutions have been continuously used since 2000, and with the exception of one minor security (phishing) breach by, no customer is known to have had their data compromised.

With growing numbers of large companies as clients, SaaS hosting companies view security as mission critical and employ specialized staff, tools, technologies and measures few non-hosting companies can match. The state-of-the-art data centers can afford to constantly invest, test and upgrade the latest and greatest in both logical and physical data security measures, often far exceeding what a customer company could acquire on their own. Services such as daily backups, periodic restoration reviews, audit trail compliance measures, independent internal operational audits and completely redundant fail-over facilities provide added insurance for disaster recovery plans as well as Sarbanes-Oxley and similar regulatory compliance.

Another area of potential concern lies with service outages or system downtime. As the Internet itself has proven extremely reliable, downtime conditions become more vendor specific. Some hosting providers offer redundancy within a single data center. Other hosting providers take it a step further by offering complete redundancy within the data center as well as complete fail-over to other standby data centers. The more reliable hosting providers acquire third party attestations (e.g. SAS 70 or ISO 27001) and make their uptime and downtime publicly available for at least the prior three years.

All reputable SaaS ERP solutions offer a Service Level Agreement (SLA) which generally guarantees at least 99% uptime. If downtime does occur, most ERP SaaS contracts include provisions for financial credits or other remediation. It is always advisable to understand how much maintenance time is allotted from the SLA and determine when (dates and times) maintenance is performed.

The current generation of SaaS back office applications has been constructed upon a foundation of industry standard technologies which include SOA and XML web services, thereby, providing users a dramatically simpler and more cost effective method to system integration than prior era APIs (application program interfaces). Regardless of method or technology, systems integration is not without its risks. As ERP systems often need to integrate with legacy or third party business applications buyers are well advised to review integration approaches in detail before making a purchase decision.

Advanced software customization tools have been the most recent delivery of SaaS solutions from the majority of vendors. Many companies have unique business processes which provide competitive advantage and differentiation, and therefore may need to modify or customize an off-the-shelf SaaS ERP system. The more impressive SaaS customization tools are graphically-based and more powerful than prior era tools which required excessive investments of IT labor to produce even minor changes. Again, this is an area where the SaaS vendors show much variation, so careful review is required.

Many would-be customers question what will happen if and when they leave the service. Credible suppliers provide very clear exit terms and data extract procedures, so that when a customer leaves the service the data is returned in an agreed upon format and medium.

The ERP software as a service model can turn the standard ERP software selection process on its head. Comparing a SaaS ERP system to an on-site ERP system requires much more review than the standard feature-functionality list used in prior era evaluations. Each model has both recognized and hidden benefits and costs that must be considered carefully in order to make the best choice.

On Demand ERP Systems  

SaaS ERP Software Solutions

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SaaS ERP Benefits
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Lower total cost of ownership

Accelerated implementation
Budget predictability
Reliability backed with SLA
No more costly upgrades
Shared risk with vendor






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