The Value Proposition of ERP as a Service

A Brief Background

SaaS vendors typically provide a standard software base via the Internet. This common application may be hosted either by the vendor or through a third party firm, but the SaaS provider owns, manages, and maintains rights to the software. SaaS applications are established in a multi-tenant architecture to segment individual customers’ data and configuration. Essentially, this means that multiple clients can access and run the same application simultaneously. From the customers’ perspective, they see, access, and use only their own data. Under this framework, customers only pay for access to the application, as opposed to licensing the application itself.

A SaaS vendor traditionally works on one common code base for all customers, which greatly reduces the resources required to maintain or upgrade a customer’s specific version of the software. This common code base, beneficial from a vendor’s perspective, can on the other hand limit the customer’s ability to integrate additional applications, which is often a requirement of ERP.

With the emergence of web services and service oriented architecture (SOA), many traditional ERP vendors began to eye the SaaS model with a new perspective. Increasing technology made integrated applications, namely ERP, seem far more plausible than they had several years earlier. ERP vendors began to construct their applications around the “building block” concepts of SOA, which in turn provides customers varying degrees of integration and customization. Such changes in technology have revolutionized the potential of ERP within the SaaS model.

It used to be a tremendous challenge for small companies to make the leap to ERP because of prohibitive licensing and maintenance costs. SaaS is changing this traditional notion by opening up the world of ERP. In turn, mid-sized and enterprise level companies are likewise realizing the benefits of a hosted ERP solution. This transformation is evident as SaaS ERPs have become multi-site, multi-company, and multi-currency enabled, extending into the realm of larger, global businesses.

The SaaS ERP Value Proposition

The first step in making an informed decision requires understanding both the pros and cons of ERP as a service. Second, it requires an assessment of a potential customer’s drivers and goals.

The SaaS ERP model is based on one major advantage: lower total cost of ownership. A SaaS solution provides top-tier functionality for much less than a traditional software license model costs. Customers do not need to make an initial investment in IT infrastructure or resources, nor must they pay for maintenance costs, as the solution is hosted, managed, and maintained by the vendor. The sticker shock of initial licensing fees is eliminated as well, with customers paying just a subscription fee. The pricing structure varies from vendor to vendor, but most are billed monthly on a flat, “per user, per year” rate.

The SaaS ERP model goes beyond reducing hardware costs; it also frees up resources previously designated for internal development and trouble shooting, freeing a client’s IT department to focus on business needs, rather than legacy application maintenance. For smaller firms, the appeal most likely comes from the reduced the initial outlay for resources, since more often than not such resources are not already in place. For larger firms, the advantage lies in freeing up resources that were previously devoted to burdensome software and hardware maintenance. Either way, SaaS ERP allows IT resources to focus on strategy, rather than upkeep.

The “service” in SaaS goes beyond simply hosting the application to include functional upgrades, regular maintenance, and beneficial additions. Such upgrades and new functionality can be rolled out simultaneously, making the improvements available to all customers at the same time. The users thus have the advantages of a continuously improving, “evergreen” application with no maintenance or upgrade fees.

The implementation timeframe for a SaaS application is usually far quicker than a traditional ERP application. Since a SaaS ERP solution is written on a common code base across customers, it can be implemented quickly while avoiding the software bugs that are so prevalent while deploying an on-site application. This shorter implementation cycle allows a company to get up and running faster too, so they start seeing the return on their investment almost immediately. This is especially advantageous to smaller businesses, which do not have the time nor the resources to wait for their heavy investment to pay off.

A third major advantage of ERP delivered as a service is that it is easily scalable and flexible to changing requirements, which is particularly beneficial for growing, seasonal or cyclical businesses who wish to add users to accommodate demand. Adding and subtracting users will change the monthly subscription rates, but it’s also a fast and simple adjustment.

A Closer Look

While the primary advantages to the SaaS model are evident, some concerns must also be addressed. Primary among potential customers’ concerns is the security of a SaaS model, particularly in accounting and ERP. Others wonder about the reliability of an externally hosted application, particularly in regards to reliability and outages. As the model matures and technology improves, more and more viable solutions keep these concerns to a minimum.

Security is a major issue for any firm, and it can be especially critical when trusting private data to an outside software vendor. With growing numbers of large companies as clients, SaaS vendors view security as an absolute necessity and either rely on their own data centers or third parties to provide securely hosted environment. Reliable vendors utilize state-of-the-art data centers that can afford to maintain the latest and greatest in both physical and data security measures, often far exceeding what a prospective customer company could provide on their own.

Reputable vendors provide very clear exit terms and data rules, so that when a company leaves the service the data is supplied back to them in an agreed upon format and medium. This helps ensure continuity of data when the customer transitions from the vendor’s service. Most data centers and vendors also provide daily data backups, a service many companies find it difficult to provide for themselves. These routine backups provide added insurance for disaster recovery plans as well as SOX compliance.

Another area of concern for many firms considering ERP as a service surrounds service outages and reliability. As time passes, the stability of the Internet has improved dramatically. The number of outages and their length has decreased and can be reduced with the use of a dedicated T1 connection. Redundancy spread between two separate ISPs can help further safeguard against outages.

While there is still the potential for failures within the data center, most SaaS ERP contracts have provisions for minimum up times, with guaranteed standards reaching beyond 99%. For those companies that maintain their own networks, these numbers are welcome news. As with any SaaS application, though, upgrades, patches, and routine maintenance often requires scheduled downtime. Though a necessary fact in a SaaS model, scheduled downtime can be a challenge for a company accessing mission critical applications such as ERP. Good vendors try to minimize the frequency and duration of these events.

Knowing the advantages and potential pitfalls of SaaS is the first step in determining whether or not SaaS ERP is a viable option for your business. The second part is turning the mirror around and looking inward. SaaS applications, ERP included, are standardized applications, meaning that the functions and features provided are common across all customers. While most vendors have varying options for customization, these options are still fewer than in the traditional licensed model, where the vendor will provide customized functions to support customers’ specific needs.

The good news here is that better SaaS vendors are constructing their applications around SOA and web services, giving customers a continuously increasing ability to integrate their needs with the vendor’s application. If a company has particularly unique processes and systems that provide competitive advantage and differentiation among its competitors, SaaS ERP probably isn’t the best fit. However, for many other firms, particularly those in industries with more standardized requirements, SaaS ERP is a much brighter option.

Ramco Systems has over 20 years of experience in the global ERP market. They leveraged that experience to develop and launch their SaaS ERP offering, OnDemand ERP™.

The approach of many vendors is take more traditional SaaS applications , such as CRM, and began to slowly build out ERP functionality. Ramco has taken their best -in -class ERP application and converted it to the SaaS model, providing truly integrated, full -scope ERP as a service.

Ramco also uses a “sandbox” approach. In this approach, customers’ data are housed in separate locations, but users access a single instance of the application. First, data segregation helps ensure security across the customer base. Second, application performance is stabilized. Each job request accesses the customers’ specific data, limiting the impact of resource -intensive requests from one customer to the next.

The “software as a service” model can turn the standard ERP selection process on its head. Comparing a SaaS ERP to on-site, licensed solutions goes deeper than comparing feature function lists. As technology has advanced, it has opened the door to ERP within the SaaS framework and brought many of its advantages with it. Once limited to small firms, ERP as a service carries some big benefits and future potential, making it a valid consideration for even the largest companies.