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Recent technological innovations have given companies in search of ERP software more deployment options than ever before. In addition to traditional on-premise ERP systems, there are now a number of strong ERP solutions available in the form of hosted or SaaS applications. Many large ERP vendors are able to provide all three deployment models in an effort to meet the increasing interest in SaaS and/or hosted ERP solutions.

While both SaaS and hosted applications have some similarities, they are not quite the same. Just as with a traditional deployment, they both offer their own set of unique pros and cons to consider. Both solution types are a viable solution for companies who don’t have the resources or the in-house expertise to install ERP software, they both have application data hosted off-site, and neither solution requires a large IT staff to manage the application, database, and hardware. While these similarities exist, there are a number of differences that remain.

With a hosted ERP application, although off-site, the organization controls of their data center, therefore, significantly reducing the risk of information loss. Compared to on-premise applications, a hosted application has a lower total cost of ownership (TCO), but it still involves a larger upfront IT expenditure than that of a SaaS application. Without question, SaaS ERP applications do offer the lowest costs among all three application models.

Setting cost aside for a moment, one must also consider the risks specifically related to the SaaS approach, such as data security and data center stability. Since SaaS ERP is cloud computing, and the vendor has full control of the database and there is the potential risk that a company may lose important information. In addition, SaaS might not be as powerful as an on-premise solution. Therefore, when a company is considering SaaS, they must perform due diligence carefully to determine if SaaS application fits their needs and if they are willing to take the risk of having their data center totally controlled by the ERP vendor.

The table below lists the major differences between hosted and SaaS applications:

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Our 2009 benchmark study showed that the SaaS ERP model is not as widely adopted as traditional ERP software – around 12% of companies indicated they selected SaaS ERP in the 2009 survey. Although there has been a lot of hype that SaaS ERP applications would gain more market share in the next few years, there is still not enough evidence to indicate that SaaS ERP solutions will be favored over on-premise ERP systems.

It is important for IT executives to understand the risks and the benefits of these different applications. CIOs should not only look at the ERP application’s functional capabilities, but also consider what significant impact it will have on the bottom line.

You can learn more about traditional and SaaS ERP applications by attending this week’s webinar titled SaaS vs. Traditional ERP: Which is Right For You?.

Blog entry written by Haoyan Sun, a business analyst at Panorama Consulting Group.

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