Software as a Service (SaaS) ERP is on a lot of people’s minds these days. Given the down economy and the fact that traditional big-bang ERP implementations can cost more than some companies can afford in these times, many are looking at alternative ERP delivery models. Some have also declared SaaS as the saving grace of the ERP industry.

So implementing SaaS must be a slam dunk no-brainer, right? Not even close. While there are some definite advantages, much of the hype fails to disclose the downside.

Three Important Aspects to Consider When Evaluating SaaS Options

  1. Cost. The common perception is that SaaS is much cheaper than traditional “big” ERP systems. This is sometimes true, but not always. For example, because SaaS does not require a complex internal technical infrastructure to support, it can reduce costs. In addition, you essentially “lease” the software, so you have less of a big payment of front than you would with traditional on-premise ERP. However, the ongoing costs are most likely going to be significantly higher since you’re paying to use the software annually, whereas after buying traditional ERP software you only pay maintenance going forward. So initial costs may be lower for SaaS, but will probably be higher on an ongoing basis.
  2. Flexibility. Because you don’t “own” the software on your own servers, there is inherently less you can do to change the software to fit your business needs. You can still configure and set-up the software you want, but when it comes to hardcore workflow redesign or customization of the software, SaaS is much more limited in its capabilities. This may be a reasonable trade-off for a small- to mid-size companies, but many of our larger clients struggle with this concept.
  3. Ease of Implementation. A big selling point for SaaS is that you can have a system up an running in a matter of weeks. Technically this is true, but it is also true of traditional ERP software. The problem is that going live has less to do with getting the software up and running than it does with clearly defining business processes, configuring the system accordingly, and ensuring people are well trained in the new process workflows and transactions. In the case of SaaS, it often takes a great deal of time to change the processes of the business to fit the software, which is not reflected in the typically optimistic implementation timeframe of a SaaS ERP sales rep.

We’re not suggesting that SaaS is not a viable option, because it is. However, it is important to fully understand not only the benefits, but the risks and tradeoffs as well. These should all be considered as part of a comprehensive ERP evaluation and selection process.

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