The importance of ERP deployment options
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According to IDC, Forrester Research, Gartner, SMB Group, and many other analyst firms, cloud applications are the wave of the future and will comprise over 30% of deployments by 2014. However, today over 95% of ERP deployments are still running on premise. So how do we move from a world with fewer than 5% of ERP deployments as SaaS to a world with over 30% of deployments as SaaS?
Reasons for upgrading ERP
The first step in understanding how this will occur it to review some reasons why companies purchase or upgrade their ERP software.
- Newer companies without an advanced accounting solution need manage growth and automate their business processes. These companies do not normally have an existing infrastructure (and existing software baggage), so a solution which minimizes hardware, software, and IT complexity is a natural choice. Newer company needs are well served by a web-based solution that is offered as SaaS so they can benefit from the latest technology without a large capital expenditure.
- Companies with ERP software systems that are no longer supported will be forced to upgrade. In some cases, these companies migrate to a supported version of their current vendor’s software. But, in the majority of cases, the legacy vendor only offers an upgrade to another client-server solution. Since the upgrade is nearly as expensive as installing new software, companies often use this time to investigate vendors that offer more modern technology. Unlike newer businesses, these companies have experience running client-server technology and be adverse to the notion of a cloud-based solution.
- Specific activities such as acquisitions, mergers, new regulations, or rapidly changing business requirements often force businesses to investigate new automation solutions. As business requirements change, companies try to adapt and customize their existing systems to meet the new challenges that they face. This often leads to a web of loosely connected systems (instead of a single centralized web-based system) with expanding complexity. After the typical ERP upgrade cycle of 5-7 years, the company sets aside money to fix the problems that have accumulated.
Change is the biggest driver
Business is not stagnant. Most businesses face growth, budget cutting, mergers, acquisitions, management turnover, and other events on an annual basis. These changes almost always create changing requirements which lead to stress on current processes and systems.
The cloud provides agile computing environments so companies can manage change more efficiently. This is a major factor that will drive growth of SaaS adoption as predicted by several analysts.
Preparing for Change
SaaS solutions enable businesses to efficiently manage most types of business expansion. But a SaaS solution that does not offer the ability to move on premise or to a different data center or cloud provider can result in the same problems as your original client-server solution. As your requirements, regulatory environment, and corporate structure change, many SaaS solutions will face the same 5-7 year upgrade cycle because the are not easy to customize and do not offer deployment flexibility.
Example 1. Assume you distribute health care equipment. By purchasing a SaaS distribution solution, you can get started quickly and access real-time data and reporting from all warehouses and offices. As your business grows, you decide to begin selling direct to clients, which necessitates tighter controls over confidential data. If your same software code and data can be moved on premise, you can easily manage this change.
Example 2. Assume you are a CPA firm and utilize a SaaS accounting solution to do client write-up and allow customers to quickly access financial reports. Some customer want to utilize SaaS, others want to use an on-premise solution.
Example 3. Assume you are a company that needs to upgrade your software. Your CEO is excited by the prospect of SaaS, but the IT department and operations folks are not ready to make the jump yet. A web-based ERP solution that provides the ability to move from on-premise to SaaS is just what you need to keep folks happy in the short term while preparing for the future.
Companies should purchase a software solution that allows them to run either on-premise or as SaaS. This flexibility ensures that the solution will fit the business to ensure the lowest priced solution, even as the business’s size, complexity, IT expertise, financial position, or regulatory position changes.