Who benefits from Software as a Service relevant for mid-market ERP solutions?

Juanessa Abbott
Written by

IaaS provides enormous benefits

Infrastructure as a Service (IaaS) can be incredibly beneficial for medium and large NZ businesses as a method of deploying ERP software solutions. IaaS is a form of cloud computing, providing virtual computer resources over the Internet rather than you providing them on-premise.  IaaS provides access to faster more powerful resources at a more cost effective price than you could achieve individually. It lets you scale up and down as your needs change quickly and efficiently. It lets you focus on the business you do rather than managing racks of computers in your business. Lumpy cash-flow capital expenditure requirements can be transformed into fixed known monthly ongoing charges of an operational nature. Disaster recovery, data security, and increased reliability should all be a by-product of selecting the right cloud infrastructure provider.  For on-premise infrastructure, these aspects can be complex, difficult and expensive undertakings. IaaS can ease the process to allow access anywhere at any time for your people.

These are potentially significant benefits for you and as more and more use is made of the model, the pricing continues to become more effective over time.

However, when it comes to Software as a Service, some of the benefits seem contrary to what we expect to achieve with ERP solutions for large businesses.

Here are the generally accepted benefits of SaaS:

  1. Reduce time to benefit
  2. Lower costs
  3. Scalability
  4. Pay as you go model
  5. Ease of use (upgrades, uptime, security)

Reduce Time To Benefit

This describes a situation where the software you are deploying is already up and running ready for you to go. All you need to do is your setup and configuration and you are up and running. The software installation and environment setup is no longer required.

In relation to a comprehensive ERP deployment this component is a fraction of the total implementation time and as a result, not a significant benefit by being in a SaaS model. Also, you can’t pre-configure too much of the set up unless you are prepared to be the same as everyone else?  For example, the structure of a General Ledger chart of accounts is most likely going to be unique to your business requirements, not a standard for every company using the ERP system. Not a great benefit if any at all in our large ERP deployment, but very relevant to other software systems and small business accounting like Xero.

Lower Costs

There is a number of places with respect to a large ERP solution where SaaS could provide benefit but doesn’t in all:

  • Lower cost of entry – it is true that smaller or less financially sound organisations may be able to access and use the functionality of an ERP solution they would otherwise be unable to afford due to the upfront purchase price. However, in the current models the cost of:
  • Lower cost to operate – the principle for SaaS is that a number of users are sharing the same resources and services and therefore the cost of ownership is lower.This requires a multitenant model where there is one set of applications that many different companies operate within.  This, in turn, requires the software to have been designed to operate effectively and securely in a multitenant model.  Many if not most of the existing established ERP solutions have not been designed like this.  They are built to provide significant levels of flexibility to adapt to the unique needs of the individual organisation. They don’t scale beyond limits of data size or user numbers and they potentially don’t allow complete security and segregation of customer’s data from one and other. In addition, in my experience medium and large (NZ definition, not the US) organisations don’t want to do everything the same way as everyone else, particularly with respect to competitors.  They see their IT as a means of differentiating or supporting how they differentiate and win business.  This could be as simple as a produce supplier utilising their ERP package to assist their status as the leading provider of consistent quality and consistent delivery compared to their competitors.  If we all use the same software, processes within and models for doing business how do we differentiate and get a competitive advantage?

Scalability

This is an area where SaaS could be beneficial for large ERP if you have a situation where you want licenses for a temporary period of time, or you want to downscale. Adding users that are permanent ongoing needs is achievable in either purchased or SaaS ERP situations. Purchased license models don’t normally allow you to return licenses for any benefit, so you would end up with sunk costs if you downsize compared to being able to turn them off in the SaaS model and stop the ongoing subscription cost.

Pay as you go model

Many of the major ERP software vendors are offering you a choice to either buy the licenses and pay an annual maintenance fee (the perpetual traditional model) or pay as you go based on some metric, most commonly the number of users. If you buy the ERP licenses and expect (as you would hope) to use them for many years into the future, there will be a tipping point where it is more cost effective to have purchased rather than paying as you go.  From examples we have seen, that tipping point can be anywhere from five years down to less than three years. The pay as you go model can certainly ease the burden of capital expenditure, but it can’t be seen to be a lower cost method of acquiring the software licenses.

Also, the pay as you go model poses a risk that the software supplier can at the discretion almost change the rate you pay for your licenses after you are locked in.Changing ERP is no small task and you wouldn’t be pleased to face it simply because the ongoing cost of the monthly user licenses rose to become untenable!  When you buy the licenses you don’t face this uncertainty.

Ease of use (upgrades, uptime, security)

Upgrades to large ERP solutions involve a lot more than simply the software implication. They need to be managed and deployed within the company using the software. They can involve change management processes with staff, as well as business process reviews and potentially need suitable testing and control around crucial areas of the business to manage risk effectively. Although in theory in a multitenant environment the software effort for one upgrade can be shared across many users, I think there are greater practical implications like the above that need to be considered. In addition, the timing and suitability of the upgrade then rest with the software vendor rather than being a decision you can control.

For large businesses with consistent industry standard simple processes, there may well be some advantage in the SaaS model versus perpetual, however, in practice, I think there are many counter reasons that possibly outweigh the benefits. I haven’t even mentioned data sovereignty challenges as well as the ability to extract and use your data in the event you do decide to move systems later.

However, IaaS provides enormous benefit and we see this being deployed with more of our clients for great benefit.

By Tim Ryley

Chief Executive, Endeavour.

A skillful business strategist with a deep understanding of technology. Tim leads the Endeavour team, driving strategic initiatives and engaging with clients to ensure they experience the full benefits of Endeavour’s business software solutions.

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