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SaaS ERP: Business in the Clouds

By Dick Weisinger

CRM continues to be the most successful category of application running in the cloud.  A recent survey in the UK by Really Simple Systems found that the split between companies using on-premise CRM versus those that use a cloud-based version is near parity.

But the numbers for other application categories deployed to the cloud, such as ERP, Payroll, HR and Manufacturing, are very small.   13 percent of companies said that they’re using SaaS-based ERP and only 39 percent have confidence in ERP systems running in the cloud.  Gartner has forecast a 16.1 percent market share of SaaS ERP by the end of 2011.  But Gartner cautions that most of the early market share for ERP solutions are really point solutions, primarily for human capital management and financials.  Gartner predicts that “mature robust solutions are unlikely to emerge by 2011”.

Acceptance of SaaS-based ERP has been slow in coming because it is too complex.  Most early-adopter companies that have ventured into SaaS ERP are small.  Large companies have virtually ignored SaaS-based ERP.  The complexity of ERP mean that many ERP offerings in the cloud are not complete.   Software suites available in the cloud now are generally focused on one specific domain, like sales force automation or payroll.  It will take some time before cloud-based ERP offerings will match the depth of capabilities that are found in traditional on-premise software.

Some of the appeal behind SaaS CRM has been the fact that CRM applications are simple enough so that customers can experience an “instant on” effect after signing up.  With CRM not very much configuration or setup is needed to be done prior to have a ready and fully functional system.  It’s much harder to do that with SaaS ERP.

Achieving an “instant on” with cloud-based ERP is generally not achievable, at least not yet.  Setting up an ERP system requires you to understand your business processes and for you to know how to map your business  process components to application features in the software.  Because of big variations in business processes across different companies, on-premise ERP software implementations have traditionally involved very large ERP software customizations.  But creating extensive customizations with  cloud-based software negates many of the positive cost-saving benefits that a SaaS solution can offer.  The alternative to changing the software is to modify your existing business processes to match the standard processes in the software, something that many companies would resist doing or find very challenging to do.

This isn’t to say that SaaS ERP vendors aren’t trying to crack this market open.  SaaS ERP vendors are working to make their products super flexible and configurable.  A recent ZDNet article by Brian Sommer reports on some promising SaaS ERP offers that include Plex Systems,  RootStock software (built on NetSuite infrastructure), and SAP’s Business By Design.

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