While it may seem like a match made in heaven, getting your ERP through software-as-a-service has its faults and may not be as cheap as it seems on Day 1

Approach SaaS ERP with caution: Analysts

Enterprise resource planning (ERP) software can be a headache for businesses. There is a high barrier for entry, both in terms of financial commitment and investing in IT experts to keep it running. Naturally, getting your ERP through a software-as-a-service model seems like the perfect way to mitigate that problem, but according to industry analysts, there are a lot of things to consider before taking that plunge.

Andrew Dailey, managing director at Mill Valley, Calif.-based MGI Research, said there are certain cases where a SaaS model can be beneficial, but it should be approached with caution. “If you need an enterprise system very quickly, a SaaS system can be an attractive model,” he said. “You are investing in it but you’re paying for it differently.”

Dailey said businesses can sometimes only see the immediate cost savings in a SaaS ERP system. “There’s no data that says a SaaS model is cheaper than on-premise solution,” he said. “If you run a five-year cost model, the costs are going to come up about the same.”

Aleksey Osintsev, research analyst at Montreal-based Technology Evaluation Centres Inc., agrees with Dailey. “Cost-cutting procedures usually follow this logic,” he said. Companies often find the smaller setup cost alluring as it “cuts IT costs dramatically using SaaS.” But he said that companies must be aware of the restrictions they face in their sector. “There is legislation that keeps companies from using software where they don’t “own” the data or that is not in country.”

Osintsev also thinks companies should be wary about how much they can customize or augment ERP software if it is a SaaS model. “If you need to do some modifications, it’s still an open question about cloud based applications,” he said. This concerned Dailey as well. “There’s the benefits that come with a SaaS solution, and then you have the reality for a lot of companies today,” he said. “In an on-premise solution, when you want to upgrade one part of the solution, you have to upgrade the whole solution. In a SaaS model you don’t have control of the upgrade process.”

Not only that, but sometimes upgrades are forced in a SaaS model. Dailey said you get less control in general over all aspects of the software. “When a new functionality is released, you get it, but you can’t choose if you want it,” Dailey said.  This can be a problem if it’s functionality that will actually slow down business process, or if it, for instance, changes the UI dramatically, making useful features harder to find.

Osintsev said that a lot of these problems, whether security or compliance or upgrading, can be handled by being thorough with the contract you have with your ERP provider. “I’m aware of some cases where software vendors do not provide the data back to the customers when the contract is over,” he said. He said that the most important thing to do, if you still want to go ahead with a SaaS ERP solution, if to pore over the contract in detail and make sure any and all worries are covered. Data recovery, service assurances and upgrades should be top-of-mind in all contracts.

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