The Software as a Service (SaaS) model is quickly growing in some enterprise software markets (notably customer relationship management), but it's been slow to gain traction in ERP. Until now,
For years, SaaS has been popular with small and medium-sized businesses (SMBs), where vendors such as Intaact Corp. and NetSuite Inc. have been successful in addressing simpler computing needs and environments, compared with those of large enterprises. The generic SaaS model has numerous cost benefits, including no up-front costs, no licensing fees and rapid, easy deployment. Many SMB CIOs have moved their mission-critical apps to a SaaS model to reap these benefits -- and now large-enterprise CIOs are following suit.
"The ability to adopt on-demand services on a pay-as-you-go basis is a perfect sourcing strategy for businesses seeking greater cost controls and flexibility," said Jeff Kaplan, founder of ThinkStrategies Inc., a Wellesley, Mass.-based SaaS consulting firm.
SaaS ERP software for the enterprise market is taking shape, with demonstrable, sustainable ROI and compliance benefits as a result of its scalability, broad-based applicability, easily adaptable technologies and reduced operating overhead.
Chiquita Brands International Inc., a producer and distributor of produce with more than 25,000 employees worldwide, found that SaaS ERP software offered clear-cut ROI. The Cincinnati-based company recently partnered with Workday Inc., a SaaS ERP company, to implement a human capital management product worldwide.
Chiquita chose Walnut Creek, Calif.-based Workday for several reasons, including its ability to meet the needs of Chiquita's unique global structure, according to Stan Swete, chief technology officer at Workday. Other reasons included the next-generation Web 2.0 interface, lower cost and the simplicity of Workday's on-demand architecture.
SaaS offerings have made enormous inroads among enterprises and smaller companies during the past 18 months, for reasons that translate into demonstrable, sustainable ROI, Swete said.
The ability to adopt on-demand services on a pay-as-you-go basis is a perfect sourcing strategy for businesses seeking greater cost controls and flexibility.
Jeff Kaplan, founder, ThinkStrategies Inc.
"SaaS provides customers and vendors with the lowest-cost, most efficient model for delivering software applications," he said. "It's a pay-as-you-go subscription model that costs less than traditional licensing. There are no hardware or software requirements and no upgrade fees."
More vendors are now offering SaaS ERP software, and the benefits are more apparent:
It can be implemented quickly. Companies can be up and running very quickly, according to Swete. "Implementation of mission-critical apps can take weeks compared to the months involved with premise-based software," he said. Patches and upgrades are delivered as quickly.
Fewer IT staff members are needed. A SaaS implementation allows enterprises to add applications without having to justify the expense of dedicating an IT person to manage a particular application, unlike with premise-based software, Swete noted. This allows IT staff to focus on other tasks.
It's Sarbanes-Oxley compliant. SaaS can enable enterprises to overcome their Sarbanes-Oxley Act (SOX) needs. "A year ago, most large-scale enterprises rejected SaaS because they thought it didn't satisfy their compliance requirements," Kaplan said. "Now, they view the process controls, audit abilities and off-site hosting features of SaaS applications as a perfect solution for SOX."
It's low-maintenance and costs less. Software applications are delivered on an as-needed basis. "The beauty of SaaS is that customers are always using the latest version of the software, without having to endure any implementation or upgrade pain," Swete said.
SaaS does have its downsides for enterprise IT departments as well. One of the biggest issues is the complexity of integrating SaaS in an IT environment dominated by premise-based software.
However, as Kaplan notes, integration challenges often arise in enterprises, so it can also be a non-issue. "Enterprise CIOs always have to blend new applications into legacy ones," Kaplan said. Most SaaS solutions reduce integration complexities via the vendors' flexible application programming interfaces, he noted.
The bottom line on ROI: SaaS ERP software allows enterprises to outsource mundane IT work while offering strategic, value-added benefits such as improving functionality and overcoming complex application/technology deployment and maintenance responsibilities.
Herman Mehling is a freelance writer based in San Anselmo, Calif. He can be reached at email@example.com.
This was first published in January 2008