The ERP (Enterprise Resource Planning) concept grew out of early accounting systems: the idea that you should join up all your disparate engine-room components to have an integrated, holistic view of operations. ERP suites from Oracle, Microsoft, SAP and others were intended to create a one-stop shop for payroll, invoicing, HR, logistics, supply chains, general ledger and all line of business systems like manufacturing or supply chain.
There has been a recent plethora of blogs about the “death of on premise ERP” as companies utilize SaaS for critical business functions. The blogs say that as nimble, less costly SaaS systems replace ERP components, the whole concept of a single system crashes to the earth.
Specific industries are mentioned: the media sector where big publishing houses have been forced by the internet to reboot their strategies and stem the flow of red ink. That change has seen media companies like Pearson, the Wall Street Journal, the Financial Times and even the BBC move to pay-walls and a range of subscription models covering both print and online bundles.
What they don’t say is that even if a functional component (payroll and human resources are common) is SaaS or even outsourced (managed by a third party), easy to use and robust new integration toolsets are allowing organizations to have the same seamless system and organizational analytics. So, the gist of this is that ERP is failing in failing industries; publishing, printing, telecoms, all with decaying revenues and dismal horizons. The concept of ERP is alive and well in most industries, with the slight twist and nudge of SaaS or outsourced.
In growing industries, ERP on premise vs. cloud is more of a cost justification issue. Initial costs are lower for SaaS and cloud solutions; hence, if you are a dying industry, who may not be around for long, SaaS is very appealing. For every server an organization doesn’t have to buy, it has a certain amount of ongoing annual subscription costs that go into perpetuity for as long as it uses its SaaS solution. However, CFO’s who have longer term thinking examine costs critically, as SaaS solutions can entail higher annual costs and hidden fees, while purchased on-premise software has relatively lower costs after the initial investment. In addition, basic implementation needs – such as defining business processes and training employees – are fixed project investments that are incurred for both cloud and on-premise ERP deployments. The industry standard for SaaS versus on premise cost comparison is somewhere between four and seven years, meaning that on-premise ERP often becomes more economical five to seven years after implementation. I believe it is much sooner than four years, especially as the price and maintenance of iron continues to decrease.
SaaS and on premise ERP will continue a choice for companies, bringing better options for parsing out specific functionality (HR and Payroll are the most common) to SaaS while carefully examining the total ERP solution cost.
Don’t believe everything you read……….
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by KTL Solutions