Cloud Computing: More IT Leaders Turn to SaaS ERP

As cloud-based business applications enter the mainstream, objections to using SaaS-based ERP software are fading fast.

By Rich Freeman
Mon, August 22, 2011

CIO — In 2006, Epec Engineered Technologies found itself in a situation familiar to many in corporate IT. With a series of business acquisitions behind it, the New Bedford, Mass.-based manufacturer of printed circuit boards, battery packs and other electronic components needed to replace multiple ERP systems with a single platform capable of supporting the entire organization.

How Epec ultimately accomplished that task, however, was a bit more unusual at the time. Rather than standardize on one of its existing on-premise ERP applications or replace them all with a different locally-installed product, the company migrated everything onto a software-as-a-service (SaaS) system from NetSuite of San Mateo, Calif.

"We were probably taking a chance going with that type of solution five years ago," concedes Rob Forand, Epec's director of administration. But cloud-based ERP offerings like NetSuite's came with a key capability that on-site alternatives couldn't match.

Specifically, a cloud-based ERP system would support Epec's many remote employees. By choosing a SaaS ERP application, Epec could give all of them easy access to financial and inventory data from any device with a Web connection and a browser. "It was a good fit with our business model," Forand says.

Other IT executives are starting to reach the same conclusion. Businesses have been using SaaS solutions for years, but most have balked at putting that most mission-critical of mission-critical business applications—their ERP system—into the cloud. Now, however, the barriers and fears that have kept many CIOs away from SaaS ERP products appear to be slowly but steadily eroding.

Faster and Easier

To be sure, on-premise ERP systems still overwhelmingly dominate the market. At present, SaaS solutions account for just two percent of global ERP revenue, according to Forrester Research (FORR). Still, Forrester expects worldwide spending on Web-based ERP software to rise about 21 percent annually through 2015, versus low-single-digit growth for ERP products overall. Spurred by numbers like that, established ERP vendors such as SAP, Oracle (ORCL) and Epicor have all introduced on-demand products of their own to counter cloud-only competitors like NetSuite.

The momentum behind SaaS ERP is easy to understand in light of the benefits it offers. Chief among them is the ability to turn software acquisition from a cash-intensive capital expenditure into a more manageable operating expense. "That's what's made SaaS so attractive," says Kevin Prouty, research director for enterprise applications at analyst firm Aberdeen Group. Businesses also appreciate the way on-demand ERP applications rid them of hardware procurement and support costs, he adds.

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