Will software-as-a-service replace traditional ERP in nearest future?

With growing popularity of web-based business applications and Software as a Service (SaaS) business models with spreading success of Salesforce.com and other well-known companies the question arises: Is SaaS going to replace traditional- ERP in the nearest future?

Experts agree that there is an interest in SaaS-based ERP and that plenty of vendors are promoting the concept, but most user companies aren't ready to make the move. According to recent research from consultant firm Accenture, where 150 UK and 150 US IT directors from the largest 2000 companies were questioned, many UK companies do not see the value in utilizing software-as-a-service (SaaS) model to revamp existing enterprise resource planning (ERP) systems. Only seven per cent of UK firms polled believe that current ERP systems would be replaced by new technologies any time soon. In the US however, the figures are a bit higher where 15 percent of questioned companies have a positive attitude towards SaaS model.

Among the main reasons for reluctance there are security concerns of storing ERP data on a service-provider, shortage of ERP offerings in specific segments, lack of flexibility and customizing comparing with traditional ERP.

However, some market watchers disagree with the survey's suggestion that companies do not see the value of implementing SaaS. A Forrester report states that SaaS projects are on hold and calculates that majority of large Global 2000 organisations (75 per cent) already use SOA and SaaS to some extent, and 60 per cent plan to expand the reach of their using in the future.

While there is a whole set of questions and controversy let’s try to identify the key differentiators between SaaS and Traditional ERP and how they will impact on ERP software selection:

1.Simplicity. In general, SaaS is simpler to deploy from a technical perspective as you don’t need to purchase additional servers or physically install the software in yourself. However, on the other hand, the high level of technical ease may create additional business complexities that you may not otherwise experience with traditional ERP.

2.Flexibility. As traditional ERP is installed on your own servers you can change and modify it as you need. You may decide to customize it, integrate it to other software, etc. Although any ERP software will allow you to configure and set-up the software the way you would like, SaaS is generally less flexible than traditional ERP in that you can't completely customize or rewrite the software. Conversely, since SaaS can't be customized, it reduces some of the technical difficulties associated with changing the software.

3.Control. Many companies find that they don't have control over SaaS software as they would like, relative to traditional ERP. This is especially true of mid-size or large companies with well-defined business processes that are not able to be changed to fit the software. Smaller companies generally are able to adapt their business processes to the software easier than a larger organization.
4.Accessibility. Since SaaS is entirely accessed through the web, you are in a world of hurt of the internet goes down. Alternatively, traditional ERP does not require internet reliability, provided your users are accessing the software from inside your company's network.

5.Cost. In general, SaaS can be deployed at a much smaller initial cost, which can be attractive to smaller businesses. However, the ongoing annual payment can be higher for SaaS becuause you're paying to use the software. Much like leasing vs. buying a car, that payment never goes away as long as you're using the software and can become costly as you grow and add employees to the system.

Clearly, there are tradeoffs between the two options, and all factors should be accurately prioritized and evaluated to identify the best suitable software for each organization. However, the forecast from analyst firm Gartner suggesting that enterprise adoption of SaaS model would be on two-to five-year lifecycle and will not culminate until 2013 is seemed to be realistic due to the declared reluctance by European and in a less degree US companies to replace their existing ERP systems.