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IT Challenge: Switching from in-house to SaaS ERP

In this IT Challenge, we'll explore vendor options when switching from an in-house ERP system to SaaS ERP.

The IT Challenge of the Month for April 2011 is:

My company currently has an in-house ERP system in place, but is looking to switch to a SaaS model to save money. The vendor we chose for in-house also offers a SaaS version of its software, but we’re unsure if we should stick with them or choose a vendor that specializes in SaaS ERP. Would using our existing vendor be the easier and most cost-efficient option, or should we move onto a SaaS-only ERP vendor?

Do you have a solution to this challenge? Have you encountered a similar issue at your business? If so, please contact the editors and share your suggestions or experiences. 

IT Challenge respondents will receive a free copy of a new book from SAP Press.

And be sure to check back here all this month -- we'll be posting solutions from experts and readers as we receive them.

From ERP industry analyst Ray Wang of Constellation Research:

A quick analysis will require you to calculate your current cost structure. Be sure to compare hardware purchases and upgrades, system administration, training and education, software licenses, upgrade costs, implementation costs and ongoing support. Next, compare these costs over 15 years. Why 15? That's the estimated life of an average ERP system.

Take these costs and divide them by the number of users, employees, or revenue to get to a metric you can compare against. This is the only way to get to an apples-to-apples comparison.

As for staying with the same vendor, chances are if you have used the same system over the past 10 years, you have so many customizations, modifications, extensions and other changes that moving to another system would end up costing the same as a reimplementation. I advise factoring in the costs of training and skill sets as plusses in favor of staying with your existing vendor. However, in most cases, you'll find that these costs still aren’t enough to warrant favoring a legacy vendor.

From ERP industry expert Steve Phillips:

Whether you're considering an internally hosted application or SaaS, selecting the right vendor and software boils down to the same basic criteria. You should carefully evaluate software functionality, implementation support, long-term vendor support, package viability, total cost of ownership and the stability of the technology. However, if vendor support and potential costs are your biggest concerns, here are few items to consider:

  • Has your current vendor provided good support in the past? If not, there is no reason  to believe it will support the SaaS version any better.
  • For a SaaS-only provider, what does specializing in SaaS actually mean? Make the vendor spell it out. Does it mean allocating more resources to SaaS technology than competitors, knowing more about the software, or having a more stable hosting environment, for example?
  • What would make moving to SaaS with your current provider any easier than switching to a new SaaS vendor? Again, make the vendor provide specifics. For example, does the software work the same and present no learning curves? Are there conversion tools to help with moving to the SaaS version?  If not, it is a re-implementation any way you look at it.
  • No vendor likes to lose a customer. If pushed hard enough, your existing vendor may offer a sweet deal to keep your business.

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