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Should you move to SaaS ERP? Top factors to consider
Although SaaS ERP holds the promise of agility for many companies, understanding the nuances of migration is critical. Here are six areas to consider.
SaaS ERP offers a number of benefits, but whether cloud is the right choice for a particular organization is another matter.
A lot of the coverage around SaaS ERP makes it seem like every organization is moving to the cloud. And while it is true that cloud technology has become increasingly popular, especially since the pandemic began, the decision about whether to move to SaaS ERP can be a tricky one, especially for larger organizations. Organizations need to consider all the factors.
Deciding whether to move to SaaS ERP requires considering factors such as the risk of moving mission-critical customizations of an on-premises system, the ongoing costs of SaaS and the vulnerability of relying on vendor support.
Business and IT leaders may consider the cloud because it offers easier updates, increased agility and less infrastructure headaches, said George Burns, senior cloud consultant at SPR, a digital transformation consultancy located in Chicago.
"There are several advantages for organizations to migrate to a SaaS-style ERP that can offer efficiencies to your business, beyond just IT," Burns said.
As with all SaaS products, costs are operationalized, which eliminates the need for capital investments in platform upgrades and maintenance, he said. Organizations can use SaaS software without needing to maintain the underlying platform.
Business and IT leaders often casually mull a transition to the cloud before seriously considering SaaS ERP, said Tarun Vaid, lead analyst with ISG, an IT advisory group located in Stamford, Conn. However, COVID-19 pushed many companies to accelerate the adoption of cloud IaaS services to improve resilience and support work-from-home models for users and IT staff. On the heels of that, some have also considered or decided on a move to SaaS ERP instead of moving their legacy ERP to an IaaS service in the cloud.
One obvious benefit of moving to SaaS ERP is that IT no longer deals with the complexity of managing infrastructure, testing upgrades before deploying and patching security breaches, Vaid said. However, it's the agility to innovate and react to market changes SaaS ERP brings that often plays a deciding factor in putting SaaS ahead of on-premises or IaaS-based ERP. This has become even more important as enterprises look for ways to improve visibility and course correct in response to the pandemic, trade wars, political unrest and adherence to changing compliance standards and tax structures.
"SaaS ERP enables automation, agility and speedy recovery to meet human trends rather than technology trends for providing higher customer experience across multiple channels," Vaid said.
Here are some possible issues business and technology leaders should consider related to SaaS ERP.
Extent of current customizations
A move to SaaS ERP poses more risks to organizations with mission-critical customizations in their current ERP.
Larger enterprises that have invested in custom developments to extend their ERP functionality are more likely to have this issue, Vaid said. The best strategy is to find a way to refactor these legacy customizations as APIs connected to the ERP SaaS. The process is costly, particularly for more complex customization, but the upshot is this can improve overall modularity of the function, increase flexibility and enable faster change.
Evaluating the complexity of the existing customizations is part of this process.
Simple customizations might merely add an analytics module on top of an ERP and are easy to rewrite, Vaid said. Other existing customizations might access a separate database from the ERP, and require a bit more work, but are still relatively straightforward. Teams need to budget additional resources to migrate more complex customizations when they involve pulling data from multiple databases or use business rules engines to make decisions.
Unforeseen costs balanced with potential savings
SaaS ERP comes with potentially unforeseen costs since business units run the risk of unintended service overages when they use a service in an unexpected way that isn't cost-efficient, such as downloading a large number of small records with associated transaction fees rather than a large file. Also, departments can easily run up new bills from ancillary services, which are now easier to access from the SaaS ERP. They may not realize the total cost of the new usage until the bill comes at the end of the month.
On the other hand, a move to SaaS ERP can also provide savings thanks to the reduction of support costs, Vaid said. For example, there may be fewer calls to the organization's service desk, fewer people required to manage the infrastructure and simplified IT asset management. Also, an organization will not have to incur upfront costs for purchasing servers and creating databases, for the initial implementation and consulting, and for the costs of IT staffing, security and backup.
Extent of vendor support
An organization that moves to SaaS ERP must rely on the vendor for troubleshooting and support.
Business and IT leaders need to consider how well a vendor supports migration and long-term maintenance, said Len Riley, commercial advisory practice leader at UpperEdge, an IT sourcing consultancy located in Boston. Although internal IT teams are likely to find SaaS ERP easier to support than a traditional ERP system, many organizations overestimate their ability to maintain their cloud environments. In other words, they will need plenty of management support from the vendor, and buying teams must make sure support will be available.
Larger enterprises should work with the systems integrator helping in the migration to provide long-term support, Riley said. This is critical when enterprises rely on multiple vendors to provide unique services accessed through the ERP, such as analytics, outsourcing or logistics.
Difficulty of data migration
Like all IT projects, ERP migrations run the risk of failure or going over budget.
Tarun VaidLead analyst, ISG
The technical and performance aspects of most cloud migrations tend to go relatively smoothly, Vaid said. Most vendors do a good job of working with enterprises to ensure the customer can adjust to the vendor's software. And after the transition, the vendors do a good job of automating upgrades.
However, data migration and data inconsistency errors that were not well-thought-out cause the biggest problems, Vaid said. He attributes data migration challenges to the massive 2016 Vodaphone case in which the company was fined due to an ERP and CRM migration failure. The telecom provider was moving more than 28 million customer account records, containing over a billion data fields, from a legacy billing system to a new ERP platform.
"The data migration process to a new cloud ERP system is a tedious process that requires an extremely well-planned data migration strategy," Vaid said.
This includes a clear roadmap for data consolidation, elimination of duplicate data, prioritizing data batches, creating a data governance model and testing data flow before migration resumes, he said.
The selection process of a new ERP system should not only focus on the features and capabilities of the new system but also on how IT can migrate data from the current platform to the new one.
Internal ERP administrators should place special attention on maintaining an audit history or other data that may be in a proprietary format during the migration, since organizations use ERP as a system of record, Burns said.
"The more data that can be migrated, the more of your organization's prior investment can be realized in the transition, which will allow you to maximize your organization's data on your new platform," Burns said.
Extent of partner network
A robust partner network is key to SaaS ERP success.
Companies should choose a SaaS ERP provider that has a robust partner network, Vaid said. Otherwise, the company could run into problems with data integration and ops management. Enterprises should not underestimate the value of service partners to support and manage the new cloud system.
When researching a SaaS ERP, business and technology leaders should consider which service partners are close and available to the organization if the organization has difficulty with the ERP. Buying teams should also give attention to the SaaS vendor's regional partner ecosystem, which must consist of the appropriate advisory, consulting, implementation and support services.
Need to support security
Far too many organizations forget they need to make ERP security a top priority.
Although popular vendors' products usually have good security, companies still must create controls around security and visibility just as they would for on-premises ERP, Vaid said. Project teams should always ask which public cloud is hosting the SaaS offering and should avoid ERP systems that run on proprietary data centers.
Enterprises also need to evaluate the process for managing backups, which also require securing.
The SaaS ERP may automatically back up data in addition to any backups IT teams perform. IT should ensure that all these backups are secure and in compliance with privacy regulations.
Considering all of the above factors can help ensure cloud migration success.
About the author
George Lawton is a journalist based in London. Over the last 30 years he has written over 3,000 stories for publications about computers, communications, knowledge management, business, health and other areas that interest him.