Impact of SaaS on the enterprise ERP market

A recent report from Gartner throws a big bucket of cold water on software-as-a-service ERP hype, especially for larger enterprises. Gartner analyst Denise Ganly writes in the "SaaS Impact on ERP" report that enterprises' dire need for a suite of integrated ERP solutions is not something that SaaS vendors can reliably deliver right now.

"Because of the complexity of ERP suites, SaaS offerings for administrative and operational functions typically have provided functionality that is confined to one domain, such as sales force automation, or one business process, such as payroll," Ganly writes. "Thus, ERP SaaS suite offerings are still immature." (To read about an on-demand ERP provider's nascent efforts, see "PeopleSoft Vets Born Again: Can Two Legacy ERP Guys Get IT Executives to Buy into On-Demand Applications?")

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Some of her other findings include: SaaS ERP suites won't be viable options for large enterprises during the next five years. "Except for use in two-tier ERP deployments," she notes, "large organizations should ignore this space."

What's stopping SaaS ERP

Ganly notes that despite the hype, there are sound reasons why SaaS ERP suites aren't quite ready for prime-time enterprisewide deployments. (See "Why ERP Systems Are More Important Than Ever" for more on the necessity of integrated ERP software suites.)

First she urges CIOs and business-technology leaders not to be "deceived" by impressive SaaS ERP growth data. "Much predicted growth in this market will be driven by the adoption of human capital management SaaS and financial SaaS point solutions," she writes. "The growth rate for SaaS ERP suites will be a small proportion of the overall market growth, because mature robust solutions are unlikely to emerge by 2011."

Next, Ganly points out that one of the big drivers of SaaS ERP is the extreme IT staff constraints faced by many organizations, and the SaaS model "appeals to organizations because it can free up staff to concentrate on more-strategic, value-adding processes." In addition, many of these organizations believe that SaaS ERP is "instant on," which means that it can be implemented with little or no intervention. "You just turn it on," she writes. "However, the business still must be re-engineered, processes redefined, integration points defined and so on."

In other words, Ganly writes, "The instant-on perception that drives adoption also makes it an inhibitor."