Why ERP upgrade fears affect software decisions

When purchasing ERP software, companies today have a plethora of critical decisions to make. They must consider the differences in vendors' features and functionalities, support and license costs, TCO and ROI estimates, underlying technical architectures and future roadmaps, just to name a few.

But just within the last several years, the decision of whether to go with a software-as-a-service ERP vendor versus the traditional on-premise ERP model has become part of many companies' evaluation criteria.

Make no mistake: SaaS ERP rollouts today are still the exception rather than the norm, as Aberdeen's ERP expert and research fellow Cindy Jutras writes in her latest report, SaaS ERP: Trends & Observations 2010.

But what has changed dramatically since Jutras began surveying ERP decision makers in 2007 on the topic is that SaaS ERP is getting more consideration than at any point in the past. "In mid-2010," Jutras writes, "we are seeing an overall 61% jump in [survey respondents'] willingness to consider SaaS ERP."

Those unwilling to go with a SaaS strategy voice most of the same concerns today as back in 2007: fears over security, downtime, customization and not having core ERP apps within the company's four walls.

But the 2010 data also shows a significant disconnect concerning ERP upgrades among those surveyed: While desire to control the upgrade process was the number-one factor in preventing consideration of SaaS ERP, the second most-appealing consideration of SaaS ERP was that it reduces the cost and effort of upgrades.

In other words, how your company feels about the upgrade process will likely play a part in whether it favors an on-premise or SaaS ERP package.

Let the record state that on-premise ERP upgrades can be painful, expensive experiences. Which is why "most businesses and IT execs put off upgrades as long as possible to avoid costs and minimize business disruption," noted Forrester Research's Paul Hamerman, in a CIO.com article.

Aberdeen's ERP research states that upgrades are typically performed every 3.5 years. The top reasons for delaying them: Budget and time constraints, as well as a lack of apparent value.

"If operations are running relatively smoothly, there is no perceived urgency to upgrade or make use of enhanced features and functions," Jutras writes. "As time goes by, technology matures and software vendors continue to innovate with new features and functions. Often companies find themselves falling behind, and the need to upgrade only increases."

[ Also on CIO.com SAP Upgrades: Dos and Don'ts from an ERP Guru ]

With SaaS, however, upgrades are usually not as burdensome. Releases are typically delivered more frequently than on-premise packages. And "while not exactly a forced march, SaaS customers are not allowed to slip too far behind with upgrades," Jutras adds. "By taking on some of the burden of the upgrade process, SaaS ERP providers do indeed reduce the cost and effort of the upgrade."

Of course, not all ERP vendors are created equal. And it's still incumbent upon companies to do their homework not only on the vendors in play but examine just how much control their companies and top executives want over their core ERP systems.

"For those that feel ERP is too strategic to their business or are reluctant to relinquish the control over upgrades, consider all your ERP SaaS options," Jutras contends. "Many more configuration options are available today than ever before, and not all SaaS ERP solution providers treat upgrades and customizations in the same way."

Thomas Wailgum covers Enterprise Software, Data Management and Personal Productivity Apps for CIO.com. Follow him on Twitter @twailgum. Follow everything from CIO.com on Twitter @CIOonline. E-mail Thomas at twailgum@cio.com.

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This story, "Why ERP upgrade fears affect software decisions" was originally published by CIO.

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