SaaS ERP adoption loses momentum

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 18 Mar 2014

Cloud and software as a service (SaaS) enterprise resource planning (ERP) adoption has decreased from 26% of all implementations in 2012 to 15% in 2013.

This was one of the biggest findings from the Panorama Consulting Solutions 2014 ERP Report.

"While these two numbers aren't materially different from one another and certainly don't warrant a reason to sound the alarms just yet, it is a bit surprising compared to what most of us might have expected," says Eric Kimberling, managing partner of Panorama.

This is the fourth year that Panorama has tracked adoption of cloud and SaaS ERP options and the first year that the number has actually declined from the previous year. Among the most recent wave of ERP implementations worldwide, says Panorama, 15% are using a cloud-based solution of some sort, whether it is a pure subscription, SaaS-based model or a third-party hosted solution.

It explains that this number is down from 26% the last time it published the metric, which had grown from 6% two years prior to that.

"We are not certain if this data point is an anomaly that will reverse next year, but it is enough to suggest that there are still potential obstacles and concerns hindering the adoption of cloud ERP solutions," says Kimberling.

However, from the research it emerged that organisations seem to have better rationale for implementing ERP systems.

Kimberling argues that during the past several years of research and implementation experience with clients, Panorama found most organisations did not have clear reasons for implementing new ERP systems.

"'Because we have to' was the most common reason we saw in our past research and experience, showing that most organisations replaced their systems when vendors stopped supporting the product, the organisation fell behind on upgrades, or the organisation simply could not scale their organisations without a new system," he says.

"This year, we found more compelling and rational reasons for replacing ERP systems, including the need to improve business performance, integrate across multiple locations and better serve customers."

He is of the view that these more tangible justifications for the project are encouraging because it provides companies with a clear direction when selecting and implementing new ERP software.

The report also discovered that ERP implementations still take too long and cost too much. "One of the most consistent data points we see in our research year after year relates to implementation duration and cost," says Kimberling.

"The bottom line is that ever since we started our annual study, we find that most organisations take more time and spend more money than expected on their ERP implementations. This year, for example, we found that 63% of implementations went over budget, while the average implementation took nearly four months longer to implement than expected (the average duration is 16.3 months; very consistent with past years' results).

"As we looked deeper into the data, we also saw that the primary reasons for these cost and time overruns were related to non-technical issues, such as increased scope, organisational issues and unrealistic expectations to begin with. Overall, the average total cost of an ERP implementation is $2.8 million, or approximately 4.6% of the implementing company's annual revenue."