Why SaaS Alone Is Not Necessarily The Answer For ERP/HRMS Vendors

It is interesting to see the level of interest from ERP/HRMS vendors in the SaaS delivery model for HCM.  These vendors are competing against SaaS talent management application vendors and want to fight fire with fire.  However, when one looks at the reasons why customers are using niche and talent management application suite vendors instead of the ERP/HRMS, the SaaS delivery model is not the main reason.

Customers choose niche vendors and talent management application suite vendors primarily because of the depth/maturity of functionality (and domain expertise) compared to the ERP/HRMS vendor for the release that they are on.  The end of the last sentence requires emphasis.  ERP/HRMS vendors are investing significantly in improving their talent management functionality, but you have to be on the most current release to take advantage of it.  The biggest adoption issue for talent management applications from ERP/HRMS vendors is that most customers do not upgrade frequently because of the time and expense associated with the upgrade.  The functionality from ERP/HRMS is becoming "good enough" in many cases for customer needs.  However, customers do not want to wait until they upgrade to get that functionality.  The SaaS model allows customers of niche and talent management application suite vendors to get required functionality right away, continue to add new functionality with little disruption, and still allow them to migrate back to the ERP/HRMS vendor in the future (if they want to do so). 

So, does the SaaS delivery model solve these issues for ERP/HRMS vendors?  It will only solve the problem if the ERP/HRMS vendor changes its primary delivery model to SaaS (so upgrades become less of an issue) or if decouples the talent management applications from the core HRMS applications.   If the ERP/HRMS vendor decouples the talent management applications from the core applications, allows it work on top of any of the supported releases of the core applications (and is delivered via the SaaS model), it could work.  However, just supporting the SaaS model alone does not solve the problem.

The retention rates I have seen do not support the notion that many customers are migrating back to ERP/HRMS vendors at this point.  However, do not be surprised to see it start to happen like it did in SCM and CRM because the solutions are becoming "good enough".  If ERP/HRMS vendors leverage the SaaS model as I described above, it could accelerate that trend.

Comments

[Donald H Taylor]

Jim, there is an altertive to the dichotomy of either using SaaS *or* waiting for an ERP/HRMS module that's good enough and deployed as you wish.

Customers can also deploy an HCM solution behind the firewall and integrate it with their existing ERP/HRMS. This gives them the real HCM functionality of using human capital information across HR functions. Plus, it needn't prevent them from migrating back to the ERP/HRMS solution when it becomes available.

Disclosure: I'm a director at work for InfoBasis, a high-end technology company that does this.

[Martin Snyder]

Jim I'm impressed that you are willing to go against the orthodoxy of the church of SaaS, and note that the model may not be the best possible choice for every last software user on Earth.

The version issue you raise is, of course, valid, but even more important to most business cases around the decision are the costs and margins involved (imagine that!).

For example, end-user firms that have a fixed cost case for a given application in webservers, bandwidth, and database admin services likely would be spending less running it themselves- because they would be paying margin to a third-party while not using all the asset value already paid for.

SaaS is a dream for software vendors- good client lock-in, nice margins on services and systems, recurring revenues that are great for company valuation, lower testing and tech support needs (after all, the code only needs to work in one environment) and other vendor friendly elements of control.

SaaS is also fantastic for those end-user firms NOT in a fixed (or nearly) fixed cost case; they can access far more technology than would have been possible prior to the SaaS model being developed. At very large scales, it again becomes better for an outside firm to handle the software because in those cases, small differences in efficiancy add up to meaningful numbers, and running very large scale apps becomes a material capital allocation question.

That's the basis for the hype, and it's not a small advantage, it's just not a perfect model for every end-user firm- and many end-user firms are in that middle zone.

Vendors who can only provide "one demand' or who can only provide licenses are going to find themselves on the short side of lots of deals- so its likely that firms with strong offerings on both models will have a real edge.

Last, and somewhat related, the word I get about the latest ERP offerings (in recruitment anyway) is that they are better, but still a world away from the best niche players, which means another few years, at least, of life for that particular submarket, even at large corps.

[Jim Holincheck]

Donald and Martin both make good points. I was not saying that niche or talent management application suite solutions have to be SaaS. They certainly do not. Though our research shows that outside of the ERP vendors, that SaaS/Hosted solutions have been the primary delivery models.

The question for every market is when do the large vendor solutions become "good enough". I would agree that the ERP vendor solutions are not as good as cutting edge niche/TMAS solutions today. However, they are getting better and will continue to get better. The threshold will get crossed eventually.

[Tom O'Brien]

Jim:

As the ERP's improve their applications over time to "catch up" the niche/TMAS vendors continue to raise the bar - precluding functional parity. Right?

Tom O'Brien

[ERP]

Jim it is really gr8 that you are willing to go against the orthodoxy of the church of one of the popular erp SaaS.
ERP (Enterprise Resource Planning) is one of the most renowned and trusted software for growth of business worldwide, ERP gives your organization better visibility to control over what is going on in your business. The ERP enables you and your people to make business decisions with greater confidence.