State and local governments that have long used enterprise resource planning (ERP) solutions are taking a new look at today’s software market. They are setting out on a new search for value—finding a system they can be certain will help them stay current and control costs even in an uncertain future.
Not too long ago, public sector organizations looked to one ERP vendor for a complete on-premises solution. But, as these systems have matured, the true costs of administering and maintaining the infrastructure on top of the expense of frequent software upgrades have become overwhelming. With the advancement of cloud-based, software-as-a-service (SaaS) applications, public sector organizations are now revisiting their administrative needs and IT capabilities. While most still rely on on-premises ERP applications, many are actively evaluating and implementing cloud-based solutions for the first time.
Not unlike private sector organizations, the public sector is considering how cloud computing can help:
- Reduce IT costs;
- Lower total cost of ownership and better predict cash flow;
- Reduce staffing requirements, especially for costly technology staff;
- Focus in-house technical resources on work efforts better aligned with the organization’s strategic mission;
- Simplify infrastructure and applications;
- Benefit from continual updates, resulting in a faster pace of innovation; and
- Streamline operations.
But not all cloud solutions are created equal. Some cloud solutions exist primarily as a shared computing environment, whereas SaaS solutions are products that reside in that environment. As more ERP vendors move to cloud-based offerings, delivery models are changing. Cloud is becoming the “new normal,” and public sector organizations should prepare for change as these environments continue to evolve.
Before organizations look to SaaS solutions, they should answer the following basic questions:
- Do SaaS solutions offer enough of the functionality we need?
- Is our organization ready for multi-tenant SaaS solutions?
- Is an operating expenditure preferable to a capital expenditure in our budget?
- Are we willing to have our data maintained in shared data centers and possibly outside the U.S.?
- Can we manage the real or perceived risks of placing important applications and data with an external vendor?
If the answer to these questions is “yes,” an ERP SaaS solution can offer some clear advantages. It can offer new flexibility for selecting and deploying solutions, and it can shift maintenance responsibilities to a third party. Security capabilities may be better in the cloud than on-premises solutions, and cloud computing allows an organization to stay current with their technology without the need for costly hardware and software upgrade cycles.
If an organization answers “no” to any of the questions above, it should proceed to the cloud with caution. While SaaS solutions for public sector are maturing rapidly, certain products do not yet have the same features across all functional areas as their on-premises predecessors. Additionally, the “no-modifications approach” of a SaaS solution will likely require changes to business processes or manual workarounds to address unique, organization-specific requirements. And a cloud solution doesn’t mean internal IT is off the hook for supporting integration with other business or operational systems.
Buyers should also look for hidden costs in connecting a SaaS solution to legacy systems. Contrary to popular belief, SaaS is not always cheaper, and prices could increase after implementation. A thorough evaluation of total cost of ownership can help an organization understand the full impact of a transition to SaaS, including existing fixed costs, differences in licensing models, and a comparison of service levels for cloud versus on-premises solutions.
When it comes to ERP systems, change usually proves to be a good thing, and functionality typically improves over time. ERP providers are investing heavily in SaaS solutions in response to the market, and SaaS may prove to be the predominant ERP model in the not-so-distant future. But, for now, moving from on-premises to a SaaS solution is a lightly traveled path in the public sector. State and local governments need to do their homework to ensure the roadmap presented by a potential SaaS provider will, in fact, take them where they want to go.
ISG helps public sector organizations navigate the complexities of technology offerings in the market today. Contact me to discuss how we can help you.
About the author
Nathan has more than 19 years of service to state and local governments in IT and project management with expertise in financial and compliance auditing, human resources, activity-based costing, process improvement services, internal control reviews, project management, and consulting. His work with public sector organizations includes helping them select, acquire and implement ERP systems for finance, procurement and human resources management. Before coming to ISG, Nathan held positions in state government and commercial enterprises, including a Big 5 accounting firm. Nathan is a certified Project Management Professional (PMP) and a licensed CPA in the State of Texas.