The latest round of SaaS ERP market forecasts are more grounded in the reality of CIO priorities and committed projects in 2012 than ever before. And this is good news for the many vendors competing in the Financial Management Systems (FMS), Human Capital Management (HCM) and Manufacturing segments of the SaaS ERP market.
Two weeks ago in Houston I interviewed twenty-five different CIOs, IT Directors, CEOs and CTOs as part of a persona research study I am doing. Their take on SaaS ERP was consistent with what this round-up shows, namely this type of SaaS application is best suited for extending beyond, not replacing, the main ERP systems and platforms. I concentrated on SaaS ERP adoption in manufacturing and learned the following during my interviews:
- Of the CIOs I spoke with, SaaS ERP is getting the most traction on the Financial Management Systems side. The majority of CIOs I spoke to at Convergence was there to learn more about how Microsoft will bring Dynamics ERP to Azure. Frank Scavo, in his post Microsoft Dynamics ERP on Azure: What Are the Benefits? provides insightful, excellent analysis of Microsoft choosing to be more strategic and leaving the hype behind. Cindy Jutras does a great job explaining Cloud and SaaS technology and strategy differences in her recent post as well. Both posts align exactly with where CIOs are in terms of their evaluation cycles and thinking on this topic.
- Usability and speed of deployment are the two most common benefits CIOs mentioned in my survey during Convergence. The economics of cloud computing is a topic that CFOs love to talk about, especially in the areas of value-based pricing and how that is determined.
- When asked what kept them up at night, CIOs said it was the thought of a call from their boss (often the CFO) that a cloud system had been compromised or had completely gone down. Security and reliability are holding back CIOs in manufacturing from adopting SaaS-based ERP systems more pervasively in their companies.
- CIOs from aerospace and defense companies get the benefits of cloud computing, yet they have much bigger issues to deal with right now, like replacing financials in their existing ERP system and staying in compliance to government requirements. Earned Value Management is a major focus they have as well. SaaS-based ERP systems are interesting to them; they however would require a completely enclosed, locked-down implementation due to security requirements.
- There are vast differences in how CIOs view cloud computing – something that the following forecasts don’t really capture. For the CIOs who are strategists, cloud computing in general and SaaS ERP specifically is a consideration given the agility and time-to-market, providing customization is held to a minimum. CIOs who came up through IT have a healthy degree of skepticism and see SaaS ERP as potentially useful for scaling out an operation yet never being the primary financial system.
Here are the latest SaaS ERP forecasts and market estimates:
- Gartner released their latest SaaS revenue forecast last week predicting revenue will reach $14.5B this year, a 17.9% increase from 2011 of $12.3B, with strong growth predicted through 2015 when the market is expected to be $22.1B. Source: http://www.itjungle.com/tfh/tfh040212-story08.html
- In the report Market Trends: Cloud Computing and SaaS Adoption in Manufacturing and Natural Resources, Worldwide, 2012 Gartner is predicting 59% of manufacturers will adopt IaaS during the 2011 – 2015 timeframe and 47% will be either piloting or using SaaS-based applications. Gartner cites the need for greater business and supply chain agility as the factors driving this rapid adoption. The following figure is from the Gartner report Market Trends: Cloud Computing and SaaS Adoption in Manufacturing and Natural Resources, Worldwide, 2012.
- Forrester forecasts SaaS ERP spending staying at 2% of the global ERP market, while Gartner forecasts 7% through 2012. Gartner is projecting Project and Portfolio Management (29.1%) and Supply Chain Management (22.1%) will see the greatest growth rates through 2015. Supply Chain Management is expected to reach $2.7B in revenue by 2015. The Total Software Revenue Forecast for SaaS Delivery Within Enterprise Software is shown in the following table. Source: Forecast: Software as a Service, Worldwide, 2010-2015, 1H11 Update Published: 22 June 2011 Analyst(s): Sharon A. Mertz, Chad Eschinger, Tom Eid, Chris Pang, Laurie F. Wurster
- Gartner, IDC and Forrester all predict that Human Capital Management (HCM) will see the broadest adoption of all SaaS-based ERP components through 2015. Vendors in this category include ADP, Concur, Cornerstone onDemand, HumanConcepts, Infor, Kenexa, Lumesse, Saba, SilkRoad, Sonar6, SuccessFactors, SumTotal Systems, Taleo, Ultimate Software and Workday. Based on a recent Gartner Spending and Usage of SaaS Survey, 39% of manufacturers are piloting or using SaaS-based financials followed by 37% using Expense Management.The following figure illustrates their forecast, from the report Market Trends: Cloud Computing and SaaS Adoption in Manufacturing and Natural Resources, Worldwide, 2012
- Gartner’s IT Market Clock for ERP Platform Technology indicates that multitenant SaaS-based ERP is maturing rapidly, driven by time-to-market and cost advantages. The IT Market Clock is shown below, indicating SaaS ERP-based systems position relative to other ERP platforms now in use. Vendors including Epicor Express Editions, Glovia, Kenandy, NetSuite, Plex Systems, and SAP Business ByDesign compete in this segment.Source: IT Market Clock for ERP Platform Technology, 2011 Published: 19 September 2011 Analyst: Jim Shepherd.
Gartner has also compiled a Market Clock Recommendation Summary which is shown in the following table. Of the CIOs I’ve spoken with during the persona research, the description of Multitenant SaaS is accurate. No CIO I’ve spoken with is willing to bet their job on a rip-and-replace strategy for SaaS ERP; yet many are willing to extend their existing ERP systems using SaaS implementations to get up and running quickly at lower cost. The one caveat nearly everyone mentions is little or no customization is necessary for SaaS ERP systems to be even evaluated by their companies. Slight configuration is expected; however in-depth customization is not.
Bottom line: The persona research completed shows that the SaaS-based ERP growth is being helped by the transition occurring in the CIO ranks today. More of them are strategists, who are expected to make business strategies happen, over and above just keeping the system dial tone on in their enterprises.