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Understanding SaaS vs Cloud ERP

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Understanding Cloud ERP and SaaS ERP

This article was written by ERP Advisory Board member, Cindy Jutras

Asking the Right Questions About Deployment Options 

In spite of the wealth of discussion about cloud computing, there is still an enormous amount of confusion and misperception about Software as a Service (SaaS) deployment options for enterprise applications. This is often fueled by industry experts” and the solution providers themselves using the same terms with different definitions of cloud, SaaS, and multi-tenancy. As a buyer and user of enterprise applications, it is important to understand the terminology being bandied about, but it is even more important to be asking the right questions to make sure your specific goals and needs will be met. It’s less about the labels and more about the characteristics that are needed to meet these objectives.

Cloud Versus SaaS

There is still much confusion over cloud and Software as a Service (SaaS) delivery models and the more discussion in print and online, the cloudier the issue becomes. Many use the terms cloud” and SaaS” interchangeably, but indeed they are not the same. The distinction is quite simple and need not be over-complicated:

  • Cloud refers to access to computing, software, storage of data over a network (generally the Internet.) You may have purchased a license for the software and installed it on your own computers or those owned and managed by another company, but your access is through the Internet and therefore through the cloud,” whether private or public.
  • SaaS is exactly what is implied by what the acronym stands for: Software as a Service. Software is delivered only as a service. It is not delivered on a CD or other media to be loaded on your own (or another’s) computer. It is accessed over the Internet and is generally paid for on a subscription basis. It does not reside on your computers at all.

Using these definitions, we can confidently say all SaaS is cloud computing, but not all cloud computing is SaaS. 

What About Hosted?”

Oftentimes vendors will refer to hosted deployment models as SaaS. This also causes some confusion, because a hosted model might be delivered to you, the consumer, as SaaS, but then it might not be. Where a vendor’s partner maintains a license to the software, hosts it (puts it in their own data center) and then offers it to you as SaaS, then indeed, it is a SaaS environment. Where you license the software and have the ERP vendor or another party host it for you, it is not. In the past, this was called Application Managed Services (AMS) or, if you go far enough back in time, time sharing.” This distinction is important because whoever owns the license to the software takes on an added level of responsibility.

For many years now in researching preferences for deployment options, I have been careful to distinguish between SaaS and hosting. Of course, I can’t guarantee my survey participants read the definitions carefully, but I can try! Here are the options to choose from:

  • Software as a Service (SaaS): Software is delivered only as a service. It is not delivered on a CD or other media to be loaded on your own (or another party’s) computer
  • Hosted and managed by your ERP vendor: Software is licensed by you, but you pay your ERP vendor to manage and maintain (host) hardware and software
  • Hosted by an independent 3rd party: Software is licensed by you, but you pay another party to manage and maintain (host) hardware and software
  • Traditional licensed on-premises: You license the software and are responsible for managing and maintaining it on your own premises
  • Hybrid: Parts are licensed and maintained on-premises and parts (e.g. add-on modules) are SaaS

In my annual enterprise solution studies, I have asked how the participant’s current solution is deployed and also asked which options they would consider in buying a new solution. There is definitely some residual confusion over these options. I constantly assess this potential for confusion by cross-referencing different questions in my survey. In addition to asking how a participant’s current system is deployed, I ask which solution is deployed. 

It is not uncommon for a participant running a solution that is offered exclusively as SaaS to select the second option (hosted and managed by your ERP vendor). I find this to be a common misperception and therefore accepted the response, but I scrubbed out additional responses where SaaS was selected even though no SaaS option of the selected product was offered by the vendor or where on-premises was selected even though the participating company was running a solution offered exclusively as SaaS. 

Web-enabled user interfaces cloud the issue (pun intended). Many non-technical users simply don’t know whether their organizations have licensed a specific version of the product (and perhaps pay maintenance in order to have access to updates) or if they subscribe to software as a service.

With almost every ERP software vendor hopping on the cloud bandwagon today and many of the largest claiming victory in the race to be the biggest and the best, I fear many business users are also hopping on that wagon without truly understanding the ramifications. And without this kind of knowledge, choices are being made without full understanding and some benefits are being left on the table. 

Many solutions that were once only available as traditional, licensed deployments (on your own computer or a trusted service provider’s) now offer a choice. But some of these cloud” choices are really hosted solutions, which contributes to the confusion. Other solutions that were born in the cloud may only be offered through SaaS. It is important to understand the difference between cloud and SaaS, as well as the different flavors” of SaaS (multi-tenant and multi-instance or single-tenant). 

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Understanding SaaS

Multi- Versus Single-Tenant

Much of the discussion and debate over SaaS enterprise applications focuses on whether the SaaS applications are single- or multi-tenant solutions. For years now survey respondents participating in Mint Jutras Enterprise Solution studies admit they do not understand the difference between the two. While many don’t seem to care (leaving that for others in their company to worry about), many others express interest in learning more. And Mint Jutras has always been happy to comply.

You will find some industry observers that passionately insist SaaS solutions must be multi-tenant in order to be true SaaS” and some offer quite a long laundry list of conditions that must be met before they will anoint a solution to be what they consider truly multi-tenant. The definitions I have always presented have been much simpler:

  • Multi-tenant (or Single-instance) SaaS: Multiple companies use the same instance of (hosted) software. Configuration settings will vary per company and data is protected from access by other companies (tenants).
  • Single-tenant (or Multi-instance) SaaS: Each company is given its own instance of the (hosted) software.

While many experts insist on multi-tenancy, this choice has more direct impact on the vendor than the consumer of the software. But that vendor impact can (should?) have a cascading impact on the consumer. Maintaining a single copy of the software instead of a separate instance for each customer means far less cost and effort for the solution provider. These savings can translate to lower cost and/or more innovation for the end user of the software, but multi-tenancy doesn’t come with any guarantees. If vendors offer both multi- and single-tenant options, they may not realize either of these benefits. And even if they do, they may not pass them on to their customers. 

Over the years, my research has shown a slight preference for single tenancy. However, many that express this preference only see the limitations they assume multi-tenancy imposes. These limitations may or may not be real. And while the experts” might be pushing multi-tenancy, is that really the question users should be asking? 

Presumably the added efficiency of multi-tenancy allows the solution provider to focus more resources on improving the technology and developing more features and functions, which directly benefits its customers. That translates to more innovation delivered. But if the solution provider makes the same solution available on-premises, the frequency of releases may be constrained by its customers’ ability to upgrade frequently. So perhaps instead of asking whether the solution is multi- or single tenant, the better question is, how frequently is the software updated?

Is there a perceived downside to multi-tenancy? Yes, there can be. Many assume that a multi-tenant environment equates to plain vanilla” applications that cannot be modified or tailored to their own needs. That may have been the case years ago when customizing software meant modifying source code, but today’s modern technology allows a tremendous amount of configuration and personalization without ever going near source code. So perhaps instead of asking whether the solution is multi- or single tenant, the better question is, what level of configuration, tailoring and personalization is supported?

Another potential concern over multi-tenancy is the perceived loss of control over the upgrade process. Indeed, in a multi-tenant environment, the customer often has little control over the timing of the upgrades. However, is there really a negative impact? If the solution provider bears the burden of the effort associated with upgrading and innovation is delivered in such a way that the customer may optionally choose to take advantage of an enhancement – or not – then there is no down-side and a lot of up-side. 

Yes, single tenancy potentially affords you more control over the timing of an upgrade, but there are other ways to exert control. Some vendors will actually support multiple versions in a multi-tenant environment. So perhaps instead of asking whether the solution is multi- or single tenant, the better question is, how is the upgrade process engineered and executed and/or whether all enhancements are designed to be opt in,” only visible to the users when the customer chooses to turn them on? 

These are just some examples of how to ask the right questions to make sure the SaaS solution, whether it is single or multi-tenant, meets your needs. 

In evaluating alternative solutions, remember different solution providers use different terminology so it is important to look beyond the labels in order to answer the questions most important to you and determine the real benefits of the different SaaS options.

Summary and Key Take-Aways

With more and more options for deployment being presented today, it is important for buyers and users of enterprise applications to understand the terms used in marketing and selling these options. It is even more important to be asking the right questions to make sure your specific goals and requirements will be met. It’s less about the labels and more about the characteristics that are needed to meet these objectives.

Determine your own priorities and what characteristics are important to you. Look beyond the labels and understand what is actually being delivered and how. How are upgrades delivered? How frequently? Are they transparent? Are enhancements only visible when you decide to turn them on? What can you personalize and tailor and what is really a customization? 

Determine all costs as well as potential cost savings. Ask the solution providers to provide you with statistics on security and down-time and build guarantees into your Service Level Agreements, along with cost escalation clauses.

Deployment options can have enormous ramifications. Don’t make assumptions based on print and online chatter. Get the facts and make your own decisions for what is best for your enterprise.

This article was written by ERP Advisory Board member, Cindy Jutras. 

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