Many companies considering hosted SAP services assume that the procurement process and key considerations are the
same as buying regular software. They're not, according to one analyst.
Buying SAP software using a managed services model involves a different relationship with the provider and different contractual arrangements. All of these require different procurement considerations and different ways of calculating return on investment (ROI), according to Bill Martorelli, a principal analyst with Cambridge, Mass.-based Forrester Research.
"It's not night and day," he said, "but there are special aspects of managed services procurement that aren't necessarily part of software procurement."
First, companies considering SAP managed hosting have to remember that this will be an ongoing relationship, involving more than simply buying software. So, in addition to the typical technical requirements, customers should find a company they trust and feel they can work with, Martorelli explained.
A request for proposals (RFP) for ERP managed hosting should therefore address issues such as how problems will be escalated to the provider and eventually resolved in a timely fashion, disaster recovery plans, and uptime requirements.
And remember, a reputable partner for the implementation and the actual hosting may not be the same company.
"There are synergies that would make it beneficial to use the same company," Martorelli said. "But it's not a hard-and-fast rule."
To help develop these requirements, it is critical to have IT involved from the get-go. This is somewhat different from buying other hosted software such as CRM or HR, where the business side sometimes chooses the hosted route to circumvent IT, according to Martorelli.
"A lot of CRM has been bought by the business, and that's fine," he said. "But for ERP, it just doesn't make sense."
Another important aspect to take into account when considering hosted SAP is the level of customization required, Martorelli said. The hosted model tends to work better with implementations that don't require excessive customization.
"It's not like you can't get customization, or there's not an implementation cycle [with hosted SAP software], because there is," he said. "But it does correlate with a more straightforward, more vanilla, less customized implementation."
As companies increasingly choose hosted software options in other areas of the business, integrating with hosted SAP ERP is a key consideration. That is above and beyond integrating hosted software with any on-premise systems.
"Take a look at integration requirements," Martorelli said. "If you want to integrate with other systems, you have to think about the level of integration you want and need -- certainly not all [integration has to] be real time, some can be batch, which makes things substantially easier."
Martorelli suggests that potential customers ask themselves:
- Do you want to build and maintain application-level interfaces? This can be complex and difficult.
- Are you willing to leverage everything into the provider's SAP environment and SAP-based database?
- Do you want to use a separate database as a vehicle for integration?
- Do you want data to reside solely at the vendor's location or do you want to have it off-loaded and shipped back to your site?
Not the traditional ROI case
Traditionally, companies have embraced hosted ERP for a number of reasons, and cost is not necessarily the most important, according to Martorelli. Many are looking at speed or ease of implementation. For example, a company that has pressing regulatory compliance needs or is facing a business deadline, such as getting acquired units onto a company standard, will turn to managed hosting.
"I'm not sure the cost savings part of ROI has been the driving factor to go down this path," Martorelli said. "There are many ways you can calculate ROI. More typically, what we have seen is that the decision is based on how quickly customers can get the system in place."
Another possible reason is a relative lack of IT resources – for instance, a company that is trying to implement SAP at a location without a sufficient IT presence.
Companies also recognize that on-premise software not only requires IT but can involve other costs, such as building and maintaining infrastructure.
"When implementing SAP, not only do [customers] have to worry about the software but also about potentially hiring additional staff, building infrastructure -- any number of things," Martorelli said. "People say: 'Maybe if I go down the managed services path, I might not save money over a long period of time, but at least I avoid that initial upfront capital expense and the recurring expense that may happen at upgrade time.' "