Outsourcing ERP Implementation: Traditional Outsourcing Vs SaaS

Discussion

Discuss about the Outsourcing ERP Implementation.

 

Whenever the Company is delegating a part of its business process which can be the non-core operations to a third party, the Company is said to be outsourcing. The concept of outsourcing is nothing new in today’s market of globalization (Willcocks and Cullen 2013). The ERP has also gathered popularity in this field as this integrated software helps in assimilating all the data and information altogether. ERP also known as Enterprise Resource Planning can be used to collect and sort out data and other business operations (Parr et al. 2013). The company also has the option of choosing the traditional outsourcing over SaaS (Dhar 2012). The report looks into the difference between the two and seeks to understand the advantages and disadvantages of both. A vital consideration with regards to ERP implementation is the security of the database. The ERP has ensured that the database can be easily accessed which brings the security of the confidential data in to light (Hashizume et al. 2013). The PAPA framework of Ethics speaks about the four aspects of security of data – Privacy, Accessibility, Property and Accuracy.

The term outsourcing has garnered popularity in the recent scenario of globalization. Different terms have emerged out of this specific term like off shoring and near shoring which co relate to outsourcing in terms of its functions. Outsourcing can be defined as the process through which certain components of the business process is contracted to some third-party contractors (Oshri et al. 2015). The term off shoring is used to denote the presence of the external entity in another distant country whereas in sourcing indicates the presence of the entity in-house (Oshri et al. 2015).

The chief reason behind the popularity of outsourcing, particularly in the last decade, can be attributed to its utility in the reduction of costs for a Company. The peripheral or “non-core†business expenses such as the payment of interests and taxes, high energy costs and high government regulations and policies have driven the Companies to opt for outsourcing of their business processes (Gobble 2013). However, the labor cost is also a driving force that has compelled the Companies to look for a comparatively cheaper labor market to make use of (Benito et al. 2013).

 

Enterprise Resource Planning, popularly known as ERP, refers to a kind of business-management software which can be used by any organization to assemble, store, handle and deduce data from its various activities like manufacturing, selling and shipping products. According to Parr et al. (2013), the ERP presents a total integration of all the business functions and processes which consequently ensures reliability and protection of confidential data.

Outsourcing

Proper implementation of ERP system would not only ensure integration of the business processes, it would also facilitate seamless flow of information across the processes. The completion of projects within time and budget can also take place with a successful execution of ERP (Ahmad and Cuenca 2013). Other benefits include reduction in the cost of logistics and transportation, rise in productivity and flexibility. Conversely, improper implementation of ERP would result in spilling over the set budget, loss of confidential data or system failure (Schniederjans and Yadav 2013).

The decision to outsource ERP implementation is dependent on a number of variables. The first factor is related to the overall cost of the implementation of ERP and the organization needs to ensure that the expenses do not exceed the budget. Hence the concept of outsourcing has been adopted (Schniederjans and Yadav 2013). This way the Company can delegate a part of its overall costs to the service providers whose tasks would be to carry on the ERP operations. The organization then concentrates on its core business activities of ERP without getting involved in the day to day operations of ERP (Schniederjans and Yadav 2013). The providers generally charge the Company on a monthly basis and they also get access to the latest upgrades of ERP software which were otherwise unavailable to the Company itself.

 

The relevance of outsourcing ERP implementation of a Company has been established as undeniable. With the development and advancement of technology, the software package has also been upgraded and updated. The vital reason behind this growth in technology is the availability of broadband Internet to people around the globe (Dhar 2012). Traditional software differs from the latest software like SaaS. SaaS refers to Software as a Service which is a software licensing and delivery model which can be licensed on a subscription basis. It is commonly used by organizations for managing the different applications like message software, management software, human resource management and talent acquisition to name a few (Dhar 2012).

The chief difference between traditional outsourcing and SaaS is that SaaS can be accessed from anywhere and through any device (Rittinghouse and Ransome 2016). SaaS requires only login details and password since the data is stored on the server hosted by the software provider. On the other hand, the traditional software applications are dependent on the desktop because it is installed on the computer. Hence data cannot be accessed from any other device other than the one where it is installed. The ease in accessibility has lead to flexibility of SaaS as the organization can choose to pay only for the services that it wants (Rittinghouse and Ransome 2016). It ensures that the organization faces no difficulty in paying only for the services utilized without paying extra for the redundant services. Conversely, the traditional software calls for intensive training of an IT section of the Company whose task would be to oversee the software related issues.

ERP Implementation

In terms of cost management, the organization stands to benefit more from SaaS than the traditional outsourcing. Cloud computing promises low maintenance costs thereby cutting down the overall expenses of the Company (Erl et al. 2013). The up gradation of the software is the responsibility of the software provider and it is up to the provider to keep his systems updated (Jadeja and Modi 2012). In case of traditional software, it becomes quite expensive where the individuals will have to buy license every time there is latest software.

There are few driving factors which influence the decision of the Companies to determine whether they want to choose SaaS over traditional outsourcing. As noted above, there are several points of difference between the two which have shown that the advantages of having SaaS far exceed that of traditional outsourcing. Three important causes invoke the Company to select SaaS are as follows:

1. Expenditure: The Company would look in to the expenses that would be incurred while adopting the method of outsourcing. While doing so, the Company would discover that the cost of SaaS is much lower than using traditional outsourcing. The cost of ownership decreases with the usage of cloud computing since it can be accessed anywhere hence the traditional cost of maintenance gets minimized. The additional cost of training IT team also reduces in case of SaaS.
2. Speed: Cloud computing is known for its incredible speed which enables faster flow of information since the information is already stored in the cloud or server. When the Company would look for a faster means of receiving and analyzing data, it would choose SaaS over traditional software. The traditional outsourcing uses a desktop equipped with the software the speed of which is lower than SaaS.
3. Resources: The Company also looks for a solution which would require less resources and SaaS answers to that requirement. The service provider would supply the login details to the Company and whenever there will be a need for access to confidential data, the Company can get it by using the login details.

 

The term ethics refers to the “science of moralityâ€; in philosophy it means the moral principles that govern the activities and the behavior of an individual. The implementation of ERP also has an impact on the organization’s ethical principles. The ERP software integrates confidential data from different departments of the Company (Motiwalla and Thompson 2012). Hence the Company needs to exercise extreme caution while dealing with such data particularly when there is easy access to such confidential information.

            The PAPA principles of Ethics come useful in dealing with the ethical issues facing a Company regarding ERP implementation (Motiwalla and Thompson 2012). PAPA is the abbreviated form of:

• Privacy
• Accuracy
• Property
• Accessibility

Figure 1: PAPA Framework

Source: (as created by the author)

1. Privacy: Every individual has the right to privacy and to protect his personal information from becoming public. However, software packages like ERP as made it easy to get hold of sensitive data of individual or specific departments of the Company. Hence certain protocols need to be maintained to prevent misuse of data (Motiwalla and Thompson 2012). In the case of ERP, the software gathers, sorts, files and integrates data of customers which in turn leads to revealing of information to third party vendors. Rising cases of hacking and identity theft have shown that the data mining activities are open to privacy threats (Motiwalla and Thompson 2012).
2. Accuracy: Accuracy is another aspect of the ethical framework which is a vital factor in data mining. This principle demands the accuracy of the data that is collected and stored regarding the customers (Motiwalla and Thompson 2012). The confidential data should be free of errors and it should also be ensured that mistakes are not incorporated in the data intentionally. The corruption of data has become easier these days owing to the easy accessibility of the information (Motiwalla and Thompson 2012).
3. Property: Property is the second P in the PAPA ethical framework principles and it deals with the ownership rights of the data collected over ERP. Huge amounts of data get collected over the cloud through data mining activities and therefore it is in the right hands (Garg et al.  2013). Here comes the question of intellectual property rights which is an ethical concern for every individual. The sensitive data has the quality of being easily imitated without affecting the original information in any way. Consequently, the owner of this kind of data is bestowed with immense responsibility to prevent misuse of information in any way (Motiwalla and Thompson 2012).
4. Accessibility: Accessibility refers to that part of the ethical framework which deals with who has access to the data. The advancement of technology has ensured that the internet is easily accessible to anyone and this in turn has made it increasingly difficult to keep sensitive data safe (Motiwalla and Thompson 2012). Prior to this advancement, the maintenance cost of such records was a cumbersome and tedious job. However, in recent times, the data conservation activity has become easier as well as cheaper. Data can be stored in the cloud easily through software packages like ERP which enables any company to safeguard its data easily. The flipside to such a system is that it is easier to get hacked Justas easily as it can be accessed (Hashizume et al. 2013). Here again, following the ethical principle, utmost caution should be practiced as to who should be able to access this confidential data (Motiwalla and Thompson 2012).

 

Conclusion:

The concept of outsourcing has garnered popularity in the market owing to its various advantages. The companies have taken help of an expert agency whenever they faced shortage of requisite resources or manpower in any area. In this way the performance of the company’s improved and they can also concentrate on their core activities. It also helps in the reduction of the overall expenses as well as the operating risks of the Company. The emergence of integrated software like ERP has also helped in assimilating all the business processes and operations together. Again, in terms of outsourcing, companies are increasingly moving towards cloud computing or SaaS over traditional outsourcing. The easy accessibility of cloud computing raises certain ethical concerns which can be addressed through the PAPA ethical framework as explained by Mason in the year 1986. The privacy, accuracy, property and accessibility of the data need to be maintained in order to prevent the misuse and corruption of data.

 

References:

Ahmad, M.M. and Cuenca, R.P., 2013. Critical success factors for ERP implementation in SMEs. Robotics and Computer-Integrated Manufacturing,29(3), pp.104-111.

Benito, G.R., Dovgan, O., Petersen, B. and Welch, L.S., 2013. Offshore outsourcing: A dynamic, operation mode perspective. Industrial Marketing Management, 42(2), pp.211-222.

Dhar, S., 2012. From outsourcing to Cloud computing: evolution of IT services. Management Research Review, 35(8), pp.664-675.

Erl, T., Puttini, R. and Mahmood, Z., 2013. Cloud computing: concepts, technology, & architecture. Pearson Education.

Garg, S.K., Versteeg, S. and Buyya, R., 2013. A framework for ranking of cloud computing services. Future Generation Computer Systems, 29(4), pp.1012-1023.

Gobble, M.M., 2013. Outsourcing Innovation. Research-Technology Management, 56(4), pp.64-67.

Hashizume, K., Rosado, D.G., Fernández-Medina, E. and Fernandez, E.B., 2013. An analysis of security issues for cloud computing. Journal of Internet Services and Applications, 4(1), p.1.

Jadeja, Y. and Modi, K., 2012, March. Cloud computing-concepts, architecture and challenges. In Computing, Electronics and Electrical Technologies (ICCEET), 2012 International Conference on (pp. 877-880). IEEE.

Motiwalla, L.F. and Thompson, J., 2012. Enterprise systems for management (p. 245). Boston, MA: Pearson.

Oshri, I., Kotlarsky, J. and Willcocks, L.P., 2015. The Handbook of Global Outsourcing and Offshoring 3rd Edition. Palgrave Macmillan.

Parr, A.N., Shanks, G. and Darke, P., 2013. 8 IDENTIFICATION OF NECESSARY FACTORS FOR SUCCESSFUL IMPLEMENTATION OF ERP SYSTEMS. New Information Technologies in Organizational Processes: Field Studies and Theoretical Reflections on the Future of Work, 20, p.99.

Rittinghouse, J.W. and Ransome, J.F., 2016. Cloud computing: implementation, management, and security. CRC press.

Schniederjans, D. and Yadav, S., 2013. Successful ERP implementation: an integrative model. Business Process Management Journal, 19(2), pp.364-398.

Willcocks, L. and Cullen, S., 2013. Intelligent IT outsourcing. Routledge.