Australia could save $252bn by embracing ERP SaaS technology

New economic analysis has revealed a $252 billion savings opportunity for Australia’s economy over the next decade by more rapidly stepping away from redundant IT platforms and utilising transformative digital technologies.

The first-of-its-kind research, which was commissioned by TechnologyOne and conducted by IBRS and Insight Economics, into the economic impact of Software as a Service (SaaS) has found that if the public and private sectors replace their legacy “own and operate” on-premise Enterprise Resource Planning (ERP) software with “consumption-based” next-gen SaaS technology, Australia’s economy could expect a wealth of benefits – specifically, total cost of operations (TCO) savings, and significant labour productivity gains.

ERP is a category of software which organisations use to manage day-to-day business activities such as accounting, HR and payroll, regulatory compliance and much more. Many organisations in Australia in both the public and private sector currently rely on on-premise ERP software.

On-premise software requires organisations to purchase and manage all the server and data centre hardware required to run the software at their offices. Many Australian businesses and public sector organisations continue to use on-premise software , requiring significant capital investment, as well recurrent costs such as ICT consultants and training to customise software and manage the environment as needed.

ERP solutions delivered over SaaS, are done on a consumption-based model, hosted by the software provider. This means the provider takes on the onus of ensuring their software remains updated and functional. The organisation also doesn’t need to invest in hardware or ICT consultants to support the software.

SaaS is scalable, secure, and removes a great deal of pressure from in-house IT teams to keep pace with technological advances and modern cyber security obligations, freeing up IT resources to focus on business needs and internal projects.

This benefit is translating into sizeable gains in the TCO of the software, as well as the hardware and staff resources required to keep it operating.

So how do the numbers stack up for SaaS technology? Aside from generating $252 billion in savings for Australia’s economy, the report from IBRS and Insight Economics forecasts a 1.3% GDP uplift through local purchasing by 2030, a $26 billion per annum boost for economic expansion over 10 years, and an additional 75,000 jobs over the next decade.

Furthermore, the report forecasts a $15.9 billion increase in household consumption per annum over 10 years. This figure assumes that overseas SaaS vendors are selected when making the transition from on-premise to SaaS.

However, if major industries moved to SaaS, and just 10 per cent more of this uptake went to domestic companies, then Australian households would be a further $1.1 billion better off each year.

The economic benefits of accelerating investments in SaaS technology will be felt nation-wide, according to the research. Victoria’s economy could expect a $60 billion economic benefit over a decade due to the scale of opportunities available to the state’s higher education, retail, manufacturing and asset and project intensive industries.

This is followed by New South Wales ($50 billion), Queensland ($31 billion), Western Australia ($30 billion), ACT ($20 billion), South Australia ($18 billion), Tasmania ($11 billion) and the Northern Territory ($4 billion).

In terms of industries, the forecasted savings are:

One of the main hesitations organisations have when considering whether to transition to SaaS, is the cost. It is a common misconception that moving to SaaS will end up costing a lot upfront, and it will take a while before that investment is realised.

However, according to the research from IBRS and Insight Economics, the biggest savings of moving to SaaS from an on-premise solution, come from TCO savings.

According to the report, TCO savings account for 32 per cent of the benefits on average, and labour force productivity, which accounts for a further 54 per cent of the benefit potential from a migration to SaaS on average across all sectors.

“Critically, labour productivity represents an increase in output capacity for a given level of labour inputs; this allows organisations to meet growth in demand without expanding staff levels compared to what would have been required if a traditional on-premise software strategy had been continued,” the report states.

These cost savings and productivity benefits can lead to significant change, such as enabling scarce public funds or private investment dollars to go towards higher, better uses than they otherwise would have. The benefits can also lead to an uptick in organisational output or sales compared to what would have otherwise occurred if the organisation had remained with their on-premise technology.

What the research clearly outlines is that whilst organisations will incur costs when moving away from their on-premise software to next-gen SaaS technology, the benefits gained from this move far outweigh the costs.

Paul Jobbins, the Chief Financial Officer (CFO) of TechnologyOne emphasised that SaaS helps organisations mitigate a number of risks, including but not limited to security, obsolescence, support and upgrades.

“There are numerous benefits to moving to SaaS, which is clearly highlighted in the research. SaaS can deliver both the public and private sector substantial costs savings and other business benefits including increased productivity, an enhanced customer experience and reduced cyber security risks,” Mr Jobbins outlined.

Many people are realising that the benefits of moving to SaaS are too big to ignore. $252 billion in savings, which might otherwise have been directed at ICT services can be usefully redirected towards other important investments and services that serve the community and improve Australia’s international competitiveness, including:

“The $252 billion digital dividend ready to be unlocked by Australia is simply too big to ignore. Seeing the clear benefits of SaaS should spur action at every boardroom in Australia around how they think about their technology priorities," Mr Jobbins continued.

“As a nation, we have a choice. We can continue to waste money on redundant on-premise technology, or we can fast-track the digital transition to SaaS where a $252 billion economic windfall can be reinvested back into Australia, transforming the lives of Australians for generations.”