Adoption of Software as a Service (SaaS) Enterprise Resource Planning (ERP) Systems in Small and Medium Sized Enterprises (SMEs) Ravi Seethamraju Published online: 27 May 2014 # Springer Science+Business Media New York 2014 Abstract Enterprise Resource Planning (ERP) systems are now offered on the cloud under the Software as a Service (SaaS) model. For small and medium sized enterprises (SMEs), this is considered the best opportunity to take advan- tage of the capabilities of an ERP system without the invest- ment and management costs associated with the on-premise model. Using a cross-sectional field study conducted across four case study organizations, this study investigated the determinants and challenges in the adoption of SaaS ERP systems by SMEs. The study found that the determining factors in deciding to adopt SaaS ERP are software vendor’ s reputation in the market, software fit to the business, the potential willingness of the vendor to support the customer throughout the product life cycle, the vendor’ s participation in co-creation of value for customers and the generic benefits of implementing an integrated ERP system. With switching con- sidered a costly option, accounting shift of capital costs to operating expenses is considered advantageous by firms. Competitive pressures faced by the enterprise, external fac- tors, concerns about data security and system performance have no influence on adoption decision, according to this study. Change management and increasing the effectiveness of use are challenges, but the willingness of the software vendor to work with organizations’ requests for changes and improvements and the continuous co-creation of value through improved product offerings is reassuring to the firms in the post-implementation phase. Keywords SaaS . ERP . SMEs . Adoption 1 Introduction Enterprise Resource Planning (ERP) systems are considered an important business innovation and their implementation is expected to benefit firms of all sizes. Considering a history of ERP implementation failures and high initial and ongoing costs, small and medium-sized enterprises (SMEs) are gener- ally sceptical about ERP implementation and a business case for such a significant investment in time and money for on- premise models is difficult to justify. The Software as a Service (SaaS) model is fast becoming a cost effective way of delivering business applications (Haselmann and Vossen 2011) for all firms, especially SMEs. With potential benefits including reduced costs, ease of access to global innovations and scalability (Venkatachalam et al. 2012), SaaS ERP system offers an attractive option to SMEs to counter their problem of resource constraints and the complexity of business processes embedded in the traditional on-premise solution. Although there is a lot of interest among practitioners on SaaS ERP systems, empirical research on the adoption and use of SaaS ERP systems is limited (Salleh et al. 2012; Venkatachalam et al. 2012; Johansson and Ruivo 2013). Recent call for papers for SaaS related studies (e.g. cloud computing and service science) in peer-reviewed IS journals, along with specific suggestions from researchers (Candan et al. 2009; Venkatachalam et al. 2012; Lewandowski et al. 2013) show that SaaS is slowly gaining traction among re- searchers. While deployment of IT innovations is expected to enhance firm performance (Hempell and Zwick 2008), studies in the context of SMEs on the adoption and post-adoption impacts of ERP systems are limited (Engelstatter 2012) and of SaaS ERP systems are rare (Lewandowski et al. 2013; Yang and Tate 2012). According to Gartner, worldwide IT spending is forecast to reach $4.2 trillion by 2017 and the enterprise application software market is expected to reach $320 billion in 2014 R. Seethamraju (*) Discipline of Accounting, The University of Sydney Business School, Sydney, NSW 2006, Australia e-mail: ravi.seethamraju@sydney.edu.au Inf Syst Front (2015) 17:475–492 DOI 10.1007/s10796-014-9506-5