Is SaaS Dying? Why the Future of ERP Is More Balanced Than You Think

TL;DR: Recent headlines might suggest that SaaS is dead—like Klarna dropping Salesforce and Workday—but the reality is more nuanced. SaaS isn’t dying; it’s evolving, especially in conjunction with AI and composable architectures.

The Changing Landscape of SaaS

The Rise of AI and Composable Solutions

The rapid advancement of Artificial Intelligence (AI) and the adoption of Composable Architecture—a modular approach that lets organizations mix and match software components like building blocks—have led some to speculate that traditional SaaS models may soon become obsolete. Proponents argue that AI technologies can replicate the functionalities of existing SaaS platforms, allowing companies to build customized solutions in-house. This shift could reduce reliance on external vendors as organizations seek greater control over their software environments.

Deeper Analysis of Klarna’s Strategy

Klarna's decision to eliminate its use of Salesforce and Workday has sparked intense debate within the industry. However, it’s important to recognize that Klarna is an outlier, not a trendsetter. Their move reflects broader trends among tech-first companies seeking deeper vendor independence and agility:

• Cost Pressures: In an era where profitability is paramount for tech firms, Klarna aims to streamline operations and reduce costs associated with multiple SaaS subscriptions.
• Strategic Shifts: The company’s approach aligns with a growing desire for hyper-customization and control over tech stacks. However, this strategy assumes significant engineering resources—an unrealistic proposition for most mid-market companies.
• Risks of In-House Development: Not every company possesses Klarna’s engineering capabilities. The trade-offs include increased complexity, potential long-term costs, and challenges in maintaining robust systems without established vendor support.

Klarna's CEO, Sebastian Siemiatkowski, stated in a recent podcast that

“we are shutting down a lot of our SaaS providers as we are able to consolidate,”

highlighting the company's push towards an AI-driven overhaul. However, industry experts like Marc Benioff express skepticism about whether Klarna can effectively replace established systems like Workday.

He noted, “I think that there’s a broad misunderstanding of artificial intelligence and how it relates to data management and applications”

Benioff raised critical questions about how Klarna would manage its data and ensure compliance without the robust frameworks provided by established systems.

Counterbalance with SaaS Evolution Examples

While companies like SAP and Oracle are embedding AI into their existing models, tangible examples demonstrate how SaaS platforms are evolving to meet these trends:

• Salesforce GPT Integrations: Salesforce has introduced GPT integrations that enhance AI-powered workflows, improving user experience and data management.
• Workday AI Initiatives: Workday is implementing AI-driven tools for talent management, helping organizations streamline HR processes and improve decision-making.

These examples illustrate that SaaS providers are not static; they are rapidly evolving to counter the narrative that "SaaS is dead." Benioff’s concerns highlight the importance of maintaining foundational systems while integrating new technologies.

Counterarguments: The End of Systems of Record?

The Indispensable Role of Systems of Record

Claims that Systems of Record (SoRs) are becoming obsolete overlook their critical role as the backbone of modern enterprises. These systems provide a reliable source of truth, ensuring data integrity across complex processes such as Order-to-Cash cycles. AI Agents thrive on high-quality structured data; without robust SoRs, even advanced AI workflows risk faltering due to fragmented or unreliable data.

Moreover, SoRs encapsulate years of best business practices that have been refined over time. They integrate regulatory compliance frameworks and country-specific requirements into their operations, which is crucial for businesses operating in diverse markets. Many SaaS products come pre-configured with compliance packs for regulations such as GDPR in Europe or HIPAA in the United States. This built-in knowledge base streamlines compliance and reduces the burden on organizations to constantly update their systems in line with evolving regulations.

The historical context embedded within these systems is invaluable. Organizations leverage accumulated knowledge from past transactions, customer interactions, and operational processes to inform current decision-making. This continuity helps maintain consistency and reliability in business operations.

As noted by SCLogic, “Systems of Record are essential for automation, data organization, and regulatory compliance.”

They serve as authoritative sources for critical information, allowing organizations to manage their data effectively while ensuring adherence to necessary legal standards.

Evolving Needs for Data Management

While some advocate for decentralized data management solutions, it is crucial to recognize that Systems of Record fulfill specific needs that cannot be easily replicated by emerging technologies. For industries with stringent regulatory requirements—such as healthcare and finance—maintaining a robust SoR is vital for compliance and auditability. Decentralized models often risk creating silos, whereas Systems of Record provide unified governance.

Integration Challenges with New Technologies

Sure, AI sounds revolutionary—but anyone who’s tried to rip out legacy systems knows it’s not as simple as flipping a switch. Transitioning large enterprises can cost upwards of $10 million and disrupt years of standardized workflows . Organizations must navigate the complexities of integrating new technologies with existing Systems of Record.

My Take on the Future of ERP: Embracing Composable Architecture and AI Agents

In March 2024, I shared my thoughts on how Composable Architecture and Solution Extension Platform (SEPs) could revolutionize ERP systems with modular flexibility. Today, as AI Agents and Generative AI rapidly transform the landscape, my understanding evolves while I remain committed to foundational ERP principles. It’s clear that these innovations will coexist in a dynamic future, enhancing the adaptability of ERP frameworks.

How AI Agents Build on ERP’s Core Principles

1. Composable Architecture Meets AI Agents: AI Agents excel in modular ecosystems, integrating ERP components to enhance efficiency and responsiveness. This allows organizations to adapt quickly to changing business needs without overhauling their entire system.
2. Foundational Systems Remain Critical: Systems of Record are essential as the single source of truth. AI Agents enhance their integrity by automating tasks like data reconciliation, ensuring that businesses can rely on accurate and consistent data.
3. Evolution of Traditional Applications: ERP systems will evolve alongside AI Agents, with traditional user interfaces complementing these technologies for a seamless user experience. This evolution ensures that users can leverage both familiar workflows and innovative features.
4. Seamless User Interfaces: AI Agents will manage interactions through natural language or voice commands, simplifying processes and allowing users to focus on strategic tasks rather than navigating complex interfaces.
5. Vertical-Specific AI Agents Drive Innovation: Domain-specialized Agents will improve workflows in sectors like manufacturing and healthcare, requiring significant data curation and customization to meet specific industry needs.
6. Hybrid Cloud Interoperability: AI Agents will facilitate interoperability between on-premises systems and cloud applications, ensuring smooth data flow and enabling organizations to leverage the best of both environments.
7. System of Engagement Evolves into System of Agents: AI Agents will absorb intelligence capabilities, providing personalized engagement while streamlining user interactions across various platforms.
8. A Dynamic Future for ERP: The future lies in the coexistence of Systems of Record and Systems of Agents, creating an adaptive ecosystem responsive to business needs. This synergy allows organizations to remain agile while maintaining the reliability that foundational systems provide.

"Think of ERP as the steel beams holding your enterprise together. AI? That’s the flexible scaffolding helping you adapt and rise higher"

Conclusion

The future isn’t about discarding what works—it’s about building smarter on top of it. Leaders who master this balance will drive agility, intelligence, and lasting enterprise success.

Key Takeaways for Decision-Makers:

• Focus on evolving rather than replacing your ERP systems.
• Explore AI-driven enhancements while maintaining Systems of Record for critical processes.
• Start experimenting with AI Agents for user interactions to reduce complexity and streamline operations.

Leaders who embrace this coexistence model—where AI augments foundational systems—will unlock unparalleled agility and innovation. Where does your organization stand in this evolution?

Stay Connected

This article presents my independent perspective on the evolving landscape of SaaS and ERP systems, exploring the implications of recent industry shifts. It is not sponsored by any company or institution.

?? I welcome your insights on how these trends are impacting your business and workforce. Let’s connect on LinkedIn to continue this important conversation.

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? 2024 The Spark Digest. All rights reserved.

References

1. Benioff, Marc (2024). "Salesforce Responds to Klarna CEO Using AI." The Letter Two Link.
2. Josh Bersin (2024). "Klarna Claims AI Will Replace Workday. Unlikely Scenario But Points To A New Future." Link.
3. Gartner (2023). Global Spending on Artificial Intelligence Software Forecast Link.
4. Priority Software (2024). Top ERP Trends To Watch In 2024 Link.
5. SCLogic (2023). "What is a System of Record (SoR)?" SCLogic Blog. Link.
6. ACC Software Solutions (2024). Predictions for 2024 Link.