Cloud ERP: Is the time right?

Businesses today are getting really good at whittling down their needs and looking at best-of-breed tools and vendors.

If there’s a sliver of business functionality that you want to carve off the cloud these days, there’s probably a vendor waiting to take your P.O. Now, the cloud’s even encroaching into the land of enterprise resource planning (ERP).

Cloud ERP isn’t new, but it’s new enough to look at with a more critical lens before jumping in. Let’s look at the pros and cons.

Cloud ERP is helping companies create their own templates for business, allowing them to move away from hard-coded or rigid integrations.

What is cloud ERP, and how is it evolving?

Generally speaking, the definition of cloud ERP is an approach to enterprise resource planning that makes use of cloud computing platforms and services to provide a business with more flexible processes. Gartner¹ calls it a shift to “postmodern ERP,” and estimates that by 2018, close to 30 percent of service-centric companies will move most of their ERP applications to the cloud.

But as bigger suites move to the cloud, the greatest challenge for vendors might be bad PR.

“Early ERP adopters, particularly large enterprises in energy, manufacturing and distribution industries, are paying the penalty of a decade or more of excessive customization,” said Gartner.

But the light at the end of the tunnel is getting brighter as vendors improve and technology accelerates. Today, cloud ERP is helping companies create their own templates for business, allowing them to move away from hard-coded or rigid integrations. Could it be the catalyst that helps IT so that it can focus on building new stuff instead of legacy support?

Maybe.

Price, scale, and faster deployment

On the pros side, the nice thing about cloud ERP is that the model demands vendors to continually add value. And to keep the value up, cloud ERP vendors have flexible pricing, better configuration options, and rapid deployment capabilities.

Scalable and flexible

The easiest way to think about scalability and flexible delivery is to think about the app store model. Most of the larger ERP vendors have set up similar capabilities to help customers get the functionality they need. As clients see the need for new capabilities, an ERP module or add-on can be procured through cloud-based systems. And with certified integrations, companies are assured that things will work without costly integrations or customization.

Pricing

Cloud ERP implementations are bought via a subscription model, which usually includes the software, hosting and support. That means the initial costs for implementation can be a lot less; not to mention the operating costs, which are also lower due to the lower maintenance and personnel required.

Rapid deployment

Traditional ERP implementations can take an eternity in business time. Cloud ERP can be a big switch from that, depending on the functionality needed. If you can get out of the gate with a basic configuration—one that still satisfies mission-critical needs—you’ll be able to focus on the processes that need to be modified or data that needs to be converted.

Cloud ERP really shines when companies can quickly add new business capabilities without bringing down the system.

Functionality and security

Cloud ERP market maturity is a big concern for the occupants of the C-suite, who often worry about limited functionality and data breaches.

When it comes to data security, there’s no way to sugar-coat the risk when going down the cloud ERP path. You have to trust a third-party provider with sensitive information like financials and customer information. The risk gets greater if you look at smaller vendors who might not have the resources to invest in modern security infrastructure.

Compared to traditional on-premise systems, cloud-based ERP solutions will likely have fewer configuration options. Usually, the cloud option is best suited for companies that use more standardized business processes in areas like finance, purchasing and sales. Cloud ERP might not be able to handle the needs of companies that have very customized business processes or a lot of integration points with back-end systems.

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There are also regulatory constraints that prevent some vendors from storing certain types of data. But alas, there’s only so much that can be vetted. Cloud providers have to achieve a high level of certification before releasing products and services.

Who’s the right fit?

We’ve talked about choosing the right ERP vendor, but when you bring the cloud into the equation, it’s a bit of a moving target. There’s no doubt that Cloud ERP is improving as big companies drive demand and make investments in the right infrastructure. But the real question to ask is “what do I really need, and does it warrant an overhaul to my on-premise solution?”

Does your incumbent vendor have something to offer? The big driver should be agility and adaptation. If your current deployment is holding you back, it’s time to re-evaluate.

¹ "Gartner says By 2016, the impact of cloud and emergence of postmodern ERP will relegate highly customized ERP systems to 'legacy' status." gartner.com. 29 January 2014.