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Factors to help determine if you need a cloud ERP system

There are several factors --including business size and cost -- that organizations should carefully consider when determining whether a cloud ERP system is the right choice.

Organizations tend to realize they need ERP when they begin outgrowing their business systems, whether those systems are homegrown or a disparate collection of applications. Over time, pain points begin to emerge as the gap widens between software capabilities and business process needs. Businesses recognize that any goals for growth are stymied by a lack of system integration and low visibility to real-time data. The desire for increased functionality often leads to the search for new ERP software.

In the past, traditional on-premises ERP systems were the norm; however, cloud ERP -- and more specifically, software as a service (SaaS) models -- have cropped up and continue to grow. The expanded use of cloud has prompted organizations around the globe to ponder whether or not cloud ERP is right for them. There are several potential factors that can be assessed to help guide the determination of when a cloud ERP system may be a better fit.

Size, resources and mobility determine if cloud ERP is right for you

Business size can play a role in whether or not cloud ERP fits. Cloud ERP can work well for small and medium-sized businesses generally due to the lesser degree of operational complexity when compared to their larger counterparts. Lower user counts and transaction rates may translate into lower subscription pricing for cloud-based services; bigger businesses will undoubtedly have more users and higher transactions. Companies with less data and transaction volume needs may see cloud ERP software as a viable, cost-effective solution.

Organizations with scalability needs that require agility for growth may recognize opportunities from software as a service and other cloud models that allow rapid deployment in competitive, ever-evolving environments.

While a cloud-based system can also be useful for established businesses, it's especially enticing for companies in high-growth mode. Businesses on the fast track for expansion into multiple locations may benefit from the relatively quick deployment of a cloud ERP system, assuming there is adequate Internet access.

A common challenge with implementing and maintaining traditional ERP systems is the higher need for IT resource availability. If your organization has constraints that prevent the ability to augment IT staffing, then a cloud ERP model, such as SaaS, may be advantageous. Similarly, if your business is looking to reduce hardware or is unable to upgrade infrastructure, then SaaS ERP could prove to be even more beneficial.

If your team requires remote functionality on mobile and smart devices to view data, create approvals, and view and edit comments, then you could classify your organization as one that has critical business needs for mobility. Cloud ERP can help. Due to its Web-based nature, SaaS ERP tends to have native access to mobile devices. And again, there's the caveat that sufficient access to the Internet will be required for the applications to run on mobile devices.

Think about money, time and data

Budgeting is one of the biggest considerations when starting an ERP project. 

Executive leadership teams often must approve funding for selection, implementation and ongoing support such as system maintenance. In the past, traditional ERPs generally required a higher initial investment. But today, software providers may also offer financing over a period of time. The smaller, regular payments of SaaS and other cloud systems appear attractive, but organizations should be aware of the potential total accumulated costs for extended use of these subscription-based services.

Budgeting variances can rapidly occur when a business plans on keeping a system up to a certain point but fails to anticipate going beyond its expected lifetime. When this happens the subscription costs could easily begin to outweigh the price of a traditional ERP. Given that some companies have kept their ERP systems for 20-plus years, it is possible for those fees to eventually end up exceeding an on-premises investment.

Cloud ERP software could be a great fit for smaller firms with minimal IT infrastructure and business complexity.

Budgeting money is a vital factor in deciding how companies will implement ERP software, but budgeting time is just as important. Implementation times can be difficult to estimate, especially given variables such as levels of customization, access to resources and integrations. Arguably, the perception is that SaaS-based models can be implemented quicker due to reduced need for infrastructure and a more limited ability to customize, thereby reducing implementation variables and timeframes. After being implemented, SaaS ERP offerings do tend to have a distinct advantage with more rapid deployment for services that may require little more than a sufficient Internet connection and Web browser for end-user access.

In addition to time and money, data is another area to consider when looking at cloud ERP systems. Some organizations looking for an ERP system may have a great need to control the data or system. If that's the goal, then on-premises ERP software may be the right route to take. For companies that have the flexibility to relinquish control, cloud ERP is a viable option. It does require a good amount of trust in the third party and good faith in their data security, protection and management functions.

Customization can be a challenge, especially for big, complex businesses or groups with special requirements. Companies with unique processes that must be translated into the system may require more control over their ERP system in order to develop specific solutions. Some businesses may find that SaaS ERP systems, especially those in a public cloud, are less than optimal for coding tailored customizations.

What else to consider when evaluating cloud ERP systems

There are several other factors that organizations may need to consider when deciding whether or not cloud ERP systems are the way to go.

Enterprises with SaaS ERP systems may be required to frequently implement updated versions, which could potentially result in more training costs or other operational disruptions such as kinks in the newer code. 

Along with being at the mercy of updates, another potential hang up that's cause for apprehension with newer or niche cloud platforms is the risk of limited vendor viability. Sudden software end of life could turn into an unexpected loss of access to company data and software. The adverse operational and financial consequences could seriously jeopardize the organization. 

Another challenge that may come with the cloud ERP territory is migrating big data files over the Internet, which can be time-consuming or increase the risk for potential data loss.

Performance is another consideration. Businesses with operations that require immediate transactional results may be reluctant to employ cloud systems because of slightly longer latencies.

The two-tier ERP approach

If the drawbacks of cloud ERP systems are cause for concern, or your needs really don't completely match up with the functions of cloud ERP, there is always the "two-tier" approach. A two-tier ERP deployment generally involves keeping an ERP system at a corporate level (tier one) while allowing each business unit to select a second ERP system (tier two). The tier-one, or corporate ERP, acts as the main standard for most administrative functions such as financials and human capital management. The tier-two ERP system supports the individual business needs of the divisions generally at the operational level such as manufacturing, sales and warehousing. In this strategy an organization could run a hybrid combination of on-premises and cloud ERP software to meet specific business requirements, but maintain increased flexibility and agility at a comparable cost.

Is cloud ERP the right answer?

Cloud ERP software could be a great fit for smaller firms with minimal IT infrastructure and business complexity. Small to midsize companies with frequent mobile access needs that are looking to lower their initial investment and drive standardization should consider cloud ERP as a legitimate option. Larger businesses may also want to consider cloud ERP for hybrid or two-tier ERP configurations that help reduce costs and provide agility between business units. As cloud ERP system capabilities expand, companies should continue looking to resources that help them diligently evaluate this software for its ability to support their enterprise strategies.

Next Steps

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Hybrid ERP approach enables 'surgical' use of cloud-friendly apps.

This was last published in May 2016

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