10 FAQs about Cloud ERP Software

In 2010, the use of the term “Cloud” was expanded to include a broad set of applications and software deployment models.  ERP software that is deployed into a cloud environment becomes “Cloud ERP Software”. Most (if not all) Cloud environments are built using virtualization and load balancing technology that allows applications to be deployed across multiple servers and database resources.

Many IT industry analysts believe that ERP software stands on the verge of a cataclysmic shift away from on-premise, hosted solutions to solutions hosted in the “cloud.”  While the prospect is alluring, there are questions and concerns.

Here are 10 FAQ’s about Cloud ERP software.

1. What’s the difference between cloud and software-as-a-service (SaaS)? SaaS offerings are typically smaller, niche solutions that are best for organizations with limited complexity, size and global presence. ERP vendors host SaaS applications on their own infrastructures instead of locating the systems on-premise at the purchasing organization.  Cloud ERP means traditional ERP solutions hosted off-site. Its flexibility and scalability are big selling points, as is the capability to access real-time data from anywhere without using complicated and costly remote-access software.

2. What is a “hybrid” cloud option? A hybrid option is basically another way of saying cloud ERP. As touched on above, it’s when organizations purchase a traditional Tier I (SAP, Oracle, Microsoft Dynamics) or Tier II (Infor, Epicor, Lawson, etc.) ERP system and have it hosted by a third-party vendor. This can be a “best of both worlds” scenario for some companies as it provides the flexibility of on-premise ERP solutions with the cost and outsourcing benefits of the cloud.

3. Is it really faster and cheaper to deploy cloud-based solutions? There’s no question that it’s faster (and cheaper) to implement a cloud-based solution than an on-premise. However, an ERP strategy still has to include comprehensive business process mapping, data cleansing, organizational change management, end-user training and a number of other activities to ensure your organization achieves the highest possible ROI. The cost structure of cloud ERP also is quite different than on-premise ERP. Rather than paying one lump sum up-front, organizations must pay for yearly subscriptions to their cloud provider.

4. How concerned should I be about security? Although cloud outages frequently make the news, the truth is that cloud ERP providers typically provide a more stable environment than internal IT departments.  At any point during transmission, the possibility exists that it might be hacked or compromised. To address that, cloud ERP vendors encrypt the data, which can work like a charm but can also cause delays and lead to unforeseen upgrade costs.

5. Who are the leaders in the cloud market? Cloud ERP software heavy hitters include NetSuite, Kinaxis, Plex Systems, Workday and Sales force.  As time goes on, it seems fairly certain that all ERP vendors will have to provide the choice of a cloud-based service in order to remain relevant.

6. How do cloud and SaaS solutions stack up against on-premise solutions? According to an independent 2011 ERP Report, nearly one out of five companies were using SaaS offerings in 2010 (compared to only six-percent of companies in 2009), 24-percent of companies were using hybrid options and 59-percent were using on-premise ERP.  In addition, SaaS implementations were significantly more likely to exceed budget than on-premise initiatives (70.6% vs. 59% for other delivery options).

7. What are the main benefits of cloud ERP? While benefits vary depending on the needs of the organization implementing cloud software, they can potentially include:

  • Cost savings derived from reduced IT staffs and outsourced data management
  • Not having to maintain and secure on-site servers
  • Faster implementation times
  • Fewer upfront costs

8. What are the main drawbacks of cloud ERP? Potential drawbacks can include:

  • Integration between existing processes and cloud ERP applications may be more difficult than integration with on-premise applications
  • Surrendering aspects of operational control (e.g., having to wait for system upgrades rather than implementing them on your own schedule)
  • Trusting an ERP vendor to safeguard and control access to all of your
  • data and systems
  • Less flexibility to change software
  • Pricing structures that actually could cost more in the long-run

9. What size company should consider cloud solutions? Cloud solutions are appropriate for all sizes of companies, although SMBs have historically made up the majority of the market. Larger companies may find that a hybrid approach (i.e., having some aspects of its system in the cloud and some hosted on-site) give them both the benefits of control and the flexibility of the cloud.

10. What leads to cloud ERP failures? Implementing in the cloud does not mean that organizations can take shortcuts. To ensure success, organizations implementing cloud ERP have to be proactive about the same issues as organizations implementing other deployment options (including but not limited to business blueprinting, process-mapping, role definitions, end-user training and organizational change management). There must be formal planning, governance and oversight structures in place and change must be managed from the top down to ensure end-user buy-in. Challenges may be especially pronounced for organizations implementing cloud ERP as their first ERP system because the change will be so dramatic for employees.