We've reached the tipping point. According to the 2018 ERP Report published by Panorama Consulting, the percentage of organizations looking to purchase SaaS or cloud-based ERP solutions grew from 33 percent in 2017 to 85 percent in 2018. Cloud ERP is here to stay. And yet, we hear from our prospects and customers that many of them are still not clear on what exactly the terms Cloud ERP and Hybrid ERP mean, and what the impacts and benefits would be for their business if they chose to adopt these technologies. So we thought now would be a good time to take a step back and go over the basics of what Cloud ERP is, starting with an explanation of cloud computing.
What is Cloud Computing?
Cloud computing is the practice of using a network of remote servers hosted on the Internet to store, manage, and process data, rather than using on-premise local servers or personal computers. By avoiding the costs of expensive, on-premise hardware, and paying only for the services (like software) you actually use, cloud-based solutions are cost effective and scalable. Cloud-based services are also typically “location agnostic,” meaning your company can use them no matter where you’re operating.
cloud computing will be the de facto IT architecture model and technological framework for digital transformation in all enterprises
Over the last decade, the cloud has transformed the way global business gets done. By working with a cloud vendor, your company can take its focus off complex, evolving IT concerns (your vendor does that), and focus instead on growing your core business. In this two-part series, we’re going to offer an introduction to cloud-based ERP, how it’s helping businesses work better, the different operating models the cloud provides, and the steps companies can take to leverage the full power and potential of cloud-based ERP.
What is Cloud ERP?
The term Cloud ERP refers to an Enterprise Resource Planning (ERP) system that is hosted or partially hosted on one or more remote servers. Often paired with a Software as a Service (SaaS) subscription-type licensing model, Cloud ERP also uses multiple cloud computing tools, techniques and services.
Cloud-Based ERP Enables Agility in Cost and Operations
The cloud has disrupted the status quo of how IT gets done. Traditionally, in-house IT departments could be unresponsive, overwhelmed, slow to finish projects, and deliver projects that were prone to failure or over budget. In our current business landscape of rapid change, a different approach is needed, one that reduces cost pressures, quickly adapts to new markets and customer requirements, and scales up quickly as a business expands. Many IT departments, well aware of the need for agility to remain competitive, have now shifted their critical IT services to the cloud.
Is Cloud ERP Right for Your Business?
To answer this question, you need to analyze your present and future IT needs, the importance of technology to your business, and your competitive position. Once you’ve done that, here are a few key questions for your leadership team:
- Are you still planning to run your business software on your own servers and have all your IT requirements (both present and future) managed by your understaffed, overwhelmed in-house IT team?
- Has your organization grown rapidly in a short time, or is it planning to expand geographically? If so, you'll need to scale up your systems in a way that’s cost-effective and highly scalable across geographies and over time.
- Do you want the capability to build new business models and use modern applications without putting your mission-critical data and applications in the hands of third-party vendors?
No matter your needs, the cloud offers you answers. As Matthias Zacher, Senior Consultant and Project Leader at IDC, explains, “cloud computing will be the de facto IT architecture model and technological framework for digital transformation in all enterprises."
How Cloud-Based ERP Solves Problems
Here are five very common business problems where cloud-based solutions offer tremendous value in terms of cost-effectiveness and agility, compared with traditional, on-premise ERP approaches:
Problem #1: Operating an Existing ERP Solution is Too Expensive and Restrictive
The operation, maintenance, and continuous development of existing ERP systems is very time consuming, cost intensive, and simply impossible for many companies and their overwhelmed IT departments. A lack of scalability in your IT function can restrict your growth potential, a horrible but all-too-common truth. It's well worth taking a look at Cloud-based ERP options if your existing IT team is overwhelmed with supporting your business strategy and growth. Cloud-based ERP can be the foundation for the digital transformation of your entire business.
Problem #2: Hardware Pushed Beyond Its Limits
With the ever-increasing amount of data that needs to be processed concurrently by all businesses these days, your on-premise, mission-critical hardware gets placed under increasing stress and will eventually reach its limits, needing to be replaced in ever-shorter cycles. This is expensive and also runs the risk of disrupting your operations, a double-whammy. Many companies are rightfully looking for alternatives via cloud-based ERP solutions.
Problem #3: Growing Pains of Business Maturity/Expansion
Businesses that grow can run into massive problems around scalability and integration of existing IT systems. For instance, individual subsidiaries of an industrial business might perform dedicated functions within their group of companies (production location, distribution subsidiary, financial services company, etc.), but the on-premise IT solutions used in the corporate office aren’t integrated with the rest of the company. Scaling and integrating your IT systems across an expanding company takes time and money, but needs to happen to support any future growth.
As a result, savvy organizations are adopting a cloud-based ERP approach that can quickly and cost effectively equip their multiple sites with the appropriate cloud applications for their particular functional areas. The headaches of integrating a bolted-together legacy system as your company grows get mercifully avoided.
Problem #4: The Challenges of Standardizing Processes
As companies expand into different regions and subsidiaries, the business can become a confusing collection of local solutions and processes that have been adapted over time to the specific needs of local business units/regions. While this “local silo” approach can work in the short term, growing businesses need to develop and share best practices and standard processes across their entire organization.
But growing companies can get to the point where not all existing systems can uniformly map new processes throughout the company. In this troubling scenario, software from the cloud can save the day, offering instant uniformity of processes across the entire organization.
Problem #5: Difficulties Keeping Up With New Technologies
Because it’s centrally distributed, cloud-based software can be developed much faster than individual local systems. Cloud systems are kept up to date by the provider and are constantly being expanded to include new functions. This allows companies to ensure their business solution is up to date and meets all formal requirements thanks to frequent, automatic updates and shorter delivery cycles for new functions. Cloud solutions also enable businesses to benefit from state-of-the-art technologies and innovations earlier, providing a real competitive advantage. Cloud-based providers also typically implement the latest security standards and can generally protect data better than in-house IT.
In summary, the cloud solves basic business problems around cost, scalability, and adapting to changes brought about by emerging technologies and organizational expansion. Cloud-based approaches shift responsibility for the operation, maintenance and servicing of hardware and software, as well as security measures, to the cloud solution provider. This takes the pressure off your in-house IT team and enables you to focus on growing your core business. In Part two, we’ll explore the different cloud-based operating models and the steps companies can take to implement cloud-based ERP.