What Is Cloud ERP and Why Is It So Important for Midsize Companies?
Enterprise resource planning (ERP) is a term that was created by the Gartner Group in the 1990s and promised to automate business processes across the company. Gartner’s definition of ERP included financials, distribution, manufacturing, and HR management. This integrated system would allow the automation of the separate areas of the organization and consolidate them into a single database.
For 25 years, ERP has provided that promise of value and was predominately implemented on the client’s servers in their data centers.
But now, the entire world (and the competition) has changed. Today, digitally savvy customers expect:
- Faster delivery of products and services
- Nonstop improvements in products and services
- Improved reliability
- Lower costs
Considering these new demands, we see that there are significant problems with the legacy ERP systems in service today that negatively impact midsize businesses.
- They do not easily adapt to change
- It is not easy to get the information required to make decisions for growth
- The old technology is expensive to maintain
- Compliance with evolving regulations may not be available
The bottom line: Most existing legacy ERP systems now fail to deliver the speed, flexibility, and business intelligence necessary for this new digital era we have entered.
What is cloud ERP and why is it gaining popularity so quickly?
In the 2000s, the early “hosted” or “cloud” applications were primarily standalone solutions such as customer relationship management (CRM), marketing automation, and expense travel management.
In the mid-2000s, the first cloud ERP solutions were introduced. But, because they were new and had limited functionality, those solutions were slow to be accepted by midsize businesses. In 2015, the adoption curve for cloud ERP changed dramatically, and acceptance has grown exponentially since then.
How midsize businesses benefit from cloud ERP
Midsize companies have different needs than smaller and larger enterprises. Here’s why.
All midsize companies have some type of accounting or ERP system, some of which require replacing because they no longer meet needs. Unfortunately, more and more of the legacy ERP systems are no longer being significantly enhanced, nor even maintained and supported. As a result, adoption of modern alternatives, like cloud ERP, have accelerated.
Medium-sized businesses tend to be specialists. They typically work in a small, related set of industry verticals, such as job shop metal fabrication for aerospace or distribution service to restaurants. To grow rapidly, companies need to add new locations, introduce new products and services, make acquisitions, and respond to competitor failures, for example. Reacting to these changes in a timely manner is immensely important. An old system that is not flexible and easily expandable will constrain that growth.
Inside the midsize business, some departments may be large but most have limited management support. Cooperation between departments is essential, but independent reporting systems, many of which are based on Excel spreadsheets, makes information exchange difficult. Sharing information efficiently is vital to making better, faster decisions.
Top management at many midsize companies tends to be very cost conscious. Unlike larger companies that manage their business on quarterly budgets, the lifeblood of medium businesses is cash flow. Studies have shown that improving profit margin is their number one priority.
As far as technology goes, midsize businesses are quick to embrace proven technology solutions that improve their business operations. These “islands of isolation” include manufacturing execution systems (MES), field service systems, human resource management, call center software, revenue forecasting, and others. However, most midsize businesses have been slow to change their backbone ERP system. Cloud ERP, with its new technologies and benefits, is changing all that.
Mid-sized businesses that have adopted cloud ERP often say they made the move for the following benefits and capabilities:
- Better and faster finance and accounting processes across the company
- New functionality (like mobile)
- Intuitive user interfaces and workflows
- Flexibility to respond to changes and opportunities
- More predictable IT costs
- Improved customer service
- The ability to introduce new products quickly
- Standardized ways to easily integrate other applications
- Support for rapid growth driven by both necessity and opportunity
Is there a difference in cloud ERP solutions?
Not all “cloud” products are the same. There are big differences, particularly in how the systems are deployed. Here are the five possible ways to implement a system:
On-premise (on-prem) ERP: In an on-prem deployment, the hardware and software are purchased and installed on a company’s own servers. The ERP software is licensed for an upfront amount and a yearly maintenance contract for upgrades and bug fixes. The system is maintained and upgraded by the company, and it is protected by the company’s internal firewall. On-premise is the traditional way legacy ERP systems have been implemented for decades. It requires a high initial investment and sufficient IT resources to implement, upgrade, and maintain the system.
Private cloud ERP: In the private cloud deployment model, IT services are delivered over a private IT infrastructure for the dedicated use of a business. It is often popular with large IT departments. The ERP system may be owned, managed, and operated by the company, a third party, or some combination of both. It gives businesses many of the benefits of a public cloud but typically has a greater upfront investment.
Public cloud ERP: Public cloud ERP is hosted entirely on servers owned and supported by a third-party provider. Although some cloud vendors also support private cloud and on-premise deployments, the public cloud is the primary licensing model for software-as-a-service (SaaS) solutions. Cloud-based ERP providers also include their applications and services.
The SaaS ERP licensing model is delivered on a pay-as-needed basis using an agreed-upon annual or monthly payment. The minimal effort in getting started with ERP through the public cloud is a major benefit. For a growing company, the system can effectively scale with the company’s needs. Additionally, in a true SaaS ERP implementation, the software has been rewritten to run optimally in this cloud environment.
Faux cloud (fake cloud) ERP: This deployment model is employed by many of the old legacy ERP software products where the system is deployed on servers hosted in “the cloud,” but is not true cloud. To the user, it looks like the cloud because there is a better front-end user interface, but there is no real application development or enhancements to make it perform optimally in the cloud.
As previously mentioned, true cloud vendors design their solutions from the ground up for the cloud. The drawback with ERP deployed in fake clouds, in addition to performance issues, is that it is still legacy software that must be updated and maintained. Any customizations and integrations can be troublesome, and typically the pricing model is not based on usage requirements so over-spending is possible.
Hybrid cloud ERP: Elements of a private cloud, public cloud, and on-premise deployment can be combined to create a hybrid ERP cloud, which gives companies the ultimate flexibility to choose the optimal deployment for their applications. Also, it allows ERP applications and data to move between the options based on workload changes. However, much more IT involvement is required for this flexibility.
When to choose an on-premise ERP deployment over cloud
Adopting cloud ERP or migrating an on-premise ERP deployment to the cloud is not for every company. The number one reason to stick with an on-premise solution is the need for compliance. Whether it’s customer, industry, or government requirements regarding regulations and standards, every company situation is different. Sometimes stricter requirements require an on-premise implementation.
Unreliable or poor internet service is another reason cited by companies who do not want to move to the cloud. For mission-critical ERP applications, the requirement to be up and available 99% of the time, with reliable response time, is crucial. However, downtime is mostly a problem of the past. Thanks to modern networks, server, and processes, downtime is no longer a concern or reason to avoid deploying ERP in the cloud.
Data management is the next reason. Putting your ERP system in a cloud deployment may or may not mean you can easily move the data—that depends on the service provider’s policies. For example, you might want to move a copy to the on-premise server to do testing or training. Make sure the provider supports this service.
Finally, the most common reason is loss of control (for example, over security, data, or upgrades). If you do move to a cloud-based ERP, your company is offloading many IT responsibilities to a third party. Logically, that third party should be reliable and trusted with a stellar track record. However, companies still have the option of keeping everything “in house.”
I have heard that the cloud is not secure. Is that true?
With all the news about data breaches and viruses, it is valid to inquire if cloud ERP is secure. No system is impossible to break into; however, the degree of security that your system has depends on how it was deployed and who manages the system. Here are some points to consider:
- Data theft: This is probably one of the hottest topics in the news where large companies have had their data files stolen and their customers’ private information compromised. Digging into the details of the data breaches, however, it’s more common to find that the data was stored on the company’s premises, not in the cloud.
- Data loss: Losing whole files is a terrible thing, but it can happen with natural disasters, when data is inadvertently erased, or when a system crashes. The only thing that can restore your data is having it backed up regularly and often. With cloud ERP, the infrastructure providers have off-site backups done regularly and redundantly. When you have a loss of data, it can be easily restored to get the system back up and running quickly.
- Security: Having the right level of security is of utmost importance. Midsize businesses typically have a limited IT staff and that staff takes care of the infrastructure, system updates, and user issues, for example. Very few midsize businesses have a full-time IT security staff. With a reputable cloud ERP provider, midsize companies automatically have full-time professional security experts on call 24/7 to make sure all security updates and procedures are maintained.
Given these three points above, security for cloud ERP is actually an advantage for midsize businesses, not a disadvantage.
What’s new in business computing technology—and why does it matter?
Technology innovation is accelerating rapidly, and it is hard for the legacy ERP vendors to keep up. You have probably read about artificial intelligence (AI), machine learning (ML), blockchain (used in cryptography), the Internet of Things (IoT), in-memory databases, and Big Data. Most of these new technologies are not fully deployed to provide their maximum benefit…yet. However, all major SaaS ERP suppliers have been embracing many of these technologies.
These innovations will make a business nimbler and more competitive. Unfortunately, most of the legacy ERP solutions do not have the technical foundation to adapt and add new technologies to their products.
What are the benefits of cloud ERP?
Let’s explore the benefits of a ERP cloud computing solution.
- Lower costs: There is no upfront cost to purchase and install hardware and software. Plus, you’ll reduce ongoing staff costs when upgrade and maintenance costs are handled by the provider.
- Faster implementation: Ramp-up time is much faster when the SaaS supplier handles the hardware and software installations. True cloud applications are designed with an intuitive user interface to speed time to productivity.
- Business improvement: Many companies use this opportunity to perform business improvements, such as changing outdated processes and taking advantage of the best business practices provided by the SaaS supplier.
- Simplicity and automation: Companies can consolidate standalone legacy applications and eliminate the use of Excel spreadsheets and manual workarounds.
- New functionality: The cloud allows you to take immediate advantage of application improvements because SaaS allows for more releases per year. The most current functionality is always available since the cloud supplier updates and maintains the software.
- Better insights: As your business grows, so do your data requirements and the number of databases across the organization. As you move from normal data to “big data” requirements, a modern, centralized database/ERP system with analytical tools is a better solution to provide the business insights you need for decision-making.
- Support for mobile ERP: Support for mobile devices and anywhere, anytime access to timely information by employees, subcontractors, vendors, and customers is built into SaaS products. These mobile apps have role-based, modern user interfaces (UI) with a responsive design to fit mobile screens.
- Access to new technologies: Companies can utilize the new wave of technologies such as AI and machine learning to improve productivity. Plus, IoT allows devices (like machines or sensors) to feed data back to applications via the cloud for up-to-date status information. These features are being built into modern SaaS ERP solutions.
- Tighter security: Security and data backups are handled by full-time, professional security experts. The cloud vendor will typically have the best security available, a fact that has been supported by several recent data security breaches primarily with on-premise systems in large and midsize companies.
- Scalability: Business volume is uncertain and forecasting growth is not perfect. So, scalability is an important benefit of a SaaS solution. If more capacity is required because of rapid growth, then it is extremely easy to add additional computing power or data storage capacity. There is no need to invest in a large capital expense when you can use your funds elsewhere to grow your business.
Now is the time
Cloud ERP is not some distant solution; it’s being used by thousands of midsize companies around the world right now. Probably by many of your competitors.
We have discussed the different types of deployments, things to consider, and a list of ten key benefits. Now is the right time to make the decision to move to the cloud.
For most midsize companies, this transition is an inevitable step in taking their business to the next level. The rewards of faster processes, better information, and rapid ROI can be verified by analyst’s reports (from Gartner, Aberdeen, Forester, and others) and through customer success stories in industries like yours.
Stay competitive by joining the movement to cloud-based ERP and all the exciting technologies and benefits it brings.