understand and analyse the cost and benefits of a Cloud Based Enterprise
Resource Planning System, it is important to throw some light on what actually
is an Enterprise Resource Planning System and how it has moved from being an
on-premise ERP to a Cloud Based ERP system.
“ERP is the integrated
management of core business processes, often in real-time and mediated by
software and technology.”
ERP software is installed at the organization’s premises for collecting,
storing, managing and interpreting data from a number of business functions in
order to keep a track of all business activities and further maximize the
organization’s overall efficiency. In a business world so dynamic, the changing
business needs, the growing complexities of the business and the evolution of
technology calls for a change and flexibility in terms of the ways various
business organizations use and pay for these information technology
advancements and that is where the introduction of on premise ERP system and
its advancement to cloud based ERP System comes into picture.
advancement of technology has led to the widespread use of Cloud based
services, which are computing resources that can be shared by a number of users
and are maintained in data centres operated by cloud server
organizations/providers. In broader terms, Cloud based ERP is an ERP software
which is made available via a cloud system over the internet instead of the
organization owning it on their premises. The access to the software and its
related data is provided through a web browser and is managed by the vendor.
Considering the sharing of data online, this Cloud Based ERP system sounds
similar to a ‘web-enabled’ software confusing people between the two. But to
clarify, unlike a cloud based ERP system, a web enabled software still requires
the installation on site but the data is available online. The difference
between using such a Cloud Based ERP system and the on premise ERP is not only
that of the physical location of the software but also several other
differences mentioned below. Such cloud based systems are particularly
beneficial to small and medium level organizations because of the main advantages
they offer- those of very low upfront cost and maintenance costs because of the
reduction in need for hardware and IT staff.
Implementing Cloud Based ERP:
actually implementing cloud based ERP, companies must analyse and evaluate if
it is the right choice for them. Two key factors to be taken under
? Implementation Size
? Complexity of The System
two factors need to be observed with different intensities depending on whether
the organisation is implementing ERP for the first time, switching to another
ERP system or is looking for an extension of the existing systems.
PWC report on “Strategy and ERP in the Cloud” gives a matrix determining
probability of success of Cloud Based ERP.
per this matrix, the likelihood of success of cloud based ERP is the highest
when implementation size is the smallest and system complexity is the lowest.
This means that as far as implementation size is concerned, small and medium
size enterprises are most likely to adopt it. Many large organisations may find
it unsupportive of their organisational needs. Although, they can be
implemented for smaller divisions within an organisation by integration into
existing enterprise-wide ERP platform.
organisations may find benefits of scale on implementation of in house ERP
systems over the cost saving potential of cloud based ERPs today.
far as system complexity is concerned, corporates that are most suitable for
cloud-hosted solutions are which require- basic functionality, minimal customization,
and limited integration.
companies may reap benefits from the use of hybrid models-wherein both in house
systems and cloud based systems co-exist. ERP functionality is retained in a
traditional hosted environment while other applications are implemented through
example, a large company with complex functionality may use customised ERP
solutions for supply chain management but may use a cloud provider for specific
business processes. Similarly, a company with a lot of subsidiaries can use a
centralised hosted solution while its subsidiaries can manage local operations
using a cloud based cost effective solution.
Benefits of Cloud Based ERP Systems
The Regular ERP systems are purchased at
one-time license fee and often involve other maintenance and updates cost. But,
for the cloud based ERP, payment is done on monthly basis and hence involves no
unexpected cost. This also reduces the burden of making an one time hefty
The cloud based ERP systems are easier
and faster to implement as there is no immense amount of hardware or software
that is required. This also implies the implementation cost with cloud based
ERP systems is considerably low. The software breakdown and malfunction costs
are nearly reduced to null because of lesser customisation which implies more
involvement and contact with vendor and a higher stability. During server
crashes, cloud data can be easily recovered and accessed because of the strong
recovery procedures implemented.
costs and risks of data spillage
The organizations that are not well
versed with data handling can go with cloud based ERP systems to reduce their costs
and risks of data spillage. This is because in cloud based ERP systems, the
data is handled by the vendor.
The business needs are rapidly changing
and growing now than ever before. So, it
becomes often difficult to accommodate these new changes in to the organization.
But, integrating these new functions as per requirements and quick scalability
is achieved smoothly with cloud based ERP systems as resource pooling helps
them with greater strategic flexibility.
Cloud based ERP systems can be accessed
anywhere with the availability of internet. This is very useful if your
organization involves a lot of employees who are always moving and not at a
constant place. This enables them to enter and update any crucial information
directly into the system through internet.
Server Maintenance Costs
Since there is no server at the
organization site that is needed for cloud based ERP systems, the maintenance
cost is significantly reduced as the IT staffs needed for server maintenance
are not required. The organizations server maintenance costs go down. (Ex.
electricity, repair and update costs). Considerable amount of time is saved
which can now be focused on core competencies of the organization.
Limitations of Cloud Based ERP
cloud based ERP can prove out to be an attractive option for some
organisations, it can also lead to downfall of some because of the
is used for storage of all kinds of data related to the organization including
critical data like the company financials, employee records, trade secrets, and
other such information. Where an organization deploys cloud based ERP, company
pays monthly subscription fee to the external third party service provider who
hosts, maintains and manages the cloud. Here, the organisation faces the fear
of data security as an external party is involved and fear of issues like loss
of data and the cost associated with the recovery of the data
ERP based on cloud is located geographically outside the enterprise as an
external service provider in exchange for a subscription fee maintains it. In
such scenarios, the organisation that wishes to have full control over the
ownership, control, modification and configuration of the data mainly for
strategic decision making will have relinquish it. Lack of ownership of data
comes with fear of data security and loss of data
may seem like the cost of a cloud based ERP is predictable and are cheaper
upfront, as compared to on premise ERP as no hardware is required in the
former, with cloud ERP organization may end up spending more over the life of
the system as both the system costs curves tend to converge. Along with this,
there are many hidden costs associated with cloud based ERP which include
transition costs, coordination cost and costs of transition.
case of cloud based ERP, the organisation needs to have a solid network
infrastructure that is able to handle the operations of the ERP in cloud. If
the organisation does not have a good bandwidth and internet access, then the
ERP system can fail as the cloud based ERP connects systems, which are located
in a different geographical areas by the medium of internet.
Customization/ Degree of complexity
requiring very heavy customizations because of the highly complex operations do
not implement cloud based ERP as the degree of customization that is allowed in
cloud based ERP is very less
are no regulations in place for handling the difficulties faced by
organizations who have implemented cloud based ERP in relation to data,
environment and energy standards.
example of a firm that has saved money with working on this functionality is Sierra-at-Tahoe
Resort in Twin Bridges, California. This vacation company has split from its
sister resort which was working on ERP system, hence they had to stand back
with minimal time using Cloud based ERP implementation. They had 90 days to get
the business running which is a pretty short window to find an accounting
system. On top of that, they were challenged with space issue and lean IT Staff
hence they chose NetSuite and were very happy with the choice as all the things
fell into place within the given time period.
the above information we can say that implementation of ERP with cloud
computing provides excellent productivity as it increases the flexibility, is
low cost, uses less resources and is being adopted by several organizations
henceforth. The providers of ERP vendors, therefore, are now moving on to being
Cloud based ERP vendors and the examples of such are Microsoft, Oracle, SAP,