Cloud ERP is clearly the talk of the ERP software industry. The marketing engine supporting cloud options such as software as a service (SaaS) and hosted ERP systems is very strong, even reaching into the consumer-facing side of things with Microsoft’s push into the cloud with Windows-based products.

In fact, our 2011 ERP Report – published earlier this year – shows just how prominent the cloud is becoming in the enterprise software space: 17-percent of organizations are reportedly using SaaS-based solutions, up from 6-percent the previous year. In addition, another 24-percent are using the cloud to host their traditional, single-tenant ERP systems, while just over half of organizations are opting for traditional systems that are hosted on site.

So cloud ERP must surely be the wave of the future, right?

Not necessarily. Just as the cloud can be very practical for a consumer that doesn’t want to deal with hosting their music or pictures on their laptop, smaller businesses often find that the cloud is an ideal solution because it minimizes the need for costly IT support. Some mid-size companies find that point solutions – such as CRM or HR systems – are feasible to host in the cloud. In addition, cloud solutions can be faster and less costly to deploy, at least in the short-term. But larger organizations are simply not embracing the cloud like their smaller-company counterparts. How can this be, you might ask? First of all, a big limitation of the cloud is lack of flexibility. On-premise ERP systems have been and still remain easier to configure and customize to fit your specific business needs, while SaaS and other cloud-based solutions offer less flexibility in these areas. While that could actually be a positive thing for vanilla companies with fairly generic business operations, it can be very detrimental to more complex companies with distinct competitive advantages from their peers.  This problem is starting to dissipate with the advent of platform as a service (PaaS) and other development and integration tools, but those options are not yet mature or robust enough for most larger organizations we work with.

The other big issue larger organizations tend to have is with control and security. Although most SaaS and cloud ERP vendors are able to provide more stability and security than most internal IT departments, most CIOs are at least a little skeptical about not having complete control over security and other issues. These concerns can be mitigated via well-defined service level agreements, but they are still very real and valid concerns.

So what’s one to do when trying to determine whether or not the cloud is for their organizations? First, it is important to define what your specific needs are and recognize that there is no one-size-fits-all answer to ERP. Second, understand the tradeoffs between cloud versus on-premise solutions. The industry marketing sales hype may suggest that there are no tradeoffs, but they are indeed there and the tradeoffs are very distinct. Keeping these two points in mind will take you a long way toward making your way through the foggy and sometimes confusing landscape of cloud and SaaS ERP.

If you’d like to discuss your organization’s specific business processes and how they relate to ERP software selection, including cloud and/or SaaS solutions, contact our independent ERP experts today.

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