It is hard to deny the explosion of enterprise resource planning (ERP) vendors that are now offering their services through a cloud-based delivery model. Although the majority of these products are offered under the software as a service (SaaS) model, there are a growing number of vendors that are also offering platform as a service (PaaS) and infrastructure as a service. The salesmen behind these cloud-based ERP vendors make claims extolling the virtues of their service saying that it will decrease capital costs and help companies achieve scalability.
Although these claims sound fantastic, are they equally fantastic to all companies? When a company is evaluating cloud ERP systems, does its size matter? To understand this better, let’s review some of the claims made by cloud ERP vendors and determine whether they are better suited for a start-up or a more established company.
Claim #1: By moving to an ERP system in the cloud, a company will decrease the total capital it spends on hardware, software and licensing fees. Essentially, companies moving to the cloud are outsourcing their IT departments to their ERP vendors, meaning that concerns regarding system security are all handled by the vendor. Depending upon the price of the cloud ERP system, this can actually free up substantial capital for a company.
Results: This benefit is better for start-up companies. Most established companies have already invested in the development of an IT department. They have hired people to handle security, purchased the appropriate hardware and have developed the right level of expertise. Their IT costs are probably fixed. If the ERP system were to be outsourced, no significant savings would be seen. On the other hand, start-ups may not have acquired the fixed costs of an IT department and therefore outsourcing it to free up more capital may be very beneficial.
Claim #2: Cloud ERP systems will help companies become more scalable. The definition of scalable is that a system or business can handle growing amounts of work. Cloud ERP vendors are claiming that as a business grows, their ERP system will be able to grow along with it. This means that it will be able to handle more invoice transactions, larger vendor master files and increased aging within accounts receivable.
Results: This benefit is also better for start-up companies. Mature companies have passed their growth spurt and are not growing more than 20% a year. On the other hand, start-ups can see upwards of 200% growth in a year. When growth is unpredictable, a cloud-based ERP system will be able to quickly scale with the company.
Claim #3: Cloud ERP vendors have a faster deployment of services. Many cloud ERP vendors claim that the length of time to deploy services to the company is reduced with cloud ERP systems. They support this claim by noting that the total time for hardware preparation and acquisition can be reduced on the project plan since it is their internal responsibility. Also, delivery is online so as long as a browser is available employees can access the system starting on day one. All that is left is training and data uploads.
Results: This claim appears to affect both start-ups and established companies equally. A shorter project plan means a quicker return on investment and this is beneficial to all companies.
Cloud ERP vendors claim that the benefits their service provides can be equally obtained by all companies. This appears to be true for start-ups but may not be as true for established companies. When evaluating cloud-based ERP systems, be wary of the claims around cost savings. If costs have been fixed, the cloud will not make them go away.
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