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SaaS and cloud ERP solutions are the highest growth segment of the ERP software industry. Companies such as Salesforce, Plex Systems, and Netsuite all continue to show robust increases in revenue while traditional, on-premise ERP systems are showing much slower rates of growth. As outlined in Panorama’s 2012 ERP Report, the market share of cloud-based ERP systems has grown from 6% to 16% in a single year. Even the traditional ERP vendors are redirecting R&D dollars to cloud and SaaS ERP solutions.

However, as is the case with any ERP and IT strategy, there are pros, cons and tradeoffs for both the on-premise and cloud ERP paths. While SaaS solutions may be a good fit for many organizations, it’s not the right solution for everyone. But if organizations do indeed determine that cloud solutions are the right fit, they need to recognize and address the risks and tradeoffs that are inherent in any strategic ERP decision. They also need to recognize some of the complexities associated with migrating from the traditional on-premise approach to the cloud.

Below are three things to consider when transitioning from on-premise to cloud ERP systems:

1. Recognize that risk will shift away from technology to the business. Industry hype would suggest that SaaS ERP systems can be implemented faster, cheaper, and easier than their on-premise counterparts. While this may be partially true for the technology iteself since there is no software to implement on-site and there is less need for a physical infrastructure to support the solution, the tradeoff is relative lack of flexibility. As a result, CIOs and CFOs are forced to spend more time addressing organizational change management and training issues since the solutions can’t be easily changed to fit business needs, increasing the pressure on the organization to change its business processes and people.

2. It’s not as easy as the industry hype might suggest. ERP implementations are difficult, costly, and potentially risky to any organization, regardless of whether you’re implementing on-premise, SaaS or cloud ERP solutions. However, CIOs often make the mistake of assuming that business processes don’t need to be redesigned, employees don’t need organizational change management, or adequate resources aren’t required to make the project successful. Mismanaged expectations are one of the root causes of ERP failures in general, but especially so with SaaS and cloud ERP implementations.

3. Be prepared to address potential integration and data issues as your organization scales for growth. The blessing and curse of SaaS and cloud solutions such as Salesforce, Workday, Netsuite, and Plex is that the technology is often used to roll out point solutions for specific functions of an organization, rather than biting off an entire enterprise-wide solution all at once. For example, many of our clients have implemented CRM systems such as Salesforce as a way to get an immediate ROI for a focused part of the organization. However, integration and data complexities can be amplified when it comes time to bolt on manufacturing, accounting or other types of enterprise software solutions. These complexities often result in fragmented systems and data with challenging integration between systems. Before implementing a SaaS or cloud solution, organizations should have a clear IT strategy and roadmap for how it will address such complexities to avoid backing itself into a corner.

While some of the above points are relevant to all types of ERP systems – whether on-premise, SaaS, and cloud systems – they are especially important for the latter two. Even SaaS and cloud ERP systems require critical success factors to be successful, such as business process management, organizational change management and strong implementation project management. CIOs and CFOs interested in migrating from on-premise to cloud or SaaS systems should be aware of these challenges.

Learn more about choosing the best-fit ERP software for your organization in our on-demand ERP webinar series. Episodes of particular interest may include Understanding the Differences Between Leading ERP Software and Tips for Selecting the Right ERP Software for Your Organization.

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