The cloud has increased the options for running ERP systems, but also the complications. Companies should consider their business needs before selecting a deployment option.
ERP is fraught with layers of complexity, but the deployment model has been pretty straightforward.
Most systems have traditionally resided on premises, but the rise of cloud ERP systems presents a new set of choices, requiring companies to evaluate ERP through another set of criteria, further complicating the decision process.
Beyond the on-premises model, most long-standing ERP vendors, along with industry newcomers, offer the enterprise software in a variety of cloud options. Companies like NetSuite, Plex Systems, Rootstock and Acumatica got their start in the cloud, serving up SaaS applications that use a multi-tenant environment of shared resources and tout such benefits as flexible monthly subscriptions and near-instant service delivery with less emphasis on customizations.
Category leaders like Oracle, SAP, Microsoft Dynamics and Epicor have rearchitected their ERP platforms to support both on-premises and cloud deployments. Those companies offer SaaS flavors of core ERP functionality along with specialized modules in areas like talent management, procurement and analytics. They also support more moderate options, like hosted delivery in a private cloud, as well as hybrid architectures, which combine specialized SaaS applications with a legacy on-premises ERP foundation.
Cloud ERP systems present deployment choices
All these riches of choice lead to the tough task of choosing the right ERP deployment model. The cloud ERP systems may have the momentum -- industry estimates project the global market for cloud ERP systems to reach $32.2 billion by 2023 -- but the deployment model simply isn't the right fit for many enterprises, regardless of the technology hype cycle.
"Companies need to set aside the noise and figure out who they are and how that translates into what their business needs are," said Eric Kimberling, CEO and co-founder of Third Stage Consulting Group, an independent ERP consulting firm. "You really need to look at what you are trying to do, culturally and as an organization -- that's ultimately the stuff that drives which direction to go in."
Function over deployment model
Rather than agonize over the question of cloud ERP systems versus on-premises ERP, organizations should key in on potential vendors through their strengths in specific functional areas or industry focus. For example, pure-play cloud ERP vendor Plex Systems has its roots in the automotive sector, while NetSuite targets complex manufacturing and wholesale distribution, among other industries, according to Andrew Bolivar, head of the Center of Excellence at Ultra Consultants, which aids in ERP selection and implementation.
IT capabilities are one of the barometers used to determine whether to go with cloud or on-premises ERP. Teams that have more resources or desire more control typically go for a hybrid approach.
Chris DevaultPanorama Consulting Solutions
Driving ERP decisions purely on the deployment model puts the cart before the horse. "The needs of the business will drive you to a shortlist of two or three vendors, then you look at deployment options," said Jeff Carr, CEO of Ultra Consultants.
"In the old days, the systems were much more malleable to the business -- you brought in the tool and customized it as needed," Bolivar said. "In the cloud, there are limits to customization."
The shorter the list, the easier the evaluation
Once there's a shortlist of vendors, it's easier to evaluate the cloud ERP options. Companies with limited IT resources or those without well-established processes have a better chance of success with cloud ERP systems, according to experts. Conversely, manufacturers with legacy ERP and well-established processes typically opt to remain on premises or select a hybrid approach, modernizing their ERP foundation with specialized cloud systems in emerging areas, like analytics or talent management.
"IT capabilities are one of the barometers used to determine whether to go with cloud or on-premises ERP," said Chris Devault, manager of software selection at Panorama Consulting Solutions. "Teams that have more resources or desire more control typically go for a hybrid approach."
However, there's still a groundswell of interest even among companies not ready to pull the trigger on any cloud ERP flavor, according to Thierry Bonfante, vice president of global product management at Epicor Software. Most customers are hedging their bets by taking a phased approach and embracing the hybrid ERP model, keeping some functionality on premises and moving others to the cloud.
"It's rare for customers to go exclusively on premises or exclusively in the cloud -- it's usually somewhere in between," Bonfante said.
Hybrid ERP enables organizations to reap the benefits of the cloud and take advantage of advanced, niche functionality. But this hybrid deployment approach can also open doors to a new set of challenges, particularly in the area of integration.
"Individual departments get what they need in the cloud, and everything happens easily and quickly, but the technology clusters don't necessarily work well with each other," Devault explained. "Every independent, functional area is happy, but the silos become a risk to making changes and moving forward."
