The advent of cloud ERP solutions means that organisations have more choice than ever about how and where they deploy their ERP system, whether that’s on-premise, privately hosted or on a cloud platform.
A report from PWC has looked at how to assess which model is the right fit for your ERP deployment, based on complexity and project size.
Typically, on-premise deployments for ERP have the following attributes:
- Large implementation
- Highly complex solution
- High initial capital costs invested
- Low to medium ongoing operational costs
- Implementation time: 12 – 36 months
And Cloud based ERP deployments tend to take pretty much the opposite position:
- Small to medium implementation
- Low solution complexity
- Low capital costs
- Medium ongoing operational costs
- Implementation time: 4 – 8 months
So for solutions that are relatively low in complexity, it often makes perfect sense for organisations to consider the cloud, even just for elements of the overall ERP requirement (such as payroll, or workforce management systems) – especially if timescales are tight.
Cloud based ERP solutions often take into account all of the backend services and processes that an organisation would usually have to complete themselves in an on-premise ERP deployment, a fact that is often overlooked when assessing costs. Many companies do their due diligence about subtracting hardware and infrastructure management costs when selecting a cloud service, but many SAAS solutions also come with backup, upgrades, patching and ongoing development services built into the product, which would be an additional outlay for an IT team deploying an on-premise ERP solution.
This is in part why PWC have calculated that over a 10 year period, the total cost of ownership of a cloud-based ERP solution can be 50 to 60% less expensive than a traditional on-premise system.
However, there are compromises that have to be made.
Cloud-based ERP solutions and SAAS applications usually have reduced capabilities for customisation across the platform; it is a model that works at scale and if you fit into the 80% of businesses who probably have a standardised ERP requirement then cloud based ERP can be a great cost-saving solution. If, however, you regularly need to customise your ERP tools to suit your organisation’s processes, then a cloud based ERP system is probably not going to be able to solve all of your problems. A hybrid approach, where standardised systems are deployed in the cloud for simpler applications whilst the more complex, central ERP tool is deployed on-premise or within a private hosting environment can be a way to overcome the cost challenges of a complex ERP deployment.
Another point to consider when choosing the right model for your organisation, is how an ERP application will integrate with other applications and tools across your business.
An on-premise deployment could mean that your IT team is responsible for linking applications together, whereas for many cloud-based services, applications are built on standardised platforms that often have pre-built APIs to plug different apps together and integrate solutions. An example of this is how Twitter or Facebook can be used as a login tool to other applications or websites.
PWC also use a simple, yet effective, framework to assess the likelihood of success for deploying your ERP onto a cloud platform or on-premise.
For a cloud-based SAAS ERP deployment the likelihood of success is high if:
Size of implementation is small + complexity of solution is low.
The solution is estimated to be relatively successful still if:
Size of implementation is large + complexity of solution is low.
The likelihood of success drops dramatically once complex ERP solutions are being considered that require in-depth customisation.
The critical factor is the complexity and ability to scale a standardised solution across many different users, locations and processes. For complex deployments that don’t fit the standardised model, yet where an organisation could still reap cost and efficiency benefits of cloud, then a private, dedicated hosting environment could be the perfect solution that marries the benefits of both ERP models.
We also highlighted in a recent article how Hybrid ERP is becoming a popular solution for businesses who need the flexibility of cloud in some areas, combined with traditional, centralised ERP infrastructures for business critical processes.