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ERP in the Cloud – An Evolution in the Making

As the cloud computing has become part of everyday conversation, key decision-makers are being forced to look at the potential of ERP and what it can mean for their business. The key differentiating factor for companies is the business model that allows them to leverage ERP in the cloud based on subscription pricing.

The company decides what they need, when they need it and how much they are willing to spend to get it. While cloud-based ERP can enable small- to medium-sized businesses (SMBs) to leverage the same capabilities that previously only the larger enterprise could afford, migrating to the cloud and eliminating on-premise data centers and infrastructure requires more than just flipping a switch.

A more realistic approach to ERP in the cloud is a steady evolution as businesses gradually change the way they adopt and use business-critical applications. Yes, it is important that applications such as ERP are easily accessible to all divisions within the company and that the information is updated and maintained in real-time, but the arrival of cloud-based ERP was not the first time such access was delivered. Instead, the cloud simply introduced this access through a browser instead of the company’s own network.

The value proposition in cloud-based ERP is simple: a single-source, multi-tenant software-as-a-service platform that frees companies from the nightmare of upgrades. All customers receive the same version of the code, making it highly configurable. Not all customers will need to access all pieces of the code, but the one version is always up to date and never has to be upgraded on the customer side – eliminating headaches for them and costly support time for the provider.

The debate in the ERP industry, it appears, is between those who argue that all companies are moving toward cloud-based applications and those who believe that complete cloud adoption is impossible in some organizations. Conventional wisdom expressed through this debate was recently evaluated by the Channel Partners Cloud Convergence Council. One very definitive conclusion reached by this group is the fact that ERP and other infrastructure resources are easily too expensive for many a small business. When evaluating the economics of cloud computing, ERP is clearly one application platform that can have a greater reach in the cloud.

There is a caveat, however, and that is the cost of the ERP platform over the long run. Businesses that are strapped for capital tend to be drawn to the low investment potential of the cloud-based ERP, opting for the monthly fee in place of a large, up-front investment. One argument recently shared in a cloud computing assessment piece was that the small business opting for ERP in the cloud will make that payment in perpetuity, eventually paying far more for the application than what would have been invested in the on-premise solution.

This argument is missing one important key point: hardware and infrastructure. Comparing cloud-based and on-premise ERP by price of the application alone is not an accurate measurement of its cost or its value. One of the key motivators for the small business to implement cloud-based ERP is the fact that the supporting hardware and infrastructure costs can be avoided. And, don’t forget that ERP platforms available in the cloud are also updated consistently, ensuring that users always have access to the latest technologies.

This level of opportunity has created two major trends in this space: new companies entering the market to intensify competition; and current on-premise ERP providers acquiring companies with SaaS expertise and value propositions to strengthen their market share with additional offerings. This activity will create more choices for customer companies, and at the same time, the increased competition will help to foster continuous improvement and innovation.

Companies are also likely to benefit from more vertically-focused ERP in the cloud. They want true integration across the organization, not just with traditional knowledge workers. To achieve that level of integration, the focus will need to be placed not just on the technology, but on the vertical market in which it needs to operate. This evolution in the cloud-based ERP space will lend considerable benefit to customer companies through full integration. At the same time, vendors will benefit from the vital role they will play within the organization.

[Photo courtesy of marketingland.]