Cloud, On-premises, or Hybrid – What's Your ERP Model?

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If your company is considering an ERP system (assuming you don't have one already or are looking for a shift), you’ve got plenty to choose from. As you weigh options, one of the most important decisions you will be making is whether to opt for a cloud-based ERP solution or one that's deployed on-premises. Although the cloud is one of the latest hot topics, with enterprises big and small around the globe rapidly adopting the technology to make the most of the benefits it offers, it is very important to understand limitations too. While Gartner predicts that by 2018, at least 30 percent of service-centric companies will move the majority of their ERP applications to the cloud, embracing the cloud just because everyone around you is can prove detrimental to your business. No matter how tempting the cloud appears, there are numerous factors that need to be considered when determining which ERP model best suits your business. Let's have a look:

1. Multi-tenancy: Dedicated cloud solutions function in a multi-tenancy environment with shared resources delivered over the Internet. You can benefit from a multi-tenancy structure through instant service delivery and monthly subscription fees that help avoid upfront capital expenditures. Multi-tenant software is sufficient for simple applications that do not require customizations; if you’re a small business, this is the solution for you. But if you’re a medium or large enterprise, with more complex business processes, running your ERP in a private cloud environment may be the better option.

2. System Performance and Speed: Every ERP implementation takes time and requires meticulous planning, but when it comes to speed of deployment, cloud ERP is the undisputed winner. With cloud, you can easily roll out your ERP system across multiple geographies, subsidiaries, and departments. Also, due to the underlying architecture, cloud ERP systems often deliver better performance than their on-premises counterparts. Since they are designed for maximum network performance, better application availability, and optimized performance, they easily adapt to your business needs. MarketsandMarkets said it expects the hybrid cloud market to reach $85 billion in 2019, up from $25 billion in 2014, a compound annual growth rate of about 27%. Even if there is a drop in your business, cloud ERP automatically adjusts and dynamically reduces resources to balance the demand.

3. Network Connectivity: Although network connectivity is improving around the world, there are several businesses that are at the receiving end of poor connectivity due to their geographical locations. In such cases, hosting ERP in the cloud might not be viable, and that makes an on-premises solution the best bet. By assessing the performance and reliability of local networks, you can arrive at a cost-benefit analysis that proves on-premises as the best deployment model.

4. System Upgrades: On-premises ERP software customizations are tied to your current software deployment; they are generally not easy to re-implement with new version releases. As new versions of ERP are released, your earlier customizations will be erased and your IT team will have to start from scratch. This is one of the main reasons why many companies avoid upgrading their on-site ERP software and settle for outdated technology. In contrast, cloud ERP solutions are continually upgraded by the provider so you can be certain you are always using the latest, most advanced version of ERP software. And your previously implemented customizations and integrations stay as they are when the solution is updated without any additional investments.

5. Data Privacy: For enterprises in the financial or government sectors, the cloud may not be an option. Companies that require complete control of their systems and data due to the highly secure nature of their operations seldom use the cloud to host their applications. In such cases, private or hybrid clouds may be an option: if the business data is too critical, you can choose a private cloud, but if you only want to safeguard certain applications and processes, then hybrid cloud will help you keep your critical data secure. IDC predicts that more than 80 percent of enterprise IT organizations will commit to hybrid cloud architectures by 2017.

6. Costs: On-premises ERP systems often require large upfront and ongoing investments in hardware, servers, and tools to run them. We keep hearing that the cloud is a cheaper option for installing ERP software. For cloud-based ERPs, initial costs are generally much lower as you only provision the required infrastructure, saving substantial costs. So if you are a start-up organization, have a seasonal business, or have invested minimally in IT, cloud ERP will work out to be cheaper. Such companies can quickly gain access to advanced hardware without having to invest in a single server.

Choose Wisely

The essence of a postmodern ERP as defined by Gartner is a decentralized, hybrid system of mixed vendors, mixed functionality, and a combination of on-premises and cloud systems. For a critical system like ERP, choosing the ideal deployment model can make or break your future. Since quality of service varies greatly when using a cloud solution or an on-premises solution, make sure you review SLAs in detail to understand the service and availability options. Also with the cloud, there are several hidden elements with respect to data retention and ownership. When vying cloud options, ensure that these factors are clearly understood and mentioned in the contractual agreements. Depending on the area of your business, and by considering several factors, you can arrive at the ideal model that best fits your business needs.


by Indusa

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