Cloud ERP — Key Considerations

Ed Winfield
Jul 10, 2017 · 4 min read

Many companies are in a difficult situation as related to their core Enterprise Resource Planning (ERP) systems. Some of the ERP systems were installed in the late 1990’s as part of the mad rush to address potential Year 2000 issues. Other systems were installed in the early 2000’s when the ERP model was to highly customize functionality to meet perceived proprietary needs. Unfortunately, these customized legacy platforms have become costly and difficult to support and now need to be replaced with some urgency. As companies revisit the ERP marketplace they will find that Cloud ERP systems offer a compelling option for an ERP platform. A Cloud ERP can simplify system support, lower hardware and software costs, reduce the need for highly skilled technical engineers, simplify business functionality and allow for mobile access. However, there are several key considerations that should be evaluated as a new Cloud ERP solution is being reviewed.

ERP Project Impact

An ERP installation or replacement is a very large project and will demand a significant amount of time, resource, organization effort, funding and business decision making. An ERP system that is improperly configured or structured can have a lasting impact on a company’s business processes, efficiency, costs and customer service. Any company looking to install an ERP system needs to understand and be ready for the organization attention that must be given to the project in order for it to be successful.

Process Revision

A Cloud ERP model typically dictates the use of a standard software system that is highly configurable but is not customizable. As such, a company will need to revise their business processes to match the software functionality. Although the Cloud ERP is configurable, there will still be the need for change. A company should consider what tolerance level they have for this type of process change. How receptive will the business functions be to process change? Is the company leadership ready to enforce any required process changes?

Proprietary Business Functions

A fundamental question to consider when evaluating a Cloud ERP is the proprietary nature of the functions that the ERP provides. It could be argued that core functions such as HR, finance, purchasing, asset management, etc. are less proprietary than functions such as e-commerce or online retail. There may be functions within the business that require proprietary capability to support the competitive advantage of the business. Given that the core Cloud ERP is a standard platform, a company should determine if the custom functionality be separated from the core ERP system. Is the current proprietary functionality already separate from the ERP system and can be integrated to the Cloud ERP? Is there a way to potentially restructure some of the proprietary functionality to leverage options within the Cloud ERP?

Operating vs. Capital Funding

In the past, the purchase and implementation of an ERP system was typically a large one-time capital investment for the software modules, installation and ongoing maintenance. A Cloud ERP system is a subscription and therefore becomes an operating expense. A company maintains the right to use the software only if they continue with their subscription. There will likely be reductions in maintenance costs, hardware costs and technical resource expense required to support a current legacy ERP that can help to offset the operating expense of the Cloud ERP. A company should be aware of the change in the type of funding required for a Cloud ERP.

Integration and Interfaces

Another critical consideration for a Cloud ERP is how integrated the current legacy ERP system is with other technology platforms in the company. All of these interfaces and integration points will need to be rebuilt using application programming interface (API) capabilities. As part of the Cloud ERP project, a detailed analysis will need to be done to understand which interfaces will be required and which can be eliminated. There will be a significant effort to design, develop and support the remaining interfaces. A company is advised to not underestimate the magnitude of this effort.

Cloud ERP System Details

In some legacy ERP installations, vendors have provided full access to system details such as database structures, batch processing and even source code. Cloud vendors do not typically offer this access. If the technical team at a company is used to having these types of details then there will be contention with the Cloud ERP vendor as they consider this to be their proprietary intellectual property.

A Cloud ERP system offers a company a viable replacement path for their current legacy ERP platform. Most ERP vendors are moving toward a Cloud-only offering. Significant benefits can be derived from a new Cloud ERP system but companies are advised to do the proper upfront analysis, planning and decision making before selecting a Cloud ERP. If these key considerations seem daunting, it may be appropriate to call in an experienced executive who can help your company do the proper analysis. Since a company will likely use the selected Cloud ERP system for many years, it is best that the detailed reviews necessary to insure a successful selection are completed.

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