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The Enterprise Resource Planning (ERP) industry is buzzing about whether companies should have their ERP application on premises, as is traditional, or use Software as a Service (SaaS). SaaS is cloud computing or outsourced computing where a third-party vendor hosts your application(s) off site and offers access via the Internet. Both options have advantages and disadvantages. According to Forrester Research, the SaaS ERP market is projected to grow by 22 percent from 2011 to 2015, while the on-premises ERP license market is projected to shrink by 2.5 percent.

Cloud Advantages

  • Shift burden of maintaining the software application on premises
    • On-premises server not required
    • Rapid deployment
    • Limited in-house IT staff
  • Pay as you go
    • Paying a monthly fee, essentially renting versus owning
    • Control expenditures and lower cost of ownership
    • Less overhead
    • Controlled maintenance costs
    • Less on-premises hardware
  • Scalable and flexible
    • SaaS offers the ability to add users, functions and features as you grow, along with upgrades on demand
  • Global access
    • Worldwide access from any device with Internet access

Cloud Disadvantages

  • Data location and commingling of data
    • Lack of control of the server
  • Privacy issues
    • Unauthorized usage of client data is potentially important issue
    • Encryption techniques required
  • Unclear disaster recovery protocol
  • Security concerns, including exposure of confidential information
    • Companies may be uncomfortable with storing sensitive information off site
  • Compliance requirements/issues
    • For compliance and data governance requirements, physical data storage location is important.
  • An immature SaaS ERP market
    • Many current SaaS ERP applications are unproven, relatively immature and do not offer flexibility, customizations or features of on-premises ERP applications
  • Performance, reliability, availability and quality issues
    • No industry standard contract governing performance and quality issues
  • Hidden costs
    • Cloud hosting appears to be cost-effective, but costs could be higher over a three- to five-year period

Cloud Models

  • Private Cloud
    • This can be managed on premises, but most likely this involves a third-party cloud hosting provider. Firewall and security is inherent, so when security and compliance matter to you and your application is mission-critical, i.e., ERP application, a private cloud may be the best option. Restrictions may apply to where or how the private cloud is accessed, i.e., a VPN connection is required. Pricing is based on usage.
  • Public Cloud
    • This is managed by a third-party cloud computing company. The architecture allows you to access your application software anywhere, anytime. There can be security risks due to lower security than a private cloud. This type of cloud costs less than private and is still reliable. Public cloud pricing is based on a monthly fee. Public cloud options are best suited for testing environments, development, file sharing, email and social media.

When you are deciding which type of ERP application is best for your company, it really boils down to what your company’s requirements are for today and tomorrow. In many cases, SaaS ERP does not currently present the functionality and flexibility that ERP buyers require from a mission-critical application. SaaS ERP may be a better option when ERP buyers don’t have extensive requirements and require limited customizations, as well as when pricing is a sticking point.

For more information on ERP issues, contact your BKD advisor.

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