ERP software delivered as a service is still a very small percentage of the overall market. Why is that? Regardless of the reasons one thing is clear: most customers are thinking about ERP as a service, but delaying the purchase decision.

There are pros and cons for acquiring your ERP on-premise or as a service. In the end the decision needs to be based on specific needs. Given how frequently business needs change, the need for a flexible model that allows customers to shift between SaaS and on-premise models becomes extremely relevant –Software at Your Service.

Here we examine the benefits and challenges of both SaaS and on-premise delivery models for ERP applications and demystify the alleged tension between them.

Resolutions Applied to Business Software

The most popular personal resolutions from the sites above can also be applied to business software. In this article we describe the tools available to help you achieve your business resolutions.

1. Lose Weight, Trim Down

The #1 personal resolution is very applicable to business software. Many ERP deployments suffer from code patches, bulky client software, and customizations that lock businesses in to old technology. Just like personal weight issues, software bloat can cause issues that develop over time. Your business becomes less responsive. Changes to business processes become more difficult. Maintenance of your software becomes more expensive and provides fewer and fewer benefits.

Following through on your resolution

Deploy web-based software to eliminate client software installations and reduce the complexity of maintaining applications on Windows, Linux, handheld devices. Just like losing weight, purchasing a new ERP system is a process that requires a plan and execution. But, the longer you put it off, the more difficult it is to accomplish.

2. Save Money, Stick to a Budget

Another common personal goal is to save money and adhere to a budget. Sticking with a budget is perhaps even more difficult in a business environment because there are many more uncertainties and unknowns. This is especially true if you are using antiquated software that cannot adapt to new business opportunities, split out costs by department/product, or integrate with other systems.

Following through on your resolution

Cloud and web-based accounting software delivers key advantages that will help your financial processes. First, the Cloud delivers real-time data and reports to your home office, remote offices, and business partners. Second, the Cloud is easy to deploy to all people in your organization. By involving everyone, you ensure that processes are not left out and get a clear picture of revenue and expenses throughout your organization. Finally, if you are still using QuickBooks and you suffer from multi-currency issues, lack of a complete audit trail, lack of integration with other systems, or lack of a centralized view of your business, then consider upgrading a more advanced solution in 2012.

3. Get a Better Job

Many individuals pledge to get a better job in the new year. For businesses, outdated software can be a major source of job dissatisfaction. Old software increases complexity and creates manual work for employees. The net result is longer hours, mistakes, blame, and less productivity.

Following through on your resolution

Upgrading to a modern Cloud ERP package can improve your job and your work environment without the hassle of finding a new place to work. Imagine performing your most tedious daily task with a point and click/press from anywhere you happen to be. Tracking sales leads, managing inventory, merging online/offline sales orders, creating accurate financial reports, and getting purchase orders approved are all examples of processes that can go from misery to automation with the right ERP software.

4. Enjoy More Time with Family and Friends

Spending more quality time with family and friends is one personal resolution that is a bit tricky to translate to business. Not many people will pledge to spend more quality time with business associates. However, improving your business life can help you achieve your personal goals.

Following through on your resolution

Installing a cloud solution that provides access from anywhere will help you be productive, even when you are not in the office. Approve an expense report, confirm arrival of a shipment, note a conversation with a sales prospect, and perform other business tasks. Of course, working on your mobile devices while you are ‘spending quality time with family’ should be done at your own risk.

5. Get Organized

In your personal life getting organized involves arranging personal items, cleaning up trash, and getting on top of your to-do list. In business, many of these same tasks apply. Automate your to-do list. Clean up dead inventory, old data, and unimportant tasks. In your personal life, the main obstacle is time and motivation. In business, an old ERP system is often the biggest obstacle to achieving organization. Old ERP software prevents rapid exchange of data, simplified auditing, and process automation.

Following through on your resolution

Take a couple days to define all of your business processes. Then determine essential processes, important processes, and nice-to-have processes. Next, contact your business partner or software vendor and schedule a meeting to discuss process improvement. Determine which essential tasks are being impacted by corrupted data and determine essential and important processes that would benefit from automation. Your business partner or software vendor should be able to give immediate feedback on the viability and ballpark costs associated with automating business operations.

Summary

The New Year should be a time to set business resolutions in addition to personal goals. Making a pledge to get the software you need to run your business better will improve your business. This is especially true if you are running a system that is 5+ years old. Then, once you get your business running better, you will have more time and more money to work on those personal resolutions you’ve been making.

Cloud ERP Adopters – Testimonials and Complaints

I’ve spoken with several folks who have deployed ERP systems. In a few short sound bytes, these users reveal their opinions, both good and bad. The customer names and vendor names have been omitted to protect the sources and avoid a slew of defensive rebuttals. I should be noted that these comments represent a random sampling, not merely quotes from the list of happy customers that you see on vendor websites.

We thought that connecting to a US based cloud service would be terribly slow, but it worked quite well. The software eliminates the amount of data that is transferred, making the response time faster than we have experienced with websites that contain too many graphics and flash movies.
– Distributor in Africa

The ERP software works well, but the Cloud service has slowed operations on a few occassions. I like the fact I’m not worried about IT resources, but I’m considering running the software on an internal cloud so I can eliminate occassional performance issues.
– Manufacturer in Southern US

Cloud ERP gives us the capability to summarize data from multiple locations to get summary reports at headquarters and still maintain the detail to see how individual franchisees are doing.
–Franchiser in Southeast Asia

The cloud eliminated client software so we can easily involve business partners and remote employees without the hassle of installing and maintaining software remotely. This allows us to centrally manage sales across multiple suppliers and distributors while keeping costs low.
– Online retailer in Eastern US

We have been able to customize [vendor name removed] to meet most of our needs, faster and at a lower price than we would have with any other system.
– Software Company in Eastern Europe
 

We needed to customize our [same vendor as above] software, but the cost quoted by [vendor] was more than 3 times the annual cost. This locked us into a solution that was not able to suit our needs.
– Software Company in Northern USA

The cloud allows me to try the software solution before I buy. Three years ago, I purchased a legacy system from [vendor name removed] and made the mistake of buying into a feature set that was promised in a future release that has yet to occur. The cloud lets me see existing functionality and learn quickly what I am capable of importing and customizing.
– Ecommerce company in US Central

We’re very happy with the software and quality of service delivered by [vendor name]. By removing the complexity of software we can focus on running our business. However, recently [vendor] announced a price increase that more than doubles our current price. The cost of switching to another solution is high, so we had little choice but to absorb the price increase. The price increase eliminated the savings we got by switching to the Cloud.
– Ecommerce company in US Central

Common praises and concerns

The quotes above mirror many testimonials and criticisms of Cloud ERP. On the benefit side there is access from anywhere, scalability, reduced implementation time. On the negative side there can be price/vendor lock-in, some performance issues, and software ownership issues.

As with legacy ERP software, customer expectations and preparation play a large part in overall satisfaction. For example, two customers using the same vendor had very different results with regard to cloud customizations. One customer reported a positive experience while another complained of proprietary tools, lack of on-premise integration, and highly specialized programming requirements. This shows that each customer implementation is different. This makes it difficult to make blanket statements that pertain to all Cloud ERP customers.

One statement that is true across client-server and cloud ERP: customers with a well defined and well prioritized list of requirements tend to have higher satisfaction from their deployment than those who figure things out as they go. This best practice is the same in the cloud world as it is in the on-premise world.

Summary

Different people had different experiences regarding their cloud ERP deployments. Most were very positive and mentioned common benefits such as lower maintenance costs, less IT hassles, and access from anywhere. In a couple cases customers complained about vendor lock-in when faced with slow performance or increasing prices. Overall, the cloud ERP experience in 2011 was very positive and folks were planning on increasing their cloud spending in 2012.

¹ The ROI Of Cloud Apps, Forrester, June 2011.

CFO Involvement

Thirty years ago, managers didn’t need to know how to operate a keyboard. There were secretaries to type letters and agreements that formalized phone conversations. Times have changed. In addition to understanding business, today’s managers need to develop a working knowledge of the software tools that are designed to make their job easier. The CFO is not exempt.

Over a quarter (27%) of CFOs say they’ve become more involved in their company’s operations over the past three years, and 15% say specifically that they’ve become more involved in IT according to a recent report by Robert Half Management Resources survey of 1,400 CFOs. There has been plenty of information and hype about cloud computing with a strong shot of technical jargon thrown in.

Cloud Software, IT, and the CFO

Some IT professionals are threatened by the perceived notion that the cloud will make their jobs obsolete. The reality is that IT jobs will change, but will not be eliminated. IT personnel will become more involved in the business and less involved in the day-to-day management of servers and software updates.

Some CFOs are worried that the Cloud limit the control they have over data. As the steward of the organization’s financial well-being, the CFO has the responsibility to understand the current transformation in IT and provide guidance. With a predicted increase in IT spending of 7.1 percent over 2010 (worldwide IT spending is forecast to total $3.67 trillion in 2011) according to Gartner’s 2011 Q2 update, there is a lot at stake.

Just as IT needs to understand more about the business, CFOs and COOs need to understand more about software options available to them. Getting smart about the cloud is becoming easier with a proliferation of objective articles and white papers. Some ERP Cloud News articles discuss ERP cost comparisons, security issues, and 2011 predictions.

More Information for CFOs

Recently the ERP Software Blog published a white paper targeting CFOs who want to get smart about the cloud.
This paper gives CFOs the foundation ask educated questions and lead discussions about moving ERP software to the cloud.
You can read the white paper on the ERP Software Blog at www.erpsoftwareblog.com/cloud-erp.

“It’s time for companies to move on. To eliminate these massive shackling on-premise systems that have been inhibiting growth and creativity for so long. Stop pushing aside innovative projects because they simply can’t be done under SAP. It’s time to get creative again, fuel growth and create the jobs that our country and others desperately need. SAP’s efficiency allowed companies to cut jobs and costs. The cloud will maintain that efficiency but re-integrate the level of creativity that these great companies once thrived on.”

The Cloud delivers many benefits to ERP software designers. Access from anywhere, scalability, reduced IT costs, pay-as-you-go, and elimination of client software are among many benefits. Building Cloud ERP systems as web-based applications, delivers even more benefits as discussed in a previous ERP Cloud News posting. However, the claims made in the aforementioned article are exaggerated and require some clarification.

A Rebuttal, a Clarification, and Support for Cloud ERP

Rebuttal: SAP in the Cloud

Although not mentioned in the article, SAP has demonstrated that it is taking the cloud seriously through the launch of Business ByDesign as well as their work on a cloud-based platform. SAP might be too expensive. SAP might be too big for mid-sized businesses. SAP might be process driven. But I wouldn’t call SAP inflexible. If your business has a healthy budget (read millions) and large volumes of transactions to automate, then you can make SAP do just about anything. See sidebar “ERP and innovation.”

Clarification: Some Clouds are More Rigid than On-Premise

The his article, Mr. Yarnold states “the dominant rigidity of on-premise ERP systems appears to be evaporating with the advent of more flexible cloud-based applications.”

Clarification: Multi-tenant cloud-based systems can be more rigid than on-premise deployments. With multi-tenancy, you gain some efficiency, but you lose control of the source code because it is shared by many users. I’ve worked with many multi-tenant applications (ERP, CRM, marketing automation) that allow you to define variables, parameters, and custom work flows – so I would not call them inflexible. If you can accomplish what’s needed with configuration (not customization), then the cloud will save you time and money. The key is knowing what you can accomplish with configuration. If your process requires core logic changes, then you will get faster results with an on-premise vendor.

Flexible Cloud ERP

The best of both worlds is an on-premise cloud implementation. On-premise clouds are more flexible and much less expensive than a client-server deployment. Modern development tools with web-based APIs eliminate client software and deliver robust applications to a web-browser. Since these applications are managed centrally, they can be designed and deployed faster and cheaper than client-server software.

Unlike multi-tenant cloud applications, on-premise clouds provide access to source code. Before starting your customization, make sure that the vendor protects your customizations during software upgrades. Otherwise, you will have to reinstall or redevelop your customized code during each upgrade cycle. A single tenant application will also allow you to upgrade your application at a time that is convenient for you. The multi-tenant upgrade will occur automatically, but at a time specified by the vendor.

Conclusion: Cloud ERP helps drive Efficiency and Innovation

David Yarnold’s article endorses modern cloud ERP software. But the article goes too far by saying all cloud systems are more flexible than on-premise systems and misses the fact that SAP is pursuing cloud strategies. I would not blame job loss, lack of creativity, and the demise of some US manufacturing sectors on ERP software.

ERP software is designed to make business processes (sales, orders, manufacturing, accounting, invoicing, etc.) more efficient. The cloud accomplishes this by offering rapid scalability, pay-as-you-go pricing, and eliminating the burden of client-software.

When choosing a cloud solution, the ability to customize and connect with other systems is critical. Core accounting processes are rules-based and need to be flexible and open, but not innovative. ‘Creative accounting’ usually leads to big problems and falling stock prices. However, inaccessible and unconnected accounting systems are just as dangerous. Innovative manufacturing processes, line-of-business applications, support processes, and other business advantages need to be easy to plug-in to the core accounting, ordering, inventory, and management processes offered by the ERP system.

ERP systems should make businesses more efficient and provide them with the tools to innovate. Cloud and web-based systems offering SaaS and on-premise deployments provide the flexibility and efficiency required to reduce the cost of innovation. This allows new ideas to be implemented faster and sooner than legacy software solutions – making Cloud ERP systems both efficient and innovative.

Despite the progress, many businesses still have security concerns when it comes to the Cloud. This article addresses security issues that are specific to enterprise resource planning in the cloud.

Cloud ERP Security Topics

Just like a traditional on-premise ERP solution, Cloud ERP must provide physical security, transmission security, storage security, access security, data security, and application security. We will use these broad classifications for discussing the similarities and differences between Cloud ERP and traditional ERP software security.

Physical Security

Even a cloud application and data must be located somewhere. The physical surroundings of the software and data is an important component of a business continuity plan as well as a software security plan. A physical security breach means that somebody with malicious intent has physical access to the hardware where either your application is running or where your data is stored.

If other forms of security are in place, a physical security breach will not result in loss of data. However if the intruder’s intent is to disrupt your service, then a lapse in physical security will be a problem. Part of your business continuity plan should include a solid physical security plan.

Cloud Differences: when applications and data run in an external cloud, the physical environment is located off-premise. In most cases physical security in a tier 1 datacenter is many times better than that in an office building or an internally run server room. All building access is logged, cameras are in place, and cleaning people are not generally milling about after hours. State of the art authentication technology (fingerprint, ID badge, retina scans) are often implemented.

SaaS applications are run by administrators who are employed by the software vendor or cloud provider and not the company who purchased the ERP software. The quality and reliability of administrators depends more on the resources and focus than the employer.

Transmission Security

When data is communicated between the user, the server, and the database, there is a chance that transmissions can be intercepted. An easy way to prevent this involves encrypting all communications between source and destination. However, encryption comes at a cost to performance. If you spend too many processing cycles encrypting and decrypting data, you will have to purchase more expensive hardware or endure delays.

There are several types of security algorithms that are used to protect communications. The underlying idea is that sensitive or private data is scrambled using an encryption key and a data encryption algorithm. The data cannot be read or deciphered without the decryption key. The decryption key can be the same (symmetric) or different (asymmetric) from the encryption key. Once scrambled, the data is sent to its destination. If intercepted, the data can only be reconstructed by using an algorithm that tries to guess the description key – a process that takes many years using powerful computers. When the scrambled data arrives at its destination, the receiving party knows the proper decryption key by querying a key master or certificate authority. Several common algorithms include RSA, Secure Socket Layer (SSL), Data Encryption Standard (DES), Triple DES. An explanation of these algorithms is beyond the scope of this post but is well documented elsewhere. An example of SSL encryption processes most commonly used by Cloud ERP vendors is provided in Wikipedia.

Cloud Differences: applications running in an external cloud require passing data between the cloud and the user location. Frequently this occurs over the Internet and over wireless networks. Furthermore, client machines are mobile (access from anywhere being a big advantage of the cloud) so processing power and bandwidth may be at a premium. Web-based systems utilize a browser on the client device and take advantage of SSL encryption to protect all communications with the server. The SSL algorithm is supported by all major browsers and encapsulates application-specific protocols like HTTP to form HTTPS so no one can hijack a session or read the data. SSL requires negligible computing overhead and is acceptable security for banking, health care, and other sensitive industries.

Some folks ask about SOAP and how that differs from HTTPS. HTTPS helps you communicate between browsers and servers, but SOAP provides secure communications between applications. SOAP encapsulates additional data in the form of XML so cloud applications can communicate more efficiently than if they were required to send a series HTTP requests.

Storage Security

When ERP data is accessed by users, business logic limits unauthorized access to users with the proper credentials (see section on application security). But suppose a network administrator has access directly to data in the database. In this case, the data could be viewed without going through the business logic.

To protect against this vulnerability, sensitive data should be encrypted when it rests in the database or in a file system. This prevents direct access and ensures that all data is only accessed via the application logic. The application knows how to decrypt the data, so a legitimate user will not be impacted.

As with transmission security, the encryption and decryption processes create processing overhead, so non-sensitive data should be stored in the clear to minimize costs. Additionally, make sure that any required data indexing is not broken in the encryption process.

Cloud Differences: In cloud systems, data is stored in a remote location on servers maintained by a cloud provider. The cloud provider should have procedures in place to ensure that there is no direct snooping into client data. But somebody has to be responsible for database administration, and usually this person is not employed by the client. The ability to pick and choose fields to encrypt on the database is important to provide protection without adversely impacting performance.

Access Security

Access (or perimeter) security is important for preventing unwanted users from grabbing resources and sending unauthorized queries to your servers. Usually this is accomplished through the use of firewalls that prevent unwanted traffic from communicating with your business applications. Lack of access security could impact your application availability (in the case of a denial of service attack) and provide hackers with a way in to make it easier to steal resources or passwords.

There are many types of firewalls … network level firewalls (fast inspection of IP, port, and service in the packet headers), circuit level firewalls (monitor sessions between computers), application level firewalls (inspect data content to protect against viruses and intruders), network address translation devices (NAT – assigns private IP addresses that cannot be reached from outside the network), and proxy servers (application level firewall that mediates transactions between computers).

Network and circuit level firewalls can be implemented in an appliance or as software. Application level firewalls are most frequently implemented as software to allow for specific configuration requirements.

Additional details of perimeter security devices are well documented elsewhere.

Cloud Differences: Cloud systems should be protected by perimeter security – just as you would protect any on-premise application. Verify that your cloud provider has firewall protection in place to prevent intruders and denial of service attacks. Multi-tenant cloud applications is slightly different because by definition, multiple users are accessing the same application code and the same resources. In this case, processes must be in place to ensure that bad things do not happen to customer A if customer B’s application is compromised.

Data Security

Data security limits access to data objects to specific individuals. Different levels of data security include read-only, edit, insert, and delete. Data security can be set at the application or object level.

Data security for ERP systems may be enforced through business logic or at the database layer. In most cases the business logic authenticates users and provides them with specific rights to data objects. This means that authenticated users gain access to objects based on specific capabilities assigned by the system. For example, a sales person may have read-only access to product information so he cannot change the pricing/margins/commissions associated with the product. A sales person may have access to customer records that he manages, but not have access to customers managed by others. To simplify management, systems offer role-based security so administrators can assign broad security policies to specific individuals. Accounting, marketing, sales, shipping, and management roles can be established and assigned to individual employees. Employees that perform more than one role can receive multiple policies. By assigning roles, administrators can change security for many people at once without the responsibility of changing individual records.

Most data security is limited to data access. Once a user gains access to specific information, screens, or reports, the information can be downloaded and shared with others. Digital rights management goes one step farther by “wrapping” data objects with rights that follow the object no matter where it goes. In this case, users can forward the encrypted data, but that data cannot be viewed or changed unless the recipient can be verified.

Cloud Differences: Data security in cloud applications is similar to traditional applications. Once individuals gain access to the system, the business logic controls the specific capabilities that individual users can perform on different objects. In some types of multi-tenant SaaS applications, database level security may be utilized as an additional measure to separate data objects from different companies.

Application Security

Application security encompasses two major areas – the way the application authenticates and manages users and the way in which application code is managed.

User Authentication

User authentication usually involves username and password to identify legitimate users. User identity is critical not only for establishing data rights, but also for creating an audit trail of activities for compliance purposes. Modern systems require strong passwords, enforce lock-out from excessive failures, and give administrators the option to require users to change their password on specific time intervals. In addition to these common security measures, administrators may restrict access to the system by IP address to combat hackers that try to guess usernames and passwords from remote locations.

Borrowed or stolen passwords can circumvent the most sophisticated technologies, so administrators may require two-factor authentication through the use of security tokens. Augmenting passwords with key fobs that generate time limited passwords provides physical access control from anywhere at a very reasonable cost. Secondary, one-time passwords can also be sent to a mobile phone via SMS. Products include SecurID from RSA and many others.

Authenticated users are granted access to specific data and processes. The ERP application must provide security measures to prevent authenticated users from doing unauthorized tasks. For example, somebody authorized to input data should not be able to delete data. If somebody is authorized to fill out a form, the data must be examined to prevent overflow and SQL injection issues.

Managing Code and Logic

All ERP software undergoes revisions and updates. The processes that manage these updates can be included as part of the overall security plan provided by the vendor. For example, when compiling the final code, processes are in place to insure that rogue code is not inserted into a production build.

Cloud Differences: A major benefit of the cloud is the ability to run your business from anywhere on any browser. In client-server environments that sit behind firewalls, clients are often “trusted” machines. To equal this level of security, cloud systems require all business logic to run on the server and consider all clients as untrusted. By enforcing all business logic at the server, cloud systems are actually more secure that client-server systems that rely on files and components installed on user machines.

When purchased as a service, application upgrades and updates are outsourced to IT professionals. Make sure that the external processes and controls in place are satisfactory for your security and business continuity needs. SSAE16 recently replaced SAS70 as a third party testament that the system of software and controls in place were acceptable on the date of certification. More about SSAE16 here. Finally, make sure you understand when upgrades occur and if those changes will be acceptable to you.

Summary and Conclusion

Cloud ERP and traditional ERP share many of the same security issues. In the case of traditional ERP, security issues are managed by internal IT resources. In the case of Cloud ERP, similar issues are managed by external resources. A third party audit can be done to certify that external processes are documented and followed – but in most cases, the vendors pay more attention to these details than internal resources would.

In a cloud deployment with shared hardware, a shared operating system, and customer-specific application code, the security issues are almost identical to traditional ERP. Distances covered by transmission security are longer, but that has little impact on overall security. When the cloud is running a multi-tenant application, the data security and application issues are slightly different, but not necessarily less secure. In a multi-tenant deployment, the application must be designed to prevent client 1 seeing client 2′s data. As far as I know, all Cloud applications are designed in this way. The multi-tenant application must also allocate resources so client 1 cannot steal resources from client 2 during a period of heavy usage.

When using a web-based cloud application, client software is replaced by a browser. From a security perspective this usually has little impact because in a well written cloud application, all application security is performed on the server. The client software is inherently not trusted.

Conclusion: cloud ERP and cloud ERP data are as secure as traditional on-premise ERP systems. Some of the security issues are different and perhaps less familiar, but once understood, many experts conclude that cloud systems are more secure than poorly run internal applications.

Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to
a shared pool of configurable computing resources (e.g., networks, servers, storage,
applications, and services) that can be rapidly provisioned and released with minimal
management effort or service provider interaction. This cloud model promotes availability and
is composed of five essential characteristics, three service models, and four deployment
models.

This post will relate the essential characteristics, service models, and deployment models specified by NIST for general cloud computing to the more specific topic of Cloud ERP.

Relating the NIST Definition to Cloud ERP

The Five Essential Characteristics

1. The first essential characteristic is the notion that a consumer can unilaterally provision computing capabilities, such as server time and network storage, as needed without requiring human interaction with each service’s provider. Of all criteria in the NIST definition, this component is the most problematic since most ERP companies require a licensing and up-front payment to gain access to additional resources. In the case of ERP the value of the software is the major component of the service, so vendors have opted for a business model resembling software more than services. The ability to meet this definition exists from a technical standpoint, but vendor business models do not meet the strict requirements the definition.

2. The second essential characteristic explains that broad network access is required through heterogeneous thin or thick client platforms. This definition eliminates the possibility of hosting legacy client-server solutions and calling them “cloud” as we discussed in a post on cloud ERP versus hosted ERP software – a much needed industry clarification.

3. The third essential characteristic explains that resource pooling is required and cites examples of storage, bandwidth processing, memory, network bandwidth, and virtual machines. This definition emphasizes a multi-tenant architecture, but protects the idea that Cloud ERP may require customized application code for different customers. Thus, we can conclude that ERP still can be considered “cloud” if composed of multi-tenant hardware and operating systems running unique application code.

4. The fourth essential characteristic addresses rapid elasticity (or scaling) of resources. By definition, this can happen on demand and may happen automatically. As with the first characteristic (on-demand self service), this can be problematic with Cloud ERP – not because of vendor capabilities, but because of financial models.

5. The fifth essential characteristic explains that service resources can be measured. Resources can include storage, processing, bandwidth, and active user accounts. All Cloud ERP vendors support this capability.

Service Models

The NIST definition cites three service models (SaaS – software as a service, PaaS – platform as a service, IaaS – infrastructure as a service) offered by cloud service providers. See ERP Cloud News article for info on PaaS / IaaS.

Most Cloud ERP providers offer SaaS since the application software is the most critical component of a Cloud ERP offering. SaaS allows the vendor to control software upgrades and offer customers an all-inclusive service. Some of the more flexible Cloud ERP vendors allow customers to purchase a software license and deploy PaaS where they “have control over the deployed applications” or IaaS where they “have control over operating systems, storage, deployed applications.” All of these options are consistent with the NIST definition.

Deployment Models

The NIST definition cites four deployment models.
1. Private Cloud. Some flexible Cloud ERP vendors offer customers the ability to run the application code on their own infrastructure. The infrastructure can be run on premise of off premise.

2. Community Cloud. Rarely used in Cloud ERP, this model involves several organizations sharing and supporting a single cloud infrastructure.

3. Public Cloud. The most frequently used Cloud ERP model. The definition supports a community or a single organization owning the cloud infrastructure and offering or selling cloud services to the general public. In the case of Cloud ERP, it’s usually a single organization/vendor that sells services.

4. Hybrid Cloud. This involves utilizing two or more types of clouds that remain unique entities but are bound together by standardized or proprietary technology. Although rare in Cloud ERP, some customers back up their Public Cloud data to a Private Cloud.

Summary

The good news is that Cloud ERP fits the guidelines established by NIST for the definition of a Cloud Service. Further, the definition and explanations eliminate some services that vendors have inappropriately called “cloud” by stretching the definition of cloud for marketing purposes. The service and deployment models also align with the way Cloud ERP vendors offer service.

With Cloud ERP, the application software is a critical component of the service – and frequently the most expensive component of service. This causes the Cloud ERP business model to be at odds with the NIST definition in the areas of on-demand self services and rapid elasticity. Technologically, the Cloud ERP services fit the definition, but the business model that requires paying up-front for software doesn’t align with the pay-as-you-go requirement suggested by the definition.

- Perception 1: Cloud software costs less than traditional software
- Perception 2: Cloud software is only for small businesses
- Perception 3: The Cloud and hosted ERP are the same

Perception 1: Cloud software is less expensive

In the technology world, people are conditioned to think in terms of Moore’s Law. If I paid $X for ‘it’ 2 years ago, I should be able to pay $X for ‘it’ this year and get twice as much. Moore’s Law applies to things like memory sticks, computing power, and silicon chips … and it also applies to software perceptions.

With ERP software, the Cloud represents the latest, greatest, and most influential change in years. Since people associate the Cloud with technology, customers expect to get double the features and software the same price that they paid 2 years ago.

While the cloud can reduce upfront costs (see article on customer pricing models), it may not offer the degree of savings associated with Moore’s Law.

Cloud cost savings are primarily derived from:

• Reduction in IT staff – this is a valid source of savings, be careful not to overlook the overhead associated with Internet access, user management, user training, and data management.
• Reduced server costs – server virtualization allows datacenters with multiple servers to share workloads and increase overall server utilization. Remote access can be managed without additional servers and costly software.
• Economies of scale – outsourced datacenter management (backup, replication, operations, etc.) can lower computing costs, just like buying power from a power company can lower energy costs.

Despite the fact that these savings are real, there are many other ERP costs in areas such as requirements gathering, software configuration, training, data migration, and customization. Unfortunately, the Cloud doesn’t significantly reduce costs in these areas. Since these areas can represent a significant part of ERP expenses, the cloud may not live up to expectations when it comes to savings.

Conclusion 1: Somewhat true, but not for everybody in all situations

Perception 2: Cloud ERP software is only for small businesses

Cloud software solutions are appropriate for all customers – from small shops to Fortune 500. Here are a few reasons why the Cloud is good for enterprise businesses:

• Scalable. Cloud software and cloud datacenters are scalable so the solution can grow rapidly to serve large customers with significant processing requirements. The cloud can also shrink in periods of lower demand.
• Multi-National. The Cloud is everywhere so it can span continents for a multi-national business. Cloud software can serve remote offices without requiring additional servers and IT staff to manage the applications.
• Advanced Security. Cloud software has strong user and group security settings so specific data and capabilities can be limited to specific individuals.
• Choice of Device. Web-based software works with browsers, so users can access the system with their choice of device regardless of operating system, hardware platform, or form factor. This is useful in companies with multiple subsidiaries that cannot mandate a standard platform across all users.

Even though Cloud software is appropriate for large businesses, Cloud adoption started with small and mid-sized companies. This is because SMBs are more nimble. In a small business there are fewer committees and organizations that need to be convinced of the value and included in implementation, so decisions get made faster, deployment starts sooner, and training finishes faster.

A small business environment has more flexible processes than most enterprises. Years ago, when cloud software had fewer features than the ERP client-server incumbents, businesses with rigid processes were not willing to make the switch. These customers postponed their buying decision until all features were ready and tested. Most medium sized businesses have the same needs as larger businesses, but the benefits of automating may not justify the cost of waiting for the feature while utilizing outdated technology. A manual process performed once per week is acceptable. A manual process preformed once every 5 minutes would benefit from automation.

Conclusion 2: The cloud can serve all size businesses, but market adoption initially favored SMBs

Perception 3: The Cloud is nothing more than hosted ERP

We have argued that a hosted deployment is different from a Cloud deployment. With the help of NetSuite and several IT analysts, the concept of the Fake Cloud is being exposed as a poor substitute for a web-based system that requires no client software. More on this perception.

A cloud based application is different from client-server on many levels. The obvious difference is that customers do not install or maintain client software. Several less obvious differences involve statelessness, network traffic, and security.

The stateless nature of cloud applications ensures that they continue to work if there is a temporary break in internet connectivity. Client-server applications were designed to utilize a steady network connection. Think of cloud communications as exchanging postcards (that are instantly delivered without stamps), while client-server communications are more like cell phone calls (when your connection drops you have to “rewind” your conversation).

Cloud applications are built to minimize network communications. Going back to our postcard analogy … the goal of a cloud application is to get each instruction on a postcard. Most client-server applications are designed with the idea that there is a fast ethernet connection between the client and the server. Therefore the design didn’t worry about the amount of data being passed back and forth. When client-server applications are hosted – this is why the client’s remote desktop applications are usually co-located with the server.

Cloud application design involves different security considerations than client-server applications. Communications between the browser and the server are always untrusted. The underlying assumption is that the browser could be compromised or the connection between the browser and the server could be tapped. This means that all business data is verified by the server before being moved to the database. It also means that the transmission path is encrypted by design. Finally, each instant-postcard sent to the client will only contain data that is allowed by the security model. Each request received at the server will only be processed if allowed by the security model.

Conclusion 3: False – as explained above, the two architectures are very different

Summary and Outlook

The cloud will continue to grow and perceptions will continue to change. Fortunately, the three perceptions above are changing in a positive way … towards the truth. As adoption continues and education expands, false perceptions are gradually weeded out. In some cases vendor marketing can slow the process (as with perception 3 above), but the truth about cloud software progresses with time.

The ERP (Enterprise Resource Planning) system had a bad start in the 1990s but it may now be time to get rid of those preconceived ideas about it as a disaster, as it can now assist businesses as it is hosted in the cloud, or remotely. This means that the server does not have to have extra capacity and will not be overloaded, as multiple users can make use of the same application from any mobile device anywhere in the world. Today, you are in a position to get latest technology news of newest Cloud ERP software.

Cloud ERP software versus traditional ERP

Cloud ERP software is different from the ERP systems first launched years ago and is a cost-effective way of allowing multiple users to gaining access to the same resource without having to upgrade a server or spend a fortune on new equipment. You can work on a project with colleagues across the globe and share the information from all of them so that it is easily accessed wherever they are. You can access reports and take action on the data while on the move via a mobile device or in an office. There are advanced security features, so the threat of information getting into the wrong hands is minimized. And who knows what tomorrow will bring as there are new applications for Cloud ERP software appearing all the time. Now that the cloud can be tapped into, more applications are being designed with it in mind, so although it is largely a tool for businesses at the moment, you will undoubtedly soon see it in the field of entertainment as movies could be hosted in the cloud, so that they can be accessed by many people simultaneously.

Conclusion

It seems likely that we will all be using Cloud ERP software in the very near future as inventors are waking up to its potential.

About the Author:
M Zahid Rafiq is a technology expert who maintains Zahipedia.info where you can get the latest technology news.

The fact of the matter is that SaaS ERP systems are still not as flexible as on-premise solutions. While this may change, it is generally more difficult to change SaaS offerings to fit your business.

Every ERP software provider claims “flexibility and customization” as a selling point – but what does it really mean to be customizable?

Every ERP can be Customized

I have never seen an ERP vendor advertise that they have a non-customizable system. The word ‘never’ is a strong one, but I think in this case it is justified.

There are two main drivers behind this.
(1) With enough time and money software can be changed/re-written to meet almost any client need.
(2) Sales people explain that their software can do anything. The ‘anything’ can involve a minor configuration or a major customization.

Some software is more customizable than others

Given that the above is true (any system can be customized with enough time and money), here are some key factors that can help buyers determine the feasibility of customizations.

(1) Configuration versus Coding

Software configuration is accomplished using the product interface and menus without writing new code. If your business requirements can be configured as part of the installation process, then costs and ongoing support for the system will be lower than a customized system.

Unfortunately, the definition of configuration is not always black and white. Some ERP software includes utilities that enable users to add database fields and modify business logic. If vendors call these types of changes “configurations,” then it’s clear that not all configurations are the same. A “configuration” involving adding fields to and modifying a business workflow is going to behave like a customization in terms of cost and implementation time.

Most ERP software solutions offer an application programming interface (API) to enable customizations outside the core code base. A well-documented API still requires coding so your definition of ‘flexible’ and ‘inexpensive’ may be stretched, but the good news is that product upgrades can be accomplished without breaking customizations (assuming APIs are backwardly compatible from release to release).

(2) SaaS versus Licensed Software

As Eric Kimberling from Panorama Consulting pointed out “SaaS ERP systems are still not as flexible as on-premise solutions.” This is primarily because many SaaS systems are shared across companies (see article on multi-tenant ERP software) on a single environment in order to drive down costs. The fact that many users share a single architecture means that some things can be customized, but these customizations are limited.

SaaS systems are hosted in an off-site datacenter. Therefore, communication with legacy on-premise systems requires a network connection. If the integration is a daily update of sales orders or invoices, then connectivity will not be an issues. However, if integration requires real-time communication of large inventory quantities and serial numbers, then bandwidth and timing should be considered.

(3) Access to Source Code

An ERP solution that provides access to source code will be more customizable than one that does not. The source code that is available should utilize industry standard tools to ensure competitive pricing for customizations. Higher level programming languages lower costs by providing pre-written code for common tasks (imagine how difficult it would be to write instructions in 0′s and 1′s), but proprietary tools and abstractions reduce the amount of flexibility available to third party programmers.

Other ERP Customization Considerations

Cloud software can be just as customizable as client-server or on-premise software. But before doing ERP customizations, weigh the costs (both one time and recurring) against any strategic advantage you may gain. Doing massive customizations because “that’s the way we have always done it” should raise a red-flag unless the “way you have always done it” helps you win in the marketplace. If you can modify your non-strategically important tasks to fit industry standards, then you will save money on implementation and have fewer long-term hassles as new releases become available.

Before customizing, make sure that your customizations are not locking you into the current version of the software. Ensure that your customizations are built so they do not break when the software vendor releases new versions of the software. With some changes there is always a risk, but most vendors will ensure backwards compatibility with updates done using their development tools.

I’ve heard many customers complain about an existing software vendor yet continue using their software due to the cost of switching. Customers are locked-in because they spend hundreds of thousands of dollars on custom code to fit specific company requirements. In some cases these requirements are mission critical, in other cases they are simply non-standard practices that add to the cost of software. Before implementing ERP software, buyers need to determine which customizations are required and which can be replaced by standard processes.

Feedback?
Are you in the middle of an ERP software customization? Have you successfully completed one? If so, please leave a reply below or contact us to tell us about your experience (positive or negative).