Lately everyone I talk to asks me whether they should they migrate their on-premise system (Enterprise Resource Planning/ERP) to the Cloud, invest in their on-premise ERP, or do nothing. Before I answer this question, let’s explore what organizations are defining as the Cloud.
A very large organization recently issued an RFP for a Cloud solution. The objectives and scope for the project included a section on definitions of terms within its RFP. The organization defined “… ‘cloud hosted solution’ – a secure, virtual storage environment, where the (our) data is effectively separated from other entities’ data. Access should only be available via a controlled process, utilizing multi-level security.” [i]
This is the first time I’ve read a definition of the Cloud that was expressed like this. It made me wonder if other organizations that want a Cloud-based solution defined it differently than Cloud providers or I do. A short search on the Internet showed that the RFP definition above is common. Organizations that are issuing Cloud solutions RFPs are looking first to get the system off premise and then to shift some responsibilities and decrease costs. To me, this definition begged the question, “What is the difference between a SaaS (Software as a Service) ERP and an ERP that is hosted?”[ii] It seems that some organizations don’t differentiate between SaaS and hosted solutions.
A hosted ERP can mimic many of the benefits of a SaaS solution, starting with shifting the responsibility for the bulk of technical tasks outside of the organization, e.g., maintenance and refreshment of all the hardware and software, and a disaster recovery site. Through economies of scale, the hosting organization can provide a lower cost for all of these services. These objectives are met with either a SaaS-based system or hosted system. If these are the primary benefits the organization is seeking, then a hosted system fits.
When the organization is running a well-functioning ERP on premise and moves it to the Cloud, it is gaining these advantages of lowered costs and decreased responsibilities. Other benefits of moving the ERP to a hosted site include no disruption to the organization, little training, and little organizational change management. If your system fits your requirements well, you’re following efficient processes, and staff is engaged, then hosting can provide the benefits of shifting responsibilities and lowering costs—sort-of-like SaaS. Of course, there is more to this decision; I’m only pointing out that for some organizations, SaaS, Cloud, and hosting are effectively synonymous.
For organizations moving off their current system to an entirely new system, there are differences aside from cost and responsibilities when comparing a SaaS ERP and a hosted ERP. For example, a SaaS ERP will only involve one contract (the provider) and lower startup costs. Other differences include different functionality, user experience, and frequency of updates. These differences between the new SaaS ERPs and the older on premise ERPs, however, are diminishing.
So if an ERP in the Cloud or an ERP that is hosted have similar benefits, then what are the differences? For the purpose of this discussion, I’m considering “Cloud” to be a SaaS. In general, a Cloud ERP is only offered in the Cloud from the software provider vs. a non-SaaS ERP, which can be on premise or hosted. In my next post, I’ll give an overview of the practical differences between these solutions, and I’ll lay out the pros and cons of migrating to SaaS or upgrading your on-premise system, which should help to clarify whether the Cloud (SaaS) might be a good fit for your organization.
Remember to send me a note with your comments, questions (or disagreements). I look forward to hearing from you as we continue to evaluate the Cloud.
[i] This is a quote is from a publicly available document, but I chose not to cite the quote as it wasn’t critical to establish the bona fide link to the source document for this blog.
[ii] For this blog, a hosted ERP is any ERP that is run off site by a provider that is not the software company.