Your next big decision when considering a new ERP system? How it will be deployed. There are several approaches to choose from, including traditional on-premises, cloud deployment, or a hybrid combination of both. You will want to consider financial differences and examine each ERP deployment strategy’s strengths and advantages, as well as any unique limitations or challenges.

Before you begin considering ERP deployment options, see how—and why—the cloud has become an essential environment for business success in the digital economy.

Why all the interest in cloud deployment?

We all watch with keen interest as computer technology continues to evolve at an ever-increasing pace. The earliest business systems and the first ERP systems were hosted on large mainframe and mid-range computers with “dumb” terminals for user input—after they had replaced punch cards and key-to-disk input, that is! The next “state-of-the-art” technology was client/server architecture, in which the dumb terminals were replaced by PCs (now called clients) that could handle a portion of the workload. This reduced the amount of data that had to be transferred back and forth with the server computer.

Around the millennium, two significant developments changed the world of computing and ERP: the Internet and the cloud. It was no longer necessary to purchase and maintain hardware and software to run your business. All or most components of the technology could now be “rented” or outsourced as a package that included all maintenance and much of the technical operations. The ubiquitous Internet provided the communications infrastructure required to make the cloud practical and available anywhere in the world.

But businesses did not immediately migrate their ERP systems to a cloud deployment. It took some time for the technology and applications to mature—and for companies to realise that the computer does not have to be on-site in order to obtain reliable access and security for business-critical applications. Part of that evolution involved developers learning how to:

• Make the most of cloud deployment
• Write or rewrite applications appropriately
• Rebuild their infrastructure—both technology and human resources—to support cloud-based systems

And, importantly, now cloud ERP systems deliver advanced technologies such as artificial intelligence (AI) and machine learning to enhance productivity and service; tailored user experiences to drive adoption; and wide-ranging functionality and embedded analytics to provide a complete view of the business—ultimately supporting business innovation and growth.

The SaaS pricing model

In the past, most software was installed on company premises and the only licensing option was to purchase a perpetual licence—where the application is licensed for an upfront amount plus a yearly maintenance contract for upgrades and bug fixes. Software licences are most often priced on a per-user basis. Annual maintenance is typically charged at 18% to 20% of the then current software list price. This means that the software licence is essentially “repurchased” every five to six years.

With on-premises ERP, all the hardware and software are purchased or leased and installed at a company’s location(s). The company is responsible for maintenance, support, and possible upgrades or expansion of the hardware, systems, and application software—as well as the facility space, utilities, insurance, failover resources, and off-site backup storage.

Cloud-based ERP systems, on the other hand, are not usually installed on-site and are supported by the supplier as part of a monthly or annual fee. They are licensed on what is called a software-as-a-service (SaaS) basis. SaaS licences can be priced per user, per application, or per application set (all of ERP, for example), based on the size of your company or other variations.

An interesting aspect of cloud deployment licensing is its scalability. If licensed by the user “seat”, you can add or remove users and pay a higher or lower price thereafter based on the new user count. If your transaction volume, storage capacity, or computing power requirements change, the supplier is responsible for upgrading its facilities to accommodate the change, which means you will not have to purchase and install more servers or additional disk storage.

The closest analogy might be cable television. You pay for what you require, and that price includes the use and operation of all the physical facilities, staff, maintenance, and any other expenses related to the cable service at your location. If you need to add more channels, you will only pay for what you have requested and not need to worry about how they manage to provide the additional channels.

ERP deployment options

There are several possible ways to implement an ERP system:

1. Cloud ERP, also known as SaaS ERP

In cloud ERP, the primary licensing model is software as a service (SaaS). The system provider will have its own data centre—or may lease space on a public cloud to host its applications and systems. All hardware, systems, and support services are provided via the Internet. This makes implementation quicker and easier for the user company because, with all the hardware and software components already in place, they can begin straight away with the data transfer and user training.

With this cloud ERP deployment option, your software provider will also take care of all the installation, maintenance, and support—including any and all software updates and upgrades such as adding computing power or storage. Additionally, systems, applications, and resources can be “autoscaled”, or increased or decreased automatically to meet changing, short-term needs. This eliminates the need to pay for computing resources that may remain unused most of the time, as is the case with on-premises ERP systems.

Cloud-based SaaS ERP has little or no upfront cost (a “capital expense”) but has a somewhat higher monthly cost (an “operating expense”), compared with a typical on-premises installation. When considered over the typical lifecycle cost period of five to seven years, total cost of ownership (TCO) is comparable to, if not lower than, an on-premises installation and potentially offers better service, support, and security.

Cloud ERP also offers the fastest route to innovation, making it ideal for businesses that wish to pursue their digital transformation strategy proactively. This deployment option enables companies to easily reimagine, optimise, and adapt their business processes as required—and to take advantage of standardised best practices which modern ERP vendors should support.

2. On-premises ERP systems

On-premises is how most companies have historically deployed their ERP systems. In this deployment model, ERP software is installed in your data centre at the locations of your choice. The installation and maintenance of the hardware and software are your staff’s responsibility.

Today, businesses are embracing the cloud for its flexibility, scalability, and ease of innovation. Nevertheless, for some companies, particularly those in highly regulated industries, on-premises remains the preferred approach due to legal, regulatory, or organisational constraints.

3. Hybrid ERP systems

Elements of a cloud and on-premises ERP deployment can be combined to create a hybrid cloud, which provides the flexibility to choose the optimal deployment for each application. Hybrid cloud ERP can serve as a stepping stone to the cloud, or to meet industry regulatory issues and specific security requirements that may necessitate the use of on-premises applications in certain situations. There may also be other restrictions or preferences that make on-premises desirable for certain applications. The complexity of a business and its current environment, as well as a desire for a slower pace of change, factor into the decision to deploy in a hybrid scenario.

A hybrid implementation allows applications and data to move between the options based on changes in workload. It provides cloud benefits from the part of the system that is on the cloud. However, it requires greater involvement from local IT to support the on-premises components, as well as coordination between the two—or more—ERP system environments.

4. Two-Tier ERP

Essentially a variation of the hybrid approach implemented for the same reasons, two-tier ERP deployment—sometimes referred to as hub-and-spoke deployment—uses a central system with smaller satellite systems supporting remote facilities. Think of corporate ERP as the hub, with individual ERP systems at subsidiary plants, warehouses, or offices all feeding data back to the hub. This is not a new idea; it emerged during the 1990s’ distributed processing phase, with companies choosing to implement smaller, simpler, and less costly systems at remote locations whilst maintaining the larger, more capable, corporate system at company headquarters. Any or all of the systems in a two-tier network can be on-premises or cloud-based, purchased or SaaS-licensed.

The overall cost for a two-tier ERP deployment—with less expensive systems at the nodes instead of the same corporate system everywhere—will result in a lower cost for the initial purchase. However, integration and support can result in a higher overall, ongoing cost because the interfaces must be built and maintained. And, year after year, it will require more IT support to coordinate with multiple suppliers, as well as to manage uncoordinated upgrade schedules and interface changes.

Tips for the selection process

First, select your software through a careful ERP evaluation process, then consider the deployment options based on the software’s deployment capabilities and your company’s needs and potential ERP return on investment. Some ERP software is cloud or SaaS only, while other suppliers offer cloud, on-premises, and hybrid options. Deployment options available may be a criterion for inclusion on the shortlist, but they should not be the sole determinant for system selection.

Rapidly growing companies and those anticipating forthcoming changes in user numbers (whether increases or decreases) should probably focus on cloud ERP systems for their scalability and pay-as-you-go pricing. Also, ensure that all members of the selection team understand the features and benefits of the different ERP deployment options.

Summary

Companies may initially be attracted to cloud ERP deployment for financial reasons—such as minimal or no capital expenditure and a reduced total lifecycle cost—but are enthused by the technical and operational advantages the cloud has to offer, including:

• ERP that is always up to date with the latest upgrades (at no additional cost or effort)
• Virtually unlimited scalability
• Pay-only-for-what-you-need/use basis
• Quicker implementation
• Improved security and access controls, and more

And, full cloud deployment is not the only option. Sometimes it makes more sense to keep some of the applications on-premises and use the cloud for the rest. Fortunately, a variety of configuration and deployment options are available so you can choose the deployment that makes the most sense financially and operationally.

Moving to a new ERP system is a significant change for system users, IT, and the entire organisation. It makes sense to explore all options and choose the system configuration that offers the best performance at the best cost. Then, plan how your internal resources and structure will need to change to get the most from your investment, regardless of the configuration and deployment.

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