Enterprise Resource Planning and Cloud Computing

Enterprise Resource Planning (ERP), an important source of competitive advantage for companies, essentially integrates management information systems of all the business functions across the organizations, assimilates the organization with its business partners around the globe and automates the whole information flow process. You all know the importance and functionality of ERP. If you want to start somewhere here is a video for you on ERP:

If you are a student of business management like me, you must have come across numerous case studies on how successful construction and implementation of ERP has made many organization successful. Now some people are suggesting that moving your own ERP system to cloud  can be beneficial. I was as confused as you are feeling right now. Given that every ERP system is extremely customized according to the need of the user organization, your ERP is very unique. Depending on how creative and strategy oriented you had been during the development process of your own ERP system, you can actually differentiate yourself either by adding value or by reducing cost. Most of the time ERP assumes the central position in the core business. Then why are companies such as SAP, Netsuite and others are developing cloud ERPs for medium and small businesses and why would companies avail a standardized ERP system? Let us solve that puzzle. 

Cloud EPR market is ruled by NetSuite at this point followed by SAP. The true ERP providers are listed below:

IMA conducted a survey that reveals how ready companies are to get into cloud ERP and here is the result (http://www.netsuiteblogs.com/blog/2011/11/the-ima-survey-issues-facing-erp.html):

The same survey also revealed the following data on evaluation criteria for choosing cloud ERP:

But why would any company want to move its existing ERP system to a cloud? The main reason are the scalability of cloud ERP and believe it or not better security prospect of using cloud ERP. (http://cloudcomputingtopics.com/2012/04/why-you-should-move-your-erp-into-the-cloud/).

By deploying the existing ERP to the cloud, a company can make it available to all the authenticated users inside or outside of the company and connect them through internet. In the traditional ERP model, most of the big organizations had to essentially construct and integrate the IT infrastructure of business partners such as suppliers and distributors from around the globe. In this extremely competitive global economy, organizations look for vendors and business partners in all corners of the world to bring down the cost of production. Though IT has been a great enabler in this effort by facilitating the flow of information among partners, it has become a significant cost for companies. Cloud ERP promises to break that barrier. 

Another obstacle of traditional ERP system has been its rigidity. Constructing an ERP system in costly and once an ERP system is in operation, its hard to change it. Since cloud ERPs enable interoperability and access, an organization can add and integrate additional and emergent functions to the system. In the same way, the business intelligent system can be connected to the cloud ERP now. 

SAP offers the following classes of cloud ERP currently (http://www.oracle.com/us/solutions/sap/database/sap-erp-cloud-352626.pdf)

SAP Business by design is for medium and small businesses and SAP on-demand-services cater to the large enterprises representing add-on features. 

SAP business suite is a construction toolkit for for developing an in-house SaaS ERP cloud stack.

Constructing ERP system is a capital intensive process. Small and medium businesses (SMBs) mostly lacked the necessary capital to avail an in-house traditional ERP system and thus has been unable to reduce the barriers of entry in many sectors. Cloud ERP essentially removes that barrier by proving on-demand services and by eliminating the capital expense for building an ERP infrastructure. Here is a video that would explain this phenomenon:

Cloud ERP market is in the extreme nascent state at this point. But experts believe that Microsoft, Oracle and other usual suspects with enter this market soon. The providers need to enhance the reliability, connectivity issues and interoperability among platforms from different countries to motivate users to avail cloud ERPs. Below is the Gartner hype cycle for cloud ERP (http://www.cloudcomputing-news.net/blog-hub/2012/jan/10/how-cloud-computing-and-erp-mobility-are-reordering-gartners-hype-cycle-for-erp/):

The market prediction of cloud ERP is promising but as you can see the enterprises are not quite ready to move to this particular cloud immediately (http://www.cloudcomputing-news.net/blog-hub/2012/apr/16/roundup-of-saas-erp-forecasts-and-market-estimates-2012/)

Let me finish this post by an interesting development in the cloud ERP sector. Groupon recently partnered with Netsuite to accommodate its global hyper growth. Watch the following video to find out the reasons behind Groupon's move: