What are some of the considerations for Cloud based ERP?

Recently in one of my courses at DePaul we’ve talked at great length in class about the different ERP delivery models.  One model that seems pretty popular today is Cloud based ERP.  Provider’s such as Salesforce.com offers an ERP solution and before Oracle acquired PeopleSoft they actually offered a pseudo Cloud based solution for small businesses.  One of the primary advantages to cloud based ERP is that the associated initial investment for building out an ERP solution are reduced while providing the scalability and reliability of a large enterprise class solution.  In addition, the customer gets the advantages of reduced operations and maintenance costs and management overhead.

However, one of the perceived disadvantages to this model is the inability to customize the code to the same degree as a traditional solution such as PeopleSoft or SAP.  If a company likes %80 of the cloud solution they are normally unable to customize the application to get the fully needed functionality.  It’s a take it or leave it proposition.

This is not the only path for cloud based ERP.  The previous described model is called Software as a Service or SaaS.  Provider’s such as Salesforce.com in addition to SaaS also offer a cloud computing model known as Platform as a Service (PaaS).  The PaaS delivery model of cloud computing allows customers to build applications based on the cloud providers platform through the use of Application Program Interfaces or API’s.  Non-ERP examples of PaaS include Amazon’s data base service (Henschen).  An end user can develop an application that makes calls to Amazon’s cloud based database opposed to a SQL or Oracle database server hosted on their own servers.  One of the obvious advantages to this is the ability to scale beyond your existing capability without the associated initial investment needed to scale.

The same concept applies to ERP focused PaaS.  Salesforce.com provides API’s to the Salesforce.com PaaS infrastructure which allows organizations to build more custom instances of ERP hosted in the cloud (Sommer).  This allows for some of the advantages of cloud computing while allowing the flexibility of creating customized modules.

The PaaS approach adds some unique capability to the ERP market.  There are two different markets for users of PaaS.  There is the service provider space and then there’s the enterprise user.  From a service provider perspective there’s the opportunity to build and resale SaaS solutions based on the underlying PaaS.  An example would be Financialforce.com which built a SaaS solution on top of salesforce.com.  This allows the company to provide services to new cloud customers as well as existing salesforce.com customers by extending the capability of salesforce.com.

The other market is the end user enterprise. In class we looked at a use case involving a company EA Cake that created a tailored production method that needed a computerized support system.  The first desire would be to look toward a solution similar to traditional ERP like SAP.  However they discovered that SAP would force them to abandon some of their newly developed production processes. Intuitively you would also think that a cloud based solution would have even less appeal since it’s even less flexible.

With the PaaS approach the enterprise now can custom develop the modules necessary to run the new processes while leveraging the core advantages of the cloud.  All of the data center and infrastructure components of the solution will be operated by the cloud provider.  This infrastructure would include network, servers, database, web server and non-application security.  The enterprise would be responsible for the application layers of the solution.  This would include designing the frontend, access control of the application and workflow.

The organization would need to still do all the due diligence associated with any successful ERP implementation.  The concept of operations (CONOPS) for this approach is something that would really need to be assessed and factored into the decision.  Even, when an organization has an in-house development team and in-house infrastructure management team, the collaboration between the two groups could be difficult.  Now when you add a third party to the equation it becomes that much more complicated to mange trouble tickets, security and performance.

Also, a lot of the challenges associated with going with a cloud based solution still exist in this development environment.  You still need to consider that your application is hosted on a shared infrastructure and if that shared infrastructure is certified for your industry or line of business.  A plastics manufacture may have different considerations vs. a Federal agency responsible for providing affordable housing.

This is also a paradigm shift for many software developers.  To think in terms of cloud instances or interfaces as opposed to API’s for existing and mature ERP solutions.  However, if executed correctly this model can help an enterprise avoid a great deal of the challenges associated with rolling their own developed system and leverage the best of the common platform systems such as Oracle.

Has your organization considered cloud based ERP and what flavors SaaS or PaaS?

Published by Keith Townsend

Now I'm @CTOAdvisor

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