Buyer's Guide: Is Cloud ERP Right for You?

by Drew Robb

While big software companies like SAP are introducing cloud computing into their previously on-premise ERP product lines, they are playing catch-up to pure cloud plays like NetSuite and Plex Online. Here experts suggest key questions to ask to determine which solution is right for you.

A growing number of vendors offer cloud ERP products. While major players like SAP are introducing cloud computing into their previously on-premise product lines, the trail has been blazed by a series of pioneers, whether under a cloud or a software-as-a-service (SaaS) banner.

Among them are Acumatica, Plex Online, RootStock, Kenandy, NetSuite and Consona (Compiere). But there are many more to choose from, and to be fair, the established ERP giants are catching up fast in terms of making their software function over the Web.

This guide, therefore, won’t showcase products so much as provide buying tips in an effort to help users zero in on the right cloud ERP solution to suit their specific needs. It will answer such questions as how to go about the selection process for cloud ERP, what are the key areas to avoid in purchasing, and what you should ask your incumbent vendor if you are looking to upgrade an aging system.

First Steps
Derek Singleton, an ERP analyst at Software Advice, laid out what he considered to be the logical first step: Analyze your business needs and understand whether a cloud solution can support the entire organization, or if it’s better to go with a departmental rollout.

“While the cloud is advancing at a rapid pace, it has yet to reach functional parity with on-premise solutions,” said Singleton. "If you’re a large organization with complex needs, it may be best to go with a point solution -- such as a CRM or HR suite -- rather than trying to adopt full-suite cloud ERP.”

A point solution approach to cloud ERP allows for the realization of cost savings while creating a starting point for cloud technologies to enter the organization. On the other hand, small- to medium-sized organizations may be able to adopt a full-suite option that can support the complete needs of the company -- from accounting to inventory management. That’s why it’s so important to understand the functional depth that is required of the software.

Selection Process
In general, the process for selecting the right cloud vendor is similar to the selection process for on-premise software:

  • Narrow the choices down to a few vendors after conducting upfront research.
  • When meeting with vendors on the short list, be prepared with a list of questions to make sure the software meets organizational needs.
  • Many cloud vendors offer a demo version that can be used as a trial run. Use that opportunity to test the software.


Douglas Johnson, vice president of Marketing and Business Development for Acumatica, recommends listing the top 10 processes you want to automate. Can the proposed system handle them or not? That will simplify your selection process by helping you zero in on your most pressing needs. 

There are many different ways to deploy cloud software, and this exerts a big influence on purchasing. Johnson laid out three options: Deploy an internal cloud. (You own the license.) Deploy your software on a hosted service. (You own the license.) Deploy as a service (You rent the license and outsource operations.)

Some vendors allow you to own a license, while others require ongoing annual software payments. If you are not comfortable handing your operations over to a third party, then select a vendor that offers its software for use on an internal cloud.

“Make sure you understand if vendors charge extra for storage, bandwidth and additional users,” Johnson said. “In addition, determine how you can get access to your data and the format you will get your data in.”

Ted Christianson, vice president of Business Development for Rootstock Software, stressed core functionality. Companies in manufacturing, financial services, retail and other verticals should look for a vendor with deep domain expertise in functional areas of the business most critical to their operations.

In addition, he said companies should make sure their chosen cloud solution offers seamless data sharing and integration with complementary applications on the platform. “The cloud computing platform you consider should offer time-tested, robust Web service APIs to make it easy for you to connect specialized legacy systems and databases you may have or your suppliers may maintain,” Christianson said.

Christianson also recommended identifying and ranking “must-have” versus “nice to have” functionality. This can make a difference when it comes to final negotiations.

Cloud ERP No-Nos
Companies should avoid getting locked into an undesirable contract, Singleton stressed. Even though the cloud streamlines enterprise software pricing and delivery, contracts can still be tricky to negotiate. “Some people make the mistake of assuming that cloud contracts are simple and gloss over details that negate the benefits of a cloud solution,” he said.


For instance, some buyers forget to negotiate scalable pricing. Contracts should state clearly any price changes for adding or subtracting users. Similarly, check for penalties for reducing user count.

Some cloud vendors entice potential buyers with steep year-one discounts and prices that rise dramatically after that, Johnson warned. As the cost of switching ERP providers is almost always high, the last thing you need is to see those kinds of increases.

“Make sure that your vendor gives you the option to own your license so you are not forced to pay more if your vendor increases prices,” Johnson suggested.

Probably the biggest mistake to avoid, however, is buying cloud for cloud’s sake. “We don't want companies making a decision for a cloud ERP solution ONLY because it's in the cloud,” said Plex Systems CEO and President Mark Symonds. “Focus on functional fit for your company, and avoid hosted models pretending to be cloud models (i.e. relocating a dedicated server and storage system from your offices to a third party data center) which actually adds cost, complexity and risk.”

Is Your Incumbent ERP Vendor Ready for Cloud?
Up to now, we’ve discussed new ERP rollouts, but how about those who already have ERP in place? Perhaps it is an ancient system in need of a serious upgrade, or maybe it’s just not nimble enough. Rather than ripping it out, the best course forward is often to approach the incumbent vendor and see what they can offer.

“Ask if they have a cloud solution available, and if they do, you may be able to negotiate a discount for sticking with the same vendor,” Singleton said. “If they don’t, it’s still worth seeing what kind of contract can be negotiated to keep your business.”


There may be some thorny issues to iron out: What are the terms of your current contract; what’s the penalty for ending that contract; and how soon is renewal coming up?

Johnson explained the pros and cons of attempting to make legacy ERP work in a cloud computing world. Legacy client-server software can be deployed via the application server on a virtualized server, and it may even be possible to create hosted desktop clients. While this is technically “cloud,” it isn’t taking advantage of Web-based technology. You may end up slowing performance in accessing the client software, experience bandwidth loss with remote access, and limit the types of device you can use to access your application.

Alternatively, you can run your software on a virtualized (cloud) infrastructure if you have staff resources. You gain the benefits of cloud, but you run everything in-house. “You lose the benefits of multi-tenancy and shared outsourced IT resources, but gain control over your software licensing, upgrade cycles and customization capabilities,” Johnson said.

Then there is what could be termed a pretend cloud: a legacy ERP system installed as a hosted service.

Other questions to investigate involve architectural and platform changes. Is the new version built on a modern software architecture, or is it the same as an older version with a few new features added? How often will future upgrades be released? What guarantees are there around maintaining functionality of customized processes?

“Questions about required resources for maintenances are important as well,” Symonds said. “How often are patches released? How long does it take to apply patches and upgrades? What tools have been included for data integrity or for integration with other systems? How will they avoid getting into the same situation they are currently in, several generations behind in technology and functionality?”

If you’re happy with your incumbent vendor, Symonds suggested a key question to pose: Do they intend to change their pricing and business model to be cost competitive with the leading cloud companies? One of the biggest challenges for incumbent vendors  is coming to terms with the dramatically different business model of cloud computing.

“If you’re still happy with the answers you’re getting from your incumbent vendor, ask how they intend to support real-time collaboration and capture of information around any piece of data or screen in their system with employees, vendors and customers inside and outside of your company,” Symonds said. “And don’t forget to ask about the additional investment and IT skills needed to support the new server, storage, networking, and security hardware they expect you to install and maintain for their upgrade.”

By putting your existing vendor through those hoops, it will become clear whether they have a competitive cloud offering that is attractively priced or are struggling to keep up with the cloud ERP young guns.

Drew Robb is a freelance writer specializing in technology and engineering. Currently living in California, he is originally from Scotland, where he received a degree in geology and geography from the University of Strathclyde. He is the author of Server Disk Management in a Windows Environment (CRC Press).

  This article was originally published on Thursday Apr 5th 2012
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