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The Disadvantages of Cloud-based ERP

Cloud-based enterprise resource planning systems (ERP) are becoming the norm among businesses as backend processes are fully moved to the cloud as part of an organization’s digital transformation strategy. Cloud ERP does have its downsides, however, as with all technology.

Chief among the disadvantages of cloud-based ERP is limited customization. With cloud-based ERP, as with all cloud services, standard processes replace the customization that often comes with on-premise software. This is the result of both the methodology of cloud services and the technological underpinnings of the cloud that prioritize standard services that can be rolled out to all customers at scale.

Businesses often have bespoke internal processes and quixotic workflows that have built up over time, however, cloud ERP is less likely to support these custom workflows as a result of the cloud model. It can be argued that the move to standardized best practices is a net positive for a business, but this forced move to standards nonetheless narrows the options for a business.

This lack of control extends to cloud-based ERP security and maintenance. With cloud ERP, businesses no longer host their own software. Instead of the full control that comes with on-premise ERP software, there’s a shared responsibility model between the business and the ERP cloud provider.

This is again a positive as well as a negative because most businesses actually gain from having parts of the software stack managed in standard ways by the likes of Fortune 500 companies such as SAP or Oracle. But for some businesses with sensitive information, such as healthcare or finance, this reduction in control can represent a real concern.

A third disadvantage of cloud-based ERP is that it requires reliable internet connectivity. No internet, no ERP access when it comes to the cloud-based ERP.

The need for internet connectivity shouldn’t be a dealbreaker for most businesses, because reliable internet connectivity is assumed and critical for most businesses today. With the use of cloud-based ERP, however, businesses further rely on the robustness of their internet connections because outages truly cut off systems access. And let’s be honest: for all but the most mission-critical businesses, company internet does go down from time to time.

So despite a near wholesale migration to cloud-based ERP, using the cloud for backend processes does introduce downsides.


Why Choose Cloud ERP Despite the Downsides

The reason that most businesses have moved to cloud-based ERP or are planning to do so is that these downsides are more than trumped by cloud ERP’s advantages. Many of these advantages come from the same factors that yield cloud ERP’s downsides.

Lack of full control, for instance. When the cloud ERP provider handles software and server infrastructure, software scalability is dramatically increased for a business. Instead of needing to invest in and maintain the correct hardware for the footprint of the business, companies can easily scale their ERP infrastructure as they grow (or if they shrink). With cloud-based ERP, a business just clicks a button to increase ERP capacity.

This scalability leads to greater cost-effectiveness as well.

Businesses only pay for the ERP capacity they need at the moment, confident that they can expand the moment they need more. This just-in-time ERP resource scalability means that businesses are never paying for more than they need. There’s no need for investing in ERP capacity for the future because the same ERP solution works for a small business and one that has grown significantly since it first adopted cloud ERP.

Similarly, the downside of requiring ongoing internet access for cloud ERP also represents part of its upside. When a company’s backend processes are located in the cloud, there’s greater overall access. Authorized employees can access company data from anywhere, including their mobile phones or work-from-home environments. Sales agents can enter data at the point of contact, not when they return to the office. Devices in the field can access or send data to the ERP system in real time.

Further, this connectivity enables real-time data. When company data is accessible at all times from all locations, what’s stored in the ERP system is always current. There’s no data lag from having to enter data into the system at a later date or ingesting new data from other systems during an overnight process. Data flows in and out of the system in real-time, which means that decisions can be made in real time with accurate data. This is one of the greatest selling points of cloud ERP.

So does cloud-based ERP have downsides? Yes, it does. The disadvantages are the minor downsides of significant advantages that come from cloud-based ERP solutions.

For most businesses, the downsides of cloud-based ERP are more than offset by the benefits that come from having it in the cloud. And that is why cloud ERP is quickly replacing on-premise ERP solutions. Even though cloud ERP is not perfect, it is an improvement on what came before.

To learn more about cloud ERP and how it can improve your business, contact one of our consultants at (801) 642-0123 or by writing us at info@nbs-us.com.

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