Cloud hype tells us that SaaS ERP systems are less expensive to run than on-premises systems, but experts warn of hidden costs that you have to account for before moving to the cloud.
Conventional wisdom purports that the cloud is an easier and less expensive deployment option for ERP. While there are certainly advantages to the approach, SaaS ERP systems have their own share of pitfalls and hidden costs, especially those related to integration, data migration and customization.
In the short term, SaaS ERP systems are typically less expensive than on-premises ERP implementationssince they eliminate the need for significant capital expenditures on network, server and storage infrastructure. In addition, with SaaS ERP systems, the vendor handles ongoing maintenance and deployment, enabling companies to get away with fewer resources for daily administration and management tasks.
“You can save on infrastructure costs, and depending [on] how you procure service, you can save on technical support by reducing internal staff,” said Brian Potts, COO at Third Stage Consulting, an independent consulting company specializing in ERP. “However, the biggest error companies make is that cloud ERP is somehow easier or that it takes less time. That’s really not the case.”
Not a magic bullet
While many consider the cloud to be a magic elixir for long-standing ERP woes, the reality is that there are still many of the same issues, particularly surrounding customizations and integration. Most SaaS ERP systems deliver a standard set of functionality out of the box, but unlike traditional ERP, they are not easily customizable, if at all. While that’s often pitched as a benefit — particularly as it relates to keeping the platform up to date with the latest ERP upgrades — it can open the door to unexpected challenges and costs as the business is forced to redesign its processes to fit what the software supports.
“To the extent an organization can adopt the system as is, out of the box, it’s not a problem, but that’s the rare case,” explained Andrew Boliver, head of the Center of Excellence for Ultra Consultants, a consultancy specializing in ERP selection and implementation. “If you’re not configuring the system to meet the needs of the business, then you’re left changing business processes to match the software. That’s a lot of process redesign, training and change management to mold the company to the software … and it’s typically underestimated.”
What’s also frequently underestimated are any costs associated with losing control of the upgrade cycle. Dalsin Industries learned this lesson the hard way when it moved off an on-premises legacy Epicor ERP platform to Plex Systems’ cloud-based offering. The frequency of the upgrade cycle — initially viewed as a benefit — caught the company off guard as it was often unprepared to deal with changes. This resulted in occasional downtime, according to Jeff Dalsin, IT business analyst for the sheet metal manufacturer.
“We spent a lot of time putting out fires because someone couldn’t do something [as a result of the upgrade],” he explained. “There was lost productivity because people couldn’t do their jobs.” Eventually, Dalsin ended up scrapping its cloud ERP implementation and going back to an on-premises version of Epicor.