On-Premise Deployment
Discuss about the ERP Deployment Systems Of Options.
With the increasing complexity of the business climate, ERPs systems have become the need of the hour for the large multinational companies that are having suppliers, customers and manufacturing plants globally. ERPs packages are complex integrated suite whose implementation involves significant cost and time. Therefore, this is the reason that small and large scale enterprises do not prefer to implement ERP systems but prefer to have best of breeds solutions or commercial software. Examples of ERPs systems are Oracle Apps, SAP, Microsoft dynamics while examples of commercial software suitable for small and medium scale enterprises are MYOB, XERO, QuickBooks to name a few. ERPs vendors were also very much familiar with the complexity of their product and its cost implications. In order to expand their market and in current challenging business environment, they also started offering cloud ERP system. These systems are significantly cheaper as compared to their traditional model, implementation timeline is also few months and thus they become attractive for the small and medium enterprises (Weng, & Hung, 2014). However, there is downside also as Cloud systems do not allow the business organizations to customize the ERP packages and organizations has to change their business processes to align with the ERP standard processes even if their processes are source of competitive advantage for the company (Nori, et al., 2016). Apart from no customization option, there are also common functionalities but not specific business requirements that are found in ERP suites (Ramasamy, & Singh, 2017). This makes the cloud options better for the small and medium enterprises. Apart from this, there are lot of case studies available for different deployment options. There are success stories of on-premise application, success stories of cloud ERP system, success stories of Hosted ERP system, there were also examples of organizations moving from traditional on-premise model to hosted or cloud system. Apart from this, there were also numerous examples of failures of ERP implementation by big organizations.
The purpose of this report is compare the different ERP deployment options in details along with their benefits and risks and also discusses which organizations should choose which option and why. Apart from this, the report also uses examples of Oracle and SAP ERPs and different organizations using different deployment options so as to give a clear perspective of each option with real life examples. It also talks about the organizations that are changing their deployment options along with the rationale.
Hosted Deployment
For any organization that has decided to use ERP system, there are various options. For example, organization can have on premise installation of ERP, or organization can use cloud services. This is always a tough decision for organization to make. Therefore, it is important that organization should be aware of the benefits and risks of different approaches of ERP implementation. These approaches can be discussed in detail as:
On-premise ERP implementation is the traditional way of deployment ERP. It is also one of the expensive option where an organization buys the licenses from the ERP vendor and then take the service of implementation consultant Like Accenture and IBM to deploy those licenses on the server which is owned by an organization and is also located in the organization promises. The ownership of managing that server in terms of downtime, security and backup lies with the IT department of the organization.
There are large number of companies that have implemented on-premise ERP applications. General Electric, Philips, Siemens, Emerson electric, Cisco are examples of companies running ERP on –premise successfully. All these are global players and thus needed the comprehensive integrated suite of modules that can fulfil their needs. Air Liquid and Cummins have also achieved greater benefits by implementing Oracle ERP on-premise solutions (Oracle.com, 2018) but at the same time there are case studies that demonstrated the failure of ERP implementation projects. There are reputed companies like Hershey, Nestle, Waste Management Inc, FoxMeyer Drug that have very bad experienced in implementing ERP and incur huge losses. FoxMeyer drug failed because the ERP systems were not capable of handling their high order processing volume compared to traditional solutions (Chung, et al., 2015). Other organizations have issues due to improper change management and lack of testing and training issue. Thus, It can be said that each organization has its own needs and has to analyse which deployment option will be most suitable for that organization. Organization has to consider cost and benefit analysis, analyse if its business requirements are standard and common or unique and required customization, internal IT capabilities to take decision of selecting appropriate deployment options (Nowak, & Kurbel, 2016).
Although, these systems are expensive and it take significant time for break-even but once the breakeven is achieved, these applications have lower long term cost because it don’t have to pay the usage charges on monthly basis. Apart from this, On-premise systems allows the organization to customize the ERP packages to suit their requirements though customizations are not recommended and should be as minimal as possible (Caratasu, & Caratasu, 2016). There is also total control over software changes and updates and internal IT department has to manage the security. Organization provides accesses to various offices, plants the access to ERP applications only if they are part of IT network. Thus, these systems cannot be accessible from anywhere and thus are secure.
Cloud Deployment
There are higher upfront costs consisting of hardware, licensing cost and implementation partner fees. Due to the complexity of such projects, consulting partner services are utilized which is quite expensive (Erturk, & Arora, 2017). Internal team must be competent to manage the security, regular backup, Database administrator activities for a server. Also, Sometimes ERP vendors stops the support of their existing products and asks everyone to switch to their latest version. For example, Oracle ERP has stopped the support for its 11i systems and ask the organizations to switch to their R12 system or fusion system. In this case, upgrade will again be a big activity and also the customizations will not be supported by the upgrade and the organization has to spend money again in building the customized code again (Uppstrom, et al., 2015). Another con of these deployment models is their difficulty to scale up if new group is acquired as part of merger and acquisition strategy.
This is the middle path between the on-premise ERP solutions and cloud ERP solutions. As they are a mix of these 2 approaches, they are often called as Hybrid solutions. There are organizations that do want to maintain the server and manage the internal IT team for security and backup purposes. Apart from these, when there are specialists available for this hosted ERP system, it can be a cost effective solution for the large businesses. Today, there are reputed technology companies like Amazon, Goole and Microsoft that provide infrastructure as a service (IAAS) where ERP packages can be deployed. In this model, license procurement cost will be shared by the company and then those licenses will be deployed on the server provided by the IAAS vendor. American Commercial Lines (ACL) is one of the biggest shipping companies in US that has successfully deployed their Oracle ERP on Amazon web services (Casestudies.appsassociates.com, 2018). This helps the company to focus on its core competency, remove expenses on maintaining servers and backup servers and also the systems were not available for 24 hours. With Amazon web services, there is no downtime and ERPs application can be accesses from anywhere. Apart from this, it offers large number of benefits that benefit the company.
Amazon web services, Google, Microsoft, VMware are top 4 vendors in cloud computing space and each of these companies is specialist and provide IAAS service. These companies have resources for continuous performance tuning, providing greater reliability, increased security and robust performance. Thus, instead of managing the server in-house, this option provides greater flexibility to organizations in terms of costs, maintenance. Apart from these, IAAS vendors do not have multi-year contracts but charge flat fees every month and this frees the company from any legal obligations and it can anytime restore the storage and server solution in-house if it not satisfied with the services of IAAS vendors. These vendors also provide unlimited cloning solutions, recovery process, firewall deployment to name a few.
Factors to Consider When Selecting the Appropriate Deployment Option for Your Organization
All the parameters and debates boils down to few factors like cost, customization, security, and control when it comes to select the appropriate deployment option for the organization (Jain & Sharma, 2016). Cons of hosted ERP systems are that the control and security will be owned by the vendor who is managing the data of other clients as well. Apart from it, there is no network security and the applications can be accessed from anywhere by using web browser. Not only this, There should be a clear contract with the vendor providing IAAS services about the security of the data. It is because recently many technologies companies have come under a scan for storing the confidential data of the users which was hacked by some other company. Facebook has data of billions of users and this data was hacked by Cambridge Analytica for selling it to various political parties. This risk will always be there and thus clear contract mentioning the terms and conditions and penalties should be clearly signed with the IAAS vendor.
In this deployment option, client has to pay the monthly subscription fees based on the number of users to an ERP vendor and ERP vendor is responsible for everything from hardware, software, releases, patches, upgrades, Database administration, security, backup and everything. These are cost effective solutions as compared to the expensive on-premise solutions and becoming popular with the advent of large number of technology players in this space. Today, the business climate is quite dynamic and organizations do not have time and patience to implement the on-premise solutions and wait for the benefits. Cloud systems provides the instant benefits and as per Gartner, IDC and Forrestrer reports, Cloud is the future of tomorrow and by 2023, more than 90% of the organizations have moved to cloud IAAS (Singh, 2017). As per the Bain and the company, Cloud will become the 390 billion USD Industry by the end of 2020 attaining a growth of 17% and also the 70% of the IT spending will be in the area of Cloud (Stefan, & Paunica, 2015) Not only this, while traditional players are providing the option of their clients to switch to cloud version from the on-premise solutions, there is new set of technology companies that are designing ERPs solutions as purely cloud solutions. For example, Salesforce is one of the fastest growing company which is entirely cloud based. Similarly, XERO accounting package is also purely cloud based and thus growing very fast as compared to MYOB, SAASU, INFOR to name a few.
There are large number of organizations that have implemented cloud solution recently and have achieved a lot of benefits. Vodafone, RSD Espanyol, Trek, Crestron, Engie, Suite box are some of the big corporates that have implemented Oracle cloud fusion ERP and achieved a competitive advantage (Oracle.com, 2018). Apart from it, there are also organization that are switching to Oracle cloud solutions from Oracle On-premise solution. Emerson electric is a manufacturing company that has replaced its HCM on-premise Oracle apps to HCM cloud solutions (Oracle.com, 2018). It has implemented Goal Management, Benefit management, payroll, Core HR, Talent review modules however the other Supply chain, manufacturing and Finance modules are still in E-business suite in on-premise solutions. Apart from this, Oracle HCM cloud seamlessly integrate with its Oracle E-business suite on premise. As per Emerson Management, on-premises solution was unable to provide insights and requirements of its global employee base and all these issues are solved by implementing HCM cloud solution. CMC Marine also implemented Oracle cloud solutions and says that the biggest benefit of using oracle cloud fusion solution is no downtime and thus perfect environment for globalized company that have users located across different time zones.
Thus, Cloud has not only become the buzz word but organizations are actually using Cloud for running their IT systems and driving cost savings and efficiency by solely focusing on their core competency.
The biggest benefit of cloud solutions is the ease of the entire process of entering into contract with a single vendor for providing all the services related to hardware, licensing, database administrator. They are like one stop solutions as compared to on-premise solutions where contracts needs to be signed with ERP vendor, consultant organizations and many other obstacles (Al-ghofaili, Al-Maheswari, 2014). Thus, there is lower upfront costs because ERP vendor is already having infrastructure and it is just a matter of enabling them for your organization and Cloud vendors charges monthly fees based on the number of users. Apart from this, Cloud ERP solutions do not offer the flexibility for customization and as a result the time to implement is very quick (Peng, & Gala, 2014). It is highly scalable and users can be increased or decreased with acquisitions or divestments very easily unlike traditional systems where the entire server needs to be procured for accommodating additional users. Cloud solutions are the winner when it comes to ease of managing technology and costs. Apart from this, cloud solutions are very suitable for start-up companies and middle and small enterprises who do not have the much budget to invest on technology and also like to get started fast due to the competition. Cloud time to market is quite fast.
Though, Cost aspects of the cloud solutions definitely makes it a winner but there are other aspects that puts the cloud solutions at a back seat. For instance, there are some larger organizations whose businesses requirements are quite unique and thus ERP packages often do not support them. Now, these companies have options of building custom software or buying the ERP package and customize it. Buying and customizing is a better options as cost will be comparatively less and there is no point in reinventing the wheel by doing everything from a scratch. Cloud solutions are not at all suitable for such organizations that often uses customized solutions. Apart from this, there is also loss of control in cloud applications and the clients will automatically be upgraded to new software or releases as soon as it is released. The downside of this is that it is possible that upgrade may involve improving some functionality which again requires user training. Apart from it, upgrade and releases will frequently changes the system and thus organization may have to change some of its processes to accommodate the latest changes. At the same time, cloud systems are highly vulnerable since they can be accesses from anywhere using web browser. Cloud related security breaches are rising and as per the Identity Theft Resource Center, number of data breaches in US has hit a high of 791 in June 2017, which is massive 29% rise in such cases from the same period in 2016. Data breach of credit rating agency, Equifax, has put millions of user’s data like Social security numbers, birth date, and credit card information to risk.
Conclusion
ERP solutions offers 3 deployment options on-premise which is also called traditional, cloud solution and Hybrid which is mix of traditional and cloud. There are several parameters like Cost Vs benefit analysis, time to implement, customizations support, security, control and back up aspects which influences various deployment options. As per the major researchers of future trends like Gartner, IDC, Forrester, Cloud will going to be the future of the technology business in next few years. Apart from the cost saving reasons, there are arguments that cloud is the starting point for supporting more advanced technologies like Artificial intelligence, Big data, Robotics and Automation, Internet of things. Thus, Cloud is the basis of all these advanced technologies. Though organizations are slowly migrating their systems to cloud but still it will take a long time for all the on-premise solutions users who have over customized their ERP systems. It will be a challenge for them to move to the Cloud that supports only standard processes. One of the alternative in such scenarios will be the development of apps that provides specialized functionality missing in the cloud system and these apps should be seamlessly integrated with cloud systems. There are already large number of companies that are developing apps to provide solutions and functionalities missing in the cloud. Cloud ERP vendors like SAP and Oracle have already partnered with technologists companies to develop specialized apps. For instance, the three biggest ERPS i.e. SAP, Microsoft Dynamics and Oracle Apps have the Customer relationship management (CRM) suite integrated but still most of the clients who are using these ERPs have switched to Salesforce for CRM systems because Salesforce offers better functionalities and easy to use. Thus, Salesforce has integrations and thus pushing companies to buy their systems. Likewise, this will be the future and the way how the lack of customizations in Cloud solutions will be fulfilled by specialised software that are easy to integrate with the main system.
References
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