Advantages And Disadvantages Of Cloud Computing For Enterprise Resource Planning

Advantages And Disadvantages Of Cloud Computing For Enterprise Resource Planning

The cloud ERP model is a way of providing business and technology services, which allows the user to access a catalog of standardized functionalities and respond to the needs of their business, in a flexible and adaptive way, paying only for the consumption made.

Traditionally, the resources involved in ERP software, such as data, application modules, database servers, etc., are internally hosted and maintained by the user companies. This is called ERP On Premise. This approach is still the prevailing one and has certain disadvantages such as:

  • High initial investment.
  • Implementation time.
  • Upgrade cost on different user computers.
  • Maintenance.
  • Portability.

These disadvantages of ERP On premise change with the support of cloud computing technologies .

The new cloud ERP environment

With ERP in the cloud, the related data will be hosted in an infrastructure managed and controlled by a service provider.

Companies can use their ERP systems and access data as on-demand services through a browser (Chrome, Firefox, etc.), without the need to physically install the system on a local computer. This ERP implementation model requires:

  • Less investment in hardware.
  • Less expenses.
  • Less maintenance.
  • Less upgrade costs.

Therefore, these characteristics give rise to a growing trend for companies to consider migrating their ERP applications and databases to the cloud .

Cloud Computing Example

The most widespread and clear example of Cloud Computing is email on the Internet or Webmail. The user delegates the storage of his email in the “cloud”, which allows him to send and receive information through the network through a set of functionalities.

What is SaaS and what role does it play?

The Software as a Service or simply known SaaS, is a software delivery model where a software application is offered as a service over the Internet. Thus, the service user does not need to install or update the application on their computers.

This model allows the use of new software without the need to make a large initial investment in the acquisition of licenses or equipment. In fact, the investment is made solely based on the use of SaaS services, whose short-term cost is usually affordable. Once the service agreement or SLA has been established with the provider, the applications can begin to be used in a very short implementation period.

SaaS goal

Thus, SaaS is mainly aimed at reducing the cost of implementation and use of computer systems associated with the management of business resources (such as ERP and CRM) of an organization. The cost is reduced because the initial investment is very low, and the fees for the subsequent use of SaaS services are quite low due to the economy of scale and high specialization of the companies that provide these services. This is very beneficial for SMEs  that do not have large budgets.

Benefits of ERP in the cloud

Here are some of the most important benefits for companies looking for cloud ERP software, especially for SMBs.

1. Savings and cost elasticity

Thanks to the pay-per-use model, the cost associated with services is variable, and lower than that incurred with the use of traditional technology. The importance of the “on demand” concept associated with the use of cloud solutions lies in the fact that, unlike what happens in the case of traditional infrastructure, the subscriber only pays for the use they make of the cloud computing service in every moment, substantially reducing fixed costs and investments associated with IT resources.

2. Improved productivity

It allows the user to access applications, account statements, inventories, documents and emails from anywhere with Internet access and use them online (or offline to synchronize them later). Likewise, it allows several people to work on the same resource in real time, promoting productivity and communication.

3. Focus on the business

One of the main advantages of cloud computing is the possibility of outsourcing part of the responsibility and management of IT competencies to the provider. In this way, the company can concentrate on its business, on exploiting the contracted services in the most beneficial way and delegating the desired technological skills to the supplier.

4. Improvement of technology management

The administration that decides to start working in Cloud computing mode can always have the latest update of infrastructure, systems, applications, etc. In this way, services whose adoption was not possible with the traditional system can be provided in the cloud with the new paradigm. These are, for example, ideas and services that require high levels of computing power or a capacity for rapid expansion and therefore their management was not feasible for small local entities. These functionalities are now feasible with Cloud computing services.

5. Improved security management

In a cloud-based model, maintenance becomes simpler and safer, as long as it is contracted to a provider that has the latest techniques available in terms of security and data protection. Cloud computing providers have systems with better redundancy conditions that reduce the possibility of loss of information or interruption of service, thus providing the customer with greater resistance to disasters and capacity to recover from failures.

6. More flexibility to enter new businesses

What limits the search and implementation of ideas among entrepreneurs and large organizations alike, especially service ones? Time and money, or the lack of both. Let’s say you want to design and test a new product line. With the availability of cloud resources, new configurations can be up and running in a matter of hours or minutes, so cloud computing helps reduce the time element.

7. Mergers and acquisitions

One of the big sticking points in many mergers is the months, or even years, it takes to keep data logs from one system to another. Sometimes it never happens. Even government agencies have this problem, especially when efforts are made to consolidate agencies or departments.

8. Ability to duplicate or adopt business processes that others have successfully executed

One of the fears about cloud services is that they are homogenized, built for the lowest common denominator, thus leveling the playing field for all business customers. In return, cloud services are based on collective learning, user experience and the registration of new clients who immediately have processes, formulas and interfaces that are well tested, ready to offer the best business results.

Main advantages of the Cloud

In the absence of concern for hardware management or software maintenance, there are three main advantages to service delivery:

  1. Scalability , as systems can be configured to be shared by hundreds of individuals or organizations. Service providers reserve capacity for different clients, which allows them to distribute resources to each of them more or less instantaneously, as the degree of utilization increases.
  2. Agility and the capacity for innovation. IT environments typically evolve slowly. The biggest breakthroughs only happen every couple of years and involve complicated changes throughout the system. In contrast, the delivery of software applications through a browser allows a continuous flow of improvements, enabling a faster cycle of innovations.
  3. Reduction of the initial investment in Information Technology for users, either in hardware or software. These costs are passed on to the providers of the Cloud Computing services, who can be prorated among your customer base.

Risks of cloud ERP

Quality and availability of the service

The lack of direct customer control over the resources necessary for the operation of the systems in a Cloud environment, exposes them to a greater extent to incidents that occur outside their own organizational sphere. Connectivity problems with internet providers can lead to disruptions with provider systems. This can have a possible impact on companies’ business.

These risks are one of the main concerns that companies cite in relation to the use of cloud solutions. In this sense, some specific factors that can generate an incremental risk compared to other management models are identified, among others:

  • Greater exposure of access points.
  • Problems with data segregation and isolation.
  • More items outside the customer’s security perimeter.
  • High degree of concentration of information in one location.

This could increase the risk of incidents and data security breaches, data misuse, or failure to migrate, return or destroy data. Additionally, it is worth highlighting as a specific risk that of non-compliance with obligations regarding the protection of personal data.

Risk of excessive dependence on the supplier

The concern about excessive dependence on the provider (common in outsourcing scenarios), can be aggravated in Cloud environments by the greater number of elements outside the organization, which loses direct control over the infrastructures, applications and data.

It may happen that, due to lack of transparency of the offer, the client does not know in advance the location of their information, which could inadvertently expose them (or at least their data and applications) to laws of other countries, and that accesses may occur. to said information by judicial or governmental investigations outside their own jurisdiction.

An ERP in the cloud for SMEs equals greater competitiveness

ERP systems are no longer unique to large organizations. Today SMEs seek to be competitive by integrating management processes.

When an SME optimizes its resources, it manages to be more productive. When it also manages to integrate information, automate processes and provide better customer service, then it becomes more competitive.

The ERP in the cloud for SMEs will give the company the necessary advantages to stand out in the market and face large companies.


In this article, the benefits and risks of ERP Cloud have been pointed out . In relation to risks, all of them are predictable and manageable. In other words, through proper management, its effects can be limited and mitigated.

The benefits of the model are much greater than the impact that a mitigated risk can have on the organization.

In short, the Cloud model is an outsourcing of technology services in specialized companies, allowing the company that decides to outsource, to focus on the center of its business, on what it knows how to do, without distracting efforts on the two scarce resources in the world. current: talent and money.

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