ERP Cloud: Advantages and risks of ERP in the Cloud

The cloud ERP model is a way of providing business and technology services, which allows users to access a catalog of standardized functionalities and respond to their business needs, 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 hosted internally 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 on-premise ERP change with the support of cloud computing technologies.

The new cloud ERP environment

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

Companies can use their ERP systems and access the 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.

Example of Cloud Computing

The most widespread and clearest example of Cloud Computing is Internet e-mail or Webmail. The user delegates the storage of his email to the "cloud", which allows him to send and receive information over the network through a set of functionalities.

What is SaaS and what role does it play?

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

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

Purpose of SaaS

Thus, SaaS is mainly aimed at reducing the cost of implementation and use of computer systems associated with the management of an organization's business resources (such as ERP and CRM). 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 providing these services. This is very beneficial for SMEs that do not have large budgets.

Benefits of cloud ERP

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

1. Cost savings and cost elasticity

Thanks to the pay-per-use model, the cost associated with services is variable and lower than that incurred with 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 of the cloud computing service at any given time, substantially reducing the fixed costs and investments associated with IT resources.

2. Improved productivity

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

3. Business focus

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

4. Improved technology management

The administration that decides to start working in Cloud computing mode can always have the latest infrastructure, systems, applications, etc. updated. 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 rapid scalability and therefore were unfeasible for small local entities to manage. These functionalities are now feasible with cloud computing services.

5. Improved security management

In a cloud-based model, maintenance becomes easier and more secure, provided that 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 cessation of service, thus providing the client with greater resistance to disasters and recovery capacity in the event of failures.

6. More flexibility to enter new businesses

What limits the pursuit and implementation of ideas among entrepreneurs and large organizations alike, especially service organizations? Time and money, or 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 move records with data 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 contrast, cloud services are based on collective learning, user experience and new customer sign-ups that immediately have processes, formulas and interfaces that are well tested, ready to deliver the best business results.

Main advantages of the Cloud

As there is no concern for hardware management or software maintenance, there are three main advantages in service delivery:

Scalability, as systems can be configured to be shared to hundreds of individuals or organizations. Service providers reserve capacity for different customers, allowing them to allocate resources to each customer more or less instantaneously as utilization increases.

Agility and the ability to innovate. Typically, IT environments evolve slowly. Major breakthroughs occur only every couple of years and involve complicated system-wide changes. In contrast, delivering software applications through a browser allows for a continuous flow of enhancements, enabling a faster cycle of innovations.

Reduced initial IT investment for users, whether in hardware or software. These costs are passed on to the Cloud Computing service providers, who can apportion them among their customer base.

Cloud ERP Risks

Service quality and availability

The customer's lack of direct control over the resources necessary for the operation of the systems in a Cloud environment exposes him to a greater extent to incidents occurring outside his own organizational sphere. Connectivity problems with internet providers can lead to disruptions with the provider's systems. This can have a potential impact on the company's business.

Risks related to the management and control of information.

These risks are one of the main concerns that companies cite in relation to the use of Cloud solutions. In this regard, some specific factors are identified that can generate incremental risk with respect to other management models, among others:
  • Increased exposure of access points.
  • Problems with data segregation and isolation.
  • More elements outside the client's security perimeter.
  • High degree of concentration of information in one location.
This could increase the risk of incidents and data security breaches, misuse of data, or failures in the migration, return or destruction of data. In addition, a specific risk is that of non-compliance with personal data protection obligations.

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 infrastructure, applications and data.

Uncertainty about the applicable legal framework

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

ERP in the cloud for SMEs equals increased competitiveness

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

When an SME optimizes its resources, it becomes 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 the big companies.


In this article, the benefits and risks of Cloud ERP have been pointed out. Regarding the risks, all of them are predictable and manageable. That is, through proper management, their 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 to specialized companies, allowing the company that decides to outsource to focus on the core of its business, on what it knows how to do, without distracting efforts in the two scarce resources in today's world: talent and money.