What is cloud ERP?

There are several key differences between traditional on-premises ERP systems and cloud ERP systems, all of which impact each type of system’s infrastructure, cost, scalability, and maintenance. Understanding the differences between traditional and cloud ERP systems can help you make an informed decision about which type of solution is best for your business. Budget, scalability needs, and IT resource availability are important factors to consider when making your decision.

Infrastructure

• On-premises ERP systems require significant hardware and software investments, including servers, storage, and networking equipment. These systems are hosted and managed within the company's physical premises.
  
  
• Cloud ERP systems are hosted on remote servers managed by a third-party provider. You access the system via the internet, eliminating the need for extensive on-site hardware.

Cost

• On-premises ERP systems involve high upfront costs for hardware, software licenses, and implementation and ongoing expenses for maintenance, upgrades, and IT staff salaries.
  
  
• Cloud ERP systems typically follow a subscription-based pricing model, reducing initial expenses. Costs are spread over time and include vendor-provided maintenance, updates, and support services.

Scalability

• On-premises ERP systems require additional hardware and software investments to scale up, which can be time-consuming and costly. Scaling down may result in underutilized resources.
  
  
• Cloud ERP systems have greater flexibility and scalability, allowing you to easily adjust your subscription plans up or down to accommodate changing needs without significant investments in new infrastructure.

Maintenance

• On-premises ERP systems require dedicated IT staff to manage and maintain the system, including regular updates, security patches, and troubleshooting.
  
  
• Cloud ERP systems include maintenance and updates from the service provider, reducing the burden on internal IT teams. This ensures that the system is always up to date with the latest features and security measures.

Accessibility

• On-premises ERP systems typically limit access to on-site locations or require complex VPN setups for remote access.
  
  
• Cloud ERP systems are accessible from anywhere with an internet connection, providing the flexibility required for remote work and mobile access.

Security

• On-premises ERP systems require security and compliance to be managed internally, which can be challenging for businesses without robust IT resources.
  
  
• Cloud ERP systems often offer advanced security features and compliance certifications to ensure data protection and regulatory compliance.
  

Migrating to a modern cloud-based ERP system offers numerous benefits for businesses. Some of the key advantages include:
 

• Cost savings: Eliminating the need for expensive hardware and reducing the burden on IT teams results in significant cost savings.
  
  
• Scalability: Cloud ERP systems are highly scalable, allowing you to easily add or remove users and features as needed. This makes it easier for your business to grow and adapt to changing market conditions.
  
  
• Improved efficiency: Real-time access to data helps your entire organization make informed decisions and streamline operations—ultimately leading to improved efficiency and productivity.
  
  
• Enhanced data security: Cloud ERP vendors typically invest heavily in security measures to protect their customers' data. These investments can provide you with greater peace of mind and reduce the risk of data breaches.

Making the move to a cloud-based ERP system can be a complex process, but following these steps can help ensure a smooth transition.

• Assess your current system. Evaluate your existing ERP system to identify any pain points, performance gaps, areas of improvement, or customization requirements. Evaluate whether your current processes align with your long-term business goals. Document all current integrations with other systems, as each of those integrations will need to be migrated or reconfigured. Be sure to engage key stakeholders from IT, finance, and operations early on in this process to gain a holistic view of your needs.
  
  
• Define your goals and requirements. Set clear migration objectives, like improved scalability, cost savings, or enhanced performance. Then identify the must-have features and functionality for your cloud ERP solution, including compliance, security, and industry-specific requirements.
  
  
• Choose the right cloud ERP solution. Research and evaluate the cloud ERP solutions that meet your needs. Be sure to verify each platform’s compatibility with your existing systems and integrations before ultimately selecting a cloud ERP system that works for your business.
  
  
• Plan the migration. Develop a detailed migration plan that outlines the steps and timeline for the transition along with the roles and responsibilities for your migration team, which should include both internal staff and external partners. Identify any potential risks, like data loss or downtime, and plan the necessary mitigation strategies.
  
  
• Prepare your data for migration. Archive outdated or unnecessary data, then cleanse and standardize the remaining data to ensure consistency and accuracy in the new system. Ensure all data complies with relevant regulations or industry-specific standards. Automated tools can help simplify data migration and reduce the risk of manual errors.
  
  
• Implement the new system. Use a phased approach, starting with one or two non-critical processes to minimize disruption before expanding to other departments. Work closely with your provider to resolve any issues quickly and monitor performance metrics during and after migration to make sure the system meets your expectations.
  
  
• Train your employees. Provide role-specific training to ensure your employees are comfortable with the new system. Create accessible resources, such as user guides or tutorials, for ongoing reference. Encourage feedback and address user concerns promptly. Identifying and training a group of internal “super users” who can support their teams post-migration can help drive adoption.
  
  
• Test and optimize the system. Conduct thorough, end-to-end testing to ensure that workflows, integrations, and reporting work as expected, and that all data has been migrated correctly. Collect feedback from users and address any issues they may identify. Plan for periodic reviews to ensure the system evolves with your business needs.
  
  
• Decommission your old ERP system. Maintaining compliance with any corporate retention policies, safely archive any legacy data that’s no longer required for day-to-day operations. Redirect resources to focus on optimizing your new cloud ERP system instead.
  
  
• Plan for ongoing support and updates. Establish a support plan with your cloud ERP provider to stay current with updates, new features, and security patches. Foster a culture of continuous improvement by regularly reviewing processes and system performance. Monitor your key metrics to track ROI.

Cloud-based ERP systems offer many benefits, but you may also face some challenges during the transition and implementation process. Some of the most common challenges include:

• Security and compliance risks. Moving your sensitive business data to the cloud can raise concerns about data breaches, regulatory compliance, and maintaining privacy standards. Choosing an ERP provider with strong security protocols (like encryption, multi-factor authentication, and compliance certifications) can alleviate this concern.
  
  
• Integration issues. Adapting your new cloud ERP system to meet your needs and integrating it with existing business applications can be time-consuming and complicated. Be sure to consider each ERP provider’s flexibility and pre-built integrations during the evaluation process, and limit customizations wherever possible to avoid over-complicating implementation and ongoing maintenance.
  
  
• Resistance to change. Employees may be hesitant to adopt the new system and any altered workflows that accompany it. Involving key stakeholders early on to build buy-in and preemptively address concerns can help ease the transition. Providing clear communication about the benefits of the new system, along with comprehensive training and support, can build confidence and excitement among users.
  
  
• Downtime and disruptions. Implementation or migration can cause temporary disruptions to operations, impacting productivity and customer service. Planning the implementation during off-peak periods and using a phased approach to gradually transition critical functions to the new system can minimize the impact to your business.
  

Many businesses have successfully migrated to cloud ERP solutions and experienced the benefits. Here are just a few of their stories:

• GSE Environmental faced significant inefficiencies and high IT costs due to siloed data management systems and outdated maintenance architectures. By migrating to the cloud with Dynamics 365, the company centralized its data and streamlined IT operations. This transition not only reduced its on-premises IT infrastructure but also allowed GSE to refocus on IT productivity, cutting departmental spending by more than 70%.
  
  
• Maersk, a global shipping leader, struggled with five disconnected data centers that created data silos and capacity issues, restricting employees from accessing critical customer information. To address these challenges, Maersk migrated its data to the cloud using Microsoft Azure to enable seamless and secure data flow to employees worldwide. The migration was completed in just six months—half the estimated time—allowing Maersk to close all five data centers while enhancing data accessibility and security.
  
  
• Sonee Sports, a small family-run retail chain in the Maldives, had an outdated ERP system that produced inaccurate data, resulting in a 10% customer churn rate. By upgrading to Dynamics 365, deploying Microsoft Power BI for analytics, and introducing a cloud-based e-commerce system, Sonee Sports achieved a 38% reduction in IT maintenance costs and improved customer retention by over 8%, gaining valuable insights into customer behavior and preferences.
  

Explore more cloud ERP success stories like these.

Trends and developments are always evolving in the cloud ERP space, with some technologies—like AI—driving rapid change. Some of the key trends to watch out for when it comes to the future of ERP include:

• AI integration. AI is taking on an increasingly important role in cloud ERP systems, helping to enhance analytics, automate repetitive tasks, and provide predictive insights. AI-assisted capabilities can help improve decision-making, identify trends early, and proactively address common problems like supply chain disruptions.
  
  
• Advanced analytics and real-time reporting. More robust analytics capabilities with real-time data visualization and self-service reporting tools will allow businesses to gain deeper insights into their operations and act faster on those insights through data-driven decisions.
  
  
• Integration with Internet of Things (IoT). Cloud ERP systems that collect real-time data from connected IoT devices like sensors, machinery, and vehicles can help businesses better monitor operations, track assets, and optimize processes effectively. These integrations can be especially transformative in enhancing supply chain management.
  
  
• Modular ERP solutions. Modular ERP solutions allow businesses to adopt only the features they need or slow down the transition to a new system. This reduces cost and complexity, allowing organizations to scale functionality on their own timeline. Learn more about a modular, AI-powered cloud ERP solution from Dynamics 365.
  
  
• A bigger focus on sustainability. Some cloud ERP platforms are now incorporating tools that help businesses measure and manage their environmental impact, like tracking carbon footprints or optimizing resource usage. These platforms can provide the data needed to support corporate sustainability practices.
  
  
• Low-code and no-code tools. Fully integrated low-code and no-code tools allow organizations to customize workflows, dashboards, and integrations without extensive and expensive development resources. With these tools, even non-technical users can tailor a cloud ERP system to their needs, reducing reliance on IT teams.