What Is Cloud ERP?

SAP Insights article explains what is cloud ERP and what are the top benefits for growing companies. Read the full article.

The term enterprise resource planning (ERP) was introduced in the 1990s to describe software that automates business processes across a company – from financials to distribution and manufacturing. In those early days, ERP systems were typically implemented on the clients’ own servers in their data centers.

A couple of decades later, cloud technology was introduced, making it possible to deliver software through the Internet. ERP became available not only on premise but as a software-as-a-service (SaaS) application, accessed on a monthly lease basis rather than through outright purchase. However, there’s much more to cloud ERP than the delivery and pricing model. Its advanced features and flexibility make it an essential ingredient for success in the digital age.

Why Cloud ERP?

For more than 25 years, ERP systems have delivered value to organizations, helping them boost productivity and gain insights. But now, the entire world (and the competition) has changed.

Today, customers expect faster delivery of products and services, nonstop product and service improvements, greater reliability, and lower costs. Businesses often need look beyond their walls to ensure the best value for customers. They work virtually with a wide array of partners – for production, product distribution, sales management, service, support, and even core business processes. As a result, they need software that not only helps them handle internal processes but also manage business networks all over the world.

Legacy ERP systems can’t keep up with the complex requirements of businesses today. Older systems are difficult to adapt to change, are expensive to maintain, and are unlikely to help companies comply with evolving regulations. Designed for a simpler landscape, most legacy ERP systems fail to deliver the speed, flexibility, and intelligence that companies need to operate in new, more agile ways.

How Did SaaS ERP evolve?

In the early 2000s, “cloud” applications primarily focused on standalone solutions, such as customer relationship management (CRM), marketing automation, and expense travel management.

By the mid-2000s, cloud ERP solutions were introduced by leading business software providers. Many of these early cloud ERP systems had limited functionality and were not fundamentally designed for the cloud (these are sometimes called “faux cloud”). Cloud ERP solutions were slow to be accepted by midsize businesses as they were inflexible and could not support the speed of change, nor the depth of function required. They also couldn’t integrate with or connect to different systems or data – limiting the scope of change and growth for businesses.

Today’s modern ERP systems have changed dramatically, as has the acceptance and adoption curve for cloud ERP. Yet, it’s still critical to separate those ERP systems designed for the cloud and those that simply operate on the cloud.

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Why is Cloud ERP so Important to Fast-growing Companies?

There are three key reasons why cloud ERP is particularly critical for fast-growing, midsize businesses.

  1. Improved agility: Agility is particularly important to midsize companies with growth potential. These companies are often specialists in their industries, working in a small, related set of industry verticals such as aerospace job shop metal fabrication or distribution service to restaurants. They have deep customer and vendor relationships. To grow rapidly, they need to seize opportunities – adding new locations, introducing new products and services, making acquisitions, or responding to competitor failures.An old system that is not flexible and easily expandable will constrain growth because it can’t provide information needed for decisions quickly enough. If a company relies on independent reporting systems – many of which are based on Excel spreadsheets – it’s difficult for departments to share information and work together to meet common, time-sensitive goals.
  2. Visibility into cash flow: In midsize companies, top management tends to be very cost conscious. Unlike larger companies that manage quarterly budgets, the lifeblood of medium businesses is cash flow – and improving profit margin is often a top priority. Building balance sheet reserves – and fueling growth – requires a careful eye on working capital, operating expenses, and investments.While all midsize companies have some type of accounting or ERP system, many of these systems fail to deliver immediate cash flow and vital profitability information. They often don’t meet the current needs of the business or integrate with other systems. What’s more, these legacy systems are usually not enhanced with new features – or even maintained and supported – by vendors who have shifted their focus to the cloud.
  3. Ease of application integration: Midsize businesses have typically been quick to adopt point solutions for specific operational needs – such as call center software or field service systems – but slow to change their backbone ERP. However, adding these “bolt on” solutions has added great expense and complexity because these tools don’t easily connect to the ERP system. Now, modern cloud ERP is changing all of that – causing more and more growing companies to reevaluate their ERP choice. Increasingly, companies are opting for the easy integration, scalability, and agility that comes with cloud ERP.

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