How to Avoid Cloud Washing: The Difference Between Cloud ERP & Hosted ERP Explained

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Cloud computing (Software as a Service or SaaS) has become increasingly popular, and companies such as Salesforce have shown how it can offer faster innovation, flexible and scalable solutions, as well as lower operating costs when compared to legacy systems. Whilst the CRM market is booming with SaaS products, the ERP market has been slower to keep up and even resistant to adopt the cloud computing model.

Software marketers are sometimes known to take liberties in how they position and advertise their products. One phenomenon we’ve seen in the Enterprise Resource Planning (ERP) space is the practice of labeling software as “Cloud ERP” when it is really an old on-premises based system hosted in a data center. We call this “Cloud Washing”. This is misleading and confusing at best and has led to companies unknowingly investing in hosted ERP systems that are no better than their legacy systems.

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So how do you tell the difference between Hosted ERP and real Cloud ERP? This article will explain the primary differences between Hosted and Cloud ERP and why you need to do your homework when selecting a new Cloud ERP system.

The Problem with Hosted ERP

To be fair, Hosted ERP does solve some IT headaches and gets you out of the data center business. However, you are still saddled with many of the limitations of traditional ERP, such as:

  • An old software architecture that is difficult to change, upgrade and tailor to your business.
  • System access that might require tools such as Citrix or Remote Desktop services.
  • Poor mobile application support.
  • Your users may still have to log into, manage and integrate separate systems, just like your legacy ERP system. Cloud apps might be bolted on, not built in (more on this later).
  • To request changes or new features, you must submit a request to your vendor and wait for them to make the changes.

In other words, a Hosted ERP system is the traditional software stack approach but still requires IT expertise and is difficult to configure and change. It is a step in the right direction, but not nearly as powerful as real Cloud ERP.

Cloud Platforms as a Service (PaaS) Are Changing ERP

Newer, more modern Cloud ERP applications have been built from the ground up for the cloud computing paradigm and offer significant benefits over the hosted approach, especially if the ERP application is architected with an underlying PaaS.

The differences can be boiled down to six key points:

1. Built for the Cloud

First, modern Cloud ERP solutions have been built from the ground up for the cloud computing model – they aren’t converted or ported. According to the U.S. National Institute of Standards and Technology (NIST), a true cloud ERP solution allows users to run applications on a cloud platform natively through a web browser or a program interface. The platform provider manages the underlying cloud infrastructure, including network, servers, operating systems and storage. With this approach, the traditional layers of the software stack become transparent to end users and are delivered in the way electricity is delivered to your home – as a service. You just turn it on, but you don’t need to worry how it is made. ERP applications built to the NIST definition are generally easier to use, can be accessed more easily by more devices and require less IT support.

2. Easy to Upgrade

Another big difference between Hosted and Cloud ERP is a concept called multi-tenancy, wherein multiple independent instances of one or more applications operate in a shared environment but still have the ability to be changed easily and accommodate customized functionality without breaking or crashing when a new release or software upgrade comes along. The version lock issue that ERP is known for becomes a thing of the past. Cloud ERP software upgrades are far easier than legacy ERP systems and they don’t disrupt your business.

3. Easier for Users

The next big advantage is how a PaaS (Platform as a Service) makes life easier for your users. When you log into a true cloud platform like Salesforce, all of the key functions and tools you need are part of the same user experience. Tools for reporting, dashboards, analytics, AI, workflow, and app development all work together and behave in a similar way, unlike the software stack approach used by hosted applications. Salesforce CRM users take this capability for granted today, but this has not been available for ERP until companies like Rootstock introduced its ERP application based on the Salesforce PaaS.

4. Clicks Not Code

Modern cloud applications are far easier to tailor by business users. We call this “low code” customization because it allows users to configure screens, process flows and build apps using point-and-click tools, instead of having to program them from scratch or asking IT for help. This is a drastic difference between Legacy/Hosted ERP and Cloud ERP. Business users are able to take the lead in tweaking and creating better applications without burdening IT. This enables your business to use software that is optimized for your business and is a valuable source of competitive differentiation.

5. Application Marketplaces

Modern cloud platforms operate more like your mobile phone than the traditional enterprise approach to IT. Platforms such as Salesforce offer application marketplaces with thousands of apps that can be plugged into your enterprise work environment. This is similar to mobile phone apps that instantly work with the camera on your phone. These applications are pre-integrated with other applications on the platform and work with PaaS services such as dashboarding and reporting tools. As an example, Rootstock Cloud ERP is available on the Salesforce App Exchange and is pre-integrated with Salesforce CRM and all of the platform services noted above.

6. Common Data Model

And finally, an important aspect of a true PaaS like the Salesforce platform offers, is the ability for users to add their own objects and apps into a common enterprise data model with access to the same PaaS tools noted above (i.e. workflow). This means apps like Salesforce CRM, Rootstock ERP and your custom apps share the same data model, making it easier for users to create reports and dashboards that encompass all your applications, while simultaneously solving master data management, data cleansing and system management issues for your IT team.

CharacteristicCloud ERPHosted ERP
Designed for the cloud from the ground upYesNo. Hosted legacy systems need day to day management of a traditional software stack by the provider, the company or both.
On-demand Self ServiceYesRequire vendor/partner to install the app, deploy the stack layers and configure the system.
Request new features/changes via change request.
Built on a PaaS (Platform as a Service)YesHosted legacy systems were designed before the PaaS approach existed. These old environments still operate like a traditional collection of separate software apps and toolsets.
Broad Network & Native Mobile AccessYesThe choice of end-user mobile devices may be limited and not support all ERP functionality. The mobile user experience is often awkward.
Worst case, may require desktop virtualization (e g. Microsoft Remote Desktop, Citrix).
Easy to customize and upgradeYesHosted systems are still hard to change and expensive to upgrade. Version lock is a big issue.
Uses modern low-code technology.YesNo. Uses proprietary technology often requiring IT help or expensive consultants to make changes.
Business users can build apps, change workflows, change the UX etc.YesMostly no, not without IT or consulting help.
Application MarketplaceYes
Thousands of plug-in applications available
No. Requires the traditional and expensive integration approach.
Limited number of compatible apps available.
Common Cloud Data ModelYesEach app is built on a separate database or portion of database that needs to be joined technically or pulled together via an ETL process.

Summary

So, don’t wind up with an old, Hosted ERP system. Look for real Cloud ERP. Your ERP vendor may call their product “cloud-based” but if you look under the hood, you may find a hosted system built on stacks of software cobbled together that won’t meet modern business requirements.

To capture all of the benefits of the cloud, you need an ERP solution that takes advantage of a modern PaaS. Modern cloud systems are flexible, scalable, easy to use, customize and upgrade; and leverage the many tools and services offered by cloud platforms such as Salesforce to let you tailor the solution to your own business.

To see an example of a modern Cloud ERP system based on the Salesforce Platform, check out Rootstock Cloud ERP.

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