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A Brief History of ERP Solutions: From In-House To Cloud-Hosted, Part 1

Posted by Samantha Merrill

Aug 7, 2014

cloud-hosted erp solutionsEnterprise software has gone through quite an evolution throughout its lifetime; the ERP solutions of today hardly seem to be of the same lineage as traditional versions.

Since their inception, ERP solutions have been traditionally hosted in-house. Businesses spend quite a bit of their budgets building an IT infrastructure and purchasing the equipment upfront to run the business management system as a whole.

On-premise ERP software is both a thing of the past and a thing of the present: Its technology is outdated, but it's still in use by many small and mid-sized businesses today. Let's investigate the components and typical structure of a traditional ERP system:

Hardware

Hardware is one of the biggest costs plaguing setup of on-premise ERP software. You need to purchase expensive hardware and equipment – all of which is difficult and costly to maintain.

Equipment Maintenance

As servers and hardware age, they break or become obsolete. In order to keep your business running, you're on the hook for immediate repair costs – otherwise, you run the risk of indefinite downtime and inevitable productivity lapses.

Break/fix is a familiar model for IT, but it's also painfully unsustainable. Temporary repairs are just that – temporary. You know the problem will rear its ugly head again, sooner or later, and that you'll need to do the same emergency scramble when it does. Break/fix is rarely cost-effective and never the best solution.

Software

In order to use traditional ERP software, you need to purchase the license upfront. It's an expensive cost, and the software becomes obsolete quickly if you don't perform bug fixes and updates.

Upgrades, Updates And Maintenance

Every update, upgrade and fix you perform on your traditional ERP software costs you money. If you choose to ignore this maintenance, you're sacrificing the functionality, security and efficacy of your business management system.

Traditional ERP software maintenance is usually performed yearly, and businesses are charged an annual enhancement fee. Unfortunately, annual maintenance is hardly enough to keep the ERP system running optimally. Since the fee is often radically high, it's difficult to see the value in this software model. Ideally, these upgrade costs should be included in a predictable subscription plan – a feature unavailable with outdated, on-premise ERP.

Delivery

Unlike newer versions of ERP software, on-premise ERP implementation takes years, costs an exorbitant amount of money and sacrifices your productivity. You're typically charged for the time and materials that go into system setup, so the final cost racks up as a direct result of the length of time it takes to deliver the solution. It's nearly impossible to budget for a cost that keeps rising, so traditional ERP software is often more of a hindrance than a help.

Security

The servers that house on-premise ERP software are surprisingly fragile for their robust sizes and price tags. Exposure to extreme temperatures or humidity is enough to cause irreparable damage to these servers (and since a typical ERP system requires a room full of servers, the task of maintaining a constant temperature is a difficult one at best). In-house ERP software is also vulnerable to natural disasters, power outages and break-ins, putting your private business data at risk.

Data And Server Backup

Information privacy is critical for any business, and encryption (to prevent hacking or theft) and backup (to prevent loss) are the two biggest focuses for on-premise ERP software. Unfortunately, these are two incredibly expensive and time-consuming security measures, and the onus is completely on the business to incur the cost. Like the rising cost of ERP implementation, server backup is a necessary, but often crippling, evil.

Support

Traditionally, after you purchase the software license from an ERP vendor, you're on your own. Any time you have questions about configuration, inquiries about training or need help with troubleshooting, you're billed for time and materials. Customer service is an extra cost – not an included one, as it is with current ERP systems – and you're forced to pay for the support you require. Depending on the complexity and frequency of these customer service calls, this is an unpredictable cost that has the potential to deliver a real blow to your business budget.

ERP software is a great tool for small and mid-sized companies, and is an absolutely essential component to any good business management system. It is, however, severely limited in functionality when deployed in-house. Stay tuned for the second installment of this series, where we explore the next phase in the evolution of ERP software: cloud-hosted systems.

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Topics: cloud ERP, business management solutions, erp software