ERP in the public cloud

Due to their specialization and the associated economies of scale, cloud providers of software and storage services can provide new technologies in better quality and at lower cost than non-specialized companies. This results in a number of advantages, some of which are discussed in more detail below.

Connection to innovation
Many innovative services can be used through the Software-as-a-Service model. Most cloud service providers are in fierce competition and are therefore endeavoring to bring more and more new services onto the market at shorter intervals. This allows customers to benefit from the latest software. This means that programs that use machine learning, for example, can be used profitably in day-to-day business.

Mobile working
A cloud system makes it easy to work on the move or from home. For example, during a call with a customer, an employee can quickly check whether a particular product or spare part is in stock or how long the expected delivery time for the parts is. Even employees stationed abroad in very different time zones can access the required data with the right software without any great difficulty.

Data security and protection
Special attention must be paid to the issues of data security and protection in connection with cloud computing. Going to the cloud is certainly not appropriate for every company and not at all times. However, outsourcing data and workflows to the virtual cloud can improve data security and protection in many cases compared to the current situation on site. The cloud service provider ensures that updates and patches are applied regularly. An up-to-date copy of critical data can be kept in the cloud via a backup. In addition, the access rights of individual employees can be standardized as required so that only the responsible employees can access the data. Further aspects of this topic are discussed in chapter 4.

Greater flexibility
The required services can be booked and canceled as needed using cloud services. Payment is based on effective use (pay-per-use). If demand for computing capacity or data storage increases at short notice, resources can also be procured from the internet cloud at short notice. Companies are also increasingly using cloud ERP software as part of their hybrid strategy. When planning and procuring on-premise ERP resources, the capacities and functionality of external cloud offerings are deliberately taken into account.

Higher availability
Many cloud service providers today guarantee an uptime of 99.99%. Even if this results in a downtime of less than one hour per year for 24/7 operation, it makes more sense to set the values somewhat more conservatively in practice. However, even with less favorable values, the availability of most cloud services should still be significantly higher than many local IT departments could guarantee.

Expansion and internationalization
Cloud-based ERP systems can be particularly interesting for companies that have branches or subsidiaries or are about to be acquired or founded. The parent company's comprehensive ERP system is often only suitable for the subsidiaries to a limited extent. They often need a slimmed-down basic version and specific additional functions. In this case, it is worth considering a so-called 2-tier approach. With this approach, the branches or subsidiaries receive suitable ERP software from the cloud, which can then be connected to the parent company's on-premise ERP system relatively quickly and easily.

Cost savings
The most important savings that can be realized with an ERP system from the cloud include hardware and software costs, maintenance and upgrade costs as well as IT personnel costs.

ERP (Enterprise Resource Planning) is the term for a software package that helps companies to successfully manage their tasks and processes. The early predecessors of today's ERP systems were software solutions for controlling production and inventory management. ERP software is not a loose collection of individual programs. Instead, the individual software components, also known as modules, are coordinated with each other. They share a common database and can therefore access the same data. This enables a seamless exchange of information and improves the quality and speed of decision-making. For example, the software can access data in accounting or controlling at the same time or data records from sales can be seamlessly fed into accounting for billing purposes. This saves a lot of time and time-consuming error corrections afterwards.

Decisions at management level are also significantly improved by an ERP system. Information from different areas can be brought together and presented. This gives managers a uniform view of their area of responsibility or of the entire company. Some well-known providers of ERP systems are Oracle, Microsoft and SAP.

In practice, the proliferation of individual solutions combined with a lack of overview and the resulting slowdown in work processes is often a clear sign that the time is ripe to look for a professional ERP solution.

A classic ERP system is installed on the company's servers after a license has been purchased. Those responsible often also gain access to the source code. This allows numerous in-depth customizations to be made. The potential for individualization and the control over one's own data are among the strongest arguments put forward in favour of conventionally operated ERP software (on-premise).

However, a new unbroken trend has been observed for some years now: ERP software from the cloud is gaining more and more ground. Leading market research institutes such as Gartner and Forrester predict strong growth for this type of software provision in the coming years. According to surveys, companies are also increasingly abandoning their concerns in practice, for example with regard to data security, and opting for this type of solution.

Cloud solutions now also play an important role in the field of ERP systems and have become an integral part of any discussion. This applies not only to large companies, but also to SMEs. As a result, the use of cloud-hosted ERP software has increased significantly in recent years. SAP, for example, offers SAP Business ByDesign and SAP S/4HANA Cloud Several versions of ERP solutions, tailored to companies of different sizes, hosted in the cloud.

At All for One, we combine SAP technologies with innovative AI to achieve measurable business success. Learn more.

Basically, the hosting of cloud software in general and cloud ERP solutions in particular can be divided into two areas: the private cloud and the public cloud. There are also solutions that combine both approaches.

The private cloud
In the private cloud, the system remains on the company's servers or is hosted in the data center of a third-party provider who provides the necessary storage volume and infrastructure on a rental basis. This is a single-user solution that is set up exclusively for the company. The company can thus work in isolation in the Internet cloud. The advantages of the private cloud are: lower investment in hardware, improved mobility, increased security and the elimination of the need to manage the servers and associated IT processes.
With a private cloud, however, the user usually has to take care of the installation of the software as well as maintenance and upgrades. Private clouds also have limited scalability because it is generally uneconomical for individual users to maintain large redundant capacities on the one hand; on the other hand, surplus resources cannot easily be made available in a cost-saving and timely manner. This results in higher costs compared to other types of cloud hosting and the savings potential compared to local installations is correspondingly lower. Many companies nevertheless opt for this option, e.g. because they already have the required resources available, attach great importance to individualized solutions or want to retain complete data control.

The public cloud
In the case of a public cloud, the underlying infrastructure and all software and hardware are managed by the cloud operator. In the public cloud, the network devices and the software and hardware are shared with other users. The public cloud has many of the advantages of the private cloud. However, the additional features that have made it so popular are the flexible addition and cancellation of the required services on a subscriber basis and the elimination of maintenance and upgrade costs, which are borne by the cloud provider. There is also a great deal of scope for scalability thanks to the option of accessing almost all available resources. The distribution of resources in the public cloud could be compared to the distribution of resources in a shared apartment: There is a smaller core living area that each roommate can claim exclusively for themselves. However, the majority of the living space is intended for shared use. This means that the living space and household appliances used can be much better utilized. This results in significant cost savings for each flat-share resident as well as larger potential room areas that can be used when needed. In contrast to a shared flat, however, the data in the public cloud is invisible to other users and protected from their access. It is also generally possible for a public cloud operator to economically store much larger surplus computing and storage capacities. Well-known examples of a public cloud are Microsoft Azure and Amazon AWS.

The hybrid cloud
The third option is a hybrid cloud approach. Here, on-premise solutions or solutions from the private cloud are used together with public cloud solutions. This option is ideal if a company wants to take advantage of the flexibility of cloud services, but switching from existing ERP systems to a cloud-based solution is uneconomical or subject to legal restrictions.
With the help of hybrid solutions, new innovative application services can be selected from the public cloud, booked and used in parallel to the running legacy systems. This allows companies to use new, innovative services unhindered despite their old on-premise ERP software.

Another application scenario: if there is a sudden increase in resource requirements for local ERP systems, the additional resources required can be procured promptly from the public cloud.
The integration of on-premise software with cloud solutions is a topic in itself. Because the lack of interoperability often causes difficulties here, ERP and other providers are trying to remedy this problem with various solutions. One popular option is to connect existing and cloud systems using special application interfaces - the APIs.

When it comes to security, it is important to put the debate in the right perspective right from the start. In practice, the comparison should be made less with a perfect solution and more with the individual starting situation of a company. The situation here is often that the resources of many medium-sized companies allow for a much lower level of security than a good cloud operator can offer. The software is often not up to date, important patches and updates are missed, work processes are not sufficiently standardized and have too little transparency. In principle, cloud services are part of a cloud provider's core business. They therefore have much greater resources at their disposal and can provide a significantly higher level of professionalism than the vast majority of companies are capable of. In principle, this also makes them suitable as someone who can ensure the best possible level of data security and protection.

Data security: the cloud and the medieval castle
One argument often put forward against the security of cloud computing is that public cloud providers could become a popular target for hackers precisely because of the large volumes of data and good public visibility. However, it might be more appropriate to compare a well-implemented cloud computing concept with the function of a castle in the Middle Ages. Even if the castle was usually highly visible and did not offer perfect security, it was still relatively strongly fortified and much more difficult for attackers to conquer than most settlements in the surrounding area. Many an attack failed to materialize precisely because a castle's strong fortifications sent a signal of deterrence to potential attackers.

Security level: criteria when selecting a cloud provider
If there are nevertheless difficulties in terms of data security and protection, it is usually more due to specific providers or their environment than to the basic cloud concept. One approach to finding a good cloud service provider in terms of data security and protection would be to look at the provider's economic situation and environment in addition to the relevant seals of approval and certifications. Cloud providers operating in very tough competition with low margins are quickly tempted to make promises that they are then often unable to keep due to a lack of resources. At the other end of the spectrum are companies that enjoy near-monopoly status in their markets: although they have the necessary resources, they often lack the motivation to give customers' security concerns the attention they deserve. The best performers here are domestic and international companies that are in healthy competition and generate above-average profits. In addition to financial losses, these cloud service providers usually also have to worry about their reputation in the event of an emergency and at the same time have the necessary financial resources to adequately implement important security projects.

In addition to the fundamental issues outlined above, technical solutions that improve data security and data protection should also be taken into account. For example, the concept of edge computing is becoming increasingly important in connection with cloud solutions. Here, some of the data is not sent to the cloud, but processed within the company. Other points to ensure basic protection are secure data transmission via a virtual private network (VPN) and a firewall that prevents the spread of malware.

When discussing cost savings in connection with cloud computing, only the most visible aspects are usually discussed. However, it is worth taking a closer look at this topic, as a more detailed examination could have a significant impact on the bottom line.

The most frequently cited cost savings are

• Hardware costs
• Costs for IT staff
• Costs for backups, updates and maintenance work

However, there are also costs that do not carry enough weight at first glance and could tip the scales for or against a cloud solution. For example, servers and other hardware incur higher ancillary costs in addition to the acquisition costs. These include electricity costs for operation and cooling. For 24/7 operation, the electricity costs for even a small server can amount to several hundred euros per year. If you also assume that servers and other hardware are replaced every five years on average, there are additional costs for installation and configuration on top of the repeated acquisition costs. A precise comparison of on-premise vs. public cloud software costs is therefore definitely worthwhile.

Furthermore, in practice, more is usually invested in hardware and software than is necessary due to uncertain planning, emergencies or rigid standard products. Because the necessary resources can be procured relatively quickly and flexibly with the help of cloud computing, these factors become significantly less important.

Compared to locally hosted ERP systems, a solution from a public cloud is extremely scalable. Scalability here means that larger resources can be used quickly and easily when required and released again later. No additional hardware or software is required on site.

For a better overview of the advantages of the scalability of ERP solutions from the public cloud, the range of services can be roughly divided into three categories. The first category deals with resources that are needed temporarily, such as during peak loads. The second category deals with services that can best support the steady, organic growth of a company. The third category deals with cloud solutions that relate to external company activities.

1. Procurement of short-term resources
In this case, a company often only needs temporary support when certain peak loads occur, for example due to seasonal fluctuations in demand. Alternatively, this option is also suitable if existing integrated main solutions are to be supplemented with functionality and brought up to date with innovative features. This would include, for example, software for travel expense reports from the cloud that complements the HR module on site. Many of these services can be billed according to a pay-per-use model.

2. organic company growth
The needs here are more long-term and relate to the natural growth of the company. This involves software and module solutions that expand processes relating to existing company services or enable new products and services to be offered. In the case of start-ups, for example, this may involve a complete ERP system from the public cloud. More mature companies often decide to obtain individual software solutions or modules from the cloud that can be connected to existing local ERP systems. Whether a complete ERP system or individual software solutions - the commissioning of software from the cloud is usually unbureaucratic and often only takes a few days or even hours.

3. M&A and cooperation between partners
The greatest scope for exploiting the potential for corporate development and cost savings is offered by the use of ERP software in projects outside the company. These can be acquisitions of companies in Germany and abroad that are to be equipped with independent ERP systems or individual software components and connected to the parent company. Alternatively, cloud-based software solutions can support collaboration within the framework of partnerships between different companies.

There are generally far fewer hurdles to overcome than in the case of traditional on-premise ERP systems. Above all, it is possible to implement a complete ERP solution or individual modules within days or even hours and at the same time achieve smoother data exchange with the local software. Many of the required country-specific or specialist features and add-ons can also be provided by the cloud ERP version.

Cloud computing: interoperability & portability
Due to the scope of the issues of interoperability, compatibility and portability, they are of the greatest importance alongside data security and protection. Because a lack of cooperation between different software components can significantly disrupt operations, potential problems must be taken into account at an early stage. Portability or interoperability means that data and applications can be processed and used on different systems without any problems - or at least without the need for major changes. The SAP cloud platform fulfills the role of such a bridge instance.

Agility through phases of corporate development
If this topic is neglected, the company's ability to act quickly and agilely can be jeopardized. This is all the more important today because market requirements and the associated alignment of business models are changing faster than ever. The requirements can vary: Younger companies often initially opt for a flexible and lean cloud solution because their needs are still more manageable and simpler approaches favor cost-saving maneuvering. In later phases of the company's development, when the business becomes more complex and the financial situation develops positively, interest in high-quality software with more functionality grows. This is when topics such as connecting cloud software from other providers or switching cloud providers often come into focus.

Another scenario in which smooth interaction between on-premise and cloud software is important: an application runs on the company's own servers and should be supported by a cloud application promptly when a certain level of utilization is reached. In this case, it is very important for smooth collaboration that the data exchange and software components function flawlessly.

It should also be expected that data and applications that have been moved to the cloud may have to be moved back to the company servers. This situation can occur if a cloud service provider removes certain functionalities or permanently fails to meet the quality level specified in the service level agreement (SLA).

Vendor lock-inwith platform-as-a-service offerings
Another case is vendor lock-in, which relates to the use of platform-as-a-service offerings for the development and installation of your own software. Even if open source software is used, there may still be a vendor lock-in on the part of the cloud service provider at the level of interfaces, service offerings and data formats. This should be taken into account from the outset and, if necessary, standardized data formats or compatible service offerings from third-party providers should be used.

Remedy through APIs and container technology
From a technical perspective, solutions based on APIs that enable data exchange between incompatible applications and systems can also provide a remedy here. Another option for improving interoperability and portability is container technology. It has been popularized by open source solutions such as Docker or Kubernetes. In this context, ERP market leader SAP has launched the open source project Gardener, where Kubernetes clusters can be operated.

ERP & Cloud: Summary and outlook
In conclusion and to summarize, it can be assumed that despite some obstacles and concerns, the trend towards cloud computing will continue due to the often predominant advantages. For this reason, it is important to take an in-depth look at cloud services in the context of your own company at an early stage, also in order to secure your own competitive position. Even if this debate results in a decision against the cloud in some cases, potential concerns and obstacles can probably be eliminated or mitigated to a greater extent in many other cases. Hybrid or multi-cloud approaches or technologies such as edge computing can be helpful here.

The trend towards hybrid cloud approaches is also likely to continue because the majority of ERP systems at most companies are still based on on-premise structures. Hybrid approaches are a good way to cautiously feel your way forward and enable a gradual entry into the world of cloud computing.

The topics of data protection and security are likely to receive much more attention in the near future. On the one hand, because cloud service providers increasingly want to attract more cautious customer groups as part of their business development. On the other hand, due to the tightening of legal regulations such as the entry into force of the General Data Protection Regulation (GDPR).