Cloud Vs. On-Prem ERPs

5 Minute Read -

Cloud Vs. On-Prem ERPs - Not Just Two Sides of the same Coin

by Shekhar Somaiya, CPA, Equus Strategy LLC | August 6, 2021 - As published on NJCPA.com

Delivering organizational visibility, mission critical data on a single platform and supporting collaboration across remote workforces, enterprise resource planning (ERP) platforms help companies make quick decisions in today’s unpredictable business environment.

By putting finance and accounting, customer service, procurement, inventory, supply chain management, warehouse management and order fulfillment on a single platform, ERP unifies core business operations, improves internal controls and enhances visibility into organizational performance, when compared to entry-level accounting software, spreadsheets, and other point solutions. In summary, ERPs are a must for a growing business.

An unprecedented 10-year economic expansion came to a grinding halt in early 2020 with a global pandemic that turned many companies on their heads, forcing them to rethink their business models, processes, and technologies which support their operations. These changes exacted a heavy toll on organizational productivity and profitability. Although many may have shifted to ERPs from their more rudimentary accounting software, few have harnessed the power of Cloud ERP systems. Organizations using on-premises ERP systems are paying higher annual software maintenance costs and in-house IT salaries than competitors using Cloud ERP solutions, but most don’t even have access to the latest features and functionalities as vendors switch to Cloud ERP offerings. 

Additionally, On-prem ERP systems suffer from sluggish system performance and a lack of effective collaboration tools which leads to an overall decline in productivity. Lack of integrated solutions and difficulty penetrating departmental data silos make it harder to know what is happening in the business when companies need visibility the most. Combined with added demands on IT and demand for remote access to a variety of systems, the network capacity of these organizations is strained and new security concerns are introduced.

Cloud ERP overcomes these issues by allowing remote users to access the functionality and data they need to do their jobs from anywhere with an internet connection. 

Let’s look into exactly how a cloud (ERP) system can help them transform their companies into resilient organizations that can weather any storm.

Using Cloud ERP systems, it: 

• Enables remote workforce management and collaboration.

  • Accounting (such as closing the books) is a collaborative work. Using basic accounting software or an outdated ERP system and their standard approach isn’t feasible with the entire accounting team working from home. Using cloud ERP, the same accounting team can review the data, make any changes and close the books remotely without having to be in the same physical location.

• Helps comply with accounting standards and regulatory requirements.  

  • Complying with changing rules and regulations (e.g. recent revisions to GAAP such as, ASC 606, the new GAAP standard for revenue recognition, and ASC 842, which changes the way companies report lease-related expenses) have pushed many organizations to reconsider processes typically handled with spreadsheets. Cloud ERP solutions receive regular feature and capability updates that are automatically passed on to the users.

• Gives all organizational departments a unified and accurate picture of the business.

  • It provides accurate, real-time data that helps teams collaborate more effectively, leading to better informed decisions, increased revenue and happier customers.

• Drives quick reaction times.

  • As opposed to IT or Finance teams gathering & producing reports pulling data from disparate systems, which are often outdated by the time leadership sees it, Cloud ERP systems feature role-based dashboards that give employees immediate access to the data they need to do their jobs and the ability to drill down for further analysis.

• Reduces operational risk.

  • Organizations fall prey to dishonest practices and abuse of power without proper accounting and procurement controls in place. Cloud ERP helps limit these risks by embedding approval workflows into procurement, accounts payable and other financial processes, as well as by controlling access to system features and data based on user roles and individual permissions.

• Tracks unit economics, customer and project profitability.

  • Due to the visibility gaps impacting margins that exist in on-prem ERP systems, regularly evaluating revenue and cost on a per-unit basis becomes difficult. This kind of unit economics can help companies understand the profitability potential of product lines and enables them to adjust and adapt accordingly. Cloud ERPs provide that visibility.

• Helps companies scale and adapt.

  • As businesses expand and add new services or products, they quickly outgrow their basic accounting solutions. With growing needs for scalability, visibility and adaptability, the need for a more robust ERP grows exponentially. Cloud ERP provides the ideal solution for these organizations both now and in the future.

Even with all of these benefits and more, some businesses running on-prem ERP systems are reluctant to undertake upgrades because of disruptions caused by broken integrations and customizations being overwritten. There are clearly many measured benefits to taking such action, and overall, the benefits outweigh the short term costs. 

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Shekhar Somaiya, CPA, MBA, PMP, CSM, is the Managing Director at Equus Strategy, LLC, a full-service business, technology and project management advisory firm. He is a fellow member of the NJCPA.