I’ve got one seemingly-simple question for you: how well does your ERP system work? Think about this question carefully — how well does your ERP system actually automate the processes you need it to, and how much manual work needs to be put in for that automation to occur? If the answer involves more manual work than should be necessary, then your business is suffering the same fate as many other businesses at the moment.
The exclusive use of an on-premise ERP is simply becoming outdated as various needs change for both businesses and their customers. That being said, completely abandoning your on-premise ERP in favor of a newer cloud-based solution can involve much more effort and money than it’s worth. The new norm involves adopting a “Hybrid ERP” system.
What exactly is a Hybrid ERP? In short, Hybrid ERPs integrate a business’ on-premise ERP with a cloud-based solution.
So what exactly are the benefits of utilizing these two types of ERP systems? Here’s a quick rundown:
Reduce the Inefficiencies of ERP Turnover with Reallocation
As Cindy Jutras, president of Mint Jutras, told Tech Target: “Enterprises that have spent hundreds of thousands and even millions of dollars on on-premises deployments are often unwilling to spend even more money to rip them out and replace them.”
One of the biggest reasons that businesses don’t make a complete switch from on-premise ERP to cloud-based is that 1) the cost is incredibly high, and 2) the process is inefficient. After investing years of both time and money on an on-premise ERP, it can be a major step backward to begin an ERP overhaul. Instead, reallocating some of the processes to a cloud-based solution is much more cost-effective. Jutras goes on to say: “[Businesses] can surround their on-premises applications with web-based services and cloud applications, creating Hybrid ERP models where some pieces — perhaps ‘core’ financials — are left on premises and select functions moved to the cloud.”
Jutras also suggests that functions such as e-commerce, digital payments and supplier communication work better on a cloud-based ERP.
Hybrid ERPs Save Money Long-Term
Hybrid ERP systems not only open businesses to new capabilities, but they also just make sense financially. Accounting firm Price Waterhouse Cooper conducted a study that found that businesses using Hybrid ERPs saved a significant amount of capital when compared to those using traditional ERPs. The study revealed that businesses using Hybrid ERPs had five-year cumulative costs of $27 million, with a high range of $41 million, whereas businesses with traditional ERPs had five-year cumulative costs of $59 million, with a high range of $84 million.
The gap in cost isn’t just a reflection of the ERP costs. Louis Columbus, a Contributor at Forbes who covered the study, noted that: “Based on an analysis of the [study’s] results, enterprises getting the most value from Hybrid ERP systems are making them catalysts of strategic change, not just relying on them for cost reduction.” In other words, businesses that used Hybrid ERPs were able to leverage the integration to effectively cut costs and run their businesses more efficiently.
Combine Pre-Established Solutions with Agile Capabilities
Dave Kravitt at Precision Solutions Group describes the “best of both worlds” approach that businesses encounter with Hybrid ERP systems. Kravitt points out that by using a Hybrid ERP, businesses retain the customized functionality they originally implemented in an on-premise solution while being afforded the ability to add new capabilities as business and customer needs evolve. Kravitt expands on this by stating that this presents businesses with “the least amount of risk because the known core, on-premise ERP can be trusted to work reliably while the cloud can be used to add specific, limited functionality one project at a time to avoid major problems, delays, and unacceptable additional cost.”
ERP systems, as integral as they are to conducting business, are changing quickly. Although one type of ERP may become more effective than the other down the road, it appears that for the foreseeable future, the Hybrid model is here to stay.
Ready to add a new ERP system to the one you already have in place? Get your search started on our Enterprise Resource Planning Leaderboard.