On-premise ERP Systems

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Enterprise Resource Planning or ERP is defined as a process by which an organization monitors different aspects of its business. An ERP management information system within the organization deals with areas like planning, purchasing, management of human and financial resources, marketing and sales of an organization. The purpose of this paper is to discuss three different types of ERP systems; on-premise ERP systems hosted ERP systems and cloud ERP systems which are used within the organization. Furthermore, it will also review the benefits and risks associated with each of these systems and how it impacts the business of an organization with the help of case studies.    

Enterprise Resource Planning systems is a software program which is designed to improve the flow of communication between different departments of an organization (Leon, 2014). On-premise ERP is a traditional approach in which an organization purchases the licenses and installs this system within their premises.  The fee associated with this license depends on the size of the organization or the number of users using the same system. In this approach, the software runs on computers and servers of an organization rather than some remote location. The organizations have to pay for the installations within their premises and have to bear additional costs for different features of this system.  The IT teams of an organization modify or customize it according to their business needs in order to improve the performance of the organization (Chiu et al., 2014). This system offers a wide range of flexible and innovative services to the organizations alongside delivering standard outputs. On-premise ERP systems provide a higher level of safety, security, and control over data than other ERP systems. These systems are considered as a capital expenditure of the company, as they have to pay only once to install this software.  However, they have to pay for support, regular updates and training of the employees.

There are several benefits associated with on-premise ERP systems within an organization. These benefits are costs of the initial setup, data security, customization, less dependency on the vendor, and its implementation.  ERP systems are developed to manage confidential and sensitive business information. On-premise ERP systems allow the organization to control their data thus providing better data security to the organization (Al-Mashari and Al-Mosheleh, 2015). The firms using these systems do not have to depend on their vendors to make some upgrades to the systems thus giving flexibility to the organization.  The organizations can move towards more advanced ERP systems with convenient ease. IT teams within an organization can easily modify these systems to improve the performance of these systems. Organizations have more control over the implementation process of these systems, unlike the other ERP software system implementation.   

Benefits of On-premise ERP Systems

Many industries use this system to have a greater quality of control of data over their business data, which affects the credibility and reliability of their businesses. These firms are able to modify these systems according to their business needs, thus increasing the performance of these organizations.  These systems allow the IT teams of these organizations to maintain and support these systems (Tian and Xu, 2015). They should be able to come up with a customized recovery plan to manage any performance disasters of the organizations.  On-premise ERP systems allow business owners to control and manage their business data, thus allowing them to protect the privacy of their confidential and sensitive data.  The functionalities of these systems are customizable and flexible, thus these owners do not have to depend on vendors to update and upgrade their systems.  Organizations with more control over their data will be able to increase the level of their performance, increasing their profitability and productivity.      

Organizations using on-premise ERP systems have to pay upfront costs to set up these systems, which can be considered riskier. They also have to pay more to install latest and upgraded systems in their premises. The organizations have a control of their data, but they may not have better data security protocols to increase the security of their data (Antero, 2015). This can lead to loss of data from the software systems of the organization. Loss of data plays a significant role in decreasing the reputation and goodwill of an organization among the stakeholders of the organization. The customization of these systems can delay the implementation time of these systems and thus make the implementation time of these systems much longer than intended. These customizations can lead to problems in the future if they ever decide to change from on-premise ERP to cloud-based ERP systems.  Delay in the implementation of these systems can have a negative effect on overall performance of the organization.  

These systems are less compatible with advanced technologies and with an increase in technology is becoming outdated.  Organizations using this system might not get the full advantage associated with cloud-based ERP systems, thus affecting the performance of the organization in a negative way. Several business organizations might not want to pay upfront for the implementation of these systems.  Although it is a onetime investment, it can affect the budget of these organizations in a significant manner (Antero, 2015). Employees of organizations using on-premise systems may not commit towards achieving business goals of the organization.  It can affect the employee satisfaction within the company which can affect the business growth opportunity of the organization in a significant way. A decrease in the commitment from the employees will ultimately result in a decrease in customer satisfaction of the company, thus reducing their profitability as well.

Risks associated with On-premise ERP Systems

Organizations buy the licenses for the ERP systems and install them on the infrastructure of a third party firm using a cloud. This approach is known as hosted ERP system or Infrastructure as a Service or IaaS.  It is a form of cloud computing, alongside Software as a Service or SaaS and Platform as a Service or PaaS.  Generally, in this method, a cloud providing vendor hosts the infrastructure of on-premise ERP systems on the cloud (Seethamraju, 2015). They provide hardware, software, servers and other basic IT materials so that the IT teams of an organization can perform in a better way. These systems offer a wide range of functionalities like monitoring, backup and recovery, billing etc. With the help of the internet, these organizations can use the cloud services to perform in an efficient manner (Jacobs et al., 2014). They can monitor their databases and the performance of the organization using the cloud services from the third party organization. The hosted software can be accessed with the help of virtual private network or remote devices and terminals. The client software can be installed on an off-site workstation and can be accessed using these networks or devices. 

Hosted ERP systems provide a wide range of benefits to the organizations using these systems. It increases the agility of the business, enables the organizations to reduce their operational costs and focus on the development of the organization. It increases the ability of the organization to come up with a backup plan if there are any problems arises within the organization. It also allows the organizations to expand their business in a new locality to increase their profitability. The IaaS services are available at any time, thus it allows the IT teams of the organization to focus on increasing the innovativeness of their products and services (Shen et al., 2016). They do not have to spend a lot of resources to maintain the IT infrastructure, thus saving costs of the organizations. These services increase the flexibility of the firm to provide better quality services to their clients. It allows these organizations to come up with a backup plan if anything does not go according to the plan. It does not require any upfront costs or any maintenance costs, thus saving these organizations a lot of financial resources. The costs associated with IaaS depends on the usage of the service lesser the usage lesser will be the costs.   

Hosted ERP Systems

IaaS provides a way to reduce the ownership costs of an organization, thus allowing the small and medium scale industries to focus more on the development of their organization. A majority of these organizations have limited infrastructure and investment, so they cannot pay for installing on-premise equipment and they cannot avail the services of SaaS (Dwivedi and Sharma, 2016). Hosted ERP provides an intermediate way between these two ERP systems. Small and medium scale industries can benefit from availing these services, as it would allow them to focus more on developing their business rather than worrying about maintenance of their IT infrastructure.  These organizations will be able to provide better quality services to their customers with the help of IaaS. As the costs of these ERP systems depends on the usage of the service, it can allow these organizations to monitor the usage of these services. These services can be customized according to the demands of the clients, thus increasing the flexibility of the organization.  It also allows these organizations to use their resources at their optimal level to increase the profitability of the organization (Sedera et al., 2015).  These services are always available, thus allowing these organizations to spread their products and services within the market at a very fast rate.                  

Hosted ERP or IaaS has several risks associated with it alongside its various advantages. These disadvantages are privacy and security concerns, technical problems, increase the vulnerability of these systems and lesser organizational control over confidential business data. The amount of flexibility is also less in IaaS.  All these risks ultimately result in a decrease in the quality of organizational performance (Nowak and Kurbel, 2016). According to Ramasamy and Singh, (2017), in IaaS, the organizations have to totally depend on their vendors for the privacy and security of their confidential and sensitive business data. If the vendor does not use proper security measures, hackers can easily access the data from the network. The password used by the organizations can easily leak thus increasing the risk of losing confidential data. The privacy of these data is not safe either if the cloud service providing company do not use any stringent security measures. It is difficult for the organizations to solve technical problems associated with IaaS.  Technical problems can slow down the performance of the organizations, thus ruining their reputation (Kranz et al., 2016). As these services are heavily dependent on the internet, loss of internet connection can totally hamper the performance of these systems. If these systems cannot work properly, the performance of the organization will suffer a great deal.

Benefits of Hosted ERP Systems

Hackers can easily steal the confidential data of the organization, which increases the vulnerability of these systems. Business organizations can suffer a great deal if the vulnerabilities of their systems are exposed. Malicious users can have access to the company data without any obstacle, and they can use this data to ruin the reputation of the organization. The systems are interconnected with each other, which increases the level of vulnerability of these systems. These business organizations cannot have a control over their business data as these services run on the platforms of third-party vendors. The scope of flexibility associated with these services is less, which can hamper the business growth of the organization. Loss of connection between these services may result in the unavailability of the services thus decreasing the level of performance of the organization (Johansson et al., 2015).  Unavailability of these services will ultimately result in a decrease in the performance of the organization, thus reducing their productivity and profitability. Loss of data can affect the brand image of the organization and it also results in a decrease in the level of customer dissatisfaction of the organization (Sharma et al., 2017). If these small and medium scale businesses cannot protect the privacy and security of their business data, they cannot create a positive image among the stakeholders.

According to Haddara et al., (2015), cloud ERP systems are defined as the type of systems in which the ERP software is hosted on a cloud computing platform rather than the premises of the organization.  Accessibility to these services is increased with the help of internet and it allows the users to access and use data from different departments of an organization. Similar to other ERP systems, this systems also allows the organizations to monitor their finance and human capital management operations. SaaS allows the organization to remove the costs associated with on-premise ERP systems and offers a variety of services to the organizations like backup, recovery and other services (Erturk and Arora, 2017).  Saas can be accessed by the users with the help of internet. It allows the organizations to save total operating costs of the organizations. It is defined as a software delivery model in which the functions are delivered online to the users of these services.  The pricing of these services is based on a monthly basis, thus it allows the organizations to save their operational costs, unlike on-premise ERP systems. These systems are able to give a persistent performance so that the organizational performance can be persistent as well.

Risks associated with Hosted ERP Systems

Cloud ERP systems benefit the performance of the organizations in five ways; reduction of time, reduction of operating costs, the convenience of usage, scalability and upgraded services (Gupta et al., 2017).  This software comes in pre-installed forms, thus making it easier for the organizations to use it.  The time required to install this software is less, thus allowing the organization to save up some valuable time and focus on the core services of the organization. Pre-installed forms decrease the time required to implement these systems, thus reducing the number of issues associated with its implementation. Costs associated with these systems is less compared to on-premise ERP systems, thus allowing the organization to save their financial resources.  Small and medium businesses can use this software to provide their products and services saving them a lot of time and financial resources (Scholtz and Atukwase, 2016).  The services can be easily scalable according to the demands of the customer of the organization.  The providers of these services develop and makes upgrades in their software system so that these organizations can perform in a better and advanced way. Unlike the traditional models, the organizations do not have to focus on the costs associated with installing and maintenance of the equipment. 

Business organizations, especially small business organizations can benefit from using these services. They do not have to worry about installing and maintaining the systems, thus they can focus on their core business. When the management of the organization is able to concentrate on the core business of the organization, their performance quality will be better.  These organizations can focus on increasing the level of their profitability and productivity (Peng and Gala, 2014). They will also be able to save further costs, as the pricing of these services is based on a monthly basis.  The issues associated with the implementation are also reduced, thus saving them some more time and resources. These services can be scaled according to the demands of the customers of the organization. The costs associated with the new releases of these services is less thus these organizations can get better quality services from the providers for a reasonable price.         

According to Chatzithanasis and Michalakelis, (2018), alongside their benefits SaaS or Cloud ERP systems also comes with various risks. These risks are data security and privacy risks, compliance issues, and technical issues, the bankruptcy of the provider etc. Privacy and security of sensitive and confidential business data of these organizations lie in the hands of cloud service providers. Any breach in the network can result in loss of valuable data which can be used by malignant users for their own benefit. These unauthorized intrusions can expose the vulnerability of the networks of the cloud service providers and the organization. A vulnerable network can result in ruining the reputation and goodwill of the organization.  These services are interconnected with each other with the help of the internet, so the loss of the internet connectivity can result in decreasing the efficiency of the organizations. When a service provider suddenly stops to provide their services, the organizations cannot access their confidential data (Chang and Hsu, 2017). If they do not have any backup plan, it might lead to decrease the efficiency of the organization. If the cloud service provider does not obey the rules and regulations of the country they are operating, it can lead to serious consequences for both cloud service providers and the organizations.

Cloud ERP Systems

The security and privacy risks associated with SaaS can affect the business growth of the small and medium scale organizations. Negligence on behalf of the organization can also lead to serious offenses against the stakeholders of the organization. Vulnerable systems within the organizations can lead to loss of data from these networks, which can lead to decrease in the reputation and goodwill of the company.  If these services remain unavailable, then the business of the organizations will be affected in a negative way.  The organizations will not be able to provide their services to their consumers thus ruining the reputation of the company (Saa et al., 2017).  Increase in the level of customer dissatisfaction will have a negative effect on the profitability of the organization.  If the cloud service provider suddenly becomes unavailable, the organizations might not be able to access their confidential data thus decreasing the level of their performance. In case these cloud providers and small organizations do not comply with the rules and regulations of the country they are operating, they can face several judicial charges (Kim et al., 2017). These judicial charges can play a vital role in decreasing the reputation of the company and it will produce a negative image among the stakeholders of these firms.  

Conclusion

This paper concludes that adoption of ERP systems depends on the business needs of the organization. On-premise ERP systems provide better control over the confidential business data of the organization. It also provides better flexibility and the organizations can customize it according to their business objectives. However, without proper data security protocols, it may affect the business of these organizations. Hosted ERP systems and cloud ERP systems also have their own set of benefits and risks associated with them.  It can also be concluded that these ERP systems play an influential role in increasing the business volume of the organization.    

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