How to Choose a Hybrid ERP Model that Suits Your Business Needs and Goals

How to Choose a Hybrid ERP Model that Suits Your Business Needs and Goals

Enterprise resource planning (ERP) systems are software applications that integrate various business functions such as accounting, inventory management, human resources, customer relationship management, and more. ERP systems help organizations streamline their operations, improve efficiency, and gain insights into their performance.

Traditionally, ERP systems were deployed on-premise, meaning that they were installed and maintained on the organization’s servers and hardware. This gave the organization complete control over its system, data security, customization, and compliance. However, on-premise ERP systems also had some drawbacks, such as high upfront costs, complex installation and maintenance processes, limited scalability and accessibility, and slower innovation cycles.

With the advent of cloud computing technology, a new option emerged for ERP deployment: cloud-based ERP systems. These are software applications hosted and managed by a third-party provider on the internet. Cloud-based ERP systems offer several advantages over on-premise ones, such as lower upfront costs, faster deployment and updates, greater scalability and accessibility, and higher reliability and innovation potential. However, cloud-based ERP systems also have some challenges, such as data security risks, vendor dependence, limited customization options, and compliance issues.

To overcome the limitations of both on-premise and cloud-based ERP systems, some organizations opt for a hybrid model that combines elements of both deployment methods. A hybrid ERP model allows organizations to leverage the best of both worlds by choosing which functions to run based on their business needs and strategic goals.

Deployment and Pricing 

One of the main considerations for choosing a hybrid ERP model is how to deploy and pay for the system. Depending on the organization’s preferences and requirements, there are different ways to implement a hybrid ERP model.

One way is to use an existing on-premise ERP system and extend some functions to the cloud. This can be done by using cloud services such as Azure Stack or AWS Outposts that provide consistent tools and environments between on-premises and cloud systems. Alternatively, some vendors offer hybrid solutions that integrate their cloud-based modules with existing on-premise ones.

Another way is to use a fully cloud-based ERP system but keep some data or workloads on-premises. This can be done by using data replication tools or hybrid networking technologies that enable secure data transfer between local and cloud environments.

The pricing of a hybrid ERP model depends largely on how much of the system is hosted in the cloud versus on-premises. Generally speaking, the more functions or data are moved to the cloud, the lower the upfront costs but the higher the ongoing fees will be. Conversely, the more functions or data are kept on-premises, the higher the upfront costs, and ongoing fees will be lower.

Security 

Data security is an important consideration when choosing a hybrid ERP model. On-premise ERP systems have higher levels of data security than cloud-based ones as organizations can have more control over their physical infrastructure, firewalls, and access policies. Cloud-based ERP systems largely rely on third-party providers for data security measures and are exposed to more risks despite providing encryption and authentication protocols.

A hybrid ERP model can balance these trade-offs by keeping sensitive or regulated data on-premises while moving less critical or public data to the cloud.

Alternatively, a hybrid model can store sensitive or regulated data in a private or dedicated cloud environment that might offer more security features than a public one.

In any case, a hybrid model requires careful planning and coordination between different stakeholders to ensure consistent security policies and practices across all environments.

Scalability

Scalability in ERP systems refers to the ability to handle increasing workloads, data, or users. On-premise ERP systems have limited scalability options as they depend on the organization's hardware capacity, which can be costly and time-consuming to upgrade. Cloud-based ERP systems have higher scalability options as they can leverage the unlimited resources of the cloud provider, allowing organizations to adjust their subscription plans and pay only for what they use.

A hybrid ERP model can optimize scalability by distributing workloads between on-premises and cloud environments based on their demand and priority. For example, an organization can keep its core functions on-premises for stability and performance and move its seasonal or experimental functions to the cloud for flexibility and agility.

Customization

Customization in ERP systems refers to adapting the system to the specific needs of an organization or its users. On-premise ERP systems offer more customization options but require more technical skills and resources. Cloud-based ERP systems have fewer customization options but offer ways to customize without changing the system code using APIs, extensions, add-ons, or third-party tools.

A hybrid ERP model can enable customization by choosing the most suitable environment for each function based on its complexity and specificity. For example, an organization can keep its highly customized functions on-premises for compatibility and stability and move its standard or generic functions to the cloud for simplicity and efficiency. Alternatively, a hybrid model can use APIs or other integration tools to connect different systems and share data across environments.

Accessibility

Accessibility in ERP systems is the ability to use the system with different abilities, needs, or preferences by providing alternative modes of interaction. On-premise ERP systems may have limited accessibility options, but offer more flexibility and control over accessibility features. Cloud-based ERP systems may have more accessibility options but may have limitations in providing consistent and reliable accessibility features depending on the vendor and platform used.

A hybrid ERP model can improve accessibility by leveraging the strengths of both on-premises and cloud environments based on their user needs and preferences. For example, an organization can keep its functions that require high levels of accessibility on-premises for customization and compliance and move its functions that require low levels of accessibility to the cloud for convenience and cost-effectiveness. Alternatively, a hybrid model can use cloud services or tools to enhance the accessibility of their on-premises system or vice versa.

Reliability 

Reliability in ERP systems is the ability to function correctly and consistently without interruptions, ensuring data accuracy and preventing system downtime. On-premise ERP systems may have lower reliability due to hardware failures and cyberattacks, but have more control over their system performance. Cloud-based ERP systems may have higher reliability due to redundancy and security measures, but their performance depends on the cloud provider's SLA, network connectivity, and regulatory compliance.

A hybrid ERP model can enhance reliability by choosing the most appropriate environment for each function based on its criticality and risk. For example, an organization can keep its mission-critical functions on-premises for assurance and protection and move its non-critical tasks to the cloud for convenience and cost-effectiveness. Alternatively, a hybrid model can use cloud services or tools to back up or restore their on-premises system or vice versa.

Maintenance 

Maintenance in ERP systems includes keeping the system up-to-date, secure, and functional through activities like installing patches and upgrades and providing user support. On-premise ERP systems require more maintenance as they need dedicated IT staff to do these tasks manually. Cloud-based ERP systems require less maintenance as they rely on the cloud provider to perform these tasks automatically, but offer less visibility and control over maintenance to the organization.

A hybrid ERP model can reduce maintenance efforts by choosing the most convenient environment for each function based on its frequency and complexity. For example, an organization can keep their infrequently updated or complex functions on-premises for stability and compatibility and move their frequently updated or simple functions to the cloud for simplicity and efficiency. Alternatively, a hybrid model can use cloud services or tools to automate or simplify their on-premises maintenance tasks or vice versa.

Innovation 

Innovation in an ERP system means supporting new ideas, products, services, or processes that create value for an organization or its customers by adding new features or capabilities. On-premise ERP systems have less innovation potential than cloud-based ones, but they offer more customization options. Cloud-based ERP systems have more innovation potential due to regular updates, but offer fewer customization options depending on the vendor and platform.

A hybrid ERP model can foster innovation by choosing the most suitable environment for each function based on its novelty and value. For example, an organization can keep its core functions that require stability and consistency on-premises for security and compliance and move its new functions that require flexibility and agility to the cloud for experimentation and differentiation.

Alternatively, a hybrid model can use cloud services or tools to enhance or extend their on-premises innovations or vice versa. 

Compliance 

Compliance in ERP systems refers to the ability to follow laws, regulations, standards, or policies that apply to an organization or industry. On-premise ERP systems may have higher compliance levels but may require more resources to demonstrate compliance. Cloud-based ERP systems may have lower compliance levels but benefit from the provider’s compliance certifications. A hybrid ERP model can achieve compliance by choosing the best environment for each function based on its sensitivity and risk. For example, an organization can keep its highly regulated or sensitive functions on-premises for control and assurance and move its less regulated or sensitive functions to the cloud for convenience and cost-effectiveness.

Alternatively, a hybrid model can use cloud services or tools to support or verify their on-premises compliance activities or vice versa.

Vendor Dependence

The degree of reliance of an ERP system on its provider or supplier for functionality, performance, security, or support is known as vendor dependence. On-premise ERP systems have lower vendor dependence than cloud-based ones, but they also have challenges in negotiating contracts, licensing fees, or migrating to new versions or solutions. Cloud-based ERP systems have higher vendor dependence but offer benefits such as access to new features, functions, capabilities, or integrations, or leveraging vendor expertise. A hybrid ERP model can manage vendor dependence by choosing the most appropriate environment for each function based on its importance and complexity. For example, an organization can keep its functions that require a strong vendor relationship on-premises for trust and loyalty and move its tasks that require a weak vendor relationship to the cloud for flexibility and choice. Alternatively, a hybrid model can use cloud services or tools to enhance or supplement their on-premises vendor relationship or vice versa.

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