What is cloud ERP? How it works, benefits, and tips

Navigating finances, payroll, and HR can be a complex challenge for many businesses, often leading to wasted time and data inconsistencies across multiple systems. This is where cloud ERP comes in. This specialized platform provides a single, unified solution that helps companies scale more easily by eliminating the need for expensive, on-premise infrastructure while organizing disparate systems into one central hub.

For companies with complex operations, cloud ERP offers the flexibility to manage multiple functions and gain real-time insights with little friction. Most businesses spend over 25 hours per week on manual data entry. Cloud ERP eliminates this drain, freeing finance leaders to focus on growth and strategy.

In this article, we'll cover the ins and outs of cloud ERP, so you can determine if it aligns with your business's needs and expectations.

Jump to:

• Cloud ERP basics
• How does cloud ERP work?
• Types of cloud ERP software
• Components of cloud ERP software
• Cloud ERP vs. on-premise ERP
• Cloud ERP pros and cons
• How other types of ERP compare
• The cost of cloud ERP
• When’s the right time to switch to cloud ERP?
• A successful enterprise cloud ERP implementation roadmap
• Navigate midsize business challenges and opportunities

Cloud ERP basics

An ERP system is a software solution that manages a business's core processes within a single, unified platform. Instead of using separate tools for different departments, an ERP centralizes functions like finance, human resources, payroll, and supply chain management in one platform. 

The advantages of ERP include giving finance leaders a single source of truth across operations. By consolidating data from different departments and entities, ERP provides real-time visibility into cash, revenue, and costs—so CFOs can act faster on risks and opportunities.

A cloud ERP system is hosted online and accessed via a web browser. It offers lower upfront costs, plus automatic maintenance and updates.

For example, according to Forrester Consulting, a composite organization that migrated to a cloud ERP solution saw a 106% return on investment (ROI) over three years, with $3.9 million in reduced IT infrastructure costs.

Cloud ERP is also highly flexible and scalable, allowing a business to expand operations without the need for complex and costly hardware upgrades. Because the provider manages updates and infrastructure, internal teams can redirect time toward strategic initiatives.

How does cloud ERP work?

A cloud ERP works by operating on a Software-as-a-Service (SaaS) model. Hosted in the cloud rather than on physical servers, it gives finance leaders secure, real-time access to business data and operations from any location. Put simply, it centralizes a company's core business functions.

Here's how cloud ERP works:

1. You sign up for a cloud ERP service. It’s like renting a digital workspace.
2. You customize the software and set it up to fit your specific business needs.
3. Once inside, you can manage and monitor your business operations in real-time. 
4. You start using the software to manage different parts of your business, like finances, sales, and CRM.
5. Because it’s on the cloud, updates and upgrades happen automatically, so you’re always using the latest version without any downtime. 

This setup allows you to focus on your business, leaving the technical heavy lifting to the cloud ERP provider.

Components of cloud ERP software

Most businesses know about ERP with built-in accounting since financial management or cash management is one of the most common components of cloud ERP. It handles all aspects of your business's finances, including accounting, budgeting, accounts payable and receivable, and financial reporting. 

Another common component is human resources, which helps manage employee records, payroll, benefits, recruitment, and performance evaluations. What’s more? You can use it for onboarding new employees and tracking their progress within the organization.

Other components of cloud enterprise resource planning systems:

• Supply chain management: Oversees procurement, production, logistics, and distribution, ensuring that raw materials and products move smoothly through the supply chain
• Customer relationship management (CRM): Manages customer data, sales pipelines, customer interactions, and support services
• Project management: Plans, schedules, tracks, and manages projects and tasks, ensuring projects are completed on time and within budget
• Sales and order management: Automates the entire sales process, from order placement to invoicing, enhancing the customer experience
• Business intelligence and analytics: Provides tools for data analysis, reporting, and decision-making
• Inventory management: Monitors inventory levels, tracks orders, manages stock replenishment, and forecasts demand

Some ERPs also offer revenue recognition features, and some help ensure your business adheres to industry regulations, legal requirements, and standards.

Types of cloud ERP software

Cloud-based ERP software has three main types, each catering to different business needs and sizes. Let’s take a closer look at each type.

Public cloud ERP

This is the most common type, where the ERP system is hosted on the provider's servers and shared with other businesses. Public cloud ERP offers scalability and cost-effectiveness, making it a popular choice for small to medium-sized businesses. It also provides access to advanced features and regular updates without the need for significant upfront investment or IT infrastructure.

Private cloud ERP

Private cloud ERP is dedicated to a single organization, hosted either on-premises or by a third-party provider. This type offers greater control over data security and customization, making it suitable for larger businesses with specific needs or industries requiring stringent compliance standards. While it tends to be more expensive than public cloud ERP, it provides a higher level of privacy and tailored solutions.

Hybrid cloud ERP

Combining elements of both public and private cloud models, hybrid cloud ERP offers flexibility by allowing businesses to manage sensitive data and critical applications in a private cloud while leveraging the scalability and cost benefits of a public cloud for less critical functions. This approach provides a balanced solution, accommodating varying needs for security, compliance, and cost-efficiency.

Each type of cloud ERP has its advantages, and choosing the right one depends on your business’s size, budget, and specific requirements.

Cloud ERP vs. on-premise ERP

Cloud enterprise resource planning and on-premise ERP each have their own benefits, responsibilities, and requirements for maintenance. Let's unpack them:

Here's how ERP in the cloud differs from on-premise ERP:

• Cost: Cloud ERP is typically cheaper upfront, but you pay ongoing subscription fees. On-premise ERP requires a large upfront investment, but you own the software outright.
• Maintenance: The provider maintains cloud enterprise resource planning software, while on-premise ERP requires your IT team to handle updates and security. According to research from Gartner, many companies spend up to 75% of their total IT budget on maintaining and running existing legacy applications and infrastructure.
• Scalability: Cloud ERP is easy to scale up or down as your business grows. On-premise ERP can be more difficult to scale.
• Security: Cloud ERP providers have strict security measures, but you have more control over your data with an on-premise ERP. A study by IDC found that organizations using cloud ERP achieved 58% quicker security patching and 89% faster cyber threat detection compared to on-premise solutions due to the provider's dedicated resources.

If your business needs extensive customization or has specific regulatory needs, on-premise solutions might be a better choice. Cloud ERP is a more flexible and cost-effective solution for growing businesses.

Hybrid ERP vs. cloud ERP

A hybrid ERP system combines both on-premise and cloud models. It provides a balance of control and flexibility, making it ideal for businesses with specific regulatory needs that require some data to be kept on-site. However, managing it requires careful integration between the two environments, which can deplete resources and time.

Cloud ERP pros and cons

Cloud ERP offers numerous benefits for businesses of all sizes. For instance, there are lower upfront costs—no need for expensive hardware or software licenses. However, some may find the initial setup challenging. 

The benefits of cloud ERP

Cloud ERP systems excel in enterprise performance management by providing real-time data analytics, enabling businesses to track performance metrics and optimize operations seamlessly. 

Here are some more benefits of ERP in the cloud:

• Scalability: Easily adjust your software to meet your changing needs
• Accessibility: Access your ERP software from anywhere in the world through a stable internet connection
• Regular updates: Always have the latest version of the software
• Reduced maintenance: No need for in-house IT staff to manage updates and security
• Integration: Easily connect to other business applications
• Improved collaboration: Streamline communication and teamwork across departments

Example: A manufacturing company could use cloud ERP to get a real-time, 360-degree view of its production line. Managers can then instantly track metrics like raw material costs, output per hour, and supply chain bottlenecks, enabling them to optimize production and reduce waste.

The challenges of cloud ERP

Cloud ERP offers numerous advantages, but weighing these against potential drawbacks will help you decide if cloud ERP is the right fit for your business. 

Common challenges include:

• Dependence on a reliable internet connection, which can create downtime risk in remote or bandwidth-limited environments.
• Data security concerns, particularly around compliance or regulatory requirements.
• Less customization flexibility than on-premise ERP.
• Switching providers can be costly and complex.
• Data migration, integration with existing systems, and ERP implementation can require significant planning and support.

Example: A construction crew working in a remote location with limited or no Wi-Fi might be unable to access the cloud ERP to log hours, update project status, or order materials, leading to workflow disruptions and reduced project visibility.

How other types of ERP compare

The three common types of ERP software each offer a range of solutions for common business roadblocks. The best choice, however, will depend on your business's unique needs, security, and budget. 

On-premise ERP vs. cloud ERP

A traditional ERP system is installed and run on a company's own servers. It gives you complete control over your data and a high level of customization. 

However, this comes with high upfront costs and the need for a dedicated IT staff, plus it can be challenging to scale. It's like owning a home—you have total control but are responsible for all maintenance.

Hybrid ERP vs. cloud ERP

A hybrid ERP system combines both on-premise and cloud models. It provides a balance of control and flexibility, making it ideal for businesses with specific regulatory needs that require some data to be kept on-site. However, managing it requires careful integration between the two environments, which can deplete resources and time.

The cost of cloud ERP

When evaluating an ERP system, cost is a critical factor. The difference between on-premise and cloud-based ERP is substantial, both at implementation and over the long term.

Initial costs

The initial cost of a traditional on-premise ERP system can be a barrier for many. It involves a large, upfront capital expenditure for hardware, servers, and software licenses. These investments tie up cash flow and can limit flexibility.

In contrast, a cloud-based ERP system utilizes a subscription-based model and eliminates the need for expensive hardware. This approach offers a lower initial investment and makes a powerful ERP system accessible to a broader range of companies, with an ROI up to 299% and $446,824 in savings over three years.

Ongoing costs

The financial benefits of a cloud-based ERP system continue to grow over time. With on-premise solutions, a business must budget for unpredictable ongoing costs related to maintenance, upgrades, and IT staffing. This can lead to unexpected expenses and a lack of financial control. 

A cloud subscription, on the other hand, includes these services in a single, predictable fee. This manageable cost structure, which often covers support and automatic updates, provides a clear financial roadmap for your business.

When’s the right time to switch to cloud ERP?

Switching to cloud ERP can significantly boost the efficiency and growth of your business. Consider making the switch if:

1. Your current system needs to be updated for your complex business: If your existing ERP system is aging, difficult to maintain or lacks the features you need, it might be time to upgrade to a cloud-based ERP solution that offers modern functionality and ease of use.
2. You’re experiencing rapid growth: As your business expands, managing operations with outdated or disparate systems can become challenging. Cloud ERP provides scalability and flexibility, allowing you to handle increased demands without major overhauls.
3. You need remote access: If your team works from various locations or requires access to the system from mobile devices, cloud ERP offers the accessibility and collaboration features that on-premise systems might lack.
4. You’re facing high IT costs: If maintaining your current ERP system is becoming increasingly costly due to hardware, software updates, and IT support, switching to cloud enterprise resource planning can reduce these expenses and simplify management.
5. You want to improve efficiency: Cloud ERP systems offer advanced features and integrations that can streamline operations, enhance data visibility, and improve decision-making processes. If you’re looking to boost efficiency and productivity, cloud ERP might be the answer.

Also, some industries have strict data security and privacy regulations that may make cloud ERP a better fit. Hence, assess your needs and industry regulations carefully before choosing an ERP or going ahead with accounting software selection, in general.

A successful enterprise cloud ERP implementation roadmap

Once you've made your choice, the next big step is to implement the ERP system. While it might be tempting to dive right in, a methodical implementation can go a long way to ensuring the success of your new system in the long run. 

Here's a five-step roadmap that you can follow to ensure your implementation goes smoothly: 

Step 1: Discovery

In this initial phase, you'll take a deep dive into your business's current processes and pain points. By identifying key stakeholders and defining your goals, you can create a clear plan that aligns the ERP software with your business objectives. 

When done right, discovery enables you to match your pain points to the new system's capabilities. This foundational step ensures that your new ERP system will provide the specific solutions you need for long-term success.

Step 2: Data migration

Moving your financial, customer, and operational data from legacy systems to the new cloud-based ERP system is the next crucial step. This process requires careful planning to ensure data integrity and avoid data loss, making it one of the most critical parts of a smooth transition.

Some crucial steps when it comes to data migration include:

• A comprehensive data migration strategy
• Cleansing and validating existing data
• Mapping data fields between old and new systems 
• Conducting thorough testing 
• Establishing clear rollback procedures (in case of emergencies)

Step 3: Customization

While a standard cloud ERP offers powerful out-of-the-box features, you can tailor it to fit your unique business needs. It's best to spend some dedicated time at the beginning of each migration customizing your new ERP to meet your specific needs so that you can grow and scale comfortably. 

In this stage, you'll take actions like:

• Configure all your dashboards
• Build workflows to automate your processes
• Set user permissions to optimize efficiency 

All in all, the customization process centers around ensuring the new ERP system works exactly as your team needs it to.

Step 4: User training

A new system is only as effective as the people who use it. Train your team on new systems and provide detailed documentation for new processes. 

This training will help ensure your organization gets the most out of the new tool and that team members can use it effectively. 

Step 5: Test and go live

Before the final launch, you'll want to test everything to ensure all functions work correctly. 

Your pre-launch checklist should include: 

• Verification: Verify that all migrated data—from financial records to customer information—is accurate and complete in your new cloud-based ERP system.
• Testing completed: Run full business cycles to confirm that all processes and automations are functioning as designed.
• All parties trained: Confirm that all key users have completed their training before it goes live.
• Directions provided: Notify all employees of the final go-live date and provide clear instructions on how to access the new system and what to expect on launch day.
• Support available: Ensure there are designated support personnel available to address any immediate questions or issues that may arise post-launch.

Once the ERP software is verified and ready, it’s prepared to go live, allowing you to begin managing your business from a single, unified platform.

Navigate midsize business challenges and opportunities

Switching to cloud ERP can address many challenges midsize businesses usually face—outdated systems, high IT costs, and the need for scalability. It can also open up new growth opportunities.

If your business is more complex, an all-in-one enterprise resource planning system like Intuit Enterprise Suite can help you manage your finances with precision and ease. Keep growing with a more powerful suite, and boost productivity with business and financial management all in one solution.