Cloud-based ERP. Benefits, Limitations, and Implementation Costs

An ERP system does not have to run on a company’s own servers. Increasingly, such systems are deployed in a cloud environment, where—depending on the service model—the provider may be responsible for maintaining the infrastructure, or for managing, updating, and developing the application itself. While this offers many advantages, it does not automatically guarantee lower costs or reduced risk. Therefore, before selecting a cloud-based ERP solution, it is essential to evaluate its architecture,

Until recently, implementing an ERP system often meant having to set up one’s own IT infrastructure and purchasing licenses for the years ahead. Today, companies can access the same types of solutions in a completely different way. A system running on cloud resources helps reduce some of the tasks involved in maintaining infrastructure, but it does not eliminate full responsibility for the entire technical environment. A company may still be responsible for areas such as system configuration, integrations, access management, the security of devices and data, and coordinating between the infrastructure provider and the application provider. Thus, the shift to a cloud-based model has transformed not only how software is delivered, but also how costs and responsibilities are distributed.

Content of table

Cloud-based ERP. Benefits, Limitations, and Implementation Costs
  Cloud ERP – key benefits and limitations
  Cloud ERP, on-premise ERP, and the hybrid model – what are the differences?
    How does the SaaS model work in ERP systems?
    What terms should you know before signing a contract with a SaaS provider? 
    What should you look out for before signing a contract?
  The 6 main advantages of Cloud ERP
  The cloud model has its limits, too. What can hinder the use of an ERP system?
  Cloud ERP costs – what is the real price of a cloud-based system?
  Security in Cloud ERP – who is responsible for what? 
  Cloud ERP, on-premise, or hybrid? The choice depends on your company’s needs
  When is a Cloud ERP system the right practical choice?
  How to assess your company’s readiness for a Cloud ERP implementation
    From analysis to implementation
  7 mistakes when choosing a Cloud ERP system that can increase implementation costs
  Summary
FAQ

The development of the SaaS (Software as a Service) model addresses the needs of companies that wish to use software without having to maintain the necessary server infrastructure themselves. While this reduces the time required to prepare the technical environment for a system deployment, it does not necessarily accelerate the actual implementation, configuration, data migration, or required integrations. Furthermore, it simplifies the process of scaling the system’s usage within an organization—such as by adding new branches or users—as well as managing service updates. For SaaS providers, this model offers the ability to develop software centrally and deliver updates to multiple clients simultaneously. In this context, an ERP system serves as an alternative to on-premise software and can form part of a broader digitalization strategy.

Cloud ERP – key benefits and limitations

Cloud ERP is an enterprise management system that operates on cloud infrastructure, accessed by a company via the internet, eliminating the need for the organization to maintain its own server infrastructure. It can be delivered through various service models—most commonly SaaS (Software as a Service)—where the provider manages and develops the application as a service. The specific billing method (such as a subscription, periodic fee, or other arrangement) is determined by the terms of the offer and does not, in itself, define SaaS. In this context, the division of responsibility for infrastructure, system updates, configuration, integrations, and security depends on the solution's architecture and the terms of the contract. Therefore, before selecting a Cloud ERP system, it is crucial to clarify which responsibilities lie with the infrastructure or application provider and which remain with the company itself.

What does the company gain?

• Lower barrier to entry. There is no need to invest in your own servers or set up an entire technical infrastructure.
• Faster path to system launch. While some infrastructure-related tasks are eliminated, the speed of implementation still depends on the complexity of processes, data quality, and the scope of organizational changes.
• Greater flexibility. When a company opens a new branch or increases its headcount, it can expand the scope of the service without having to build out its own infrastructure.
• Fewer IT maintenance tasks. The provider assumes specific technical responsibilities, including environment updates. The company remains responsible for system configuration, user permissions, and the proper use of data.

So where do the limitations arise?

• Dependence on the service provider and the internet connection. A connection failure or service unavailability can hinder operations; therefore, the Service Level Agreement (SLA)—the contractual terms defining service delivery—is of great importance.
• Limited flexibility for customization in certain solutions. While standard features can often be configured, non-standard modifications may be restricted or entail additional costs.
• The need for data oversight. It is essential to know where data is stored, how it is secured, and the terms under which it can be recovered or migrated to another system.
• Costs that scale with requirements. Subscription fees may increase based on the number of users, modules, or resource usage. Consequently, it is important to recognize that the initial price alone is not a sufficient basis for accurately assessing cost-effectiveness.

What is the conclusion? Cloud ERP shifts some of the technical responsibility to the provider and makes it easier to scale the environment alongside the company’s growth. However, it does not entirely eliminate implementation complexity or business risk. Whether it proves to be a good choice depends primarily on the organization’s processes, the required integrations, and the terms of the agreement with the provider.

Cloud ERP, on-premise ERP, and the hybrid model – what are the differences?

An ERP system can be deployed in the cloud, installed on a company’s own infrastructure, or implemented through a combination of both approaches. Each of these models entails a different distribution of costs, technical duties, and responsibility for the system’s operation. Consequently, there is no single solution that is perfectly suited to every organization.

How does the SaaS model work in ERP systems?

When opting for a SaaS model, a company uses an ERP system provided by a vendor. The company pays for access to the software—typically in the form of a subscription—while the vendor manages the technical infrastructure of the service. However, this does not mean the vendor assumes all responsibilities related to the system's operation. The vendor ensures the system functions technically, whereas the company is responsible for how the system is configured and utilized in day-to-day operations. The division of responsibilities is generally structured as follows.

ERP provider

• Service maintenance and development
• Infrastructure and technical environment.
• Software development and deployment of updates.
• Monitoring availability and meeting the service parameters defined in the SLA.
• Security, backups, and data recovery — to the extent provided for in the agreement.

A company using an ERP system

• Configuration and daily use
• Configuring business processes and system settings.
• Granting permissions and managing user accounts.
• Ensuring the quality of data entry.
• Maintaining the security of devices, passwords, and system usage practices.
• Verifying that the solution aligns with company requirements and data protection policies.

The precise division of responsibilities depends on the contract and the architecture of the solution. The mere fact that a SaaS model is used does not, for instance, determine who is responsible for creating backups, managing their retention, or testing data recovery.

What terms should you know before signing a contract with a SaaS provider?

Using an ERP system in a SaaS model involves specific principles regarding software access and maintenance. Being familiar with these principles makes it easier to evaluate the terms of the partnership and provides a better understanding of the capabilities and limitations associated with the chosen solution.

• Subscription

A fee for using the system over a specified period. Its amount may depend on factors such as the number of users, the modules included, or the scope of the service.

• SLA (Service Level Agreement)

Contractual service parameters, such as the declared level of availability, the procedure for reporting incidents, and response times. It is also worth checking the terms for compensation in the event that these conditions are not met.

• Tenant

A dedicated environment for a single client within a multi-tenant system. In this context, the isolation of client data is a fundamental requirement.

• Update

A software change, such as security patches, bug fixes, or new features. Key considerations include the frequency of updates, the ability to perform testing, and the impact of changes on integrations.

• Backup

Saving data in a way that allows for its recovery following a failure or loss. Simply creating a backup does not guarantee that the data can be restored within the required timeframe.

• Availability

The period during which a service is available in accordance with the agreed-upon terms. A stated level—for example, 99.9%—must be interpreted within the context of the measurement methodology and any exclusions specified in the SLA.

• Data export

The ability to retrieve data from the system—for example, by exporting it to files or via an API—should be considered. Before implementation, it is advisable to clarify what data can be exported, in what format, at what cost, and within what timeframe following the termination of the agreement.

What should you look out for before signing a contract?

When preparing to enter into an agreement with a SaaS provider, it is good practice to examine the service parameters guaranteed under the Service Level Agreement (SLA), how system availability is measured, and the procedures followed in the event of a failure. Equally important are the policies for data backup and recovery, as well as the terms for data export—both during the term of the agreement and after the partnership has ended. It is also advisable to clearly define the respective responsibilities of the system provider and the company using the ERP software, in order to avoid misunderstandings or gaps in the division of duties.

The 6 main advantages of Cloud ERP

A cloud-based system offers numerous benefits, both in terms of IT infrastructure and day-to-day business management. The most significant of these include:

1. Faster system launch – the company does not need to prepare the entire server infrastructure itself. This can shorten the implementation period, although it should be noted that the actual pace still depends on the complexity of the processes and the level of integration required.
2. Easier scaling – as the company grows, it can increase the number of users, expand the range of features, and adjust the resources used to meet current needs.
3. Access from various locations – employees can use the system via the internet, whether they are working at the headquarters, a branch office, or remotely. This facilitates collaboration between teams.
4. Fewer technical responsibilities – the provider may take on some tasks related to maintaining the infrastructure or applications, depending on the service model and contractual terms. However, the provider is not always equally responsible for the environment or system updates. While this allows the company to reduce the workload associated with infrastructure management, it remains responsible for configuration, user permissions, integrations, and how data is utilized.
5. Lower initial costs – there is no need to invest in one’s own servers or their setup. Subscription fees make expense planning easier, though they are not the only budget item; the total cost of the system also depends on implementation, integration, and ongoing development.
6. Phased implementation – the company can roll out additional modules and integrations as needed, rather than implementing changes across all business areas at once.

The cloud model has its limits, too. What can hinder the use of an ERP system?

Moving an ERP system to the cloud can simplify infrastructure management, but it does not guarantee a perfect system. Much depends on the specifics of the company, the technologies employed, and how work is organized. Limitations may arise regarding both day-to-day access to the system and its future development.

• Dependence on an internet connection – connectivity issues or service unavailability can hinder work and access to real-time data.
• Limited flexibility for customization – cloud-based solutions may restrict the ability to implement highly bespoke modifications, especially when the system follows a standardized update schedule.
• Rising costs – subscription fees may increase in line with the number of users, modules, and resources consumed. As a company grows, it is advisable to regularly evaluate the cost-effectiveness of the chosen model.
• Complex integrations – connecting an ERP system with machinery, legacy applications, or on-premise systems may require additional development work and specialized solutions.
• Security and compliance requirements – using the cloud does not absolve an organization of its responsibility for the proper management of data, access rights, and system usage.
• The need for organizational readiness – implementation requires streamlining processes, preparing data, and training staff. Without these steps, even a technically sound system may fail to deliver the expected results.

What is the conclusion? Cloud ERP is not a solution without limitations. It works best in scenarios where its flexibility and the reduced burden on the IT department outweigh any potential compromises regarding customization, integration, and operational workflows.

Cloud ERP costs – what is the real price of a cloud-based system?

The subscription fee is only one part of the expenses associated with using a cloud-based ERP system. To evaluate the cost-effectiveness of the solution, one must also consider the costs of implementation, customization to the company’s specific needs, and ongoing maintenance. A TCO (Total Cost of Ownership) analysis—which calculates the full cost of owning the system over a given period—can be very helpful in this regard.

TCO for Cloud ERP comprises both one-time and recurring expenses.

• Koszty wdrożenia: konfiguracja systemu, migracja i oczyszczanie danych, integracje z innymi aplikacjami oraz szkolenia pracowników.
• Koszty regularne: abonament, wsparcie techniczne i ewentualne opłaty za dodatkowe moduły, przestrzeń dyskową lub moc obliczeniową.
• Koszty rozwoju: rozbudowa funkcji, kolejne integracje i dostosowywanie systemu do zmieniających się procesów biznesowych.
• Koszty zakończenia współpracy: eksport danych, ich migracja do innego rozwiązania i ewentualne usługi związane z przeniesieniem systemu.

How is TCO calculated?

TCO (Total Cost of Ownership) comprises implementation costs, the sum of recurring costs, development costs, and the costs associated with phasing out or discontinuing the use of a solution. It is also necessary to account for internal and indirect costs, while simultaneously factoring in any potential benefits.

For example, a company might choose a system with an attractive subscription fee, yet one that requires costly integrations and data preparation. Another solution might have a higher monthly cost but result in lower expenses for customization and maintenance. Therefore, when comparing offers, it is advisable to use a consistent time horizon—such as five years—and include all projected costs, rather than focusing solely on the price of access to the system.

Only a comparison like this reveals the true cost of a cloud-based ERP system. A low initial cost does not necessarily mean the most affordable solution in the long run, just as a higher subscription fee does not automatically imply lower cost-effectiveness.

Security in Cloud ERP – who is responsible for what?

Moving an ERP system to the cloud does not mean that the provider assumes full responsibility for data security. While the provider secures the infrastructure and fulfills obligations related to maintaining the service, the company remains responsible for how the system is used and configured. The precise division of responsibilities depends on the service model and the terms of the agreement.

It should be emphasized that the table presents an example of how responsibilities may be divided, rather than a universal rule applicable to every ERP system in a SaaS model.

Cloud ERP, on-premise, or hybrid? The choice depends on your company’s needs

Not every organization requires the same ERP environment. It all depends on its business goals, the extent of its geographical dispersion, and various other factors. While one organization might prioritize the rapid launch of new branches, another might focus on the seamless integration of the system with machinery on the production floor. A mismatch between the chosen model and an organization’s specific requirements can lead to additional costs, operational limitations, and the eventual need to overhaul the implemented solutions.

• Cloud ERP model

This model is worth considering for companies that are growing rapidly, operate across multiple locations, or wish to standardize workflows across their various branches. The cloud-based approach facilitates the sharing of a common environment and allows it to evolve in line with the organization's needs. It yields the greatest benefits in scenarios where processes can be based on the system’s standard features, without the need for extensive, custom modifications.

• On-premise ERP 

This option may be better suited for organizations that require greater flexibility in customizing software, strict control over their environment, or direct integration with an extensive local infrastructure. It is also a viable choice in scenarios where internet access is limited or cannot serve as the sole means of connecting to the system. However, one must account for the resources required to maintain and develop an in-house environment.

• Hybrid model

This approach is suitable when migrating all processes to the cloud is neither feasible nor justified. A company can utilize a cloud-based ERP system for areas such as finance, sales, or reporting, while keeping production systems, specialized applications, or other solutions that cannot be easily replaced on-premises. In such cases, the seamless integration of both environments and the assurance of consistent data flow become critical.

Before making a decision, it is therefore worth determining which processes require flexibility, where local control is essential, and what limitations the organization is prepared to accept.

When is a Cloud ERP system the right practical choice?

The choice of a Cloud ERP system is often driven by a specific problem: fragmented data, difficulties in coordinating branch offices, or the need to rapidly deploy new features. In such scenarios, the cloud can facilitate system expansion without the need to build out the entire IT infrastructure in-house.

• A company is opening new branches. Instead of setting up a separate IT environment for each location, it can provide employees with a shared system for sales, inventory, and finance. This facilitates the implementation of standardized procedures and allows for the ongoing comparison of branch performance.
• A corporate group aims to unify its reporting. If individual companies use different systems, consolidating their results may require manual data aggregation. A shared ERP environment can streamline how operations are recorded and simplify the preparation of management reports.
• A company seeks to organize its fragmented applications. Data regarding orders, inventory levels, and financial settlements no longer need to circulate between independent software programs. Integrating processes within an ERP system can reduce the need for manual data entry and minimize the risk of discrepancies.
• A manufacturer is modernizing its systems but cannot migrate everything to the cloud. Machine control systems and solutions that require local operation can remain on-site, while functions such as finance, sales, and reporting can run in the cloud. This hybrid model allows for the development of business infrastructure without the need to replace the entire production environment.
• An organization intends to develop its system incrementally. Rather than implementing all features at once, it can begin with core processes and subsequently add components such as a Warehouse Management System (WMS), Business Intelligence (BI) tools, or mobile applications. This approach allows for the implementation work to be spread out over time, provided that each subsequent stage is planned as part of a coherent, unified architecture.

In each of these cases, the benefit stems from something more than just internet-based access to the system. A cloud ERP solution is justified when it helps resolve a specific operational problem and its delivery model aligns with the way the company operates.

How to assess your company’s readiness for a Cloud ERP implementation

The decision to move an ERP system to the cloud should be driven by business needs, rather than merely by the availability of the technology. Before selecting an implementation model, a company must assess whether its processes, data, and infrastructure can support such a transition, and identify any constraints that might affect the process. The better an organization understands its requirements before launching a project, the lower the risk of costly changes during implementation.

It is worth starting by looking at a few key areas.

• Business objectives – what problems is the new system intended to solve, and what outcomes should these changes deliver?
• Infrastructure and availability – is the internet connection sufficiently stable, and would any system downtime disrupt critical processes?
• Data and integrations – is the data complete and well-organized? With which other systems, applications, or devices must the ERP solution interface?
• System requirements – will standard features suffice, or does the company require extensive customizations?
• Security and regulations – what legal and organizational requirements must the solution meet, and how should data access be managed?
• IT resources and operational structure – does the company possess the expertise required to manage the system, integrations, and post-implementation changes?
• Vendor transition – does the organization have a plan for migrating data and processes to a different environment, should the current solution no longer meet its needs?

From analysis to implementation

An assessment of readiness should not end with a list of requirements. It is best conducted in stages, so that the decision on which model to choose is based on specific findings.

1. Business process analysis – identifying the problems, needs, and objectives that the ERP system is intended to address.
2. Requirements gathering – defining functional, technical, legal, and organizational needs.
3. Data and integration assessment – ​​evaluating data quality, interdependencies between systems, and the scope of necessary work.
4. Model selection – assessing cloud-based, on-premise, and hybrid deployment options based on the information gathered.
5. Pilot phase – testing selected processes and integrations prior to a full-scale rollout.
6. Phased migration and performance measurement – ​​gradually transitioning processes, monitoring operational accuracy, and verifying whether the established objectives have been met.

A well-prepared implementation makes it possible to assess not only whether the system is functioning correctly, but also whether it is delivering the expected business outcomes. It is therefore advisable to define success metrics at the very outset—for example, reducing order processing times, minimizing data errors, or improving reporting. This allows you to verify, following implementation, whether the change has effectively resolved the issues that prompted the initiative in the first place.

7 mistakes when choosing a Cloud ERP system that can increase implementation costs

Choosing a Cloud ERP system is a decision with consequences that extend well beyond the initial implementation. Flawed assumptions during the planning phase can lead to additional costs, delays, and operational challenges in day-to-day work. Which pitfalls should you avoid?

1. Comparing only subscription fees. A lower monthly charge does not necessarily mean a more cost-effective solution. Implementation, integration, training, and ongoing system development costs are also significant factors.
2. Overlooking the Total Cost of Ownership (TCO). Without accounting for both one-time and recurring expenses, it is difficult to accurately assess the system's cost-effectiveness over several years.
3. Underestimating data migration and integration. Transferring information from existing software, organizing that data, and connecting an ERP system with other applications may require more effort than initially anticipated.
4. Assuming the vendor is responsible for all aspects of security. While the vendor secures the environment they manage, the company remains responsible for its own actions, such as managing access rights and ensuring the system is configured correctly.
5. Neglecting Service Level Agreement (SLA) terms and data export provisions. A lack of clear arrangements regarding service availability, incident response, and data recovery/export options can hinder business operations or make it difficult to switch vendors.
6. Migrating disorganized processes into a new system. Automation cannot fix inconsistent procedures or flawed data. Without first streamlining processes, a company may simply carry its existing problems over into the new environment.
7. Underestimating the importance of training and change management. Even a well-chosen system will fail to deliver the expected results if employees do not know how to use it or if the new procedures remain unclear.

Most of these errors can be avoided through a thorough pre-implementation analysis. It allows for an assessment not only of the system's capabilities but also of the actual costs, the organization's readiness, and risks that might only emerge during the use of the ERP system.

Summary

A cloud-based ERP system is not automatically better or cheaper than an on-premises solution. Its cost-effectiveness depends on the specific nature of the organization, integration requirements, the scope of necessary modifications, and long-term costs. Other significant factors include how the company manages its data, the level of risk it is willing to accept, and the direction in which it intends to evolve its processes.

Therefore, when making a choice, it is worth looking beyond a simple list of features and subscription costs. The starting point should be an analysis of business processes and the organization's readiness for change. This helps determine which areas can be migrated to the cloud, where greater control over the environment is required, and whether a cloud, on-premises, or hybrid model is the best solution.

Conducting a process workshop—involving those responsible for key business areas alongside the IT team—can be highly beneficial. A collaborative analysis of requirements, integrations, data, and costs allows for the verification of assumptions before implementation begins. As a result, selecting an ERP system becomes an informed business decision rather than merely a change in technology.

FAQ

1. What is cloud-based ERP?

Cloud-based ERP is an enterprise resource planning system delivered via the internet. The provider maintains the technical environment, while the company utilizes the system's features without needing to manage the underlying server infrastructure itself. This results in fewer responsibilities for the company, as—depending on the service model—the provider may be responsible for maintaining the infrastructure or the application, as well as performing updates. The precise division of responsibilities is defined by the contract.

2. What is the SaaS model in the context of ERP?

SaaS (Software as a Service) is a model in which the provider delivers an ERP system as a managed service, taking responsibility for its maintenance and development within the scope defined by the contract. The client accesses the system over the internet and manages aspects such as process configuration, user access, and data. While SaaS is frequently billed via a subscription or recurring fee, the payment structure alone does not define whether a solution operates under this model.

3. What are the main advantages and disadvantages of Cloud ERP?

Advantages include easier scalability, access from various locations, reduced responsibilities regarding infrastructure maintenance, and the ability to deploy the system more quickly. Limitations include dependence on the internet and the service provider, potentially less flexibility for modifications, and subscription costs that may increase as the company’s needs grow.

4. How does Cloud ERP differ from an on-premise system?

In a cloud model, the service provider maintains the infrastructure and handles specific technical responsibilities. In an on-premise system, the company—or its IT partner—is responsible for the majority of the environment. Differences also exist regarding financing, updates, scalability, and the level of control over the system.

5. Is a cloud-based ERP system secure?

It can provide a high level of security, but this depends on the security measures in place, the system configuration, and how it is used. Before making a choice, it is worth examining aspects such as data encryption, access control, multi-factor authentication, backups, and incident response procedures. Simply opting for a cloud solution does not automatically guarantee regulatory compliance.

6. How much does an ERP system in a SaaS model cost?

The cost depends on factors such as the number of users, the scope of features, and the terms of the subscription. In addition to the subscription fee, one must also account for implementation, data migration, integrations, training, support, and any potential future system development. The overall cost-effectiveness is best evaluated using TCO (Total Cost of Ownership)—the total cost of owning and maintaining the system over a specific period.

7. Can Cloud ERP be integrated with on-premises systems?

Yes. Integration can be achieved through methods such as APIs, pre-built connectors, or other data exchange mechanisms. The scope of integration depends on the capabilities of both systems, the available interfaces, and specific technical requirements. In the case of legacy applications or industrial machinery, additional work may be required to facilitate integration.

8. For which types of companies is a cloud-based ERP a good choice?

Cloud ERP is worth considering for companies that are growing rapidly, operating across multiple locations, looking to standardize processes, or aiming to reduce the burden of maintaining their own IT infrastructure. It may not always be the best solution for organizations that require highly customized modifications, strict control over their computing environment, or extensive on-premises integrations.

9. How can data be transferred from an existing system to the cloud?

It is best to begin the migration process by analyzing the data and the interdependencies between systems. Next, the data should be organized and cleaned, field mapping prepared, the transfer tested, and the accuracy of the results verified. For larger-scale implementations, a phased migration—preceded by a pilot project—may be a safer approach.

10. What should be considered regarding the SLA and the contract with the provider?

An SLA (Service Level Agreement) defines the agreed-upon parameters for service delivery. It is important to review the system’s guaranteed availability, the methods for measuring performance and handling outages, response times, and the protocols for data backups and recovery. The contract should also clearly outline the division of responsibilities, terms for data export, procedures for terminating the partnership, and any potential costs associated with migrating to a different solution.

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