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Should Your ERP Meal Plan Include the McCloud?

Written By: Aleksey Osintsev
Published On: August 23 2013

I have observed the enterprise software industry over a number of years, conducting research and reading tons of publications on ERP and other enterprise software issues, and I have noticed that cloud vendors and industry analysts frequently use analogies to describe software offerings and, more recently, to help businesses better understand the cloud, or to inspire trust and interest in cloud-hosted solutions.

For example, I have seen such analogies as owning versus renting a car or owning versus renting a house used to talk about on-premises versus cloud-hosted solutions, but in my opinion comparisons like these don’t reflect reality accurately enough to be valid. I’ve come up with a couple of analogies of my own that I think better reflect the nature of cloud computing, specifically cloud-based multitenant business applications, as they are often regarded as the quintessence of a cloud offering, promising notable advantages in most aspects of IT usage.

“Would You Like CRM With That?”
The first analogy that comes to mind when I think of a “multitenant cloud application” is a fast food restaurant. And if it’s a large cloud software vendor, we’re talking about a large fast food restaurant chain. I know what you’re thinking…hamburgers or sandwiches don’t have much in common with software functionality and databases. So why do I think of McDonalds and others of that ilk when I think about multitenant cloud apps? The reason is that there is a lot of similarities between how the fast food industry and software multitenancy operate.

Let’s look a little closer at fast food and the need it fills. If you don’t care for fancy food and want just basic eatables to immediately fight your hunger, fast food joints are an affordable and easy way to go. Some people even enjoy this type of food and are able to find different taste nuances in it. But, do not set your expectations towards receiving fancy dishes and a personalized level of service with this type of food provider. Instead, most likely it’s going to be a uniform and standard product that far from fits with higher-than-average taste preferences and is offered with only a basic level of service. The core idea of such restaurants is to create products that could satisfy most people and to quickly sell a small number of unified products to as many customers as possible at the lowest possible price, with the minimum amount of time spent with each individual customer. Uniformity, a limited menu, high sales volumes, lower cost, and high speed of service are typical features of fast food restaurants.

You can see now where I’m going with this… although a direct correlation between multitenant application delivery over the cloud environment and fast food restaurants doesn’t work (the enterprise software industry is way more complex, the customer base is quite different, and obviously the product is very different as well), certain similarities are more than obvious: exactly the same product is offered to an unlimited range of potential customers, there are highly standardized delivery and service terms for everyone (no unique contract changes are allowed, besides certain standard options), and there is a relatively small level of attention given to each client.

Certainly, many businesses, especially those of small and medium size, would be more than happy to be able to reach software functionality that had been unavailable before due to its high cost and exorbitant complexity. This “accessibility to all” is a clear advantage of multitenant systems. However, companies with more than average complexity in their business processes, especially from the manufacturing or distribution sides, may not be satisfied with the functionality available through a cloud-based multitenant solution, as they have unique processes that cannot be covered with a standard application. That’s why the most widely used multitenant cloud applications now are those that support standardized processes such as CRM, email, or payroll, which are applicable to all companies, regardless of size or vertical industry.

Owning vs. Renting—The Age-old Debate
Applies to More Than Just Housing
An analogy for multitenant business applications that I have seen recently is a comparison of renting and owning a house. In my view, the analogy of owning a house versus renting an apartment is more precise. Rental apartments are great if you like the lifestyle associated with living in a more urban area and not having to do home repairs, or if you just moved from another area and need a place to stay for a year or two, or you may want to use renting as an easy option while being a student or a young worker, before deciding to purchase your own home. Living in an apartment, you can paint the walls, put furniture where you want, and you can decorate it as you like. In other words, you can customize your rental dwelling up to certain point. But in no circumstances are you able to remove or build walls, build an extension onto the building, or add a balcony. And no matter what, you have to pay your rental payments for the whole time you’re using the apartment. Alternatively, you can buy a house. Yes, this will require long-term financial commitment in a capital investment, but you are free to modify the structure as much as you want, and after the mortgage is paid off, it’s totally your house.

Multitenant cloud software to me looks to a great extent like a rental apartment, as it satisfies the needs of businesses that are ready to accept the disadvantages of using non-modifiable software—exactly the same version of the software as any other purchaser, including one’s competitors. Of course, the advantages of this are minimal capital investment, a lower entry level, and higher affordability, all criteria that are especially important for micro and small businesses.

At the end of the day, there are many viable deployment models that can make sense, and all are capable of attracting their own customers. But there is no single answer for everything, and no across-the-board advice can be given on what deployment option should be preferred. Just as the decision to go to a fast-food restaurant depends on many factors, such as the activity you’re doing at the time, your budget, and your diet preferences, and buying a house similarly depends on budget, place in life, and lifestyle, the choice of which ERP deployment to go with depends on dozens of unique factors specific to your company, such as strategy, market and product types, geographical presence, size and ownership structure, and many others. Careful evaluation of important criteria as well as the company’s specific preferences and limitations, and considering all possible options, whether they are cloud, on-premise, or hybrid, are the best ways to select the best fit ERP deployment option for your company.
 
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