With multiple definitions around cloud computing, posturing on the part of legacy software vendors and plenty of market hype, we felt it would be instructive to lay out how NetSuite defines cloud ERP. This is our definition, much of which is shared by leading industry analyst firms and thought leaders in the industry.

Enterprise Resource Planning (ERP) systems consist of a broad set of software with functionality to manage and monitor a business, including accounting and general ledger, inventory management and order management. Cloud ERP, or Software as a Service (SaaS)-based ERP, is software that is built and maintained by a software vendor in its own data center and delivered to customers over the Internet, usually on a subscription basis. A critical part of a cloud ERP system is a shared data model that provides one system of record for orders, customers, inventory and other vital data, feeding the business.

A cloud application must use a single, multi-tenant version of the software shared by all customers, with updates pushed automatically in a regular, scheduled cadence that can scale to more users rapidly. While vendors who host multiple instances of their software may call themselves cloud providers, in reality they are hosting companies, not cloud software providers. They cannot carry forward customizations or pass along economies of scale to their customers the way true cloud ERP providers can.

Five Things to Look for in Cloud ERP

When evaluating cloud-based ERP, there are five important characteristics to look for in cloud solution providers. These are:

  • Multi-tenancy. To maximize the economies of scale from shared resources, the system should have a multi-tenant architecture. This ensures that everyone is using the same version of the software and optimizes investments in training, upgrades, and tech support. The cloud provider can thus spend more money innovating new capabilities and the customers should benefit from both consistency and lower costs.
  • Customizability and automatic upgrades. Upgrades to the system should be automatic and involve little to no down time. Also, any customizations made to the system should carry over to the new release, sparing customers and partners from having to rewrite customizations and complementary applications.
  • Vendor’s viability
    The rise of the cloud has paved the way for new entrants into the market and buyers should carefully weigh vendor’s viability moving forward. Cloud ERP vendors positioned for an acquisition by a larger, legacy vendor may leave customers without a future direction and a round of venture backing does not mean a company will be able to support and update the product three, four or five years into the future. ERP is a long-term investment.
  • Proven track record. A cloud ERP vendor should be able to support multiple customers in every industry it serves, both large and small, with customers who will attest to the solution’s capabilities. Additionally, it must have proven service level agreement with at least 99% uptime and transparency into its operations. Cloud ERP vendors should comply with industry-leading certifications, including SSAE 16 (SOC 1), PCI-DSS and the US-EU Safe Harbor framework at a minimum.
  • Regular backup and disaster recovery capabilities.
    A key benefit of the cloud is that someone else shoulders the burden of backups and recovery, if needed. So look for redundancy in the design of its architecture (e.g. Internet connections, emergency power, data centers) and the locations of its data centers. If one is in hurricane-prone Florida, the secondary center should be elsewhere.

-Vishrut Parikh, Director, Product Marketing at NetSuite