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BCO6603 Enterprise Resource Planning Systems

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Course Code: BCO6603
University: Victoria University

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Country: Australia

Question:

There has been significant media attention and hype about the potential of cloud technologies.  Companies are investigating how these technologies can be applied to their ERP Systems requirements.  Companies are presented with a number of options which they need to consider.  These include:On-premise:  This refers to the traditional approach where a company purchases the licences for an ERP systems and then installs it within their company.
Hosted ERP System:  This refers to where the company purchases the licences for an ERP systems and then installs it on a third party’s infrastructure (hosted) in the cloud.  This is sometimes referred to as Infrastructure as a Service (IaaS).
Cloud ERP System:  This refers to an ERP system which is developed to operate purely in a cloud environment.  The company pays a subscription to access the ERP system and shares it with other companies.  This is often referred to as Software as a Service (SaaS).
Companies are faced with increasing pressure to investigate the potential of these different offerings and the strengths and weaknesses of each. Management have become aware that you are studying ERP Systems at Victoria University and have given you the task to prepare a research paper on the different ERP system offerings described above, their benefits and risks.  
In the discussion you should use case study examples (from literature searches) to demonstrate different company’s experiences in reinforcing the different benefits and weaknesses.

Answer:

Introduction
Enterprise Resource Planning (ERP) System is a management software, which is used to link all core activities that are carried out in a company ranging from manufacturing to production (Magal and Word 2011). Currently, many companies have incorporated ERP systems into their operations to ease management of business operations as well as enhancing automation. ERP systems operate on a real-time basis, therefore; updated information can be accessed anytime. This is achieved by integrating business processes to a common database, which is used to support business transactions through storing all types of data (Morris 2011, p.131).
There are different characteristics of ERP systems, for instance, the following are some of them; operating on real-time basis, common database and an integrated system. ERP systems are used to perform several tasks such as order and revenue tracking. Besides, ERP systems also enables a company to manage its activities centrally, which is very important as different security systems can be incorporated into a single system, therefore; protecting data against external and internal threats (Magal and Word 2011). Apart from integration of security systems, centralization also enhances standard coding as well as eliminating data consolidation. Hence, there is a need of companies to investigate different ways on which ERP systems can be deployed such as on-premise, hosted and cloud ERP systems (Haddara and Zach 2011). Management have realized that I’m studying ERP systems at Victoria University, therefore; issued a directive for preparing research paper on different ways on which ERP systems can be deployed including benefits and disadvantages associated with each option. Hence, the purpose of writing this research paper is to describe different offerings associated with ERP systems.
Brief description of report’s structure:

Executive summary, which has discussed overview of the report.

Introduction, which has introduced ERP systems. Also, purpose of the report has been explained as well as report sections.
Literature review, which has discussed recent researches supporting main topic of the report.
Research methodology. Data collection methods has been discussed.
ERP System Offerings. Different options have been discussed such as on-premise, hosted and cloud ERP systems.
Factors to consider when adopting ERP systems. Factors that a company should put into consideration prior to selecting best ERP option among different alternatives have been discussed.

Has provided summary of main points discussed in the report.
Recommendation and future directions of ERP systems. Discussed factors to be considered while selecting best option among different alternatives.
Acknowledge sources that have been used in the report.

Literature Review
The purpose of literature review is to describe some of recent researches in ERP systems. Presently, there are many arguments supporting concepts related to ERP systems. For instance, recent researches have shown that there are many benefits associated with ERP systems such as profit increase and productivity improvement, therefore; these systems have been adopted widely to act as a competing tool and replacing legacy systems (Oliveira and Martins 2011). However, researches have also revealed that that there are some problems and challenges encountered while implementing ERP systems. For instance, inadequate training has been established as one of key challenges, therefore; leading to failure of ERP systems. Apart from inadequate training, lack of management change in many organizations is also a barrier, which prevents adoption of ERP systems. Other obstacles that were identified include; less skilled IT staff and poor management of ERP systems (Schlichter and Kraemmergaard 2010, p.488).
Other than benefits and challenges, recent researches have also shown that ERP systems have undergone several changes such as on-premise to cloud-based ERP systems, which has been influenced through provision of cloud-based IT infrastructures that can be accessed easily rather than installed software licenses (Abugabah and Sanzogni 2010). For instance, many researchers have focused on developments in ERP systems such E-commerce and therefore; determining advantages of companies using recent technologies over those that are using traditional approach. Moreover, researchers have also identified some components of ERP systems such as Customer Relationship Management (CRM) that is used to provide platform, which enables management to interact with its customers (Abugabah and Sanzogni 2010). Furthermore, recent researches have also revealed that there are several types of ERP systems such as PeopleSoft and SAP R/3   
Research Methodology
There are different sources of data that provided basis for writing this research paper, for instance, both primary and secondary sources were used. For instance, Primary sources include; books, manuscripts and diaries. Also, interviewing of top management of companies that have incorporated ERP systems into their operations such as Marc Jacobs Corporation, which is situated in the U.S. (Jacob and Furgerson 2012). Apart from primary sources, the following are examples of secondary sources that were used; journals and magazine articles (Strom et al. 2012).  
ERP System Offerings
On-Premises is a traditional method for implementing software, which involves purchasing of software license, and afterwards, installing it within a company or an organization (Boillat and Legner 2013). Regarding ERP systems, companies can also buy ERP licenses and installs it on their in-house hardware (Bibi, Katsaros and Bozanis 2012). The Information Technology (IT) personnel is responsible for software maintenance. Apart from software maintenance, it is also responsible for upgrading software. However, companies can seek assistance from third parties despite installing the software on their computers. However, implementation of on-premise ERP system has faced stiff competition from hosted and cloud ERP systems (Winkler and Brown 2013). Characteristics of on-premise ERP systems include; customizable and hardware maintenance.
The following are benefits of on-premise ERP systems:

Easy control of data. ERP systems handles different types of information about a company, which are very confidential and sensitive ranging from login credentials such as password and usernames of employees to accounting information. Therefore, on-premise ERP systems can enable a company IT staff to control its entire business processes with a lot of ease, including security policies that are used to control access to resources and infrastructures. Thus, systems can be secured properly against attacks, which can jeopardize operations of a certain company (Duan et al. 2013).  
Reduces vendor dependency. For instance, on-premise ERP systems enables a company to make its own decisions, therefore; satisfying needs of the business. On the contrary, ERP systems provided by vendors such as hosted and cloud-based depends on decisions and technologies offered by specific vendors rather than incorporating best recent technologies that are available in the market. Therefore, different aspects can be changed when the need arises (Duan et al. 2013).  
Easy customization. Customization is associated with the process of developing software or offering solutions basing on requirements of the customer. Therefore, on-premise enhances flexibility as a company can incorporate any IT solution, which is available in consideration of their needs. Furthermore, on-premise ERP systems can enable companies to reuse their applications, which were tailored to meet their needs, therefore; preventing throwing away of such useful application.
Enhances sense of ownership. A company is entitled to all privileges and ownership rights, which are associated with ERP systems (Benlian 2011).  

The following are weaknesses associated with on-premise ERP systems:

It’s expensive to install. For instance, there are different costs incurred while installing on-premise ERP systems, for example, a company must purchase ERP software licenses, which can be costly. Apart from licenses cost, a company also needs to buy necessary hardware and infrastructures. Moreover, maintenance costs for hardware is also very higher, therefore, rendering entire installation process as expensive (Bibi, Katsaros and Bozanis 2012).
Takes a lot of time for implementation. There is a lot of complexity in configuring of devices as well as customization. For instance, customization increases overall time for upgrading ERP software since implementation requires some planning to enhance effectiveness. Therefore, difficulties encountered increases implementation time (Bibi, Katsaros and Bozanis 2012).
Difficulties in protecting data as security measures and policies are defined and implemented internally. ERP security includes protection of hardware, which are used in a company. Apart from hardware, facilities regarding data backup are also supposed to be secured. Moreover, disaster discovery methods are also required to be identified and implemented. Therefore, poor security management cam lead to data corruption, thus resulting in issues related to integrity and availability (Bibi, Katsaros and Bozanis 2012).
Many resources are required for smooth running of ERP systems. For instance, recent IT solutions require many resources, therefore; easing maintainability. Thus, less resources can interfere with smooth running of business processes. On the other hand, many resources reduce space and increases overall costs required for running ERP systems (Bibi, Katsaros and Bozanis 2012).

Hosted ERP System
Hosted ERP systems involves purchasing of ERP licenses, and afterwards, installing it on cloud-based infrastructures, which are provided with third parties (Lenart 2011). It is also referred to as Infrastructure as a Service (IaaS). A company can access solutions from dedicated servers if there is an internet connection. Software maintenance is done by a third party on the contrary to on-premise ERP systems. However, a company is entitled to software ownership privileges, for instance, management can choose whether to upgrade it or not (Al-Ghofaili and Al-Mashari 2014).    
The following are benefits of hosted ERP systems:

Cost savings. For instance, initial costs, which are incurred by a company are very less, therefore, easily affordable (Developing 2013).
Easy accessibility. For instance, access to ERP systems is not confined at a specific place or device, therefore; enabling a company to access it from anywhere, thus reducing problems related with data unavailability. Also, easy accessibility ensures smooth running of business processes as data is available when the need arises.
Reduced maintenance issues. A third party is responsible for updating ERP software. Therefore, a company focuses on achieving its objectives rather than managing ERP systems. Hence, increasing productivity (Makkar and Bist 2012).
High flexibility. Any changes can be accommodated easily without affecting performance of ERP systems, for instance, more users can be added to ERP systems when the need arises. Also, data is provided on real-time basis, therefore, enhancing ways on which different tasks are performed (Developing 2013).
Improved data security. Currently, data security is a major consideration for any company while adopting IT solutions. Therefore, most cloud-based vendors have incorporated security mechanisms into their infrastructure such as data encryption, hence making it difficult for intruders to access sensitive information about the company (Makkar and Bist 2012).

The following are weaknesses associated with Hosted ERP systems:

Throwing away of customized applications. For instance, useful applications that were tailored previously may be thrown away since they cannot be utilized in hosted ERP systems. For instance, this is contributed with provision of all resources required such as infrastructure, therefore; a company has no any control over resources that may be used rather only limited to purchasing of ERP licenses (Weng and Hung 2014).  
Less control. Vendors are provided with information about the company, therefore, if there are any issues or problems a company must contact its vendor. Also, security of ERP systems varies depending on the vendor, therefore, a company has no any control in matters relating with security issues (Weng and Hung 2014).
Data loss. For instance, data can be deleted accidentally from the database by ERP providers. Also, natural catastrophes such as fire can result in data loss. In such circumstances, data is lost permanently and cannot be retrieved unless there are data recovery and backups that have been put in place (Utzig et al. 2013, p. 3).   

Cloud ERP System
Cloud ERP systems operates on cloud environment. A company can pay for subscriptions to access ERP systems (Saeed, Skielse and Uppström 2012). It is like hosted ERP systems except its multitenant scenario, which enables many companies to share a single server and software. Security mechanisms are used to separate information of those companies. Maintenance and upgrades are handled by vendors. A company upgrades its software once there are new updates as it is used by different users, therefore, enhancing easy management of ERP systems on the vendor’s side (Saeed, Skielse and Uppström 2012). Cloud-based ERP systems is used widely, for instance, the following case study illustrates a petroleum company in Balkans that has incorporated ERP systems into its operations. The company consists of 15 departments, which are specialized to accomplish different activities such as quality assurance. Also, it has total of 2300 employees. The system was installed by SAP Hellas 8years ago. Annual subscription fee is approximately 200Euros for each user. The number of licenses provided was around 200 and each license was supposed to be shared among 3 users. Each license has its username and password (Markovi? 2017).
The following are benefits of cloud ERP systems:

Takes less time for implementing solutions. Less complex systems are used, therefore; easing configuration. Unlike on-premises that are tailored basing on customer requirements, therefore; increasing time for implementation (Shukla, S., Agarwal and Shukla, A. 2012, p. 8).
Initial costs incurred are very low as there is no need for purchasing infrastructures and hardware. The only required costs incurred is subscription fee that can be easily affordable (Shukla, S., Agarwal and Shukla, A. 2012, p. 8).
Data is owned by a company, therefore; it can opt to subscribe to other vendors once subscription term has ended (Scholtz and Atukwase 2016).
Easy accessibility. For instance, access to ERP systems is not confined at a specific place or device, therefore; enabling a company to access it from anywhere, thus reducing problems related with data unavailability. Also, easy accessibility ensures smooth running of business processes as data is available when the need arises.
Improved security. For instance, many vendors have invested much on security, therefore, information about a company cannot leak to any of its competitors or hackers. Also, there are data backups provided, hence corrupted data can be retrieved easily (Scholtz and Atukwase 2016).
Minimizes risks. On-premises requires purchasing of infrastructures thus susceptible to risks associated with compatibility and entire functionality of ERP systems. Also, involves purchasing of servers. On the other side, cloud ERP systems doesn’t require buying of hardware and other resources, therefore; management cannot take responsibility of any risks that may be caused (Shukla, S., Agarwal and Shukla, A. 2012, p. 8).

The following are weaknesses associated with cloud ERP systems:

Inaccessibility issues. For instance, a company can be prevented from accessing its data due to failure of paying subscription fee once previous term has ended. Also, low internet connection can result in inaccessibility issues since accessing ERP systems depend on internet, therefore; affecting smooth running of operations as required data may be unavailable. Also, data may be unavailable vendors have stopped their operations abruptly due to issues such as bankrupt and cybercrime (Shukla, S., Agarwal and Shukla, A. 2012, p. 9).
Inability of vendors to support operations of large companies. Currently, recent researches have revealed that most users of cloud ERP systems are small organizations. Therefore, infrastructure of different vendors can only support operations of small companies rather than bigger companies, which are complex (Scholtz and Atukwase 2016).
Subscription fee is very high. For instance, amount that is paid annually is higher than maintenance costs incurred for on-premises solutions, therefore; companies faced with financial constraints cannot be able to pay consistently, hence leading to unnecessary limitations for accessing their data (Scholtz and Atukwase 2016).  
Data security issues. Insecurity has become a major concern as far as cloud ERP systems are concerned regardless of the efforts that vendors have put in place to ensure that information is protected against attacks. For instance, the information is accessed only through the internet, therefore, systems are susceptible to breaching that can result in malfunctions thus halting operations till problem has been solution effectively (Scholtz and Atukwase 2016).
Data migration may be impossible. For instance, transferring data from cloud systems to new systems may be impossible despite owning it. This is because there are guidelines such as rules, which are provided by vendors regarding how data is accessed and used.  

Factors to Consider when Adopting ERP systems
Recent researches have revealed that most companies are migrating from on-premises to cloud ERP systems due to different reasons. For instance, companies that have financial constraints prefer cloud ERP systems since initial costs incurred are less (Boillat and Legner 2013). Also, distributed workforce has resulted in adoption of cloud-based ERP systems for easy access to information. Furthermore, presence of high internet connectivity in most places worldwide has also contributed vastly to incorporation of cloud-based ERP systems since data can be accessed easily; including less costs incurred for connecting to internet. Also, there are different factors that should be considered while implementing ERP systems. For instance, ABC company is one of the companies, which have adopted cloud ERP system. It is an Egyptian manufacturing company that deals with manufacturing of oil derivatives (Haddara 2014, p. 398). Its headquarters are situated in Europe. The data used in the case study was collected by interviewing relevant stakeholders. It consists of 23 employees. The consultant of the company was approached for adopting ERP systems but considered to creating accounts for different users. Unfortunately, this was against European laws in relation to transfer of data. Therefore, the only option was adopting ERP for linking ABC business processes (Haddara 2014, p. 398). The following are some of the factors that were considered by ABC company before incorporating ERP systems; cost and budget, functionality of ERP system, market position and reliability (Haddara 2014, p. 399).
Conclusion
To conclude, there are different options that should be put into consideration by companies before adopting ERP systems, for example, on-premise, hosted and cloud ERP systems as evidenced throughout the report. There are benefits and weaknesses associated with each option. For instance, the following are some of the benefits of on-promise ERP system; easy data control, reduced vendor dependencies, easy customization and enhancing sense of ownership. On the other hand, the following are some of its weaknesses; expensive to install, installation takes a long time, difficulties in protecting data and many resources are required for smooth running of ERP system. Some of advantages of hosted ERP system include; cost savings, easy accessibility, reduced maintenance issues, high flexibility and improved data security. However, it has some disadvantages such as throwing away of useful customized applications, less control and data loss. Moreover, benefits of cloud ERP system includes; less time for implementing solutions, initial costs are very low, data is owned by the company, easy accessibility, improved security and minimizes risks. Apart form benefits, cloud ERP systems has also weaknesses such as inaccessibility issues, high subscription fee, data security issues, data migration may be impossible and inability of vendors to support operations of large companies. However, there are some factors that are put into consideration before adopting ERP system, for example, cost and budget and reliability of ERP system.
Recommendation and Future Directions of ERP Systems
Having discussed benefits and weaknesses of different options for adopting ERP systems, management should follow some guidelines and factors before making any decision. For instance, there is no any best option that can be adopted since businesses have different goals and objectives, therefore, a company should select an option that can fit its requirements. For example, resource availability is one of the factors that should be considered. Apart from resource availability, other factors include the following; IT infrastructure and internet connection. In future, most companies will adopt cloud ERP systems due to financial constraints though on-premises may not disappear completely.
References
Abugabah, A. and Sanzogni, L. (2010) Enterprise resource planning (ERP) system in higher education: A literature review and implications. International Journal of Human and Social Sciences, 5(6), pp.395-399.
Al-Ghofaili, A.A. and Al-Mashari, M.A. (2014) ERP system adoption traditional ERP systems vs. cloud-based ERP systems. In Innovative Computing Technology (INTECH), 2014 Fourth International Conference on (pp. 135-139). IEEE.
Benlian, A. (2011) Is traditional, open-source, or on-demand first choice? Developing an AHP-based framework for the comparison of different software models in office suites selection. European Journal of Information Systems, 20(5), pp.542-559.
Bibi, S., Katsaros, D. and Bozanis, P. (2012) Business application acquisition: On-premise or SaaS-based solutions? IEEE software, 29(3), pp.86-93.
Boillat, T. and Legner, C. (2013) From on-premise software to cloud services: the impact of cloud computing on enterprise software vendors’ business models. Journal of theoretical and applied electronic commerce research, 8(3), pp.39-58.
Developing, H.E.V.A. (2013) What Is the Cloud?
Duan, J., Faker, P., Fesak, A. and Stuart, T. (2013) Benefits and drawbacks of cloud-based versus traditional ERP systems. Proceedings of the 2012-13 course on Advanced Resource Planning.
Haddara, M. (2014) ERP selection: the SMART way. Procedia Technology, 16, pp.394-403.
Haddara, M. and Zach, O. (2011) ERP systems in SMEs: A literature review. In System Sciences (HICSS), 2011 44th Hawaii International Conference on (pp. 1-10). IEEE.
Jacob, S.A. and Furgerson, S.P. (2012) Writing interview protocols and conducting interviews: Tips for students new to the field of qualitative research. The Qualitative Report, 17(42), pp.1-10.
Lenart, A. (2011) ERP in the Cloud–Benefits and Challenges. In EuroSymposium on Systems Analysis and Design (pp. 39-50). Springer, Berlin, Heidelberg.
Magal, S.R. and Word, J. (2011) Integrated business processes with ERP systems. Wiley Publishing.
Makkar, G.D. and Bist, M. (2012) EaaS-ERP as a Service. Journal of Information and Operations Management, 3(1), p.141.
Markovi?, F. (2017) Energy strategy of Russia in Western Balkans.
Morris, J.J. (2011) The impact of enterprise resource planning (ERP) systems on the effectiveness of internal controls over financial reporting. Journal of Information Systems, 25(1), pp.129-157.
Oliveira, T. and Martins, M.F. (2011) Literature review of information technology adoption models at firm level. Electronic Journal of Information Systems Evaluation, 14(1), p.110.
Saeed, I., Skielse, G.J. and Uppström, E. (2012) Cloud enterprise resource planning adoption: Motives & barriers. Advances in Enterprise Information Systems II, 429.
Schlichter, B.R. and Kraemmergaard, P. (2010) A comprehensive literature review of the ERP research field over a decade. Journal of Enterprise Information Management, 23(4), pp.486-520.
Scholtz, B. and Atukwase, D. (2016) An analysis of the perceived benefits and drawbacks of cloud ERP systems: A South African study. In Information Technology in Environmental Engineering (pp. 75-87). Springer, Cham.
Shukla, S., Agarwal, S. and Shukla, A. (2012) Trends in Cloud-ERP for SMB’s: A Review. International Journal of New Innovations in Engineering and Technology (IJNIET), 1(1), pp.7-11.
Strom, K., Berzofsky, M., Shook-Sa, B., Barrick, K., Daye, C., Horstmann, N. and Kinsey, S. (2010) The private security industry: A review of the definitions, available data sources, and paths moving forward. US Department of Justice and National Criminal Justice Reference Service, Final Report.
Utzig, C., Holland, D., Horvath, M. and Manohar, M. (2013) ERP in the Cloud Is It Ready? Are You? Perspective, pp.1-9.
Weng, F. and Hung, M.C. (2014) Competition and challenge on adopting cloud ERP. International Journal of Innovation, Management and Technology, 5(4), p.309.
Winkler, T.J. and Brown, C.V. (2013) Horizontal allocation of decision rights for on-premise applications and software-as-a-service. Journal of Management Information Systems, 30(3), pp.13-48.

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