Journal:Moving ERP systems to the cloud: Data security issues

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Full article title Moving ERP systems to the cloud: Data security issues
Journal Journal of Information Systems Engineering & Management
Author(s) Saa, Pablo; Costales, Andrés Cueva; Moscoso-Zea, Oswaldo; Lujan-Mora, Sergio
Author affiliation(s) Universidad Tecnológica Equinoccial, Yachay Public Company, University of Alicante
Primary contact Email: psaa at ute dot edu dot ec
Year published 2017
Volume and issue 2(4)
Page(s) 21
DOI 10.20897/jisem.201721
ISSN 2468-4376
Distribution license Creative Commons Attribution 4.0 International
Website http://www.lectitopublishing.nl/Article/Detail/8972P1SA
Download http://www.lectitopublishing.nl/download/8972P1SA (PDF)

Abstract

This paper brings to light data security issues and concerns for organizations by moving their enterprise resource planning (ERP) systems to the cloud. Cloud computing has become the new trend of how organizations conduct business and has enabled them to innovate and compete in a dynamic environment through new and innovative business models. The growing popularity and success of the cloud has led to the emergence of cloud-based software as a service (SaaS) ERP systems, a new alternative approach to traditional on-premise ERP systems. Cloud-based ERP has a myriad of benefits for organizations. However, infrastructure engineers need to address data security issues before moving their enterprise applications to the cloud. Cloud-based ERP raises specific concerns about the confidentiality and integrity of the data stored in the cloud. Such concerns that affect the adoption of cloud-based ERP are based on the size of the organization. Small to medium enterprises (SMEs) gain the maximum benefits from cloud-based ERP as many of the concerns around data security are not relevant to them. On the contrary, larger organizations are more cautious in moving their mission-critical enterprise applications to the cloud. A hybrid solution where organizations can choose to keep their sensitive applications on-premise while leveraging the benefits of the cloud is proposed in this paper as an effective solution that is gaining momentum and popularity for large organizations.

Keywords: ERP, cloud computing, cloud ERP, data security, confidentiality, integrity

Introduction

“The cloud” has been a buzzword in the last few years and has caused a revolution in the information and communication technologies (ICT) industry. As IBM states, “Cloud computing, often referred to as simply ‘the cloud,’ is the delivery of on-demand computing resources, everything from applications to data centers over the internet on a pay-for-use basis.”[1] This new trend changes the way organizations deploy services, platforms, and infrastructure of information technologies (IT). The variety of applications and services offered by this new concept affect organizations and individuals who notice the benefits of cloud services in terms of efficiency, flexibility, and reduced investment effort, while technology companies and traditional operators see an opportunity to expand their businesses.[2]

According to Gartner, cloud-based services can be defined as “massively scalable system capabilities delivered as a service to external users using internet technologies.”[3] A study about cloud computing models describes that based on the completeness and abstraction levels of services delivered to the end user, there are three types of services offered through the cloud, namely infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), and software-as-a-service (SaaS).[4]

Cloud computing has marked a substantial change in how IT services are developed, implemented, updated, maintained, and paid for. The evolution from traditional service organizations to the emergence of full internet-based service providers, namely through the cloud, enables the provision of flexible, scalable, and economical services.[5]

In an environment of global competition, there is growing recognition of the central role of IT in determining the overall success of organizations. The alignment of business objectives, strategic vision, and information technology, combined with strategic planning, could be seen as a key objective to seek efficiency in their operations. Enterprise resource planning (ERP) systems have played an important role in the integration of business functions within organizations to support the generation of products and services.[6] In any modern organization, the term ERP refers to the software used to plan and manage the organization’s resources across all functional areas by integrating the information through those functions and beyond the boundaries of the organization.[7]

In today’s highly competitive business landscape, the trend for organizations is to focus their resources and efforts on what they do best and leave the supportive services in the hands of more specialized third parties. The world’s economic model in IT today is moving from “buy and own” (on-premise) to a subscription-based, pay-per-use (cloud-based) model. The migration from traditional (on-premise) ERP to cloud-based ERP could help organizations to manage their costs efficiently and improve their operations. As such, deploying ERP software in a hosted or on-demand environment could support organizations to improve their business processes and remain competitive.

Cloud-based ERP provides organizations with the possibility to choose the provider that best suits their needs, eliminating inflexible traditional on-premise ERP solutions. However, Lenart[8] argued that while there are many advantages to the use of ERP implemented in a SaaS model, there also are drawbacks, especially those related to security and integrity of the data stored in the cloud.

Hence, the research question explored in this paper is “what are the data security issues in cloud-based SaaS ERPs?”

The next section presents the methodology used in this study. Following that is a literature review done on cloud-based ERP, comparing the advantages of ERP when adopted as a pay-per-use model versus a traditional on-premise solution. After the literature review several findings are presented on cloud ERP, illustrating the adoption factors and benefits for small, medium, and large organizations. Finally, the paper concludes with recommendations for organizations to ensure the security of sensitive corporate information when adopting cloud-based ERP, as well as the conclusion.

Method

The research approach was based on an exploratory search to review the existing literature on SaaS cloud-based ERPs and their benefits. Additionally, several papers were studied to identify issues on data security, particularly confidentiality and integrity problems that organizations should be aware of before adopting cloud-based ERP solutions. More than 50 articles from 2008 to 2015 were found from several A and A* journals[9] such as Journal of Information Systems, MIS quarterly, Journal of Innovation, Management and Technology, Journal of Systems and Information Technology, International Journal of Computer Applications, and Journal of Network and Computer Applications, among others. Searches were made using remarked academic databases and search engines for computer science and information systems fields: IEEE Xplore, Emerald, ACM Digital Library, Gartner Core Research, Science Direct, and Google Scholar. Furthermore, specific search terms included “cloud ERP,” “hybrid ERP,” “implementation of ERP,” “SaaS ERP,” “cloud computing,” and “data security issues.”

After reviewing all the articles and papers, key insights and findings were gathered and classified according to the size of organizations. Based on the findings, several recommendations and possible solutions are outlined in this paper.

Literature review

Cloud ERP

The success of cloud computing, combined with the increasing pressure on organizations to respond to unique customer needs in the increasingly competitive business environments of today, has given rise to the new subscription-based delivery model for ERP, also referred to as cloud-based ERP or SaaS ERP. This new model of ERP systems functions in the same way as a traditional on-premise ERP solution. The main difference is that the infrastructure (the software, as well as the hardware and network connection) adopts a pay-per-use model; in other words, ERP is delivered as a service.[7] The ERP in a SaaS model is accessed over the internet, while the application and data is controlled by the cloud service provider and offered as a “ready-to-use” product to the end client for a monthly subscription fee.[10]

Traditional ERP vs cloud ERP

A cloud-based ERP system uses the advantages of cloud computing to offer a new and more flexible approach to host and use ERP systems. A widespread shift from traditional ERP system architecture towards cloud-based SaaS ERP systems is ongoing.[8] The advantages of cloud computing are for example easy usage and accessibility, virtualized resources, scalability, affordability, and availability, guaranteed through service level agreements (SLA).[11] Cloud computing, and in particular SaaS technology, enables ERP systems to invert some of their typical weaknesses which are inflexibility, lack of scalability, and consummation of massive local resources (hardware, manpower, and financial expenditures) into advantages. Although significant concerns remain in the form of limited functionality, the potential loss of internal control, performance reliability, and security, cloud-based models continue to gain traction.[12]

Figure 1 clearly shows the differences in operating costs, solution complexity, and implementation time of a traditional on-premise ERP system in comparison to cloud-based ERP systems.


Fig1 Saa JofInfoSysEngMan2017 2-4.png

Figure 1. ERP systems deployment models[12]

In comparison to traditional ERPs, the advantages of cloud-based ERPs include[10]:

  • enabling smaller clients who are not able to set up a complete, complex ERP system on-premise to use ERP;
  • saving infrastructure expenditures (no large up-front capital investment necessary), as well as software, maintenance, and updating costs[13];
  • reducing the staff needed for support and maintenance;
  • enabling faster implementation of a cloud-based ERP, with less effort needed due to its agile design[13]; and
  • offering better scalability (hardware/performance/user accounts can be increased quickly when needed but can also be easily reduced as well when resources are not needed anymore);
  • enabling mobility (server in the cloud is always accessible, wherever the employee works).

Possible disadvantages include:

  • organizational data is stored in the cloud and not on-premise;
  • possible integrity and security issues due to loss of control over data storage and systems; and
  • dependency on the cloud provider.

Data security issues in cloud ERP

As discussed in the previous sections, there is a clear tendency to move enterprise services and systems to the cloud. However, it is important for organizations that want to implement or use an ERP in the cloud (SaaS, PaaS or IaaS) to address the possible issues and risks of migration. Some of the main drawbacks in any cloud-based ERP are related to data security, performance, and availability. Dillon et al.[14] have categorized security of data as the primary concern for organizations. Accordingly, this paper is focused on data security issues for cloud (SaaS) ERP.

Bishop[15] states that computer security relies on the confidentiality, integrity, and availability of data. From that context, cloud computing and ERP systems directly influence the required level of security. For example, as mentioned in the previous sections, ERP systems manage organizational data for essential business operations. Therefore, it is crucial for organizations to ensure data confidentiality and integrity in a cloud environment.

Confidentiality

Weng and Hung[16] explain that when organizations adopt cloud-based ERP systems, they should be prepared to mitigate the risks around cloud technologies and prevent unauthorized usage of data. In addition, Johansson et al.[17] discover that organizations might feel insecure storing their data at external providers without having direct control over the data. Another problem that might affect the confidentially of data is the lack of control over the staff from the cloud provider, who could access and retrieve data for dishonest or even criminal activities. For instance, Hashizume et al.[18] argue that providers might not perform detailed background checks on their staff which has unlimited access to the cloud data. Consequently, the key challenges to adopting cloud-based ERP are as follows.

Uncertainty around data storage arrangements

With the SaaS model, the client does not have any control over the IT infrastructure.[19] Moreover, Puthal et al.[20] mention that the same provider often hosts data from several clients in the same data center. This type of hosting increases the risk of data leakage or corporate espionage. On the contrary, with on-premise ERP systems, organizations have absolute control over their data and infrastructure. Consequently, the way in which providers ensure the security and confidentiality of the client’s data is one of the key challenges in the implementation of cloud-based ERP. Furthermore, in cases where the provider also offers public access to specific cloud services, the security challenges are even higher.

Lack of control over the security protocols and standards

Even though the number of reported security incidents from the industry regarding cloud-based ERPs is still small, its rapid adoption increasingly raises security concerns for organizations, much more than traditional on-premise ERPs did.[21] Furthermore, the clients do not have full control or monitoring capabilities about who accesses their data from the provider side.[18] The same applies to the protocols and standards used by providers to hire personnel and to implement or monitor their security infrastructure. Consequently, as these factors are dependent on the provider itself, a high level of uncertainty must be considered when implementing ERP on the cloud.

Integrity

The second main concern of securing enterprise data in the cloud is the need to ensure uniformity of the stored data. As mentioned by Puthal et al.[20], the integrity of data can easily be lost or affected because of cloud providers’ errors and failures. The same authors also argue that the traditional enterprise methods to validate the correctness of data are outside the enterprises’ control; they are the responsibility of the cloud provider. As a consequence, a common method used to ensure data integrity in cloud environments is public auditing. This method uses a third-party verifier that provides expert integrity checking services.[20] Even though the method we mention is commonly used by cloud providers, it raises additional issues like the risk of sensitive information leakage from organizations using cloud providers. From a similar perspective, Akande et al.[22] claim that the methods of authentication and the levels of authorization to manipulate data are crucial concerns for the overall data integrity.

The process of selecting and adopting a cloud provider should also take into consideration the following challenges.

Relationship of trust between the cloud provider and client

Assuring the integrity of data is mainly the responsibility of the provider. Therefore, clients must trust the providers to comply with the agreed-on security measures and protocols to achieve integrity of data. As mentioned by several authors[23][24], the relationship of trust is based not only on the provider’s reputation but also on the specifications of the SLAs between them.

Provider’s transaction management standards

Subashini and Kavitha[24] argue that in complex settings like cloud computing, there is a high degree of difficulty to assure data integrity. They discuss that the HTTP transaction protocol does not provide guaranteed delivery of data. Additionally, the study shows that SaaS applications should be based on standardized application program interfaces (APIs) as a technological basis for interorganizational systems communication. Standardized APIs ensure that only intended read and write access of data is allowed. However, this best practice to manage data integrity is often not considered by cloud service providers.

Summary of data security issues

Based on the literature review, Table 1 summarizes the major data security concerns that IT leaders should consider in order to move their ERP systems into the cloud.

Table 1. Data security issues
Issue Description
Confidentiality

Lack of data control
Lack of staff control from cloud provider
Uncertainty on data storage arrangements
Lack of control over security protocols and standards

Integrity

Lack of uniformity on stored data
Information leakage by third-parties over organizations using cloud providers
Lack of trust between the cloud provider and client
Beware of provider’s transaction management standards

Availability

Depends on cloud provider

Findings

Cloud technologies provide a disruptive alternative to traditional on-premise ERP solutions and are offering innovative ways to generate business value and maintain competitive advantage.[16] In addition to the myriad benefits that cloud-based ERP offers — such as flexibility, scalability, ease of implementation, and cost savings[12] — one of the biggest impediments to adopt cloud-based ERP is the risk around data security, namely integrity and confidentiality of the organization's data. In a recent survey conducted by the IDC group, of the 1,100 organizations surveyed on the top inhibitors for cloud-based ERP solutions, 50% of the organizations responded saying security and confidentiality of the data is their primary concern when thinking about moving their enterprise systems to the cloud.[25] See Figure 2 for more.


Fig2 Saa JofInfoSysEngMan2017 2-4.png

Figure 2. Top inhibitors for cloud ERP[25]

SaaS is gaining popularity and is changing the way organizations deploy and use ERP systems. However, the concerns around data integrity and confidentiality need to be addressed before organizations can successfully implement SaaS-based ERP solutions. Additionally, existing literature also shows that adoption rates for cloud-based ERP are highly dependent on the industry type and functions.[26] Given the important role that ERP systems play in the functioning of an organization, having to move mission-critical applications to a third-party cloud vendor and dealing with the associated security issues could negatively impact the SaaS based ERP adoption rates.[10]

It can be gathered from literature that due to the low capital expenditure and accelerated time to market, small to medium enterprises (SMEs) benefit from cloud-based ERPs more easily since many of the issues and challenges spin prevalently around data security, confidentiality, and concerns regarding relocating mission critical applications to the cloud, which are often no primary concerns to SMEs.[7][27] The risks associated with storing an organization’s sensitive data on the cloud, and its associated data confidentiality and integrity issues, are less of an inhibitor for SMEs while adopting cloud-based ERP, as they do not possess the financial resources to build and implement an on-premise ERP solution in the first place.[7] SMEs also believe that due to their lack of IT expertise, the security measures that the cloud-based ERP vendors provide are more sophisticated than those that they could implement on-premise. In the long run, the operational expenditure of a cloud-based ERP solution is far less for SMEs, thereby, enabling them to reduce their overall IT expenditure but at the same time allowing them to gain access to state-of-the-art IT infrastructure and expertise through a pay-per-use model.[7] A SaaS ERP solution also gives SMEs the opportunity to effectively channelize their resources to focus on the important aspects of their business, enabling them to maintain their competitive advantage.[7]

On the other hand, cloud-based ERP implementations raise a lot of security concerns for larger organizations, as they feel insecure to store their confidential and sensitive information on the cloud, particularly since they have to hand over control to the provider to process the information. Larger organizations are heavily concerned about the probability and impact from a potential security breach that could, for example, damage their reputation, result in financial losses, and in some cases even represent industrial espionage.[7] As a result of these concerns, larger organizations are not motivated to move their mission-critical applications to the cloud, and since they have normally highly skilled internal IT teams, they prefer to implement on-premise ERP systems with high security standards. Another factor that influences larger organizations to continue with their on-premise ERP solutions is the subscription model associated with SaaS-based solutions. Due to the large user base and the number of ERP modules of these organizations, in the long run the subscription fees for cloud-based ERPs are higher than the cost of implementing and maintaining an on-premise solution.[7] Thus, Utzig et al.[12] states, “the total cost of ownership for a cloud-based solution can be 50% to 60% less than for traditional solutions over a 10-year period.” In other words, large organizations moving their on-premise ERP systems cannot be related with cost savings. A previous study from Utzig et al.[12], represented in Figure 3, demonstrates the cost comparison between on-premise and cloud-based solutions.


Fig3 Saa JofInfoSysEngMan2017 2-4.png

Figure 3. Cost comparison of on-premise and cloud-based solutions[12]

Recommendations and possible solutions

Given the existing concerns about data security in cloud-based ERPs, organizations should take proactive measures to ensure that sufficient data security policies and procedures are in place and negotiated with the cloud vendor in order to secure the confidentiality and integrity of sensitive corporate data.[26] Following are some recommendations that organizations — specifically large enterprises — should follow before moving their ERP applications to the cloud[16]:

  • Organizations should negotiate stringent policies and SLAs with cloud vendors to ensure protection of sensitive information stored in the cloud. The policies should clearly outline and define what types of information are classified in which way.
  • The internal IT teams and security experts of the organizations should always be involved when evaluating cloud vendors and their security standards.
  • Organizations should always perform an extensive analysis and implement control mechanisms before sharing confidential and sensitive information to cloud vendors.
  • Organizations should evaluate which applications are critical to their business to maintain their competitive advantage and thereby define strict policies for the information and applications that could be moved to the cloud.
  • Cloud vendors should be transparent about their network security infrastructure and should provide this information to the client.
  • Organizations should educate their employees by conducting employee education training programs and campaigns about data security risks that are possible in cloud-based ERPs and the necessary actions to mitigate those risks to ensure sensitive corporate information is not compromised.[26]

In addition to the above recommendations, organizations should also ensure that a comprehensive security strategy is defined before migrating their enterprise applications to the cloud. Specific security standards need to be enforced at all levels by incorporating a framework that addresses security at the physical, network, data, and application level.[28] A security framework should include components relating to the physical security, data storage security, access security, application security, and transmission security. Physical security policies should include rules of conduct for employees and mechanisms to ensure those rules are being followed.

Strict access security policies to prevent unauthorized access from internal and external sources should be enforced as well. Application security should include authentication mechanisms to verify the identity of the end users. Data security should always include strong encryption techniques to prevent any possible data leakage.[29] Furthermore, the authentication module should exactly define what level of access each user has.

Additionally, mechanisms to ensure integrity of data and to safeguard its uniformity across multiple locations should be put in place. In order to assure confidentiality and integrity of data, its transmission to the provider should be secured by the application of encryption mechanisms. The recommended measurement should be applied on both the provider and the client sides.[28] This should include a contingency plan that allows the organization to have the capability and resources to move to a new cloud provider in case of an emergency in the shortest possible time with the least amount of impact.

SMEs are more open to move the entirety of their applications to the cloud, whereas larger organizations are still more conservative in their approach due to the risks associated with potential security breaches and their ability to implement high security standards for their on-premise solutions themselves.[7] Thus, SMEs adopt cloud-based ERP solutions at a faster rate than larger organizations. However, a recent development that is gaining popularity and momentum among larger organizations is that of a two-tier ERP strategy also known as hybrid cloud-based ERP. Accordingly, Ruivo et al.[30] argue that more than 77% of IT firms will implement hybrid ERP solutions; however, only over 20% currently have structured plans to implement this technology. In addition, Peng and Gala[23] also consider a hybrid ERP as an effective solution for organizations to keep on-premise ERP core functions combined with business cloud services, before moving to full cloud-based ERP solution.

Hybrid cloud-based ERP provides organizations with the best of both worlds. Organizations can choose to keep their mission-critical applications on-premise while migrating the other modules of the ERP into the cloud. A report from PwC[26] suggests that one of the key aspects of hybrid ERP is allowing organizations to take out functions from on-premise ERP and move them to the cloud, therefore providing organizations with a higher degree of flexibility to support business operations with the use of cloud technology. For instance, the same report shows that the core operations related to inventory, financials, or employee master management could remain as part of the on-premise ERP. This agile and highly flexible approach allows them to implement more sophisticated, customer-driven business models.[31] It enables organizations to take advantage of the cloud-based ERP benefits while minimizing the risks for storing sensitive corporate data on the cloud.[23]

Conclusion

Several of cloud computing's benefits encourage organizations to evaluate and implement an ERP system in the cloud, based on the distribution model SaaS. This new approach to ERPs turns some of the weaknesses of traditional ERPs into benefits. The main benefits of cloud-based ERPs are its scalability and lower investment costs, creating opportunities for SMEs.

However, the main weaknesses and threats to this new approach are the security and integrity risks to the data stored in the system, which have been discussed in this paper. Large organizations especially adopt cloud-based ERP systems slowly due to concerns of storing sensitive information on third-party servers securely. The risk of breaches in security and integrity as well as possible misuse of confidential information by the service providers are further drawbacks.

Nevertheless, a new type of solution has begun to take hold in large organizations, one that combines the best of both worlds (cloud and traditional ERPs): hybrid cloud-based ERPs or two-tiered ERPs. Hybrid cloud-based ERPs allow organizations to store their most sensitive data in on-premise solutions while migrating the other modules into a cloud solution. This enables them to benefit from the agility and scalability of cloud-based ERP solutions while still keeping the security advantages from on-premise solutions for their mission-critical data. Another benefit inhered from cloud-based solutions is the ability to deploy services on-demand, reducing the risk associated with the implementation of an entire module for a core on-premise ERP. Moreover, the ability to enhance mobility, system performance, and customization are driving organizations to move to hybrid ERP solutions.[23] Therefore, hybrid cloud-based ERPs are especially suitable for larger organizations, which have been hesitating to move into the cloud with their ERPs so far.

Acknowledgements

An initial version of this paper was published as “Data Security Issues in Cloud-Based Software-as-a-Service ERP,” in the 12th Iberian Conference on Information Systems and Technologies (CISTI 2017).

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Notes

This presentation is faithful to the original, with only a few minor changes to presentation. In some cases important information was missing from the references, and that information was added. The original article lists references alphabetically, but this version — by design — lists them in order of appearance.