Is Cloud Ringing the Death Toll for ERP?

Cloud computing is here to stay, but what does that mean for those who sell and implement ERP solutions today?

First, it means that there is a new way in which business software solutions are being purchased and consumed, and that means resellers need to pay close attention to the way they run their business. Secondly, it means that if ERP companies wish to remain in the game, they need to make some significant changes.

Cloud on its own doesn’t affect the validity of ERP. Businesses still require management software to help them run their organization effectively. What Cloud does do however, is level the playing field and make ERP solutions more accessible to the consumer. That means publishers and resellers need to pay attention.

New Cloud companies are popping up every day, and while laggards scramble to bring their on-premise solutions to the Cloud, these born in the Cloud players are discovering faster, easier, and less expensive ways to deliver ERP. Complex, highly customized and bulky solutions which come with a hefty price tag and a collection of features and functionality not required by the end-user are quickly being replaced by pay as you go solutions. Customer expectations are also changing; soon no one will be willing to accept that ERP requires a huge capital expenditure and lifelong commitment without first researching alternatives in the cloud.

 

Cloud ERP Product Cycle

Product Lifecycle for Cloud ERP Offering

 

While Cloud ERP is still an emerging market, it is fair to say that we’re moving beyond the early adopter stage. We’ve crossed the chasm, and are quickly headed towards the early majority market. Within the next 2 years we can expect to see a majority of ERP purchases made in the cloud.  In our opinion, Cloud ERP will not be an initial threat to a vendor’s existing up-market ERP customer base.  This market is highly saturated (+90%) and today we do not see a compelling value proposition for large customers to move completely to the Cloud.  We do see opportunities where Fortune 500 ERP customers may be interested in implementing edge software products in the cloud (ex. travel & expense, self-service, tax calculation and compliance, etc) as part of a hybrid deployment model.  Where we do see a threat/challenge to on-premise ERP is in the SMB arena – especially for new customers.  This market continues to be a strategic growth area for ERP and customers have a greater flexibility to leverage a SaaS or Cloud model.

The Fate of ERP

While it doesn’t appear that the fate of on-premise ERP solutions is entirely bleak, there will certainly be a marked shift towards Cloud based ones. In fact, the resellers can already feel this happening.  There are fewer people out there looking for business management systems in general, and in a time of economic uncertainty and tight budgets, the appeal of an operating expense and a per-seat price is more than appealing. Customers are becoming more likely to change their processes to align with the functions of a less expensive Cloud based solution, than to go through the process of building one which is fully customized. What’s more, people are less likely to pay the large price tag most often associated with ERP services, instead preferring a solution in which they can turn off functions (thus reducing costs) at their leisure. 

So no, Cloud isn’t exactly ringing the death toll for ERP solutions, but it is changing them. ERP will always be required by many types of organizations, but on-premise ERP may in fact not survive this shift long-term. If traditional ERP companies hope to survive the transition they need to be proactive about developing their Cloud solutions, and that means more than throwing up a landing page and calling yourself a Cloud player.

So what do you do?

If you’re an on-premise ERP reseller with no Cloud transition plan, you better get started. That means developing a team to strategize taking your solution to the cloud, putting the necessary resources behind it, and understanding why some customers have an inherent fear of the Cloud. If you’re already developing your Cloud solution, then keep at it and make sure you’re not just focusing on the solution, but on the marketing and sales as well. And if you’re already well entrenched with an ERP solution in the Cloud, then you should get ready to defend your competitive position because you won’t be alone for long.

ERP Deployment Types

ERP Deployment Types

 

Additionally, if you’re a company seeking out a new ERP system, you should carefully consider the benefits of using a Cloud solution. While we’re only entering the early majority market, Cloud computing is the wave of the future. As consumption models go, Cloud works for a majority of businesses today, and the list continues to grow. If you’re looking to move some of your capital expenses into operating expenses, and looking for a better way to manage your business, ERP in the Cloud might just be for you.

Guest blog by Jason Carroll with contributions from Brett Beaubouef

Jason is an industry analyst for Software ThinkTank.  Software ThinkTank is an online resource that helps businesses keep up-to-date with the latest trends, technology innovations and business solutions through a range of articles, case studies, guides and tools. Visit SoftwareThinkTank.com for more information.

SI Partner for PeopleSoft ERP

Blog Sponsor – Cardinal Point Solutions, LLC.

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About Brett Beaubouef
For the past twenty years Brett has helped customers select, implement, and manage ERP solutions across five industries (manufacturing, professional services, staffing, retail, and telecommunications). Business process knowledge and experience includes human resources, benefits, compensation, recruiting, time & attendance, finance, resource scheduling, contract administration, services procurement, sales, billings, project accounting, and project/portfolio management. Software selection experience includes evaluation of both ERP software and proposed implementation services. Brett has recently authored a book on leading ERP/COTS implementation strategies.

16 Responses to Is Cloud Ringing the Death Toll for ERP?

  1. amiv2 says:

    Excellent perspective from someone who is starting to see massing change. With this change, everyone around has to ADAPT. The adoption to change is not easy and certainly not uniform. Many companies will make lots of money, and many will go out of business. That is the life of business, somewhat similar to survival in the jungle. I work with a VoIP company and also participate and write using social media (I got here through your Linked-In link.) We are a small VoIP developer and integrator. We see what you notice clearly and are moving toward SaaS / Cloud deployments. It’s hard with traditional customers and sometimes even harder with customers that want “the latest”, yet don’t know what that means. See our offering at: http://bit.ly/tikalSAAS

  2. I think the majority of the specialized ERP vendors that I am familiar with (a specific industry) are several years away from being able to offer a cloud solution. For example, I completed a recent survey of 10 vendors and none of them had a SaaS or cloud offering. Only one offered a hosted service and only one offered a web interface. The web interface was intended to be used in the self-hosted model. The rest offer a client-server architecture.

    I think cloud ERP could offer better year-over-year costs but I’m not sure how much a company will save on the initial setup since the hardware to self-host is usually much less than the consulting / professional services fees to configure and customize the ERP.

    But if we look at a CRM like Salesforce.com – I think it’s clear that cloud offerings can be an effective, particularly when the users are distributed.

    Another advantage is that perhaps cloud ERP offerings have a more attractive price point that it encourages companies to spend less time on dubious customizations.

    It will be an interesting story to watch unfold.

  3. Great discussion. I’m keen to read more from you & contributors to the Network Barometer Report (due 6/25 from @DimensionData). You both circle: need for new portfolio disciplines in deciding where work and work loads will live given the weight of sunk investments, user experiences and security risk stemming from non-glam obsolescence and mounting criminal trends. Together you could frame an interesting way we should approach the questions–help us make informed near term choices and allow for some long bets/experimentation. This would be a useful follow up, particularly if co-authored.

  4. John says:

    On-Premise does not imply “Own”, right? I would say that on-premise hardware has facility and local resource requirements that are an issue, but in contrast cloud has connectivity issues. Not everyone can get FiOS. And if you purchase or lease facilities in a remote area to keep costs down then what, Satellite?

    Newly developed applications using cloud infrastructure can have all of their features rethought. So, pay-as-you-go, or pay-for-what-use can be considered as core features, but Microsoft Office doesn’t really work that way. You just get everything and use what you want, kind of like my broadband. Some things just take too much effort to account for. Could you imagine paying for storage bit by bit, and for every bit change. I mean you did cause the drive head to move when you update that bit.

    Clearly cloud scaling is compelling. Hard to scale with purchased hardware, or on-premise facilities today. But what about ERP solutions that directly integrate with facility operations such as Rockwell, Siemens, Wonderware, or even retail systems? Does HomeDepot Wi-Fi handhelds connect to the cloud? I realize that when I check out and pay with my ATM card that its basically SaaS, but it is the slowest part of the process. Imagine physical inventory counting taking 3-10 seconds per count? That data coming out of my PLC is very time sensitive. Can QoS really make sure the PLC bits get to the historian service running in Atlanta?

    Seems to me that the scaling features of the cloud would be good for everyone, on-premise or off. Why wouldn’t Microsoft put Azure into Windows 201x?

    I think customers should be offered options and you should not be locked in. Hey I can take my phone number with me now. Maybe one day I can get all my data out of SaaS solutions. And maybe one day I can run Dynamics AX on my local network and simply add hardware if I need more hourse power. Have it synchronized to the cloud. And in the case of growth or local system failure I could just activate the cloud instance and just keep running.

    As a developer I am so confused :(
    p.s. finally someone added a keyboard, kickstand, dumped the hard drive and DVD, and created a useful tablet. I guess an arm processor is okay for now.

  5. Lee Richards says:

    I’ve worked in IT for over 30 years now but I’m not a tech head. I’ve always worked for SMB’s who use technology to delivery their service/product. Whether we like it or not, whether we think it’s the answer or not, it’s here and it’s here now. Most businesses are looking to become more agile in the current economic environment and one of the key enablers of agility is a flexible cost base. The Cloud promises this by allowing the bean counters to move IT from a fixed cost base (capital) to flexible cost base (opex). We need to embrace it, we need to understand it, we need to get ahead of the curve and get it into our IT strategies.

  6. Joanie Mann says:

    Software developers are being forced to recognize the business benefits of cloud computing models, and must shift their thinking along with the demand. ERP isn’t dead or dying. It’s changing, and delivering new agility and capability to businesses of all sizes. Developers are going to have to find ways to modernize and adapt old, large frameworks to address these new demands, or lose out to newer players.

    http://wp.me/p2hGOJ-78

  7. Pingback: Is Cloud Ringing the Death Toll for ERP? « ERP the Right Way! | Cooper Mann Consulting Group

  8. Pingback: Is Cloud Ringing the Death Toll for ERP? | Pardaan.com

  9. Good article. One item missed: While the conversation between Cloud and on-Premise appears to be focussed around the physicality of the solution, a new and much more important aspect of Cloud is missed – community. If a vendor merely transposes features and functionality to a remotely delivered web interface, then there is little to gain (other than the infrastructural benefits and a more flexible costing model). The cloud ERP leaders not only transposed the most important (and core) features of a solution, but then progress in evolving a community model whereby customers derive benefit from a wider populous using the software within industry. Have a look at the benefits of community delivered by salesforce.com, successfactors.com, Xero.com, Freshbooks.com, etc. They take a very simple “ERP Feature” and then grow that into value that increase with every new member added to the community. That is where the real power of the cloud is centred…

  10. Thank you Hendrik for your feedback and expertise. As I am learning more I would like to leverage you on a topic you raised – Community. Would you provide me more insight with the following (1) what type of features/capabilities does a vendor need to provide in order to be competent in supporting a value-add community? (2) what factors would you recommend customers to review/evaluate to determine how competent a vendor is in providing this capability?

  11. Pingback: » Blog Archive » Is Cloud Ringing the Death Toll for ERP?

  12. Pingback: The so-called death of ERP

  13. sarunraj says:

    very interesting article. i see that you have not blogged on some time..!! busy life??? have a good one.. hope to see some interesting articles like this from you!!

    • Greetings,

      Yes – it is busy. I’m a Fusion Success Manager with Oracle responsible for project/portfolio management for new Oracle Fusion Cloud implementations. It’s great but challenging. Writing a blog is therapy for me.

      • sarunraj says:

        That sounds like a very interesting role. Being part of the growth is a great feeling. All the best at your work. I never had a chance to work on Fusion :-).

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