Has Cloud ERP Reached a Tipping Point?
April 13, 2015 Alex Woodie
For years, we’ve been told that most server workloads will eventually move to the cloud because of the economies of scale advantages that it brings. So far, the big daddy of corporate computing–the centralized Enterprise Resource Planning (ERP) suite–has mostly resisted the cloud. But according to Nucleus Research, ERP is now finally succumbing to the siren call of cloud computing.
We have reached a tipping point with cloud ERP, according to Rebecca Wettemann, vice president of research for Nucleus. “A lot of companies are getting to the point where their next ERP upgrade is almost a re-implementation, so they’re looking at their other options,” Wettemann tells IT Jungle. “The other side of that is IT has recognized that cloud, through other areas of their business [such as Web and email hosting] the benefits of letting somebody else manage the infrastructure.”
In her latest ERP Value Matrix, Wettemann analyzed dozens of tier 1 and tier 2 ERP offerings, and ranked the solutions according to what they do well and what they don’t across lots of categories, including quality of the user interface, mobile extensions, the availability of embedded analytics, and, of course, the availability of a cloud option.
According to Wettemann, cloud options are available in nearly all of the ERP packages that landed in the “Leaders” quadrant, as well as many of those in the “Facilitators” quadrant, which offer higher usability but less functionality than the Leaders. “All of them have options for some version of hosting, certainly,” Wettemann says. “But I think we’ll see more and more” adopt the cloud delivery model going forward.
Hard figures for cloud ERP adoption are tough to come by–there is no central repository of data for this, after all. But every now and then, we get a glimpse of the overall trend. A year ago, Panorama Consulting surveyed some users about cloud ERP deployments and found that they had actually declined in 2013. Cloud ERP deployments represented just 12 percent of all ERP deployments, Panorama found; it was the first time that figure had declined in three years.
Wettemann is basing her conclusions about ERP reaching a cloud tipping point not based on user adoption data from the field, but on what the ERP vendors are doing with cloud ERP, which she defines as a strict multi-tenant public cloud or software as a service (SaaS)-like offering (as opposed to hosting or private cloud). In that sense, her research may be more of a leading indicator, as opposed to Panorama’s figure, which may be more of a lagging indicator.
The Leading Cloud ERPs
So who’s leading the cloud ERP wars? Specifically, Wettemann cites pure-play cloud ERP provider, Netsuite, Acumatica (which has a Web-based ERP that can be deployed on-prem), as well as traditional ERP vendors like Infor, Oracle, and Microsoft as having found some degree of success on the cloud.
“Certainly Infor’s strategy with the Cloud Suite and the way they have laid out a roadmap for the existing ERP base to move to the cloud is making a lot of traditional ERP customers much more comfortable with migration when they choose to do it,” she says. “They have been very clear in a migration strategy that allows customers to adopt cloud as it makes sense for them, while optimizing what they have. It’s a lot about wrapping cloud services around what may be an on-premise footprint today.”
Infor obviously is an important vendor for many IBM i shops, because it owns so many of the old ERP systems that IBM i shops continue to rely on. However, there is no IBM i “flavor” of Infor’s Cloud Suite, so a migration to Infor’s cloud solution from BPCS, MAPICS, or System 21 should be equally as painful as a migration from those RPG-based programs to ERP LN, Syteline, or any of Infor’s many other “open systems” ERP products.
When it comes to IBM i cloud offerings, it will be tough to beat what Bob Vormittag’s group has put together out on Long Island. “I think VAI is doing a great job,” Wettemann says. “They’ll tell you today that their customers are slow to look at cloud. But certainly with the IBM technology supporting it. . . it’s something that’s going to be an attractive proposition for companies moving forward.”
Seeing Cloud Adoption Patterns
An overall pattern has emerged to cloud adoption in the enterprise. Before an organization lets somebody else run their core ERP and accounting systems, the cloud often seeps in via cracks in the IT wall, such as through hosted email–Microsoft Office 365 is a great example of offloading tedious communications infrastructure to the cloud, Wettemann says. More recently, the C-suite has seen how cloud-based corporate performance management (CPM) tools are delivering a competitive advantage to those who use them.
“ERP is definitely going to be the slowest area,” Wettemann says. “But as supply chain moves there and HR moves there and as companies start to look at the cloud-based CPM solutions that are out there like Adaptive Insights for example, we’re going to see a lot more financial data in the cloud and a lot more acceptance that it may not be as dangerous a place as IT would have us believe.”
The biggest companies will probably be the slowest to adopt cloud ERP systems, Wettemann says. Cloud ERP will most likely be adopted for subsidiaries or divisions of big corporations before they trickle up to the corporate office. There’s a lot of inertia for on-prem ERP, and it will take years for the cloud to make much of a dent. “I think the bigger opportunity for growth is really with the SMBs [small and midsize businesses] who now have great cloud-based ERP financial management applications that are accessible to them and help them grow their business,” she says.
In many ways, the cloud is becoming just one more feature or piece of functionality that’s available in an ERP suite, akin to having a slick user interface, a mobile interface, or embedded analytics. As older ERP systems outlive their usefulness and organizations (sometimes begrudgingly) begin the upgrade process, running on the cloud just becomes another option. Those organizations that are running ancient ERP systems that have long since gone off the maintenance track may have the most to gain by adopting cloud ERP, she says.
Cloudy with a Chance of ROI
Wettemann also points to a recent piece of Nucleus research that found cloud ERP deployments deliver 1.7X the return on investment (ROI) than traditional on-premise deployments. “That is a pretty compelling number when you think about the overall investment,” she says.
For years, the biggest perceived risk of adopting a cloud ERP system has been the assumption that you must accept a lower level of security and privacy in exchange for moving to the cloud. Being wary of security does make sense, especially coming out of 2014, or “The Year of the Data Breach,” which saw hackers get their meaty little paws on nearly 1 billion private records.
But according to Wettemann, security and privacy aren’t necessarily disadvantages of the cloud deployment model. In fact, it can be an advantage in some cases, she says.
“Companies have to look very carefully what their vendors are doing in data privacy and security. But in a lot of cases, we’re seeing that the investment that vendors are making in security, both physical and digital, for their data centers is a lot more than those companies would spend on their own. We see inherent economies of scale in managing data in the cloud, and that extends to managing security as well.”