Cloud ERP Deployments Declined In 2013, Panorama Says

March 10, 2014 Alex Woodie

The number of organizations adopting cloud-based ERP dropped in 2013 after three years of steady increases, according to Panorama Consulting‘s annual global survey of ERP deployments. While the numbers are just a snapshot of a complex and dynamic market, they indicate that customers may not be as interested in cloud-based ERP if they won’t reap big cost savings (which Panorama says they won’t).

Here are the raw numbers from Panorama. In last year’s report on 172 ERP deployments around the world, Panorama reported that 61 percent of them were of the traditional, on-premise variety, 14 percent were deployed as a shrink-wrapped SaaS offering, 12 percent were hosted and managed as a cloud service, and 14 percent were “other.” In the 2014 ERP Report, which is based on data from 192 ERP deployments over the course of 2013 and early 2014, Panorama reported that 85 percent were on-premise, 11 percent were hosted and managed in the cloud, while just 4 percent were SaaS (it dropped the “other” category).

The 24 percent jump in reported on-premise ERP deployments was not expected by Panorama. “This is the fourth year that we have tracked adoption of cloud and SaaS ERP options and the first year that the number has actually declined from the previous year,” Panorama founder and managing partner Eric Kimberling writes in his blog.

“Among the most recent wave of ERP implementations worldwide, 15 percent are using a cloud-based solution of some sort, whether it be a pure subscription, SaaS-based model, or a third-party hosted solution,” he continues. “This number is down from 26 percent the last time we published the metric, which had grown from 6 percent two years prior to that. We are not certain if this data point is an anomaly that will reverse next year but it is enough to suggest that there are still potential obstacles and concerns hindering the adoption of cloud ERP solutions.”

The two most commonly cited reasons customers give for their decision not to adopt cloud-based ERP are “lack of knowledge about cloud offerings” (45 percent) and “risk/fear of security breach” (30 percent), Panorama says. While one can’t argue with what one doesn’t know, Panorama argues that customers are simply off base when it comes to the security concerns. “Panorama’s experience has shown that cloud ERP vendors typically provide secure and reliable solutions, which is important for executives to consider during the software selection process,” the company says.

One claim that cloud-based ERP vendors make about saving money in the cloud may not have much truth to it. Panorama says that 54 percent of cloud-based ERP adopters say they recognized between 0 percent and 40 percent of the cost savings they were promised. Only 2 percent of cloud-ERP adopters say they recognized more than 80 percent of the promised cost savings. “Organizations that implement cloud technology in order to save money should consider the true cost of ownership over time,” Panorama diplomatically puts it.

If cost savings becomes a white elephant for cloud-based ERP vendors, it could provide some momentum back toward traditional on-premise deployments. There are many other factors that go into the decisions surrounding ERP deployments, to be sure. But without cost savings, cloud-based ERP would be losing a big supposed advantage.

Money is a big factor in any ERP deployment, and cost overruns are commonplace. In 2013, the average cost overrun grew slightly to 54 percent. That’s down considerably from 2010, when it was 76 percent. The average duration of ERP deployments (about 16 months) has stayed the same over the past four years. The average total cost of ERP deployments–$2.8 million in 2013, compared to $7.1 million and $10.5 million the previous two years, respectively–shows how variable Panorama’s data can be.

Other pieces of data collected by Panorama show what an ongoing source of frustration ERP roll-outs can be. While 70 percent of respondents report being satisfied with their ERP deployments in 2013, only 63 percent deemed it a “success.” About 16 percent report their ERP rollout was a failure, up from 10 percent the previous year.

Panorama continues to count SAP, Oracle, and Microsoft as the only tier-one ERP vendors. The market shares of these powerhouses has grown, to the detriment of tier-two vendors (such as Epicor and Infor) and even smaller tier-three vendors.

One more notable fact is that SAP moved passed Oracle in one important metric: being picked after being short-listed. “Oracle was overtaken by SAP, which suggests that more organizations are readily convinced that SAP is the best option for their unique business needs,” Panorama writes. You can request your copy of the 2014 ERP Report at www.panorama-consulting.com.