Is ERP Ready For the Cloud?

Customers Leading Vendors to Cloud ERP

Cloud ERP solutions continue to evolve in an interesting way. If you look back at the last major ERP technology evolution—the replacement of host-based midrange and mainframe ERP systems with client/server technology—there’s no mistaking that it was a vendor-led movement. Beginning in 1992, some innovative ERP and financial software publishers demonstrated unique value and compelling business benefits from distributed processing architectures and graphical presentation interfaces. And ERP buyers responded with a no turning back movement.

Unfortunately, the largest mainframe ERP makers chose to ignore the movement, and they perished. When was the last time you heard the names of McCormack & Dodge, Management Sciences of America (MSA), Dunn & Bradstreet Software or Walker? They were all the undisputable leaders of their day, but not around anymore.

Now the next ERP technology refresh is underway, but this time being driven by customers much more so than ERP software vendors. And like the last movement, many of the existing ERP vendors are not only ignoring this movement, they’re in denial, suggesting that their customers are not asking for ERP in the cloud, or ERP is not ready for the cloud. They inject FUD, usually with unfounded claims of security, uptime or other ridiculous assertions that have been proven false for over a decade with CRM, HCM and other business applications.

But this unmistakable market movement is underway for those that choose to pay attention. NetSuite has quite possibly become the fastest growth ERP software maker in the world, and of course the company only offers a cloud ERP solution. The old guard likes to suggest that NetSuite only sells to SMBs, and somehow their requirements for security, uptime and other factors are less important, but analysis of NetSuite’s customer acquisitions shows otherwise. NetSuite is steadily moving upmarket and the majority of their new customers are midmarket and multi-national organizations.

In another example of the shifting market, Oracle’s new flagship product Fusion is available in both cloud and on-premise, however, twice as many new clients are electing the cloud option over the on-premise installation, and the bulk of these customers are middle market and enterprise-sized organizations. Similarly, the fastest growth segment for long time ERP manufacturing software vendor QAD is its cloud ERP solution. Other enterprise software vendors such as Kenandy, Plex and Rootstock Software are offering ERP and manufacturing software solely in the cloud.

SAP has dabbled with cloud ERP, releasing Business ByDesign, a SaaS solution targeted at the midmarket. The release has been dogged by poor go to market execution and internal strife, illustrating that SAP understands the market movement, but also showing that the old guard isn’t ready to embrace disruptive technology when it means potentially disrupting the throne.

Some legacy ERP vendors suggest that the benefits of SaaS aren’t as relevant with ERP software. But for the life of me, I can’t find the company who wouldn’t benefit from improved business agility, the offloading of low-value/high cost IT labor associated with ERP systems administration and maintenance, increased focus on core competencies (which don’t include administering ERP software), accelerated implementation or faster time to value, more intuitive and easier to use applications, on-demand scalability that can be dialed up or dialed down based on need or even seasonal fluctuations, predictable expenditures, lower acquisition costs and lower Total Cost of Ownership (TCO). The first eight of these benefits are extremely difficult to argue, but this last item of TCO is the one the old guard likes to cling to.

Cloud ERP naysayers suggest that the recurring nature of the SaaS subscription pricing model results in a higher TCO over the life of the application software. While too often the naysayers don’t accurately count the real costs of compute processing and the IT labor needed to keep ERP systems humming, costs which can be substantively lowered or eliminated with SaaS ERP systems, they do nonetheless make a valid argument in some circumstances. TCO is different for every company, and as such needs to be calculated to understand the financial implications, benefits or lack thereof. Similarly cost differentials need to be put into context with the other benefits.

Despite many legacy ERP publishers resisting the inevitable movement to the cloud, a new breed of more innovative ERP providers is responding to cloud ERP demand and delivering some impressive solutions. AccountingSeed delivers a solid small business ERP solution, Acumatica delivers an impressive middle market solution and Oracle is showing that even an old dog can learn new tricks by delivering a sophisticated enterprise SaaS ERP solution. There are many other legitimate SaaS ERP solutions as well.

Fortunately for the ERP makers who haven’t yet responded, there’s still time. The clock is ticking and customers are moving forward with or without them, but SaaS ERP adoption isn’t a watershed event. It occurs in phases. From a geo perspective, cloud ERP systems will be adopted first and most in the U.S., then in Western Europe and Australia/New Zealand, and then the rest of the world.

From a company segmentation perspective, start-ups (without legacy systems baggage) and emerging growth companies will first seek SaaS benefits and will be quickly followed by middle market organizations. At the enterprise, many companies will elect a hybrid strategy (a mix of SaaS and on-premise) to extend the value of their legacy systems investments. However, when the time comes for that next fork lift upgrade, particularly when they’ve passed on the last few upgrades because of the sheer pain involved, many will realize the risk of SaaS as yesterday’s FUD and make the complete transition to the cloud.

Cloud ERP isn’t for everybody, and I personally prefer ERP solutions that empower customer choice of on-demand or on-premise along with the portability to change their choice based on an increasingly changing business environment. But failing to satisfy those customers who will benefit from cloud ERP is an undeniable path to market share erosion.

What’s clear is that customers are steadily increasing their demand for SaaS ERP systems. What’s less clear is who will satisfy that demand and whether today’s market share leaders will go the way of McCormack & Dodge, Management Sciences of America (MSA) and Dunn & Bradstreet Software.

Comments (6)	— Comments for this page are closed —

	Harold McGladrey
	I suspect this may be your most controversial article. Great points backed by solid logic, but certain to rub the old guard ERP manufacturers the wrong way.

	Marti Chandler
	What do you think of FinancialForce.com?

		Chuck Schaeffer
		I think the company is visionary in its charge, but challenged to grow and struggling to keep customers happy. I've spoken to several FinancialForce.com customers and their opinions of the company are extremely mixed. I've reached out to the company several times but have never received a response. I'll be writing a FinancialForce.com review in the near term so stay tuned.

		Kevin Spore
		If FinancialForce.com doesn't respond to somebody like you, what chance does a customer have in getting their attention? For a company that claims to be social failing to engage is pretty pathetic and a very clear sign.

		Chuck Schaeffer
		They might just be busy. Fortunately, the largest ERP publishers such as Oracle, SAP, Infor and Microsoft all have influencer programs which I participate in order to get information directly from the horse's mouth. Many times smaller ERP vendors don't have such programs.

		Marti Chandler
		We're in a software selection and I'd like to connect with you. What's the best way to connect?

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When was the last time you heard the names of McCormack & Dodge, Management Sciences of America (MSA) or Dunn & Bradstreet Software? They were all the undisputable ERP leaders of their day, but not around anymore.

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