By Olivia Cahoon
Organizations are leaving behind local platforms and shifting to cloud-based enterprise resource planning (ERP) tools. However, some still use legacy systems while others opt for a hybrid solution to get the best of both worlds.
Earlier this year, NetSuite, a cloud-based ERP provider, was acquired by the traditional ERP provider, Oracle, leaving the industry to wonder if others will follow suit and head to the cloud. This article explores the primary drivers that influence an organization’s ERP decisions.
Market consolidations disrupt the ERP landscape. Steve Cox, VP, ERP and EPM GTM Cloud, Oracle, believes that market disruptions put all customers at risk for displacement as new business models and services are created. To meet the demands of customers, traditional business models are tested and reshaped to create an evolution of active sustainability.
During this evolution, market consolidation leaves a clearer playing field. Jeff Broadhurts, CEO, Apprise, shares that acquired software companies tend to be stripped of their resources and focus on continuing maintenance flow.
While consolidations shift the landscape, trends motivate customers. “Organizations want a single, living structure that goes beyond traditional ERP and connects all of their processes, provides them with live information and insights, and seamlessly integrates their enterprise with the digital world beyond their walls,” says Peter Russo, global VP and head of product marketing, SAP S/4HANA.
One trend to consider is customer cloud adoption. “Forrester Research calculates that 43 percent of businesses worldwide are currently moving their legacy ERP systems to the cloud or plan to do so within the next two years. Customer experience, ease of use, and high value are becoming more important in the dynamic and competitive ERP landscape,” says Jon Roskill, chief executive officer, Acumatica.
Growing businesses need ERP software that expands with the business and evolves alongside them. As Russo describes, the cloud allows entire businesses to run with a digital core by means of a subscription model. “They are looking for advanced capabilities, new user experiences, and the ability to connect formerly disparate business processes and siloed applications into a coherent, holistic enterprise—all without undue disruption,” says Cox.
He believes that drive performance is the number one reason why organizations choose cloud-based ERP solutions. The need to improve financial performance is important, as well as reducing the need for expensive software upgrades.
Stanley Goodrich, PR manager, Syspro, says one of the most important challenges for the seller is determining the best ways to create a holistic approach to ERP that will maximize the acceptance of new, productive methods and procedures. It must also be a solution that facilitates and maximizes customer service.
“More than 50 percent of business is now transacting over the Internet, efficiency requires operating portals for cost-effective communications. A distributed workforce is often working on only a smartphone or tablet. Yet the vast majority of these businesses are being held back—running old, ‘good enough’ legacy business software,” shares Roskill. Cloud-based ERPs can be personalized to meet custom business demands for companies to take advantage of emerging technology trends.
“Organizations are tired of being held back by their legacy on-premise ERP system. A typical on premises ERP system is old, difficult to maintain, and may not be running on the latest version of the software. Some of the key drivers for switching completely to cloud ERP include the cost of annual maintenance and upgrade fees,” shares Anand Misra, principal product marketing manager, NetSuite.
She adds that legacy software upgrades are usually complicated, inflexible, and lack scalability that can hinder global growth, whereas cloud-based ERP can grow with the business. “They can quickly deploy news subscribers or add international functionality for a specific market without the need to install any software or hire any IT staff at those locations,” says Misra.
While primary drivers toward cloud-based ERPs tend to focus on eliminating software upgrade fees and improving accessibility, other benefits include reduced deployment times and instant scalability.
Some companies don’t want to transition to cloud-based ERPs because it’s unfamiliar. “Many customers still subscribe to the theory that ‘if it ain’t broke, don’t fix it,’ and are reluctant to change their entrenched practices and habits,” shares Roskill.
Goodrich agrees, pointing out that change creates concerns—a fear of the unknown, and that this culture is often pervasive from the top down. “Customer service must be addressed as a continual streamlining of operations that will set the company apart from a growing base of competitors. A light at the end of the tunnel must be visible, and a clear pathway must be delineated to get the doubtful through the valley of darkness and into the light of progress.”
He adds that new operational software and procedures should not only preserve a company’s culture, but evolve it from the benefit of the company, its employees, and customers. “Every company is in the customer experience business—a truth that can’t be ignored,” adds Goodrich.
According to Russo, there are still a number of processes that asset-intensive companies would not want their core applications to rely on because they do not have access to high-speed Internet connection.
These companies are better off using legacy systems. Malcom Fox, VP of product marketing, Epicor, shares that companies that are heavily regulated and strictly bound to operating or audit standards that haven’t yet caught up to modern cloud standards, and companies who have their entire set of business operations dependent on legacy infrastructure would not be great candidates for cloud-based ERP.
“Quite simply, the benefits of the cloud may not justify breaking all corporate and industry norms. Thankfully, these situations are increasingly ‘few and far between,’” says Fox, who believes that companies in such circumstances would benefit from adopting a cloud strategy to help bridge the gap and better prepare them to move the next system into the cloud.
“As cloud-based solutions continue to advance, particularly in their ability to be tailored to industry specific needs, we anticipate parity on both fronts, enabling organizations to achieve the flexibility and seamless migration they’re looking for across all deployment options,” says Russo. While both ERP options have their own strengths, the characteristics of the business impact ERP software efficiency.
Enterprise size can affect agility and budget. Larger businesses make changes slowly but they have the financial resources to ensure success when they do, while small and medium businesses are more agile in IT adoption rates and business practices, they must pay attention to the bottom line, shares Roskill.
Fox says that with cloud deployment models, small businesses can access potent ERP capabilities that were previously out of reach while midsize businesses are in a prime position to optimize the cloud because their size necessities are large, agile computing solutions while their IT budgets aren’t optimal. Larger organizations use the cloud to support smaller, entrepreneurial business units or to address operational requirements in global sites.
“The business and technical case for cloud deployment certainly spans all industries—from agriculture to zoos, and across all segments from very small companies to Fortune 500 businesses. Cloud ERP is ideal for manufacturers as the cloud facilitates the collaborative nature of manufacturing across the entire supply chain,” says Fox.
While the complexity of operations between large and small corporations differs, Cox believes that large corporations and small businesses share an appetite for innovation and change. He says that Oracle has a strong perspective on vertical industries and that in order to serve specifics, they must fully understand the case for a change to provide a solution for each individual scenario.
Vertical enterprises have different adoption rates. Misra shares that software companies with qualities like technology adoption, preferences, and consumption can change quickly and force the company to adapt faster than traditional companies.
Manufacturing companies have complex ERP deployments that serve as the backbone of their supply chain. The business can be seriously disrupted if inventory analyzation orders to partners aren’t accurate. “The cloud is enabling retailers to cultivate across channel shoppers among ecommerce, mobile commerce, catalog, call center, and destination and outlet store loyalists by providing a single platform ordering solution for multiple channels, optimization of stock visibility in each channel, and manage of the customer’s order through any channel,” says Misra.
A Hybrid Approach
A hybrid approach offers a balance between legacy systems and cloud-based ERPs by utilizing the investments companies have already made with their legacy systems and integrating the high functioning capabilities of the cloud.
Russo believes that a hybrid approach offers be the best of both worlds. He shares that the speed, scalability, and agile innovation of the cloud combined with well maintained in-house core data and applications create an excellent duo for organizations. A hybrid approach can be used as a first step toward cloud-based ERP software.
Cox agrees and believes that a hybrid approach is used as a first path to the cloud by many organizations. “To move toward cloud applications is a strategic choice and is a fundamental move to improve shareholder value. Hybrid models provide companies with an ability to try a cloud model and reap the benefits, while still holding onto their legacy software models,” says Cox.
Misra trusts that growth and flexibility are the key drivers to adopting cloud ERP in a hybrid approach. “As the company grows and expands into new markets, the cloud can offer much faster time to value. The cloud offers the flexibility, agility, and fast deployment necessary to successfully grow the business while maintaining the legacy ERP system at headquarters.”
While the ability for legacy systems and cloud-based ERPs to coexist smoothly is important, there is also a matter of whether it is cost effective.
ERP software is pricey and most organizations are not thrilled about throwing their investments out the door. “A number of organizations don’t want to move to the cloud all at once for reasons of business continuity or amortization of their existing IT assets. On premise ERP systems were expensive to buy and maintain and, in most cases, difficult to implement,” shares Roskill.
Because of the costs, some organizations would rather not begin again with a new ERP system, but rather move slowly towards the cloud. The hybrid solution is a helpful transition into the cloud that gives organizations the opportunity to try cloud-based software without diving in too quickly.
Fox thinks a hybrid solution allows organizations to make the move to cloud-based ERP on their own time and terms without hesitation of the future. “Given the difficulty of forecasting the future, it’s important for organizations to have the opportunity to easily change their deployment model at any point without disrupting their business process.”
Every organization has its own demands. Finding a proficient combination of legacy systems and the cloud is different depending on enterprise infrastructure and IT resources. “These hybrid ERP systems may in fact persist for a very long time as organizations find they prefer to only have certain workloads in the cloud and maintain close control over a few key assets that remain in house,” adds Roskill.
Not only will the hybrid approach boost efficiency, but it also provides better disaster recovery and helps organizations concentrate on their strengths. “It allows companies to focus on what they do best instead of also being an IT shop. Kind of like why people go to hospitals instead of opening their own clinic,” says Broadhurts. With the time, money, and energy saved, a hybrid approach is a serious consideration for organizations struggling with ERP.
Companies have the difficult decision of deciding whether to make the move to the cloud, approach it slowly with a hybrid solution, or stick to what they know and stay with their legacy system. As market consolidations continue and technology trends affect the ERP landscape, it seems the future points to the cloud, but as of right now, it’s settled into a satisfying middle ground between on premise systems and the cloud. SW
Nov2016, Software Magazine