Cloud enterprise resource planning (ERP) software hasn't really caught on yet. But according to a recent Gartner survey, it will soon. Here are some of the top trends shaping cloud-based ERP.
Cloud ERP Catching Fire
While only 2 percent of Gartner survey respondents said they had core ERP systems running in the cloud, almost half indicated they planned to make the move within five years. These numbers indicate that cloud ERP is rapidly making the transition from the early adopter stage into the mainstream.
Industry Specific ERP
Thirty percent, though, won't make the transition. Those respondents said the majority of their ERP systems will be on-premises for the foreseeable future. Most of them, noted Gartner analyst Nigel Rayner, are manufacturers who typically deploy ERP tools specific to their vertical.
Rayner said those with more general or administrative ERP requirements centered upon financials and human resources (HR) are the better candidates for cloud ERP, as there are plenty of options on the market.
Midmarket Leads Cloud ERP Growth
Eric Kimberling, an analyst at Panorama Consulting Solutions, voiced similar views. He said companies that are larger and more complex tend to have more difficulty adjusting to cloud solutions, simply because they are more likely to want more control over their enterprise applications.
"Smaller, less complex organizations that lack IT sophistication are more likely to gravitate toward the cloud because they don't have as mature business processes that are difficult to change to fit the software," Kimberling said. "Most of the growth we're seeing in the cloud space is that middle ground - companies that want the flexibility of on-premise software but want someone else to host it and maintain it for them. For many mid-sized organizations, this can provide them with the best of both worlds."
Time and Cost Benefits
ERP implementations are not for the faint of heart. The on-premise arena is strewn with massive investments that tied IT up in knots for years. More than a few had to be scrapped. A big part of cloud ERP's appeal, therefore, is that organizations won't have to throw as much time and money at what is likely to be their biggest ever IT project.
"Cloud ERP reduces the time and cost of maintaining infrastructure," said Christine Hansen, product marketing manager, Epicor. "Less money spent on IT means a lower cost of product delivery, enabling businesses to get a competitive pricing edge and/or higher margins. This also frees up dollars to devote to hiring, R&D and other growth initiatives."
Cloud ERP doesn't have to be an all-or-nothing proposition. Some organizations may find it hard to wean themselves off some aging ERP applications written in older code and sitting on antediluvian hardware. The cloud lends itself well to another emerging ERP trend: two-tier deployments in which organizations keep certain ERP functions on premise and add others to the cloud. For example, an old ERP system running on a mainframe that would be difficult to port elsewhere could be retained in house. But additional ERP-type tools could be deployed in the cloud to take advantage of Web-based functionality
"Large enterprise companies like Shaw Carpets, Williams-Sonoma and Qualcomm are adopting cloud ERP in a two-tier model where they can maintain existing investments in on-premise legacy software at their headquarters, while launching divisions, new businesses and acquisitions on the cloud, faster, cheaper and ready to scale," said Jim McGeever, COO of NetSuite.
Small Steps to the Cloud
This two-tier trend is even tempting some of the more dyed-in-the-wool on-premise advocates to at least dip their toe in the murky waters of the cloud. Another survey by IT consultancy MintJutras showed that two-tier ERP architectures are acting as a catalyst for the rise of cloud-based applications. It predicts the cloud will account for a 45 percent share of all manufacturing and distribution software within 10 years.
End of Life ERP Migration
Some moves by manufacturers and other large enterprise hold-outs will be driven by the hassle of trying to maintain systems from vendors who no longer support them or even vendors long since disappeared from the ken of man. This is a good point to take the leap of faith and figure out how to migrate to the cloud.
Rayner's advice is to look upon cloud ERP as a potential replacement for aging core ERP systems that are no longer supported or are sitting on platforms like mainframe or even Windows NT.
More Demand for Mobile ERP
While CRM systems have been on the front of the mobility trend, ERP has lagged behind. But developers are now getting to grips with the difficulties inherent in mobile ERP, so more options will appear on the market. Mobile solutions inherently involve the cloud.
"We've seen an appetite for next generation cloud ERP that is mobile-ready and can easily connect with complementary cloud services with robust integrations through APIs and Web services," said McGeever.
A big early selling point of the cloud was freedom from vendor lock in. But that trend appears to be re-emerging as the cloud gathers market share - and perhaps more sales and marketing sophistication.
"ERP vendors are reinventing vendor lock-in for the cloud," said Ned Lilly, CEO of xTuple. "It can be very difficult to a) interface other systems with your data, b) get a backup of your data, or c) move to another system. Most cloud vendors will not even entertain the question of taking your previously cloud-hosted ERP onsite."
Educated ERP Buyers
Jean Gea, director of Product Marketing, Acumatica, sees a difference in the product evaluation IQ of potential customers. The Internet is often a customer's first stop when making purchasing decisions, Gea said. Online research gives customers a decent idea of what is out there and what points to bring up during negotiations.
"Whether they are looking for a new cell phone, a new dentist or cloud ERP, users are armed with data," Gea said. "This means they can ask intelligent questions and make more demands on vendors."
Drew Robb is a freelance writer specializing in technology and engineering. Currently living in California, he is originally from Scotland, where he received a degree in geology and geography from the University of Strathclyde. He is the author of Server Disk Management in a Windows Environment (CRC Press).