Cloud ERP Emerging as Replacement to On-Premise Today, businesses of all sizes, right across the spectrum of industry sectors, are accessing core enterprise applications via the cloud. As a technology infrastructure, cloud has gone from being a new concept right through to maturity, and is now sufficiently robust and secure for business-critical use. The reality is that more and more enterprises are adopting cloud services for important applications, or at least using them alongside their on-premise systems in a hybrid manner. Meanwhile, software suppliers are making an increasing array of sophisticated, on-demand software available to corporate users. Nevertheless, some businesses are still grappling with issues of security, service quality, usability and trust, and are therefore still wary of adopting cloudbased Enterprise Resource Planning (ERP) in particular. ERP represents the most important suite of software applications for the majority of businesses, carrying out functions such as purchase and procurement, supply chain and inventory management, order and billing management, service delivery and product planning. Keeping in mind that cloud brings to the table more cost-effective IT, greater IT and process flexibility, unparalleled scalability and so on, surely it s time that more businesses moved their ERP to the cloud? CIO, in conjunction with Sage, carried out a survey of 100 CIOs and senior IT decision-makers to find out about their cloud usage and views on cloud-based business software. We also garnered the best advice from the ones who have been using enterprise cloud applications for several years. We discovered that a huge majority of our respondents (71 percent) are using business-critical cloud applications, with most of them praising cloud for its efficiencies and return on investment. (90 percent of the respondents say they have had a return on investment from cloud implementation.) Of the respondents who use businesscritical cloud applications, 54 percent say they invested in them less than two years ago. A significant chunk, 46 percent, have been operating business cloud apps for more than two years, and a tenth of them for more than five years, indicating a reasonably high level of maturity among organisations.
71% 90% 52% of our respondents are using business-critical cloud applications; with most of them praising cloud for its efficiencies and return on investment of the respondents say they feel they have got return on investment from cloud implementation. of the respondents say they have invested in cloud-based CRM Interestingly though, the most frequently used cloud business application is still Customer Relationship Management (CRM), as it has been for many years. (52 percent of our respondents say they have invested in cloud-based CRM.) It is also one of the oldest cloud business offerings. Cloud-based CRM has been around since 1999 and is therefore the most likely ERP module to be adopted by businesses. For many companies, it paves the way to a full cloud-based ERP implementation. The next two most popular cloud business applications for around a third of our respondents, respectively are expense management and HR. Again, these are some of the most mature SaaS applications on the market and have reached a high degree of maturity. Other applications that featured in the survey were: payroll and procurement; with email, productivity and collaboration likely to be among the other businesscritical cloud services to which 42 percent of respondents alluded. Cloud ERP was, however, low on the list for the majority of enterprises, with three quarters saying they have not yet invested in the technology. This, perhaps, suggests an old-fashioned view; one that has not kept up with the times. Cloud versus legacy ERP In many ways, having a legacy view of ERP is perfectly understandable, as ERP platforms can be costly and complex to set up, configure and maintain, so few businesses want the changemanagement headache of moving it all to the cloud. That said, traditional ERP has gained a reputation for being costly: both in terms of time and money. Across the years, the IT press has reported on major ERP deployments, in both public and private sectors, that have been time-consuming, late running and overly complex, and required significant amounts of tailoring and maintenance. In addition, employees of traditional on-premise ERP systems have complained about outdated and nonintuitive user interfaces, with systems being inflexible and requiring operators to bend themselves around the software instead of the other way around. Another problem has come in the form of excessive customisation of on-premise ERP systems. Customisation is important for everyone from manufacturing to financial services to get the best out of their investments, but it often leads to IT complexity and inefficient ERP implementations. Cloud-based ERP comes as a refreshing alternative to traditional ERP. Although by no means a panacea to every business and IT ailment, it has now been proven to deliver the reliability, speed and data control that companies require from such a crucial system, and this has tended to be the major concern in the past. IT analysts agree that cloud-based business software is the future. Research firm Gartner has predicted that at least 30 percent of service-oriented businesses will move the majority of their ERP applications to the cloud by 2018, and other industries will follow. It also expects that over the next decade and beyond, the ERP norm will switch from on-premise to cloud. Gartner adds that heavily-customised, on-premise ERP deployments will be commonly thought of as legacy ERP from this year onwards. Another respected pundit, Paul D. Hamerman, Forrester Research Principal Analyst, argues that businesses could be missing out on more cost-effective and flexible cloud-based ERP operations. He says, ERP systems are a critical transactional support system for most enterprises, supporting core financial accounting functions, procurement, inventory, order processing, sales and a variety of other functions. As more companies adopt a business technology strategy focused on customer outcomes, some functions
(sales, marketing, customer service, e-commerce and talent management) tend to be decoupled from the ERP footprint and pushed to the cloud, but the need for core ERP transactional support, at a minimum, remains. With the rampant digital disruption of cloud software, ERP is now moving to SaaS more aggressively. Hamerman says that some of the drivers behind the move from on-premise to cloud ERP are: the cost of ownership (hardware acquisition and maintenance and software licensing) and upgrade challenges of current on-premise systems on the one hand; and on the other, digital and business imperatives for customer-centricity, better usability, rapid configuration in lieu of code-level customisation and real-time business insight. He adds, As a consequence, the demand for cloud-based ERP solutions is growing rapidly, and this demand extends to large enterprises exploring options for their current systems. Other arguments in favour of cloud ERP are that by moving critical systems to the cloud and integrating them together, businesses can benefit from having pervasive information across the organisation, while future-proofing their business. Hamerman highlights software versioning as the bane of IT managers lives, who can rarely justify the effort and resources to keep ERP systems on the most current software release, and adds, with SaaS ERP, it becomes the software vendor s job to keep its customers on the latest releases, minimising the upgrade headaches that lead to systems obsolescence. Business or IT? Consistent software versioning is just one IT benefit that cloud business software can offer, but our survey found that enterprises expect to receive many more specifically IT-related advantages from their cloud implementations. The most expected ones were: increased agility and scalability; reduction of in-house IT support; and delivering 24x7 service to employees, customers and stakeholders. (Incidentally, respondents confirmed that they realised these three benefits after implementation; indicating that their cloud investments matched their expectations.) The brave new world of business application software is rapidly transforming how corporate IT departments source and implement all kinds of critical systems Cloud ERP, along with other types of SaaS, certainly delivers a range of IT benefits, one of which is speedy implementation. Applications built for the cloud tend to be quicker to deploy and easier to configure, accelerating the time it takes to get value from them, which means that companies can grow faster. This has been one of the attractions for small businesses, along with cloud s pay-as-you-go pricing and the fact that someone else is operating and maintaining the software. According to respondents, the business benefits of cloud systems were less important than the technical ones, perhaps because our respondents were IT-focused professionals. However, it s worth noting that cloud-based applications can also help to address a range of business issues. One of these is workflow efficiency, which can be achieved through increased internal collaboration. It can be argued that a more connected workforce, using their device of choice and working flexibly in terms of time and location, is able to collaborate more effectively. Cloud-based unified communications systems enable individuals to move quickly between email, instant messaging, calls and videoconferencing, to quickly find the right expert, get an answer, find out some information or make a decision. In addition, today s web-based collaboration allows teams of people to develop documents together, share resources and communicate more closely. Another benefit of cloud-based business systems is increased agility and responsiveness to customer interactions and business events. Furthermore,
in terms of responding to business, customer and market trends, today s cloud applications offer more advanced analytics than the on-premise systems built a decade or more ago, with real-time reporting being particularly helpful. By their nature, cloud systems support business growth as they are more scalable than traditional ones, and they can also provide geographical reach across regions and countries. This is helpful for multi-site ERP support, which has been a challenge for legacy ERP providers in the past. Mobilising the workforce Another area in which cloud business systems have the edge on traditional ones is they can help to create a mobile workforce or gain efficiencies in an already mobile one. Mobile apps have helped to eradicate paper-based processes and reduce errors from manual data input. They enable on-the-go productivity and let field workers capture data in a timely manner. Through features such as always-on communication, web-based input and mobile alerts, mobile devices are becoming incredibly effective and versatile business tools. Cloud mobile business applications can also harness mobile-specific features such as GPS location data and speech or camera input, which gives rise to greater functionality in mobile apps and means that mobile workers can capture and transmit relevant, accurate and detailed information. Mobile customer services is a particularly Sage X3 does not have the complexity and cost of typical enterprise systems; and simplifies the management of operations from financials, sales and marketing, to distribution and manufacturing. exciting growth area, where customers can view products and services and make purchases; and business data gets captured immediately and transmitted to the back office. Overall, the arrival of web-based and mobile ERP is no less than transformational for many businesses across the board. Consultancy PwC puts it this way, in its report Beyond ERP: New technology, new options: The brave new world of business application software is rapidly transforming how corporate IT departments source and implement all kinds of critical systems. Perhaps nowhere is this truer than in the realm of ERP systems, the software that runs virtually every large company in the world. CIOs are rethinking their approach to ERP, thanks to modular, cloud-based business applications that offer viable alternatives to the unwieldy, inflexible and expensive systems that have long dominated the sector. Sage s X3 ERP solution is an example of a mature cloud ERP platform that gives enterprises powerful, flexible and scalable tools. Like other cloud-based business applications, Sage X3 does not have the complexity and cost of typical enterprise systems. It simplifies the management of operations from financials, sales and marketing, to distribution and manufacturing. But at the same time, the software has the same functionality as its on-premise equivalent, which is unusual. Developed for midsized to enterprise companies, it uses a collaborative approach across all business units and departments, and fully supports mobile users, mobile security and multiple device types. Expert advice Whether you have already implemented cloud business applications or are considering it, there are many helpful lessons to be learned from the current generation of cloud users, according to our survey. When it comes to choosing a cloud service provider, several of our survey respondents advised businesses to choose carefully and shop around, with one warning prospective cloud users to get water tight service contacts and flexibility to switch vendor.
Many cloud users urged cloud adopters to understand their contract, read the small print, and recognise shared responsibility with the service provider. One comments that it is critical the supplier has the capability and agility. Another indicates that they had experienced problems depending on poorly performing network providers for initial access to cloud services. The greatest number of comments were about planning and preparation. The advice from our cloud users included developing a good business case for enterprise cloud; planning which benefits to measure; training staff early and making sure implementation prep is well mile-stoned. Time spent in planning is crucial, argues one respondent. Another comments, Planning, planning, planning. Another IT leader says, You need to fully understand the requirements of your users prior to deploying SaaS. Correctly configuring internal systems is also important. One IT professional candidly reveals, We should have changed our setup when we went onto the cloud. To get the benefits from the cloud, you need to make sure your setup is compatible with the cloud if you want to get the flexibility of using the cloud for your database. Others suggest that to get the best from the cloud, it is important to improve internal networks, and invest in the internal resources up front. Another respondent says, It takes a lot of internal resource, much more than we expected. In fact, approximately 50 percent of our respondents say, if they could do it all again, they would put more internal resources into implementation. Other comments include: start small ; start from the workload down and scale up slowly, recognising that there can be integration problems with on-premise systems. Security and governance were also big areas of discussion, presenting a barrier for some organisations to investing in cloud their critical business applications. Be aware of security, argues one IT leader, with another urging caution over data protection. Another comments: Security and Governance is key, don t underestimate it... However, others offered reassurance. If the requirements are set up correctly and completely and the security issues addressed from the start, it becomes a very pragmatic solution, which works well and provides more flexibility with the reduced cost, explains one business cloud user. The hype around risk and security should not put you off or slow you down, concludes another. The journey to cloud ERP A clear picture is emerging: more and more businesses are relying on the cloud for their business critical applications with ERP finally emerging as a promising growth area. 71 percent of our respondents have invested in cloud for business critical applications, with 90 percent of them saying they have received ROI on their implementations. Of the remainder of businesses that have not yet invested in cloud, 62 percent are planning to use cloud in the next 12 months to two years for a core business system, with CRM, HR, expense management and ERP being the most likely. In his report, Cloud ERP Implementation Practices for High-Growth Businesses, Chris Chute, vice president, SMB Cloud and Mobility Practice at analyst firm IDC, summarises the current state of play. IDC predicts that cloud ERP will join with CRM software and serve as a make-or-break business transformation capability. The future of a high-growth company will rest on both how well and how quickly it can deploy ERP with minimum delay and how quickly it can derive insights from the platform. Written by Arif Mohamed