Enterprise ERP reaches for the cloud

Benefits outweigh risks for big companies seeking flexibility and scalability

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While small and midsized businesses have led the way in migrating their ERP applications to the cloud, enterprises have been lagging behind.

And there’s one very good reason for enterprises not plunging ahead with SaaS ERP -- it’s hard.

ERP systems at large companies are vast, complicated, and deeply entrenched in an organization's infrastructure. ERP is so integral to an organization that the time, expense and disruption a move to the cloud might entail has discouraged IT managers from undertaking the task.

But that’s starting to change.

As a recent report by Forrester Research puts it, “Whereas thousands of smaller and midsize companies have already adopted SaaS ERP systems, enterprises are in the very early adoption stages. Several leading software suppliers are aggressively investing in SaaS ERP capabilities that will appeal to multinational enterprises as customer demand accelerates.”

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The report is based on a survey of 770 North American and European technology decision makers. In 2012, 12 percent had already replaced or planned to replace within two years their traditional ERP with SaaS ERP. In 2014, the number grew to 35 percent.

paul hamerman

Paul Hamerman

“ERP has seen a significant level of adoption, but certainly much less than customer-oriented apps like CRM, as well as other areas like procurement and HR. The functional breadth of ERP has not been fully replicated in SaaS-native solutions to the extent it exists in mature on-premises ERP solutions. Also, the ability to support industry-specific scenarios and company-specific requirements requires a high degree of configurability and extensibility in the SaaS platform in lieu of customization. This is starting to materialize,” says Paul Hamerman, vice president and principal analyst at Forrester.

While the number of SMBs moving ERP software to the cloud is higher than the number of enterprises doing so, the enterprise number is on an upward trajectory, says Robert Anderson, vice president at Gartner.

"The number of 30% by 2018 across all enterprises still holds true. If you look at the SMB segment alone, it may be 40% or more accounting for those that will move current on-premise ERP solutions to cloud and an entire net new range of service-centric businesses that will embrace it that haven’t experienced ERP before. By 2020, it should be well on its way to 50% of SMBs in the services sector having embraced some form of cloud ERP apps," he says.

For SMBs, according to Aberdeen Group, the shift to lower costs, as well as increased scalability, flexibility and ease of use have spurred cloud deployment. In a survey, Aberdeen found that midsized organizations are more than twice as likely to have cloud ERP solutions than legacy ones. Aberdeen says those that have moved ERP to the cloud have seen significant advantages, including: 1.9 times improvement in profitability over the past 24 months; 3.2 times improvement in time to decision over the past year; 1.8 times improvement in cycle time of key business processes over the past year; 33 percent greater improvement in complete and on-time delivery; and 2 times improvement in internal schedule compliance.

Will enterprises hit those numbers?

“Large organizations will see improvements as well, but not as high as these,” says Nick Castellina, research director at Aberdeen. “That's because they're large, multitier deployments. The reason it has taken ERP longer to move to the cloud is because it's a more robust application, and more integral to the day-to-day operation of the organization, so making those changes will take more time.”

According to Gartner's Anderson, there are several reasons for enterprise IT being slow to jump to cloud ERP. "Earlier concerns about moving the 'crown jewels' or 'bet your business applications' off premises were based on security, among a range of other things.”

In addition, it could literally take years to shift large, complex, on-premise code bases to the cloud. And some ERP cloud vendors required almost ground-up rewrites of the application.

Anderson attributes the latest growth spurt toward cloud-based ERP to advances in several technologies, including rapidly evolving enabling technologies, including in-memory database, mobility, social and collaborative tools, embedded analytics and consumer-like user experiences, all rolled into the latest ERP systems. He calls these "post-modern" ERP.

"In a sense, 'the sun, stars and moon' had to come together and align and that was the real tipping point," he says.

Patience is required

At City Harvest, which collects and distributes food to a network of New York City community food programs, IT director James Safanov says, “ERP is taking longer in general to move to the cloud due to the number of stakeholders companies have. If it were just out-of-the-box features, it would be easier. More people need to say when to move, organization-wide,” he says.

For organizations that have moved their ERP software to the cloud, many IT managers report that it was done primarily to simplify IT operations. At City Harvest, for example, Safanov wanted single sign-on accounts, part of the Azure platform.

“Our allocation software and delivery software are both hosted. We evaluate each product, and where it makes sense to move up, we move it. We're moving applications where we can, while still concentrating on our mission. This means we don't have to invest in capital acquisitions. We don't want to manage the Exchange Server on premise, for example, so we moved that to the cloud. Now, we have Office 365 with Exchange Server and SharePoint, Dynamics GP, and Azure services,” he says.

At SFX Entertainment, a producer of live events, media and entertainment content, a combination of acquisitions and aversion to managing its IT infrastructure in-house led to a move to the cloud.

"We don't want to be in the business of using 100 people to provide non-core, critical services. Second, we have acquired more than 20 companies over the last two years, so in addition to our 625 employees, we have 100 subsidiaries and 30 to 40 brands, and we wanted a system that could be agile, and not take the bandwidth of people in operations. With multiple lines of business that cross over, we needed the flexibility to take all of our businesses and have a standard baseline, and we can uniquely tailor this," says Madhu Madhavan, vice president, financial systems and technology at SFX Entertainment.

“In 2013 we were growing fast, and into some unanticipated corridors. NetSuite was chosen so we could migrate away from 15 different systems, some of which were on premise. These include bookkeeping on multiple applications, reporting with a combination of on premise apps and SAP,” he adds.

Shaw Industries, a $5 billion flooring manufacturer, is a good example of a global company with a sprawling IT infrastructure. A recent expansion in China provided the opportunity to use SaaS to avoid the need to have its ERP on premise. Over the course of 25 years, IT staff built an integrated system, but the Chinese language and currency would have required massive customization, says Randy McKaig, vice president and CIO, information services.

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