Why ERP in the cloud will eventually succeed

19th January 2016

Some analysts, who probably should know better, have expressed strong doubts about the sustainability of ERP in the cloud. Sensationalist headlines seem to suggest the resurgence of ‘Best of Breed’ applications cobbled together in a hybrid mixture of on-premise and cloud-based software suites of more limited scope.  For sure, nobody wants to duplicate the monolithic ERP architectures of the on-premise world in the cloud, but the notion that ERP is the cloud will meet its early demise is greatly exaggerated.  The ERP concept is proven, latest generation ERP software genuinely designed for the cloud offers a step-change in capability and although organisations face significant challenges in transitioning to the cloud most CFOs know that the cloud is ultimately the destination.

 

 

 

The ERP concept is proven – who wants to turn the clock back?

Whatever misgivings CFOs may have about the chequered history of ERP there is no denying that it reduced average transaction costs across swathes of industry and enabled a wave of process standardisation and automation that was previously unthinkable.  Yes, ERP became synonymous in large corporates with expensive projects, legions of consultants and multi-year implementations and yes, it didn’t delivery on its promise of a single source of corporate management information but ERP did become the transaction workhorse of medium to large enterprise all around the globe.

ERP in the cloud is not the same beast as ERP on-premise

ERP in the cloud – that is ERP software genuinely written to perform in the cloud – offers significant advantages over earlier generations of on-premise software and ‘pretenders to the cloud, i.e. existing software that has simply been re-purposed for the cloud to be run in a hosted environment.  Apart from the well documented and basic advantages of the cloud, for example, the negligible IT infrastructure and IT involvement, automatic upgrades, scalability, ease of deployment, immediacy and accessibility, ERP software that has been written for the cloud has been developed without compromise and can therefore be expected to be more functional and innovative.

Many of the software houses that have entered the cloud have a management team steeped in financial software development with a formidable track record going back decades supported by second-time around entrepreneurs determined to do things differently. Take for example, Financialforce which was ‘spun’ out of UNIT 4 and Xledger that has the same development ancestrory as Agresso.  Each businesses brings hundreds of man-years of domain knowledge to these new products and although some commentators like to characterise cloud-based software as ‘lightweight’, nothing could be further from the truth.

As a result, FinancialForce has been able to carve out a global position in the middle and upper reaches of the midmarket as a competent ERP vendor with leading edge capabilities such as embedded social collaboration, integrated CRM and advanced mobile applications.  On the other hand Xledger (with its heritage in Agresso and core financial management) is characterised by the industrial strength of its management information and extraordinary analytical capabilities as well as forward looking mobile capabilities. 

ERP is the antithesis of hybrid architecture

No matter what ERP system one is looking at in the cloud (and there are now quite a few true cloud solutions, for example, NetSuite, Oracle ERP Cloud) they are mainly predicated on a single metadata model and a set of interleaved applications and processes. To this extent they emulate the successful model of on-premise ERP, in which businesses leverage high levels of integration to maximise user productivity and process visibility. It would be a brave business that decides to break up this highly integrated environment into its component parts.  Yet, this is what the hybridisers propose, for example, that future architectures should straddle the on-premise and cloud worlds, with some of the applications residing in the cloud and other applications on-premise – loosely held together by integration tools.

Hybrid cloud should be regarded as a staging post

But, realistically the move from all ERP on-premise to all ERP in the cloud is more than some businesses can chew off in one bite.  For these businesses the migration to the cloud needs to be a staged process in which some applications stay on premises while other Best of Breed applications are introduced in the cloud. For these organisations the choice of platform in the cloud will be vital if they are not to end up with multiple cloud solutions that replicate the “Islands of Automation” so prevalent in the eighties and nineties.

Small businesses will not go backwards

Small owner managed and fast growing businesses which are unencumbered by legacy systems have it relatively easy. Served by SME cloud products such as Xero they are unlikely to ever contemplate on-premise software having tasted the convenience of the cloud.  When they outgrow their initial software choices they will be looking to migrate to more comprehensive ERP solutions in the cloud, preserving the benefits of integration as well as all of the other operational and economic benefits of the cloud.

Understandably, businesses are nervous about migrating their ERP to the cloud, but bearing in mind the fact that cloud ERP capabilities are growing all of the time and the significant pitfalls of hybrid solutions, CFOs are going to have to ‘grasp the nettle’. Those that don’t risk getting left further and further behind.

By Gary Simon, BSc, FCA, FBCS, CITP

CEO of FSN and leader of The Modern Finance Function Group on Linkedin with more than 43,000 members.

 

 

 

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