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What Does the Cloud Mean for ERP?

ERP in the cloud is fueling an innovation burst that is changing vendor capabilities

The gap is widening between legacy ERP and cloud ERP as traditional on-premise tools are shifting toward delivery of applications over the Internet. The sudden growth spurt for ERP in the cloud is largely driven by the vast cost savings resulting from the increased productivity and efficiency that characterize the move to web-based business applications.

Industry insiders have recently begun to draw attention to the upsurge in new ERP developers as an indication that the competitive landscape has shifted, and that long established players will need to adapt in order to maintain their market share in the years ahead.

As a result, many long established entities like Microsoft and SAP have been seen ramping up their cloud offerings as they prepare to take on the new players in the space. Whether or not these current leaders will be able to maintain their positions at the top is uncertain as they are faced with not just a new platform, but new paradigms in marketing, pricing, support, organization structure and infrastructure reflected by the newer ERP in the cloud tools.

An Innovative Surge
Some industry analysts have pointed out that the current leading ERP software vendors and their systems implementation partners are finding the transition to cloud-based offerings difficult since business processes native to ERP in the cloud tend to require much less time and expense to implement than the on-premise equivalents they've traditionally deployed. However, this is one of the elements of ERP in the cloud that is most attractive to established (and new) clients and users.

Legacy on-premise ERP offerings tend to be geared towards Fortune 2000 companies that can afford the effort and expense of having armies of implementation consultants working on their sites for months or even years to get the software tuned to meet their so-called "unique" requirements. Not only is adoption slow, but subsequent upgrades are even slower since the original business case for the initial implementation is not there, and the appetite to spend sometimes millions of dollars on a technical upgrade with no obvious functional or business impact is also missing.

What is increasingly being seen from several of the new cloud-based ERP providers are approaches that are more externally aware and less reliant on implementation consultants to tune and tweak (and test) the software.

The newer breed of ERP tools tend to be simpler and more focused on a specific market need so that "plug-and-play" really means what it says and is not just empty words on a PowerPoint. In other words, the new tools have been designed from the ground up for the cloud and for mobile, and are not simply pouring old wine in new bottles.

Users still have a challenge in identifying which new innovations spurred by the increased competition will allow them to hit the ground running as they move to adopt ERP in the cloud going forward. They still face challenges with any change in systems and processes at the heart of their business as is the case with a new ERP, such as data migration, business process refinement and organizational alignment and education.

On the other hand, any of the new ERP players may find it difficult initially to match the information depth and maturity of established legacy ERP providers.

Just when it becomes far more critical that ERP software works "out of the box" (since the army of implementation consultants toiling over bugs and fixes for many months is a thing of the past), the vendors who are at the forefront of the market do not have a customer-base numbering in the thousands or tens of thousands to fall back on.

New ERP suppliers tend to also lack the added value of experience in aggregation and evaluation provided by legacy integrators, just at the time when they, not the legacy on-premise ERP providers, have the option to aggregate and seek value out of so much more data across a potentially vast customer-base.

What Is the Solution?
Are we seeing the best and latest ERP applications from newer upstarts being combined with the maturity and financial depth of legacy ERP providers to provide something that is of compelling value for money even for smaller businesses? No.

Instead, the entrenched legacy ERP providers are acquiring cloud-based point solutions and either attempting to bolt them onto unproven or failed cloud-based offerings of their own, or simply offering up siloed standalone cloud-based applications stitched together, leaving the ultimate pain of holding everything together to their long-suffering customers and their customers' well-paid consultants.

The bottom line is that ERP in the cloud is fueling an innovation burst that is changing vendor capabilities, along with customer and investor expectations. But we are not sure if the legacy ERP providers will keep up. Only time will tell.

More Stories By Richard Minney

Richard Minney is co-founder of iBE.net,, a developer of business management software for SMEs. He has nearly 20 years of ERP experience as a developer, consultant and project manager. Previously he was executive VP for Product Innovation at HCL-Axon, responsible for the company's successful ERP add-on solutions business. Before that, he was co-founder of Feanix, a $20m SAP systems integrator with clients like Sikorsky Aircraft and Pratt & Whitney. He spent nine years at U.K.-based Druid Group plc, building SAP’s first industry add-on solution for aerospace and defense. He began his career at Ford and Rolls-Royce. He has a Masters in computer integrated manufacturing from Cranfield University, and a MA in engineering from University of Cambridge, Oxford. You can reach him at richard.minney@ibe-erp.com.

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