After reading a recent report from Accenture on considerations for Cloud ERP projects, we collected a few key points from the paper that are particularly pertinent to SMB and Mid-Market customers who are considering putting their ERP into the cloud.
Here is the link to the original paper.
Software companies are leading the change, not just consumers
The report identifies that software companies are often the instigators of change when it comes to how ERP is delivered. Rather than consumers pushing for more choice in ERP delivery, it appears that software vendors are moving funding away from on premise services and directing investment towards the development of SAAS products. This has a two-fold benefit for SAAS vendors: they get to sell more of the solution (not just the licences), and, as more organisations purchase from them on a multi-tenant platform, the cost per tenant goes down – resulting in higher profits or the ability to offer more competitive pricing.
Accenture highlights two types of Cloud ERP models that are emerging from suppliers:
- Less sharing, dedicated infrastructure, more expensive, highly specialised and tailored.
- More sharing, multi-tenant infrastructure, quick to deliver, flexible.
Cost is still a motivator for the cloud
As more Cloud ERP solutions are implemented, we see further information being produced about the true costs of cloud services. Accenture’s study shows that Cloud ERP solutions don’t just affect the hardware layer, but have financial repercussions across the entire platform.
Costs which are typically lower within a Cloud ERP model, compared to a traditional on-premise ERP deployment:
- Hardware management software layer
- IT personnel, resources, support desk
- Implementation and migration services
- Training on new solution
- Premises to house and deliver IT from
In fact, the study found that software licencing costs were actually higher in a SAAS model, but this takes into account the underlying hardware hosting so works out significantly cheaper overall.
Most companies will end up with a 2 tier ERP solution
Due to the complexities of existing ERP operations, the acquisition of multiple companies or subsidiaries and the sunken costs of legacy ERP systems, Accenture predicts that many businesses will end up with a 2 tier approach to their ERP platforms.
This will likely encompass existing ERP platforms for the core business location, and Cloud ERP for smaller subsidiaries or acquisitions that may not require, or be able to cope with, the complexities of an enterprise, legacy ERP system. This is good news for Cloud ERP vendors as it helps companies to transition in their own time to an ERP model which works for them, without losing out on significant investments already made to their existing ERP platforms.
Cloud ERP suits SMB and Mid-Market perfectly
Accenture found that companies operating with a turnover of less than $750m (to put that into perspective there are over 5000 companies worldwide with over $1bn turnover according to Bloomberg) are best suited to Cloud ERP platforms, as their general business processes should be relatively simple and their IT departments are usually more affected by IT cost pressures than their larger counterparts.
SMB companies who are looking to make savings across their IT can generate savings through implementing their ERP in the cloud according to Accenture’s findings, especially as SMBs have limited scope for finding economies of scale within their IT systems compared to larger multinational corporations.
But what about the risks?
Accenture highlights a few key risks that should be investigated before jumping headfirst into a Cloud ERP service:
Governance: Which parts of the ERP system should be ‘locked down’ for certain users across the business to reduce risk? If a solution doesn’t allow for tailoring access for certain users, then it may not have the flexibility and scalability required when extending access out to branches and subsidiaries.
Vendor Lock-In: With such an important bank of information, it is critical for businesses to understand how they could migrate their ERP data to a new vendor, should the time and requirement arise. If you find yourself in a situation where data can’t be extracted easily at the end of a contract, then that would be an incredibly painful and disruptive exercise for the organisation.
Integration Risk: Should you require a 2 tier approach to your ERP strategy, then how well can your new Cloud ERP solution integrate with your existing ERP platform and other IT operations?
The ‘cloud community effect’
Accenture predicts that multi-tenant Cloud ERP services will bring about wider benefits than purely financial savings.
It sees multi-tenant environments fostering a ‘cloud community effect’ where tenants can work collaboratively with each other, or where suppliers can offer more services, spread across existing platforms. Additionally, updates or changes that affect a large number of tenants can be implemented quickly, such as mass updates following industry or country regulation changes.
This shared approach to working extends even further, and Accenture sees that, in the future, ERP software vendors and service providers will form “collaborative commercial relationships” in order to deliver higher quality services to their joint clients.
The original paper from Accenture can be accessed in full here.