A recent article from Forbes highlighted some interesting research from Gartner on organisations choosing the cloud for their ERP.
Gartner is predicting that 47% of organisations are planning to move their ERP systems to the cloud within the next 5 years, and 26% of those surveyed said they plan to do it much sooner; within the next 3 years.
30% of ERP will remain onsite
This is a big change for a business critical software application that has traditionally been the bread and butter on on-premise IT. Yet despite the large numbers being expected to move to cloud ERP, 30% of organisations are expecting the majority of their ERP infrastructure to remain onsite for the foreseeable future.
One of the reasons Gartner cites for the proliferation of cloud ERP services is the wide range of potential SAAS offerings on the administrative side of ERP (financial, HR), yet ERP manufacturing cloud products are scarcer due to their intrinsic complexity. However this is also set to change as software vendors start to develop products primarily in the cloud.
Two tier ERP will speed up Cloud ERP adoption
Forbes contributor Louis Columbus responds in his recent article that in fact cloud ERP adoption is expected to grow at a faster rate than even Gartner is predicting, due to the rise of two-tier ERP systems within larger organisations.
Two tier ERP is usually the result of a complex ERP structure that is too inflexible to bend and flex to serve smaller subsidiaries or new acquisitions. Large sunken costs in an existing, central ERP system often mean it is too complex and costly to roll out the same instances of the application to all subsidiaries, plus many subs have localization and geography requirements that may not fit the central ERP system.
That’s when a more cost-effective, streamlined ERP solution can work at the local level, and be integrated into a legacy ERP environment for minimal disruption and fuss. This is predicted to be one of the main contributing factors to the growth in cloud ERP adoption rates.
Reasons behind two tier ERP growth
Some of the key reasons behind the high growth predictions for two tier ERP from Forbes’ article are:
- Organisations often cannot wait to replace legacy ERP systems before new functionality and features need to be implemented. Bringing in a simpler ERP system to solve a tactical problem, whilst utilizing cloud services to streamline costs, can be a way of accessing those features without a rip and replace process.
- Legacy ERP systems may not be modern enough to cope with today’s compliance requirements as many were originally engineered decades ago when information governance frameworks were not as critical and high-profile as they are today. Leveraging cloud ERP can sometimes help organisations to ‘leapfrog’ versions and move to a newer platform in the business departments that need it.
This comes at a time when even vendors in the ERP space are recognising that the legacy, one-size-fits-all approach doesn’t work.
ERP vendors change perspective on legacy ERP
Microsoft has a two tier ERP system in place, with SAP deployed centrally and Microsoft’s own Dynamics AX platform delivered locally. This gives country operations teams the ability to adjust the ERP tool to fit systems locally and comply with local regulations.
Sage has even gone as far to drop the term “ERP”, saying that it now stands for “Expense, Pain, Regret” (although hopefully not in that order), for many customers today – and has come out to say to customers that Sage will not be pushing users to move to the cloud, instead just letting them move their accounting systems over if they wish. This is another example of two tier approach in practice, where individual functions are siloed out and delivered from different platforms to suit the application and users.
Sage’s decision is in direct opposition to SAP’s decision to adopt a ‘cloud-first’ policy when taking their products to market with customers.
This is an insight into how the industry to changing and flexing to respond to perceived customer demand across cloud and on-premise ERP delivery. ERP providers are choosing their sides and getting off the fence in a bid to differentiate their offerings, however it may just end up causing more confusion for customers who want to choose the solution that fits their current business model best, not based on a vendor-led trend.
If you liked this post then please read our other posts on ERP in the cloud: