The traditional ERP model is broken, and new suppliers are rushing in from all sides (hybrid, hosted, public cloud and SAAS vendors) to fill the gap once inhabited by the monolithic ERP software vendors.
Consumers of ERP products want something different nowadays; a solution scales and fits with their business without costing an arm and a leg to deploy.
Here are 5 reasons why we believe that traditional ERP is dead.
1) Choice in the ERP market has contracted dramatically.
The number of ERP vendors offering traditional licenced software products is reducing and very few new vendors are coming into the space offering new ERP software solutions; creating a contraction in the market. Less suppliers mean less innovation taking place, and even traditional vendors such as Sage and Microsoft are now pushing their cloud ERP versions over and above their traditional on-premise products.
Without innovation in the market, consumers will be attracted by the newer feature sets and capabilities of cloud-developed ERP solutions, and will gradually decommission their on-premise central ERP infrastructures as the features struggle to keep pace with client expectations.
Conversely, in the cloud ERP space, there are many more vendors developing straight onto public cloud platforms and the market is buoyant as app developers recognise the huge opportunity for cost-effective, cloud-based ERP services for organisations facing complex ERP challenges.
2) The ROI for on-premise ERP deployments is often longer than most people’s job roles.
The average worker is said to stay at each of his or her jobs for 4.4 years, and may have a number of job roles within that period. ERP implementations often take between 18 months to 2 years, and sometimes longer when the projects run into difficulties (see our post on the 6 Most Shocking ERP Failures), therefore it can often be over 5 years before the return on investment for an ERP deployment is realised.
This timescale is often too long for many managers (who want to see an ROI within their tenure) and many Finance Directors are now expecting IT projects to deliver savings within the first year. The reason for the extended timescale for on-premise ERP deployments compared with cloud ERP is largely due to the deployment costs involved in integrating a complex software system across all of your existing operations, and the cost and time impact on each business department as the solution is integrated into departmental apps.
One of the main features touted by cloud and hosted ERP solutions is the relatively short ROI timescales due to lower upfront deployment costs and pre-integration work already done by the vendor during the development stage.
3) Skilled ERP workers are retiring
IT specialists who were skilled in deploying and managing complex, traditional ERP systems are on the road to retiring in the next 10 years as the software specialists working around the mid-1990’s reach retirement age. And, as cloud based ERP solutions grow in popularity, the skillsets associated with traditional ERP deployments will gradually decline; especially as many newer ERP cloud services are intuitive to use and based on familiar web user interfaces.
How companies continue to enhance their in-house ERP skills will be critical for determining whether they remain with on-premise ERP deployments or jump into hybrid Cloud ERP for simpler ongoing management and lower staffing costs.
4) Death by a thousand cuts – line of business apps
Traditional ERP is struggling due to the sheer volume of line of business apps that are being released into the market daily, due to the ease of developing and distributing via public cloud services. Where once the central ERP system would have handled all facets of a company’s operations, now cloud and hosted payroll apps (such as Iris’ KashFlow Payroll) are being run alongside cloud CRM (for example, OpenCRM) and web-based warehouse management systems (such as Accello’s Cloud Warehouse Management).
As developers are just focusing on solving one issue in each app, integration is critical, however the cost differences between standalone, cloud, SAAS solutions seem to be outweighing the benefits of deploying an organisation-wide ERP solution. Even more so when many developers are operating a freemium model in order to entice new B2B buyers…
If organisations continue to purchase standalone apps for line of business and departmental requirements, then this could be a death by a thousand cut for the traditional ERP platform.
5) On-premise ERP makes no financial sense for the modern business.
Deploying on-premise ERP requires infrastructure and people. People and infrastructure require space. And space costs a lot.
As many businesses are decommissioning their own server rooms in favour of hosting services from data centre providers, adding large infrastructure environments to their space-confined office locations in order to house a new ERP system is often commercially impossible.
Added to the space costs are the hardware, licences, support, consultancy and deployment expenses – all before the ongoing maintenance and management costs are incorporated. This means that large scale ERP deployments on-premise are no longer commercially viable, and in a bid to reduce IT spend organisations are now choosing to host their ERP externally or purchase hybrid ERP services which remove the specialist consultancy and deployment costs from the sale.
Traditional ERP systems are still very much in place in many organisations across the world, but as many industry outlets (and ourselves at C24) are seeing, newer purchases tend to be hybrid or cloud ERP services which are then integrated into existing, legacy ERP applications in a bid to keep the lights on for a few more years. Fewer companies are choosing on-premise ERP deployments as their number 1 strategy, and are instead looking at how on-premise legacy ERP can be complimented with hosted or cloud-based services to deliver a more modern, and complete, solution.
If you liked this post then please read our other posts on ERP in the cloud:
About C24 Ltd
C24 is a specialist applications hosting provider, with particular expertise in hosting and analytics for the manufacturing, legal and hospitality sector.