The adoption of enterprise resource planning (ERP) applications running in the public cloud has increased appreciably in recent years. Research from Forbes predicts an increasing adoption of ERP public cloud applications in the next five to 10 years, leading to disruption of the traditional deployment of ERP applications. When looking at the full spectrum of ERP, ranging from customer relationship management (CRM) and human capital management (HCM) to finance and supply chain management, we see that organizations usually start to adopt cloud applications to add value to distinctive business processes such as talent recruiting and management or sales automation. What are the key drivers supporting these decisions, and what are businesses achieving by adopting ERP in the cloud?
Cloud applications enable the business to implement new functionality at once and at a lower cost than with traditional on-premise implementations. With cloud applications, IT is focused on integration and security, and the cloud services vendor can be leveraged for these tasks. On-premise implementations require significantly more IT effort, and a lot of energy is focused on maintaining the consistency of the existing, often complex, IT environment. This complexity can prevent new functionality from being rolled out and usually results in higher IT cost and longer implementation time and effort for the business.
With cloud applications, the functionality is deployed in a standardized manner. This means that all customers run the same software. As customizations are not allowed, new innovations can be rolled out much faster and the experience from the user group can be shared. Further, in most cases, cloud applications have standard innovations such as analytics, collaboration tools, and mobile support readily available.
ERP cloud applications enable business leaders to act immediately if they need to scale. Typically, after a pilot period, they can evaluate success and decide in what manner and at which pace the functionality can be rolled out in the business.
ERP cloud solutions have matured rapidly in recent years. Today, even core transactional processes in finance and procurement can be supported in a way that is suitable for most organizations. This leads to greater value and opens new business opportunities as described in the following cases based on real-live customer engagements.
A professional service organization had grown significantly in over 20 countries. Each country had implemented an on-premise finance solution tailored to country-specific needs. This resulted in a significant lack of transparency and insight into profitability and cost across the business. This bottleneck started to affect the ability for finance to support the business. ERP in the cloud enabled a new business opportunity. It avoided a high cost IT re-implementation and enabled an easier way for the organization to redesign existing finance processes and procedures. As a result, this organization started to move to a global, uniform, and scalable system. Other benefits enabled include improved collaboration between finance resources in different countries and consistent management information in various dimensions (country, resource, service line) available instantly when needed.
A medium-sized organization on a getting hold of strategy had inherited many ERP applications with bespoke business processes. The existing ERP systems could not scale to support the business, and processes became increasingly fragmented. If this situation were to continue, there was a risk that the number of back-office and IT staff members needed would increase significantly as the organization continued to grow. Moving to ERP cloud applications enables this organization to have a common platform for obtainable and future businesses designed to support best practice processes. With this platform, IT and back-office costs were mitigated while new functionality requirements could be introduced easily.
A medium-sized public sector organization had adopted several ERP applications over the last ten to 15 years. This environment became increasingly customized. The result was that the cost of maintaining this environment had increased over the years and upgrades were mostly executed out of technical need and not functionality driven. Given the size of the organization and its functionality requirements, the cost of ERP in the cloud was lower than maintaining the existing applications. In addition, the cloud functionality was richer.
These use cases indicate that ERP cloud solutions have matured to the point where they are a smart strategic alternative for many organizations especially for whose ERP system is focused around CRM, HCM, and finance management. In other cases, the traditional ERP suite can be replaced by a hybrid ERP environment consisting of a well-secured and integrated combination of public cloud for generic ERP capabilities and private cloud for business-specific ERP capabilities.