Make ERP roadmap decisions based on business goals like business transformation, modernization, or cost cutting, not on vendor ultimatums or ease of acquiring and installing cloud technologies.
Every enterprise software customer wants to know their vendor's roadmap - the plan for how products will evolve, change, and hopefully support their business. But where vendors lead will not always be where you want to follow.
At a time when pressure to move to the cloud is forcing IT leaders to rethink their application strategies, the enterprise needs its own roadmap. This is particularly true for ERP in the cloud. While "enterprises are moving to the cloud," that's not the same as "enterprises are moving their ERP applications to the cloud." Even if you decide your ERP belongs in the cloud, the right route for you may not be what the vendor has mapped out.
Smart decisions about cloud technology require understanding the types of cloud services and the scenarios they fit. For example, Software as a Service (SaaS) has made far more of an impact in application segments like CRM and marketing automation than it has in ERP. While both SAP and Oracle have begun pushing SaaS ERP, the early success stories have been relatively small businesses and divisions of larger ones - not complex, global enterprises. Great SaaS success stories like Salesforce significantly reimagined the software categories they brought to the cloud. We have yet to see that in ERP.
In fact, most innovation in cloud and enterprise technologies is happening outside of ERP. That should be no surprise because what enterprises value most in an ERP is stability and reliability. By nature, innovation is about embracing risk. Innovative businesses seek to find the right balance between risk and reward - but not at the risk of being unable to close their books at the end of the quarter.
This article is adapted from my white paper, "The World of Enterprise Applications is Changing - Is It Time to Reroute your ERP Roadmap?" You can read a more detailed analysis there, drawn from the years I spent researching the ERP market. Here are a few essential points:
- Make ERP roadmap decisions based on business goals like business transformation, modernisation, or cost cutting, not on vendor ultimatums or ease of acquiring and installing cloud technologies.
- Years may pass before there is functional parity between your incumbent ERP solution and Software as a Service (SaaS) ERP. For most enterprises, the full ERP application suite should not move to SaaS ERP, at least for now.
- Start your cloud journey with Infrastructure as a Service (IaaS). Getting your ERP out of the data centre is the most cost effective, least disruptive move to the cloud you can make.
- Make focused investments in SaaS technologies that let you innovate faster.
The world of enterprise applications is changing
Monolithic ERP suites prevailed over the last 30 years when the goal was standardisation and integration. Today, business agility and innovation are top of mind for business and IT leaders. The cloud has become an enabler for new business models that lead to business transformation.
Back-office enterprise applications (such as ERP) are not transformational by nature. As a result, businesses gain little from moving them to the cloud. ERP must interact with cloud technologies that offer enhanced functionality while still serving as the sturdy, steady, foundational systems of record for the enterprise.
The monolithic suite of enterprise applications is becoming an ecosystem. At the core, you have the enterprise system of record and highly transactional applications. The systems of engagement and other extensions are where it makes sense to use the cloud.
This repeats the pattern of Salesforce creating a core system for tracking customers and partners in an ecosystem of numerous connected applications created by application partners and individual enterprises. Each enterprise's Salesforce ecosystem is tailored from these building blocks. Similarly, an ERP suite can be loosely connected to cloud applications for asset management, online ordering, or project accounting.
The age of a few mega ERP vendors dominating the market is giving way to a proliferation of best-in-class cloud application vendors. ERP customers don't have to wait for their incumbent software vendors. The mega ERP vendors aren't as organisationally nimble as solution-specific software vendors, which means the mega vendors lag behind in cloud product maturity. The mega ERP vendors are responding by stepping up rhetoric aimed at locking in customers.
The hybrid off-ramp
Most enterprises will end up with a hybrid ERP environment: a mix of current licensed software and new cloud services. By spreading functionality over best-fit solutions, the cloud provides flexibility, which improves enterprise agility and speed to market.
Instead of a wholesale move to the cloud, a hybrid strategy targets cloud use for areas that drive competitive advantage. Cloud components can fill gaps in ERP suite capabilities. The most likely candidates are systems of engagement that support interactions with suppliers, customers, and partners.
ERP vendors would still like to capture as much of your business as possible, and they tout the integrated cloud suites as an easier way forward. Yet no matter what technical migration tools the vendor offers, there is no "easy button" for SaaS ERP. Even moving to the SaaS edition of the product you own is likely to be a "rip and replace" endeavour rather than an upgrade. With that come the risks, costs, and organisational disruption that accompany enterprise technology implementations.
Vendor hype that tries to make moving to SaaS ERP sound easy focuses on technical installation activities, glossing over a wide range of challenges, such as:
- The need to standardise business processes, configurations and data in order to fit into the SaaS product. A foundational principle for SaaS is that the vendor's standard solution can be used by many customers. That means severely limiting, if not prohibiting, customisation.
- The challenge of integrating loosely coupled services. SaaS ERP products don't contain the unique capabilities that are available in existing ERP solutions or the novel functionality in new cloud applications. That makes it necessary to create a portfolio of software and integrate its components.
- Rationalising, replacing, or retooling customisations that are necessary but not delivered with the SaaS solution. For organisations with many customisations, this activity alone can make a move to SaaS ERP prohibitive.
All of this can translate to years of project work and strained budgets. At the end of the journey, assuming you successfully make the move to SaaS ERP, being able to post journal entries or record an employee transfer in the cloud versus doing so in your data center doesn't make your business more productive or create competitive advantage.
In addition, SaaS ERP won't necessarily result in lower total cost of ownership (TCO). Over 5-7 years, SaaS TCO can exceed ongoing license and maintenance fees of traditional software. In fact, there is plenty of reason to think that is why ERP vendors are pushing SaaS so hard. A recent Piper Jaffray & Co. company research note stated that for Oracle Cloud, "recent checks suggested that the cost of implementation can be 2x-3x a competitor deployment on the HCM side." Oracle CEO Mark Hurd has repeatedly justified his company's cloud moves to investors by explaining that Oracle stands to triple its annual recurring revenue from customers who move to the cloud. Be prepared for SaaS ERP vendor negotiations at renewal time to be more difficult than for licensed software, since you can't easily switch from one SaaS ERP vendor to another.
Exiting the vendor roadmap
Instead of getting pushed to SaaS ERP, choose your own route. For many enterprises, the best path is to sweat the asset they own rather than undertake unnecessary upgrades or migrations. If the only reason you have been upgrading is to stay current with your vendor maintenance agreement, it may be time to reconsider - particularly as vendors divert attention from their installed base to their SaaS products.
In either a traditional data center or in IaaS application hosting, third-party support provides an alternative model for preserving your ERP investments, including customizations. Rimini Street can provide better support, for less money, without pressuring you to upgrade or move to any particular cloud option. Meanwhile, you can add and integrate truly innovative cloud software.
Make no mistake, the cloud is a non-optional force that is going to impact business and IT. The cost of doing nothing about it far outweighs the trade-offs that must be considered. Absolutely, you should know your ERP vendor's roadmap and review it regularly for features that might serve a business purpose. Just make sure you also assess the alternate routes you can take while the cloud ERP market matures.
This article was originally published on ITProPortal.
The World of Enterprise Applications is Changing – Is It Time to Reroute your ERP Roadmap?
The cloud is changing how we think about choices for enterprise software, including ERP. To make the most of the cloud, organizations must understand that there is more than one route to the cloud – and they need to draw their own roadmap rather than letting vendors do it for them.
Pat Phelan, VP, Market Research
Pat Phelan is VP of Market Research at Rimini Street. Prior to Rimini Street, she spent 18 years at Gartner providing CIOs and IT leaders with research and advice on strategies for managing the ERP/business application life cycle.