The Value of Experience

Experience counts, especially in a fast changing world

What Will Be The Impact of the Cloud on the Market for ERP?

Over the last 5 years, the Cloud has been one of the hottest topics within the IT community. The market has matured enough now with a sufficient number of success stories that it is time to take the Cloud seriously. Many companies are now including the Cloud as a component of their short term and long term strategy. We will now review the impact of the Cloud on the ERP market.

Key Findings

• The Cloud or Software as a Service (SaaS) will have a significant and growing impact on the market for ERP or similar integrated suites in the near future which will drive the need for new governance models pertaining to SLAs, security, and data protection.

• Cloud based ERP packages will be first implemented by the small (<$50m) and mid-sized companies (<$500m) as they are more flexible in their processes and have the need for faster, less complex implementations.

• Current cloud based vendors such as NetSuite, WorkDay, Intacct, and Kenandy have a head start in this space as they were designed and developed for the cloud. These products are also well suited for the small to midsized market. However, we should not overlook Oracle and SAP, as they both have a strong Cloud strategy with some compelling products already being deployed.


If you are a small to medium sized business that is just now looking at consolidating your processes with an integrated suite or ERP system, then those cloud based products should certainly be on your short list. Cloud based ERP solutions are not just for the smaller organization as many larger companies have a multi-tiered approach to their ERP strategy. The larger companies are also looking at cloud based solutions for their smaller subsidiaries or newly acquired divisions.
As always, the solution must fit the business needs. Even though there may be some compelling reasons to consider a cloud based solution, the solution must first meet the unique business requirements of the organization. If those business requirements are not meet, then the perceived cost savings and speed of implementation can be diminished. We have seen companies spend less time in the detailed analysis of functionality because they are enamored with the glitz and easy and comfortable user interface. Also, some of the cloud based solutions cannot compete with the more complete sets of functionality provided by the top tier vendors.
Even though the cloud based vendors propose that their solutions can be implemented “without IT”, it is important that the discipline of the IT department be considered. Cloud based solutions require a different aspect of governance. An organization must now deal with Service Level Agreements (SLAs), data privacy issues, security and multi-tenant considerations. These are all topics for which IT is a subject matter expert.
The large vendors such as Oracle, SAP, Sage, Infor and Microsoft have invested significantly in their cloud strategy. SAP’s Business By Design is already gaining a foothold in some areas, while Oracle’s Fusion line of products is just now being deployed. Infor has joined forces with in their endeavor to move their cloud strategy forward. If you are a subsidiary of a larger organization that already has installed one of the top vendors, then it would be prudent to consider their cloud based products.


There are several driving forces behind the growth of cloud based ERP solutions. First, many companies are looking for alternatives to complex and long implementations of the top tier providers. Secondly, the cloud base products offer flexibility, a compelling user interface, mobile enabled functionality along with built in analytics. Finally, the large players such as Oracle and SAP are looking to move down stream to capture more of the mid-sized companies.
If you are a small to midsize company without a significant IT support staff, then a cloud based solution can be very attractive. Limited capital investment is required for hardware and other infrastructure. Some of the vendors offer a templated or pre-configured solution which can drastically reduces the time of implementation and thus time to value. Some vendors claim that a complete functioning system can be deployed within a quarter as compared to the average 18 month time frame for the tier one providers. SAP is offering a templated approach to the implementation of their solution as well.
Another benefit of cloud based solutions is the ease of use of the systems. Since the products have been built with the Web 2.0 framework, users can customize the look and feel of their tool, as well as the steps within a process. Along with the ease of use, many of the solutions provide imbedded analytics and mobile capabilities. Being able to review and drill down into sales reports from a mobile device can be compelling.
The new cloud based models come with a unique set of challenges however. Governance of the new environment and relationship must now consider such topics as data privacy, multi-tenancy, security and SLAs for performance. With a multi-tenant environment (multiple companies on the same physical box), the vendor has control of when the software will be upgraded and patches applied. In many cases, the implementation of third party application is limited in order to ensure stability of the environment. It is critical to also understand where your data is, how it is backed up, and how easy would it be to move it to another vendor.
Finally Oracle and SAP are looking at challenges to their current business model where up to 50% of their revenue is derived from maintenance fees. Some companies are now reviewing the value of the maintenance fees and are forgoing the payment of the fees, using third party companies or bringing the support in house. The question remains, can Oracle and SAP supplement a shrinking of maintenance revenue with a new model of subscription based pricing?

Bottom Line

In summary, the Cloud and Web-Based products will have an import and growing impact on the ERP market, with the smaller to mid-size companies being the first to take advantage of the cloud offerings.
All vendors have a cloud strategy, where NetSuites, Workday and other cloud vendor developed their solutions from scratch with the cloud in mind. The above vendors have a first to market advantage; however, they may lack some of the breadth of functionality of top tier vendors.
The top tier vendors are not sitting on the sidelines. They have brought their wealth of process expertise to the cloud with some significant investments and functionality. Oracle has introduced their Fusion based products and SAP has their SAP Business By Design suite of products. The top tier vendors have the corporate fiscal strength to ensure success in this arena as well.

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This entry was posted on September 24, 2012 by in CIO, ERP and tagged .

Hank Edwards

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