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ERP and the cloud: Everything you need to know

How will cloud play out in ERP implementations now and in the future? We investigate...

The words "business plan" written on a chalk board surrounded by related words.

Despite massive take-up by many organisations, one area where the cloud hasn’t made much of an impression – at least within enterprises - has been in the ERP market.

But that doesn't mean there haven't been any changes. According to analyst outfit Forrester Research, the number of businesses looking to replace on-premise ERP with cloud-based systems has doubled in the past year.

One specific area is in the education sector, where a report by Markets and Markets has shown the US Education ERP market will increase at a rate of 17.3 per cent CAGR between now and 2020, and it looks as though other sectors will follow in its footsteps.

So, while there’s still a long way to go, there is a future for cloud in the ERP world.

Latest news

23/02/2016: Cloud-based ERP provider NetSuite has partnered with global currency tracker Oanda to give customers access to Oanda’s foreign exchange rates data.

Users of NetSuite’s ERP platform can now install the Oanda bundle through SuiteApp.com and use it in conjunction with the Oanda Rest API key.

Previously, NetSuite customers had to access Oanda rates manually via the Oanda website, but the new arrangement will allow users to retrieve exchange rate information directly from the NetSuite platform, giving them more seamless access to the data store.

“Our aim is to provide the NetSuite community, which includes international companies of all types and sizes, with universal, streamlined access to the highest quality FX information,” said Natasha Lala, managing director of Oanda Solutions for Business.

“The deeper collaboration underscores our commitment to enabling IT, finance and product professionals to automate their rates and have confidence in their numbers.”

21/10/2015: Oracle has announced massive ERP growth over the last 12 months, with a total of 1300 companies now using its ERP Cloud product, across the financial services, education and manufacturing industries. "Oracle ERP Cloud enables our customers to increase their operational efficiency while reducing their costs, and modernize their business practices to gain insight and productivity," said Rondy Ng, senior vice president, Oracle Applications Development.

FinancialForce.com announced in September four product updates that it says will enhance the financial visibility and business intelligence capabilities of its platform. Among the most notable announcements made at Salesforce's Dreamforce conference in San Francisco, was that FinancialForce.com has bolstered the business intelligence (BI) features for FinancialForce ERP.

In May, Netsuite unveiled a fully featured mobile version of its xxz, designed to ensure Android users can take control of business information and make sections on the move.

Who’s using cloud-based ERP?

The phrase says it all, ERP is enterprise resource planning and that word “enterprise” is the giveaway. Unlike other cloud projects, where there could be discrete implementations for discrete projects, ERP software is inextricably connected with all parts of the enterprise, making it much harder to run separate projects

That’s not a situation that applies to start-ups and smaller companies, according to Alex Pelzsharpe , research director of social business applications for 451 Research. “If you’re a new company, say 200 people,  you have a bit of money, you want a bit of ERP, you’d do it in cloud – a firm that size wouldn’t build its own infrastructure," he says.

"Cloud is big for green-field sites. When you get into large-scale organisations -  those who have complex, heavy-moving ERP systems - you’ll find very little interest."

The big ERP vendors, like Oracle, are now making claims about their strength in the cloud, but  Pelzsharpe suggests that, while the companies do have offerings suitable for SMEs, the major ERP implementations are way down the pipeline.

“Oracle will go to cloud when it wants to. At the moment it isn’t optimised for those applications,” Pelzsharpe adds. “Cloud is optimised for handling data – and it’s very good at that. But what you get with ERP are a lot of fat files, processes and things like scanned documents. You hit performance issues really quickly when you move to the cloud.”

However, according to Craig Sullivan, senior vice president for enterprise and international products ar NetSuite, there are signs that the enterprise is beginning to go down this route.  “Early on, our focus was on SME and start-ups, the front of the bell curve as the market has matured," he says.

"More and more businesses are adopting cloud as an option. We have helped GoPro to scale their business and see American Express running their business travel on NetSuite.”

Sullivan says that there are a couple of great drivers for change; mainly when there’s been disruption in the business. “We find we get customers when some factor has prompted it, for example, an acquisition or a divestiture – we see people use those sorts of moments to make the change,” he adds. 

Will the winners in the cloud ERP space be established software vendors or newcomers?

It wasn’t that long ago that the big ERP firms would have given the cloud a wide berth. In the past couple of years, however, the likes of Oracle, SAP and Microsoft have all announced that they’re readying themselves for a move to the cloud.

“Two or three years ago – it wasn’t really a fit for Oracle,” says Pelzsharpe who adds that the company is now changing its approach and offering something for smaller businesses. 

“What they’re a doing a truly optimised cloud from the ground up, an entire stack – not optimised for major enterprises, but for larger firms 1,000 to 2,000, the Oracle cloud story will be quite compelling,” he says. 

Is cloud cheaper for ERP?

Although cost is often cited as one of the main reasons for cloud implementation, it’s not always the case that it’s cheaper. Moving to the cloud can end up costing the customer more. “If you look at some of the big Salesforce deals, they’re as expensive as anything on-premise,” says Pelzsharpe.

The savings are mainly through the switch from op-ex to cap-ex. “It’s the predictability of the cost, you know exactly how much you’ll be paying every month," Pelzsharpe adds. "But will it be cheaper in the long term? Probably not; over five years, it comes out the same.”

NetSuite’s Sullivan thinks there is one area where cloud does have an advantage and that’s in the skillset needed. He says there’s not such a need to find highly sought people with database and programming skills. “Our systems can be operated by end users through point-and-click. We’re taking care of the database, so you don’t need programmers in the business,” he says.

What will the future hold for this market?

ERP changed the way that companies operated. This was an approach that pulled the disparate parts together and gave businesses more understanding of what their customers wanted and how the processes worked.

But cloud computing has been even more revolutionary in the way that it’s changed how businesses operate, transforming not just the technology but also the way of working itself. Can this revolutionary approach ever apply to ERP or is this world destined to remain immune from the upheavals of the cloud?

Changes are definitely afoot. The business departments are getting more closely involved in IT purchasing now, for example. There’s the well-quoted Gartner prediction that in the future more software will be bought by the CMO than the CIO, “I know that quote,” says Pelzsharpe, dismissively, “and it’s not one that I personally believe.”

However, NetSuite’s Sullivan has seen a change in the way that decisions are being made. “Previously the line of business leaders would have to lobby the IT department to buy our system; we now see more business being involved in the decision-making," he says. 

One area that will certainly change, according to Pelzsharpe, is there will be greater use of mobile and more interaction with social media. “If you look at the way that Salesforce uses Chatter, it keeps businesses better connected,” he says. “If I’m away from the office, I want to be alerted wherever I am.”

Perhaps that’s the biggest change of all. While ERP has been tied to the enterprise, the definition of enterprise has changed. Working practices have shifted and geographical locations have become more fluid. The terms competitor, customer and partner have also become more loosely defined. And as the enterprise has changed and will continue to evolve, so will ERP systems follow suit. 

This article was originally published on 22nd October 2015, but has been updated since (most recently on 2nd November 2015) to reflect the latest developments.

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