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By Pat Phelan, VP of Market Research at Rimini Street
Every corporate software customer wants to know their manufacturer's Roadmap: the plan for how products will evolve and how they can better support the company's business. However, the path taken by the manufacturers is not necessarily the path that your company wants to follow.
At a time when the pressure to move to the cloud is forcing IT leaders to rethink their application strategies, companies need to have their own Roadmap. This is particularly true for cloud ERP: saying that “companies are moving to the cloud” does not mean that they are migrating their ERP applications to the cloud. Even if you decide to have your ERP in the cloud, your route may not be the one outlined by the manufacturer.
Smart decisions about cloud technology require an understanding of these types of services and the scenarios in which they fit. For example, software as a service (SaaS) had a much greater impact on application segments, such as CRM and marketing automation, than on ERP. Although the big manufacturers started to drive SaaS ERP, the first success stories were in relatively small companies, or in divisions of larger companies - not in complex and global companies. SaaS success stories, such as Salesforce, have significantly reinvented the categories of cloud software. We still need to see how this will work for ERP.
In fact, most of the cloud innovations and enterprise technologies are happening outside of ERP. And this is not exactly a surprise, because what companies value most in an ERP is stability and reliability. By nature, innovation involves risk. Innovative companies seek to find the right balance between risk and reward - but they can never run the risk of failing to close the results at the end of the quarter.
This article was adapted from my white paper “The world of enterprise applications is changing - Is it time to redirect your ERP Roadmap?”. In it, you can read a more detailed analysis, based on the years I spent researching the corporate management systems market. Here are some essential points:
• Make decisions regarding your ERP's Roadmap based on corporate goals - such as business transformation, modernization or cost cutting - not supplier ultimatums or the ease of purchasing and installing cloud technologies.
• Many years may pass before there is a parity of functions between the established ERP solution and the ERP SaaS. For most companies, it is not recommended to move the full suite of ERP applications to SaaS, at least for now.
• Start your cloud journey through Infrastructure as a Service (IaaS). Getting your ERP out of the data center is the most economical and least impactful move to the cloud you can make.
• Make investments focused on SaaS technologies that allow you to innovate faster.
The world of enterprise applications is changing
Monolithic ERP packages have prevailed over the past 30 years, when the goal was standardization and integration. Today, agility and business innovation are a priority for business and IT leaders. The cloud has become a facilitator for new corporate models that drive business transformation.
Corporate back-office applications (such as ERP) are not transformational in nature. As a result, companies do not make significant gains by moving them to the cloud. The ERP must interact with cloud technologies that offer enhanced functionality and, at the same time, act as solid and reliable registration systems for the company.
The monolithic suite of enterprise applications is becoming an ecosystem. At the core, you have the management system and highly transactional applications. It is in engagement systems and other extensions that it makes sense to use the cloud.
This is the Salesforce standard, which creates a core system for tracking customers and partners in an ecosystem of multiple connected applications, created by individual application partners and companies. Each company's Salesforce ecosystem is customized from these building blocks. Likewise, an ERP package can be freely connected to cloud applications for asset management, online ordering or project accounting.
The era of some ERP mega makers dominating the market is giving way to a proliferation of the best cloud application providers. ERP customers no longer have to wait for software vendors. Mega ERP makers are not as agile as specific software vendors, which means that these giants lag behind in the maturity of the product in the cloud.
The hybrid route
Most companies are moving towards a hybrid ERP environment: a combination of current licensed software and new cloud services. Instead of a total move to the cloud, a hybrid strategy directs the use of the cloud to areas that generate competitive advantage. The most likely candidates are engagement systems that support interactions with suppliers, customers and partners.
The big ERP vendors want to get the most out of their business, and they bet on integrated cloud suites as an easy way.
However, regardless of the technical migration tools offered by the manufacturer, there is no easy solution for ERP SaaS. Even migrating to the SaaS edition of the solution you have is likely to be a closer attempt at 'redeployment' than an upgrade. With this, come the risks, costs and operational interruptions that accompany the implementation of management systems.
Moving to ERP in SaaS covers a wide range of challenges, such as:
• The need to standardize business processes, configurations and data to suit the SaaS product - A fundamental principle for SaaS is that the manufacturer's standard solution can be used by many customers. This means severely limiting, if not prohibiting, customization.
• The challenge of integrating loosely coupled services - SaaS ERP products do not contain the unique features available in existing ERP solutions. This makes it necessary to create a software portfolio and integrate its components.
• Streamline, replace or reorganize necessary customizations, but not delivered with the SaaS solution - For companies with many customizations, this activity alone can make migration to the SaaS ERP prohibitive.
All of this can translate into years of project work and critical budgets. And at the end of the journey - assuming you've made the transition to ERP SaaS - making simple records in the cloud, instead of making them in your data center, won't make your company more productive or create some kind of competitive advantage .
In addition, the SaaS ERP will not necessarily result in a lower total cost of ownership (TCO). Over 5 to 7 years old, the total cost of ownership of the SaaS may exceed the license and maintenance fees for traditional software. In fact, one might even think that this is why ERP manufacturers are pushing SaaS so hard.
Leaving the manufacturer's Roadmap
Instead of being pushed to the SaaS ERP, choose your own route. For many companies, the best way is to make the most of their assets, rather than performing unnecessary upgrades or migrations. If the only reason you upgraded is to keep up to date with the manufacturer’s maintenance contract, it may be time to reconsider, especially when suppliers divert attention from the installed base to SaaS products.
In a traditional data center or hosting IaaS applications, independent support provides an alternative model to preserve your ERP investments, including customizations. There are alternatives to better quality support at lower costs, without pressing your company to upgrade or migrate to any specific cloud option. In the meantime, you can adopt the cloud for applications that make sense for your business.
Make no mistake, the path to the cloud is already a reality and will affect business and IT. Therefore, you need to know your ERP manufacturer's Roadmap and analyze it rigorously for resources that have a clear corporate purpose. Evaluate the alternative routes you can take as the cloud ERP market matures.
At a time when the pressure to move to the cloud is forcing IT leaders to rethink their application strategies, companies need to have their own Roadmap. This is particularly true for cloud ERP: saying that “companies are moving to the cloud” does not mean that they are migrating their ERP applications to the cloud. Even if you decide to have your ERP in the cloud, your route may not be the one outlined by the manufacturer.
Smart decisions about cloud technology require an understanding of these types of services and the scenarios in which they fit. For example, software as a service (SaaS) had a much greater impact on application segments, such as CRM and marketing automation, than on ERP. Although the big manufacturers started to drive SaaS ERP, the first success stories were in relatively small companies, or in divisions of larger companies - not in complex and global companies. SaaS success stories, such as Salesforce, have significantly reinvented the categories of cloud software. We still need to see how this will work for ERP.
In fact, most of the cloud innovations and enterprise technologies are happening outside of ERP. And this is not exactly a surprise, because what companies value most in an ERP is stability and reliability. By nature, innovation involves risk. Innovative companies seek to find the right balance between risk and reward - but they can never run the risk of failing to close the results at the end of the quarter.
This article was adapted from my white paper “The world of enterprise applications is changing - Is it time to redirect your ERP Roadmap?”. In it, you can read a more detailed analysis, based on the years I spent researching the corporate management systems market. Here are some essential points:
• Make decisions regarding your ERP's Roadmap based on corporate goals - such as business transformation, modernization or cost cutting - not supplier ultimatums or the ease of purchasing and installing cloud technologies.
• Many years may pass before there is a parity of functions between the established ERP solution and the ERP SaaS. For most companies, it is not recommended to move the full suite of ERP applications to SaaS, at least for now.
• Start your cloud journey through Infrastructure as a Service (IaaS). Getting your ERP out of the data center is the most economical and least impactful move to the cloud you can make.
• Make investments focused on SaaS technologies that allow you to innovate faster.
The world of enterprise applications is changing
Monolithic ERP packages have prevailed over the past 30 years, when the goal was standardization and integration. Today, agility and business innovation are a priority for business and IT leaders. The cloud has become a facilitator for new corporate models that drive business transformation.
Corporate back-office applications (such as ERP) are not transformational in nature. As a result, companies do not make significant gains by moving them to the cloud. The ERP must interact with cloud technologies that offer enhanced functionality and, at the same time, act as solid and reliable registration systems for the company.
The monolithic suite of enterprise applications is becoming an ecosystem. At the core, you have the management system and highly transactional applications. It is in engagement systems and other extensions that it makes sense to use the cloud.
This is the Salesforce standard, which creates a core system for tracking customers and partners in an ecosystem of multiple connected applications, created by individual application partners and companies. Each company's Salesforce ecosystem is customized from these building blocks. Likewise, an ERP package can be freely connected to cloud applications for asset management, online ordering or project accounting.
The era of some ERP mega makers dominating the market is giving way to a proliferation of the best cloud application providers. ERP customers no longer have to wait for software vendors. Mega ERP makers are not as agile as specific software vendors, which means that these giants lag behind in the maturity of the product in the cloud.
The hybrid route
Most companies are moving towards a hybrid ERP environment: a combination of current licensed software and new cloud services. Instead of a total move to the cloud, a hybrid strategy directs the use of the cloud to areas that generate competitive advantage. The most likely candidates are engagement systems that support interactions with suppliers, customers and partners.
The big ERP vendors want to get the most out of their business, and they bet on integrated cloud suites as an easy way.
However, regardless of the technical migration tools offered by the manufacturer, there is no easy solution for ERP SaaS. Even migrating to the SaaS edition of the solution you have is likely to be a closer attempt at 'redeployment' than an upgrade. With this, come the risks, costs and operational interruptions that accompany the implementation of management systems.
Moving to ERP in SaaS covers a wide range of challenges, such as:
• The need to standardize business processes, configurations and data to suit the SaaS product - A fundamental principle for SaaS is that the manufacturer's standard solution can be used by many customers. This means severely limiting, if not prohibiting, customization.
• The challenge of integrating loosely coupled services - SaaS ERP products do not contain the unique features available in existing ERP solutions. This makes it necessary to create a software portfolio and integrate its components.
• Streamline, replace or reorganize necessary customizations, but not delivered with the SaaS solution - For companies with many customizations, this activity alone can make migration to the SaaS ERP prohibitive.
All of this can translate into years of project work and critical budgets. And at the end of the journey - assuming you've made the transition to ERP SaaS - making simple records in the cloud, instead of making them in your data center, won't make your company more productive or create some kind of competitive advantage .
In addition, the SaaS ERP will not necessarily result in a lower total cost of ownership (TCO). Over 5 to 7 years old, the total cost of ownership of the SaaS may exceed the license and maintenance fees for traditional software. In fact, one might even think that this is why ERP manufacturers are pushing SaaS so hard.
Leaving the manufacturer's Roadmap
Instead of being pushed to the SaaS ERP, choose your own route. For many companies, the best way is to make the most of their assets, rather than performing unnecessary upgrades or migrations. If the only reason you upgraded is to keep up to date with the manufacturer’s maintenance contract, it may be time to reconsider, especially when suppliers divert attention from the installed base to SaaS products.
In a traditional data center or hosting IaaS applications, independent support provides an alternative model to preserve your ERP investments, including customizations. There are alternatives to better quality support at lower costs, without pressing your company to upgrade or migrate to any specific cloud option. In the meantime, you can adopt the cloud for applications that make sense for your business.
Make no mistake, the path to the cloud is already a reality and will affect business and IT. Therefore, you need to know your ERP manufacturer's Roadmap and analyze it rigorously for resources that have a clear corporate purpose. Evaluate the alternative routes you can take as the cloud ERP market matures.
Disclaimer: The opinion presented in this article is the responsibility of its author and not of ABES - Brazilian Association of Software Companies
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