If you’ve read our past blogs about cloud ERP software, you know that at least one of us a skeptic of the hype.
It is absolutely a real and emerging trend, but we’re leery of absolute, one-size-fits-all buzzwords like these. As independents consultants, with no vested interest in seeing one victor prevail in the cloud versus on-premise debate, we know the real reason why there is so much hype around cloud ERP: investors.
Investors love cloud solutions. On-premise provides spotty and unpredictable financial results for software companies. But cloud solutions provide recurring revenue, fat margins, and predictable results. That’s why investors sink more money into vendors, that invest more money into cloud, who in turn pay more money to industry analysts to tout the value of cloud. It’s perfect. It’s a beautifully orchestrated (but misleading) cycle.
That’s why we take cloud hype with a grain of salt. On the flip side, we also try to look at the upside.
At a recent industry event hosted by Panorama, we both had a good discussion on this topic, which was a good reminder of some of the objective benefits and value of cloud. Since we are both independent consultants with no affiliation to any on-premise, cloud, SaaS or any other type of software provider, we look at this subject from a technology-agnostic perspective.
This got us thinking about the “real” benefits of cloud – not just the ones created by investors and software executives, striving for that utopian vision of all customers paying hefty monthly subscription fees into perpetuity.
Here are a few reasons why cloud ERP software may be the best thing for your organization:
1. Cloud ERP software helps truly transform your IT organization – and your overall organization
When you step back and think about it, cloud ERP software is truly revolutionary. While internal IT systems, applications, servers, support and maintenance was once a foregone conclusion, organizations now have the option to outsource in a way that is more cost effective and efficient. It allows you access to your software and data from any computer or device in the world. It allows you immediate access to the software without complicated technical installation or configuration. And, it allows you to do so without further ramping up your internal IT staff. This is a tectonic mind shift for many organizations.
It helps to look at examples of this point. One is speed. Project approval to installation of software at many companies might take 3 months. You must go through procurement, negotiate with vendors, ship hardware, install hardware, set up OS and other infrastructure software, get all your network and security setup, backups, etc. Then install the software and configure it in dev, test, and prod. With cloud, on the other hand, your technical environment can be up and running in 24 hours.
Now think about every time you want to make a change and how much quicker those changes are in the cloud. They already have the required infrastructure and environmental setup. They have everything set up for DevOps and automated deployment. The whole setup makes IT significantly more responsive to the business with a much lower chance of outages and mistakes.
Another example is with SaaS solutions there is often an online marketplace of solutions provided by partners for many different niche needs. These can often be integrated much more quickly to a SaaS solution than in an on-premise situation, and for much less money. This makes the IT organization more responsive from a business point of view as well. These transformational possibilities may be the most important differentiator for cloud.
2. Cloud ERP software allows you to focus on your core competencies
Let’s face it: most aren’t good at IT. They may be okay at it, but why reinvent the wheel from scratch when you can outsource it to a professional? If you’re a manufacturer or retail company, for example, then you should be focusing on your customers and your products, not your IT systems. You may have a hard-working IT department, but there is something to be said for outsourcing things that aren’t part of your core competency.
3. Cloud ERP software can be a wise balance sheet and financial decision
CFOs don’t always think of the decision in this context, but it’s important to understand the financial implications of cloud systems. Initial costs may be lower, but long-term costs are generally higher. However, many CFOs are okay with this tradeoff because they are more concerned about minimized capital expenditures than they are about potentially higher operating costs. This alone could lead you to choose cloud over on-premise.
On the flip side, smaller organizations may see lower costs in the long term as well because they simply can’t efficiently spread the fixed infrastructure costs (including multiple environments for prod, test, dev, etc.) over enough volume. Not only that, cloud providers are getting more efficient such that the size of the organization where this is true is getting larger over time. Multi-tenant cloud is likely to be especially attractive, while imitation cloud that is really hosting is less likely to be attractive. Buying ERP software and putting it in your own cloud provider’s environment is also likely to be attractive to some organizations. But, beware of ERP vendors that try to find new ways to extract your last dime from you – this is not likely to be an attractive option.
4. Cloud ERP software helps force change in your organization
Although effective organizational change management is critical to any digital transformation, cloud ERP software can help facilitate those changes better than on premise. In general, cloud solutions are easier to use, easier to install, and less flexible than on-premise, so that can help drive more change and take customization off the table as a potential option (especially in the case of SaaS cloud solutions). Keep in mind: cloud solutions require even more effective organizational change management since you are inherently more likely to change your business to fit the software rather than the other way around.
Also, SaaS solutions are also newer software. By definition, newer software is less likely to be cluttered with decades of requested user features. This means simpler, easier to use software that might be better for smaller, simpler organizations.
5. Cloud solutions provide world-class security
With all the recent instances of security breaches and malware, it’s comforting to have a company with world-class security teams hosting your enterprise software solutions. Our latest 2017 ERP Report suggests that losing control of security is the first reason more CIOs don’t opt for cloud solutions, but the reality is that ERP vendors have a lot more to lose with a security breach than your internal IT department.
A counterpoint is that even though they most likely have much better security, cloud providers are bigger targets because of their very multi-customer nature. You can make good arguments either way that the overall security with these two conflicting aspects is better or worse in the cloud. And a cynical benefit is that when your cloud provider is breached, at least you can blame someone outside of your organization when you must explain a breach to the CEO or the board.
These are some of the biggest benefits of cloud ERP. However, cloud solutions aren’t right for every digital transformation initiative. The best thing is to first develop an overarching IT and digital transformation strategy to help you decide between cloud and on-premise ERP solutions. Independent ERP and digital transformation consultants like Panorama can help you define the best IT strategy for your organization.
This blog was co-written by Todd Bolon. He is Principal at ValueBridge IT Consulting, and a former CIO turned independent consultant based out of Chapel Hill, NC. He assists private equity firms and their portfolio companies to strategically enable their businesses with technology.