Last week, we published our 2014 ERP Report, which shared some interesting trends among hundreds of global ERP implementations completed within the last year. While some of the trends are no surprise – such as the fact that most implementations still take longer than expected, cost more than expected, and fail to deliver the expected business results – there are also some surprising new trends that we hadn’t seen in past years.

For example, our research shows that cloud and SaaS ERP adoption actually decreased from 26% of all implementations in 2012 to 15% in 2013. While these two numbers aren’t materially different from one another and certainly don’t warrant a reason to sound the alarms just yet, it is a bit surprising compared to what most of us might have expected. This data point also conflicts with the continuing industry hype proclaiming the death of on premise ERP and touting cloud and SaaS ERP as the greatest thing since sliced bread, so what could possibly explain the disconnect?

Cloud ERP GraphBefore we explore to the reasons for the disconnect, it is important  to note that this relates to cross-functional ERP implementations, not more point-specific solutions such as CRM or HCM. While many organizations are still adopting Workday, Salesforce and other SaaS CRM and HCM options at a higher rate over time, they are not doing the same for their full-blown ERP implementations.

Our research not only reveals an interesting reversal in recent trends here but it fortunately also delves into the reasons why CIOs, CFOs and organizations in general are still a bit skeptical of SaaS and cloud solutions. “Lack of knowledge about cloud offerings” (cited by 45% of respondents) and “fear of a security breach” (30% of respondents) are the top two reasons cited by organizations that had chosen to implement an on premise or otherwise non-cloud solution. Clearly, if cloud systems are going to resume the steep market share gains it had demonstrated in past years, SaaS and cloud ERP vendors need to do a better job educating potential buyers and countering some of these perceptions.

First of all, let’s look at the “lack of knowledge” issue. This one is interesting because most, if not all, major ERP vendors offer some sort of cloud solution. Even if they do not offer a pure, multi-tenant SaaS model, most provide third-party hosted options for their on premise solutions. It seemed as though vendors such as Microsoft Dynamics and Oracle had done a good job educating potential buyers of their on-demand or hosted options in recent years but that messaging seems to be losing momentum in recent months.

Secondly, the “fear of security breach” may be even further from reality. More specifically, a company that provides cloud or SaaS options for a living is almost always going to provide more secure solutions than any internal IT group is going to provide. After all, a SaaS ERP vendor’s entire livelihood is at stake if they suffer a material security breach that impacts their customers, while life will go on for the average company whose internal IT group fails to preempt a security breach. However, perception is reality, so the reality is that executives aren’t buying the notion that a third party can provide better security than their own team. Clearly, ERP vendors need to overcome this concern as well.

Finally, this trend is particularly worrisome for small and mid-size organizations, which are typically more likely to adopt cloud solutions than mid-size to larger organizations. If they aren’t feeling comfortable with the cloud options in the market, then they are less likely to purchase new ERP software. The good news for Microsoft is that, if this is indeed true, then they will at least be able to continue selling plenty of Microsoft Excel licenses, since that is the ERP software of choice for these smaller organizations that have yet to migrate to a “real” enterprise system.

The bottom line? SaaS and cloud ERP options have come a long way in the last several years and they continue to evolve as we speak. However, their marketing messaging isn’t doing enough to educate potential buyers, which is causing many to rethink their ERP software purchases, or worse yet, to settle for a perceived second-best option. The good news is that there are plenty of ways to educate yourself on the various cloud and SaaS options available in the marketplace, which should be a prerequisite to any ERP software selection process.

Learn more by downloading our on-demand webinar: What the Emergence of SaaS and Cloud ERP Technology Really Means for Your Organization . . . and Your Job

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