What are the real blockers in the Enterprise Resource Planning (ERP) marketplace to moving to public cloud solutions? Arun Rangaraju, Global Head of Enterprise Applications, takes a look.
Search for the top Software as a Service (SaaS) providers and the names you get are – Salesforce, Microsoft, Adobe, Box, Dropbox, Google G Suite, Slack and Amazon. Further down the list are companies like Workday. Look closely at their business models and you will find that they have been successful selling Customer Relationship Management(CRM) or Human Capital Management (HCM) solutions (Salesforce, Microsoft, Workday) or office automation / collaboration / publishing (MS, Adobe, Box). It is notable that across enterprise applications, the traction has predominantly been with solutions that are not at the core of the enterprise.
So why are ‘core’ enterprise vendors not considered to be top SaaS providers? From conversations we’re having with customers I see the following as key reasons:
Customers are willing to live with standard processes in areas like CRM, salesforce automation and even HCM. However, when it comes to processes like Order-to-Cash, procurement and manufacturing that affect the core financials and have legal or tax implications, they are less inclined to do so. An on-premise solution provides them with the flexibility to customize the software to their current process. No wonder most ERP systems today have millions of lines of custom code.
Concerns around data privacy and security in the cloud have been mitigated to a large extent but customers still feel apprehensive about keeping their financial data on a public cloud. They would prefer to keep this on-premise or in a private cloud where they perceive a greater amount of control and minimal disaster recovery risks.
Given this mindset, will ERP on cloud ever become mainstream? The answer is “yes” but the question is “when?”. For this to happen cloud ERPs have to be as functionally rich as the on-premise versions so that standardisation can become a norm within this area, much like with CRM & HCM solutions.
Let’s look at an example from SAP – the undisputed leader in ERP. SAP has two variants to its ERP solution - S/4HANA on-premise and S/4HANA Public Cloud. SAP has already moved both solutions to the same code base (a major step forward) and the cloud version now has quarterly releases, as opposed to an annual one, which is what you get with the on-premise version.
The cloud version, however, still lags behind the on-premise one in terms of functionality, and also has less customisations available. Last but not least, SAP has 20+ industry focussed solutions running on ECC; not all of these are currently available on S/4HANA on-premise, and the cloud version has even fewer.
The concerns around security will dissolve once ERP cloud functionality is robust enough to allow a near 'vanilla' implementation. Let’s be honest: if customers are willing to have sensitive sales pipeline and employee data on a public cloud platform, they will soon get used to also having financial information residing there.
I believe in the next 12-18 months we will see traction in the private cloud ERP space; not only does it provide reductions around infrastructure costs but it also allows for increased customisations, providing customers with the best of both worlds. Looking to 2020 onwards, public cloud ERP will become mainstream, as the functionality becomes richer and people’s perceptions open up to standardising financial processes.