Beware the mistakes of the past with cloud based ERP – Gain the benefit without the pain.

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Having worked in the SAP market for the last 20 or so years, my career has grown up with the ERP market. With SAP ERP being the leading ERP solution in the market I’ve experienced the ups and downs of how the ERP phenomenon as a whole has developed and changed and how external forces […]

Having worked in the SAP market for the last 20 or so years, my career has grown up with the ERP market. With SAP ERP being the leading ERP solution in the market I’ve experienced the ups and downs of how the ERP phenomenon as a whole has developed and changed and how external forces have sought to influence it whether that is from a business, technical or infrastructure perspective.

Is cloud ERP potentially one of those influences? Possibly but we need to remember the lessons of the past.

Looking back in history people could argue that the concept of cloud computing started many, many years ago in large mainframe data centres, similarly the concept of Software As a Service has been around since the early Outsourced Payroll bureaus but more recently the two areas have been combined, and are positioned, as a radical new approach that is going to revolutionise the way that ERP has been delivered. In its widest sense this will be delivered by the likes of NetSuite and Business By Design and more departmentally aligned by Workday, FinancialForce and Financial On Demand with lots of new providers and applications developing all the time as software providers transition to platform vendors.

The marketing blurb will highlight how ERP implementations have failed and have not been successful and that this new way will lead us to the promised land of instantly deliverable ERP. But as I listen to the messages coming out from vendors and market analysts alike I’m drawn to thinking about the “3 Toos” from 1997, if not before.

Now about this time the large ERP vendors – SAP and Oracle – were making a play for the middle market, having conquered the large enterprise market. The consistent messages from the mid-market software vendors defending their territories were that these products were too costly to implement, too functionally rich for the mid-market and took too long to deliver (does this ring a bell?). Considerable effort was invested by SAP and Oracle and their partners to address these issues and as history shows in the main SAP and Oracle did succeed in their aims.

So, since the messaging coming out is similar, it appears that we are, if we are not careful, about to re-live the past. So what should we have learnt? Here are my main points (there are others) to consider:

  1. Don’t give up functionality for lower cost

The on-premise ERP market is mature and functionally rich, the cloud-based market is not. The expectation of clients of all sizes for ERP systems is now high since they have got used to in-depth functionality over many years. Much of the ERP functionality supports mandatory requirements that are legal, fiscal or regulatory – these are non-negotiable. Others drive efficient business processes which are necessary otherwise a costly step backwards will be taken.

Much of the messaging for cloud ERP is around low TCO, the risk is that this masks the fact that core functionality will not be there. Once projects start to ramp up it will soon become clear that gaps exist and without proper consideration up front we will either have costly over runs or sub-optimal solutions. The failed ERP implementations of the past again!

LEARNING POINT 1: Clearly understand your mandatory requirements and don’t let an attractive TCO lead to the creation of process workarounds and/or expensive change requests during the build phase.

  1. Choose your use-case well

The ERP market grew out of the desire to integrate the many departmental systems that existed. In addition as globalisation started to drive the ability to gain economies of scale integrating countries on the same platform became possible and desirable. The drive to embrace cloud has led to the re-emergence of Line of Business systems that are focussed on only satisfying the requirements of individual departments or even processes.

Now many of these use cases, for example Subsidiary solutions, Expenses or Talent Management, may make sense as stand-alone scenarios but the benefits of integration are still very compelling.

LEARNING POINT 2: Consider your use-case well. Do not expect that any on-premise use cases will automatically translate to the cloud immediately.

  1. Beware bespoke developments and enhancements

There is a lot of consensus that the creation of bespoke development within a core ERP implementation reduces the TCO and gives issues with future supportability. Due to the fact that the level of functional support provided by cloud based solutions is low the risk of bespoke is higher. Surprisingly this is being position as a positive in many cases with the software supplier delivering an application “platform” on which 3rd parties can create new applications. Conceptually this works because it provides flexibility and supports the desire for the swift creation of new functionality but in the majority of cases each application must be separately contracted for and the integration, UI, data model are all different.

The result is a core ERP platform that is integrated, but sub-optimally, from multiple vendors with no guarantee of longevity and assured, joined up development.

LEARNING POINT 3:  ERP processes are commodity and should be available out of the box from a single ERP vendor. If enhancements are required then platform risk is added and this distracts from ongoing exploitation and adds to the TCO.

  1. Don’t believe software companies promising the world…

I’ve attended many pitches where the message FOR a piece of software has mainly been focussed on WHY NOT another piece of software. The sales pitch is often based on the things that product X does not do well rather than why product Y addresses the business issues of the client.

The presentations I’ve seen so far for cloud based ERP have fallen into this category. The issue is that this partial view of the truth belies what is really the situation and ultimately what is the best solution for the customer.

LEARNING POINT 4: If it sounds too good to be true, it probably is! The devil will most certainly be in the detail and even though, due to the lower cost, cloud based ERP procurement may seem to need less rigour it should be approached like any ERP purchase.

So is cloud based ERP likely to drive change in the market? Realistically it is playing on the negative messages that have always been used against the traditional ERP vendors. And whilst it’s easy to make the acquisitions against SAP and Oracle the issues arise for all other ERP vendors and the reason for this is that changing the core back-office processes of any organisation is difficult irrespective of the software. Will it make changing core back-office processes easier? Probably not.

The opportunities provided by cloud will lead to some changes in the ERP market and it can already be seen with cloud based portfolios from SAP and Oracle but, irrespective of cloud or not, the challenges for business will remain and that is why we need to learn from the past to ensure we don’t make the same mistakes in the future.

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