For executives involved in selecting, implementing, managing and optimising Enterprise Resource Planning (ERP) systems, the advent of cloud computing may well be one of the more significant and disruptive events that they will see in their careers. As awareness and usage of cloud and software-as-a-service (SaaS) offerings continue to grow, ERP decision makers are increasingly being asked to assess and communicate the implications and impacts. However, the radical changes promised by cloud computing combined with the emerging nature of many cloud services are making this a difficult task.

 

In Accenture’s view, the benefits offered by cloud computing will ultimately result in widespread adoption. The question is not “if”, it’s “when”, “by how much”, and “how fast”. Yet, this expectation raises further questions. What will moving to the cloud mean for the existing massive investments already sunk into traditional core ERP systems? What are the risks? Also, what is the longer-term future of cloud’s role in ERP?

 

Leading companies of all sizes and in every sector are already well-aware of the benefits that cloud-based services can deliver to organisations, particularly in terms of cost, speed, and flexibility. The momentum is also building rapidly on the supply side, with virtually all major software companies now taking dollars from on-premise revenues and directing further investment toward the development of SaaS products or variants. 

 

As a result, we believe that the next two to five years will be a pivotal period for the build-out and maturing of the cloud market, and for the emergence of “enterprise-grade” cloud services. In light of this, it is vital that every company, large and small, develops an understanding of cloud computing, and a strategy for how to leverage cloud services to meet their changing business requirements, both today and into the future.

 

Cloud computing is a growing reality thanks to the pervasiveness of the Internet and Internet technologies,  combined with advances in hardware virtualisation, and modern, more flexible, software architectures.   The additional benefit of multi-tenancy (or sharing) brings tremendous cost savings to software vendors through the enhancement and support of one version of code. In addition, a key catalyst has been the various introductions of cloud services by companies such as Google, Amazon, NetSuite, Salesforce, and Workday, as well as traditional mega software companies like Microsoft, Oracle, and SAP. 

 

When companies are assessing cloud-based (or SaaS) ERP solutions, we believe they should first seek to understand which components of the technology stack have multi-tenancy. Then, determine the adequate number of tenants and objectively consider why it will not work. Also, keep in mind that with more components shared and as each additional tenant comes onboard, the SaaS provider’s cost per tenant drops. The result is lower price and/or increased product innovation, as well as opportunities for customer-to-customer collaboration within the cloud community. 

 

There are many potential benefits from moving to a cloud-based ERP solution. In summary, these include:

• Faster implementation: easier to use and deploy

• Greater flexibility: system configuration, pricing is more flexible

• Lower total cost of ownership (especially start-up cost): savings can be 30% to 50% of TCO compared to on-premise ERP

• Less dependency on IT staff and/or on-premise hardware 26%

 

The answer to this question depends on your specific business requirements and typically involves some level of fit/gap analysis. However, as a general guide, the size of your company’s revenue, the geographical spread of its operations, and the industry sector(s) in which it is active is a good starting point. To establish whether cloud-based ERP is a good fit for your business, apply a three-way decision matrix reflecting these three factors.

 

In terms of size, companies or subsidiaries with annual revenue below USD 750 million have been the earliest and fastest adopters of cloud-based ERP, putting them in the “first mover” grouping. This is mainly because business requirements are simpler and there is increased cost pressure to keep IT spending in line with revenue. In addition, small and mid-sized enterprises (SMEs) have limited scope for economies of scale which, compared to their larger counterparts, has historically made it more difficult to adopt outsourcing/ offshoring and hardware virtualisation.

  

For corporate decision-makers evaluating cloud-based ERP, one of the most common causes for concern is whether SaaS ERP solutions are customisable to their needs. There is a perception that, by their nature, multi-tenant SaaS solutions tend to drive organisations towards a more inflexible and standardised model with relatively little potential for tailoring to the unique needs of the organisation.

 

As a result, executives are concerned that the costs of customisation will outweigh the potential benefits of cloud. They may also worry about how that customisation could impact future maintenance and upgrades.

 

These concerns regarding customisation raise several issues relating both to SaaS ERP solutions on the market and also to organisations’ own criteria for selecting them. In terms of the solutions themselves, it is important to appreciate that different vendors have taken different approaches to the degree and method of customisation that customers can apply to their solutions.

 

For example, NetSuite and  Salesforce expose their application development platform (via their platform as a service, or PaaS), and, therefore, have a higher degree of customisability than some other SaaS solutions. In addition, they are making their offerings highly configurable by storing the configuration settings in the customer’s metadata without needing to expose the core code. The resulting degree of customisation becomes virtually limitless. In contrast, some other vendors do not expose their platform and tend to follow a more standardised model, making changes centrally that may benefit their community of customers.

 

Deciding between configurable versus standardised solutions will depend on the organisation’s specific objectives. For example, the CFO may be looking to use cloud services as a way to remove inconsistencies and duplication across the enterprise or supplier ecosystem, tackle fragmentation in systems and processes, and drive greater standardisation. In this case, a solution that combines the application and platform in a highly efficient but less customisable way may be ideal. However, a business with very specific needs that require customised systems may opt for a more configurable solution. In general, SaaS ERP solutions are more end-user configurable and, with that, comes responsibility. As a result, governance is important.

 

Either way, there are trade-offs to be identified and critical, yet challenging, decisions to be made.