How to build a business case for ERP in the cloud

Profile picture for user Sameer Bhaidani By Sameer Bhaidani February 23, 2015
Summary:
Good news if you're struggling with on-premise IT. Infor's Sameer Bhaidani shows how an ROI assessment can help build the business case for ERP in the cloud

Bar chart growth to cloud man on ladder © Warakorn - Fotolia.com
Many organizations struggle to get the best out of their core ERP systems. Their stretched IT departments have major backlogs of projects, they face a shortage of technical skills required to maintain their ERPs, and lack the capital budget and time needed to keep their systems up to date. They are also saddled with aging hardware, resulting in high costs and performance concerns.

I have worked with many organizations like this over the past year. The consistent theme they all share is that their ERP systems continue to remain on-premise in their own datacenters. IT teams within these organizations spend valuable time and energy on technical work instead of supporting their business peers on strategic initiatives.  Furthermore, these ERP systems tend to not be current, and often are many versions behind.

Does this story have a happy ending? For many of these organizations, it does. They are realizing they can have their mission-critical applications running in the cloud, and have their applications be up-to-date, hassle-free and cost effective. This is one of the main drivers as to why cloud-based ERPs are one of the fastest growing trends in the software market.

Showing the business value

In the past year, Infor’s Value Engineering Team has helped more than 100 customers identify the return on investment by moving to the cloud, and the results are staggering.

Based on a subset of 31 institutions in North America that engaged with Infor Value Engineering, the savings from moving to the cloud ranged from 29 percent to 76 percent due to the removal of on-premise costs (see chart).

VE post barchart

A typical assessment will look at the cost of running software solutions on-premise – hardware refreshes, upgrade services, disaster recovery, annual infrastructure maintenance and replacement, third-party licenses, and application maintenance. It then compares these costs against the typical SaaS subscription fee of running your ERP in the cloud. Infor’s Value Engineering Team takes this analysis a step further by helping customers identify business value from disaster risk, security risk, and downtime prevention.

Our customers have been leveraging this analysis as a strong driver for decision-making within their organization.

A case in point

A 700-employee and 64-bed hospital based in Minnesota conducted a Value Engineering cloud assessment to determine the best option for its upgrade to Infor 10x, the newest version of the Infor CloudSuite Healthcare ERP system. Value Engineering identified $0.5 million in savings for the hospital over a five-year period from reductions in hardware, infrastructure, and resources by leveraging the cloud rather than upgrading on-premise.  As a result, the hospital decided to relieve internal resources of the need for future upgrade and maintenance cycles, and reduce its total cost of ownership, by making the switch to a simple all-inclusive cloud-based subscription service.

Cloud vs on-premise

The trend to cloud adoption has been tracked in independent market research. As IDC reports in its Worldwide SaaS and Cloud Software 2014–2018 Forecast:

The cloud software market reached $39.3 billion in revenue in 2013 for 22.6% growth from the previous year. Cloud software will grow to $102.9 billion by 2018 at a compound annual growth rate (CAGR) of 21.3%. With the overall software market growing at a 6.3% five-year CAGR, cloud software is growing at more than five times the rate of the traditional packaged software delivery market.

Cloud-based ERPs provide a scalable, secure and cost effective environment to host an updated and agile ERP system (see table). SaaS vendors, such as Infor, provide the expertise and years of cloud experience to ensure that their client’s ERP applications are up-to-date with the latest functionality and running on top-of-the-line infrastructure.  This allows the organization to focus on their core competencies.

On-premise ERP systems versus cloud-based ERP systems - Infor
On-premise ERP systems versus cloud-based ERP systems

Next steps

For most organizations, building a business case for moving to the cloud is a critical piece of conducting the necessary due diligence for this transformational change.

Leading organizations will look at what the cloud can offer from a business value and a strategic perspective, realizing that the cloud will enable their organization to focus on cutting costs, get out of the business of running IT, and leverage up-to-date technology, enabling their growth or operational excellence objectives.

And as customers have found from working with Infor Value Engineering (PDF), the quantified savings alone can be significant. You can learn more about Infor Value Engineering in this MP4 video.

Image credit: Man on ladder © Warakorn - Fotolia.com