Cloud ERP isn't a handshake deal - it's a value extraction challenge. Here are the stages.
- Cloud ERP benefits don't just happen - you have to earn them. Here's the value stages I've charted from years of customer interviews - and the debates I've had about them.
But across all the cloud ERP use cases we've conducted, something has bothered me:
Despite the benefits of moving to modern ERP software, many cloud ERP gains don't seem to come until well after go live. ***
Even more concerning: some customers never get to what I would call an advanced stage of cloud ERP.
Extracting full value from cloud ERP is not about flipping the go-live switch. It requires organizational will - and a fierce collaboration with the vendor and/or consulting partner(s).
Call it digital transformation or business model evolution; call it self-disruption or agility. Those customers getting the most out of cloud ERP are doing much more than moving off legacy systems.
The top five cloud ERP benefits - a quickie review
Before I outline the stages I've seen, let's review the overall cloud ERP benefits I detailed in What are the top five cloud ERP benefits? A use case review:
- Simplifying tools improves adoption – and streamlines processes. Many customers were using a collection of scattershot tools, making daily tasks complicated.
- A single source of truth allows for problem-solving, rather than spreadsheet chaos. “Single source of truth” is an exaggeration for most cloud ERP customers. Usually a couple other systems of record are still in play. But “towards a single source of truth” is still a result.
- Platforms and apps provide a viable alternative to clunky customizations. SaaS ERP does not have to be as rigid in standardization as some think. Yes, the standardization discipline can be a good one. But for truly differentiating processes, the ability to extend on the cloud ERP platform matters (Caveat: not all cloud ERP vendors have the same level of platform commitment. Few have a true “apps ecosystem” yet).
- A modern UI is a must-have for talent – and for employee productivity. The UX bar employees are willing to put up with gets higher each year.
- Data visibility leads to a different way of running the business. When you do cloud ERP right, the end result is increased visibility – real-time or close to it.
Of all the benefits above, only the last one, data visibility, fits into the advanced benefits category. The rest tie to gains that customers can see at go-live, or soon after.
Yes, it does take time to utilize a cloud ERP platform (#3), but the act of moving to a cloud ERP system forces a process standardization and a rethink of clunky customizations. That sets the stage for a savvy use of platform extensions (for those vendors that can deliver on it).
Three stages in cloud ERP value achievement - the short version
1. Immediate gains by consolidating disparate systems on a user-friendly platform
2. Increased decision support and benefits of data visibility in real-time, via a "single source of truth". Dashboarding is a hallmark of this phase - though dashboarding is just a stage in creating truly actionable data. Beyond dashboarding lies the potential for an alerts infrastructure, automating routine decisions, etc.
(most cloud ERP customers are in a mix of phase one and two, but some are only in phase one, even if they've been live for years)
Then the third phase:
3. Achieving new business opportunities through a more agile and open platform via so-called intelligent apps (think: customer-facing apps, opening up supplier portals, turning products into consumable services). Pursuing new markets as experience analyzing/applying the data in phase two increases.
No cloud ERP customers I've interviewed are truly knee-deep in this third stage, but some can point to initial apps and product extensions.
Breaking out the stages
When I took another look at the use cases, it made sense to break out these steps:
1A - Initial go-live - removal of pain from multiple legacy systems and over-customized instances. A chance to properly standardize is imposed by a cloud ERP move. This usually means getting rid of multiple older systems that were clunkier, improving user adoption and training, mitigating spreadsheet anarchy, etc. This is the main benefit phase we usually hear about. Faster quarterly close, beginning to do monthly closes, etc.
1B - Labor re-allocation into higher-value tasks - One of the first strategic benefits we see is the welcome realization that a good deal of prior administrivia across roles has been automated by the new system. In turn, that allows employees to be more strategic - IF roles can be shifted and people embrace the change. Yes, this can lead to headcount reductions and other labor savings (NetSuite example), but often, it's about redirecting employees into customer-facing and/or strategic aspects of their roles. See: "We're not your father's accountant" - how Upsourced Accounting is changing accounting with the Xero cloud.
2A - Data visibility/single source of truth part one - taking action on the numbers instead of arguing about the numbers. No more spending half your meeting agreeing on what numbers are correct or trying to reconcile.
2B - Data visibility/single source of truth part two - dashboarding. Beginning to use the vendor's dashboards (and mobile ease of cloud ERP) to get role-based dashboards to execs and LOB managers (In some cases, the vendor's dashboards are weak or insufficient, but the single source of truth still enables better dashboarding in third party tools like Tableau).
Beginning to use the "real-time" information available in dashboards to make real-time adjustments, e.g. store/ad promotions, inventory allocations. Potentially opening up that information to regional outlets or suppliers (networked supply chain). Beginning to set up an alerts-and-exceptions structure to alert managers to relevant interventions. I cover several in this FinancialForce customer roundup. Here's a CFO angle from Intacct customers that hits on this.
2C - Data visibility part three - advanced/automated/intelligent decision support and a sophisticated alerts infrastructure. Very few close ERP customers are here yet, in part because most vendors are still immature in these areas. One Acumatica example: Not waiting for AI - how xByte Technologies automated its pricing engine with Acumatica.
3A - Platform benefits, add-ons, and industry functions - the realization that outside of configuration options, there are nifty ways of extending functionality via the vendor's app store and ISV partners, allowing for a more vertical approach to ERP without the trap of customizing. This S/4HANA Cloud review speaks to the platform edge (S/4HANA cloud customers emerge - a video review and analysis). And here's a partner angle on that from Intacct: Winning the cloud ERP services game - two Sage Intacct partners share their secrets.
3B - Eligibility to absorb future innovations via regular updates applied by the vendor. Embedded AI and automation being prime examples, as many companies do not yet have the internal data science teams to build their own. ERP vendors are still beefing up these offerings, but one early use case with promise was How Graybar Canada is changing their pricing game - with Infor's Pricing Science.
3C - Integration of external data sources with cloud ERP transactional data, primarily for decision making purposes and predictive algorithms. A recognition that a big chunk of key decision making data is outside the internal system, from IoT sensors to social sentiment to weather data. ERP vendors are, for the most part, late to this party, doing their customers a disservice and making value realization harder.
3D - Building "next-gen" business models from this data, for example selling access to certain data to suppliers as a service. Or launching new digital business units as a result of insights generated from the data. This one is mostly up to the customer to make happen, perhaps with their industry consulting partner helping them to make sense of the opportunities in the data. As yet, I've seen few potent examples, mostly baby steps. A recent FinancialForce use case, mostly about PSA (Professional Services Automation), shows how business model change factors in (CommLive18 - How JLL uses FinancialForce as a growth driver). This Workday Financials example includes a customer podcast with Den Howlett - Tribune Media replatforms to Workday financials in seven months).
My take - bring on the debate
At diginomica we don't do quadrants or any other shapes. This framework is intended to provoke a debate on what customers can get out of modern ERP. In truth you can skip "stages" or return to them later, and it's probably more about priorities by customer/industry than a fixed path. But the history of ERP is plagued by a value ceiling of transactional efficiency that isn't good enough for the money/time spent.
"Modern ERP" has the potential to change that, but I believe customers, partners, and vendors must go all-out to get there - long after go-live is over, and the handshakes and smiles are in the rearview.
Virtually all the cloud ERP use cases I've conducted are small to midmarket. That doesn't mean these benefits can't extend to large enterprise, but we should acknowledge that the problem of cleansing and integrating data to achieve a single source of the truth is much tougher as companies get bigger.
As for the obvious/looming question: "Can you do this with on-premise ERP?" Yes, I believe you can. "Cloud" in this case is really just a placeholder for something wonky, like: "standardized and easily upgradeable ERP systems on a platform you can easily extend and integrate via open standards." In other words, "modern" is more about data accessibility and, yes, scalability than where the software lives. However, custom coding the heck out of on-premise systems looms as a catastrophic temptation.
Yes, I am biased towards this modernization effort being significantly easier in the cloud. Brian Sommer's recent It’s 2018 so why isn’t my ERP vendor multi-tenant? is one example as to why. Speaking of Sommer, he has a warning for ERP vendors:
Most ERP systems are stuck in the past or are improving incrementally. The next wave of productivity savings for businesses will likely come from technology vendors you’ve never heard of.
Sommer hits on one area where ERP vendors are falling short - integrating external "big" data onto their platform. I get into this problem, and what one vendor is trying to do about it, in News analysis - Plex bears down on the industrial IoT data problem with its DATTUS acquisition.
I had a back-and-forth with a skeptical CIO who hates dashboards. He believes that dashboards are pretty pictures for executives and do not address the fundamental issue of making - and automating - better decisions. I agree to a point, but I have seen enough examples of dashboarding providing at least some value to consider it a good intermediate step (but not the end by any means). Here's one cloud ERP dashboards use case, and one non-ERP (Tableau).
The use cases I did with Acumatica customers sparked my thinking on ERP value stages, which I then expanded to many other vendors. During our back and forth, Acumatica's Tim Carroll issued this sharp warning:
Sadly though, it can all be tucked in under the nifty label of “digital transformation,” right? And I know how much you love that particular buzz-phrase.
Carroll is right. If we're not careful, this all becomes marketing fodder and we don't get to results. My response:
At its best, I think digital transformation simply gets at the fact that you can't adapt to modern business with tech alone. The culture and people must come with it.
If we can spell out the results that can be achieved in a deeper way, it may help customers assess the business case more clearly. That helps - because companies don't have the luxury of discovering value after go-live.
Updated, August 14, 8am UK time with a number of links to relevant use cases and an additional quote from Brian Sommer.
*** End note: In this piece, I note that the ceiling of ERP projects historically has been transactional efficiency (unacceptable). The floor, however, is failed, stalled, or underperforming projects. This piece is based on our diginomica use cases of projects that have achieved a modicum of success, and want to achieve more. But of course many, if not most, ERP projects are too flawed to be in a position to get there. Den Howlett has just written on avoiding that project bog pit in The Tech Project Survival Guide - recommended.