Four reasons enterprise companies are moving to cloud ERP

Jim McGeever Profile picture for user Jim McGeever June 2, 2016
With the value of cloud proven, it's now a question of when and why enterprise companies should move to cloud ERP, writes NetSuite president Jim McGeever

Jim McGeever NetSuite President 2015331 250px
Jim McGeever, NetSuite

Enterprise companies around the world are awakening to the power of cloud ERP.

Long gone are discussions about the concerns over the security and reliability of cloud-based applications. The track record is unequivocal. Established cloud providers have proven that they can deliver computing capacity at scale as well as, and often better than, the largest multinational companies. Today, nearly every enterprise company is using the cloud in some manner.

When it comes to ERP, it’s not a question of whether they're willing, it’s a question of with who. Not all clouds are equal. Enterprises want to validate if the vendor they’re using meets their standards.

Indeed, while applications like HCM, CRM and personal productivity led the charge into the cloud, it was never the sensitivity of the data that held them back from moving ERP there as well. Companies that were willing to put sensitive employee and customer data in the cloud have enough faith to put their financial data there as well. Rather, ERP is so integral to running the business that it has been harder to make that change. Until now.

The question of when

Enterprises around the globe are confronting difficult decisions about how and when to move on from the legacy systems that they have invested in so heavily. Businesses stuck on older versions of the current on-premise ERP systems rightfully worry over the business disruption and broken customizations that come with an upgrade or re-implementation. And while any ERP implementation carries with it some disruption, cloud-based systems remove much of the length and heavy upfront costs. This makes re-implementing cloud ERP simpler than an on-premise upgrade in many cases.

Besides, cloud-based ERP applications such as our own product now offer the full range of functionality to run a business that our on-premise competitors offer, and in many ways more. However, we’re seeing that functionality doesn’t carry the same sort of weight in software purchasing decisions. A new set of considerations beyond functionality and price are impacting ERP purchasing decisions –  capabilities that modern cloud ERP systems are able to provide:

  • Enterprises are looking for modern systems designed for a modern business, built in the cloud first, not pre-Internet solutions ported to the cloud.
  • They also want a flexible system that can adapt to their needs as the marketplace changes. No vendor can design solutions for every business need. A system that enables businesses to easily adapt it to their own needs with a strong partner network to fill in gaps is just as important as any current functional needs.
  • Modern companies are also looking for ERP systems that provide real-time business intelligence, right at their fingertips in the application they use every day and based on their role and permissions.
  • ERP of today also needs to meet the needs of the omnichannel customer, whether they are B2B or B2C, providing a 360-degree view across all channels.
  • Finally, they’re looking for industry-specific expertise and leading practices, built-into the solution.

Indeed, the conversation around cloud ERP has changed dramatically in the past several years.

Why you should, not why you shouldn’t

We’re seeing more and more enterprise businesses defect to the cloud, not because they’ve overcome the reasons why they shouldn’t, but because of the compelling reasons why they should. Certainly the cost savings are a consideration, but cloud ERP solves some of the biggest problems they have with the monolithic systems they’ve been burdened with for so long.  A modern system with a much better UI is easier to use, more flexible and easy to upgrade.

Two-tier ERP scenarios, where a business maintains its existing on-premise system at headquarters and uses more nimble, cloud-based systems at subsidiaries and new offices, is the classic example of enterprise businesses adopting cloud ERP, yet wholesale replacements are becoming common as well. Companies that have seen the success of their two tier ERP in the cloud are asking, “If it’s right for our business units, why not for the whole company?”

And while Y2K, provided much of the impetus for businesses to upgrade their systems from mainframes to client-server, there is not the same sort of clear-cut technology driver today. Here are the scenarios in which we see enterprises adopting the cloud:

1. The upgrade

Many enterprises that have left their systems alone, content with the “if it ain’t broke, don’t fix it” model, now confront the end of support. Others are beginning to wonder about the value of paying for support and maintenance if they’re not getting the advantages of product upgrades because it’s too disruptive to the business. Facing an expensive and time-consuming upgrade that’s going to bring little in terms of real value, they’re moving to the cloud.

2. New business models

Many enterprise businesses suddenly find themselves competing with smaller, nimbler start-ups, who have a significant advantage in not being held back by pre-Internet software. To compete, they need to be able to adopt new business models quickly, whether that’s a product company launching a services business, new pricing structures or new markets. That demands more flexible systems that can adapt to these new models more quickly and cloud ERP meets that need.

3. Digital disruption

Evolving customer expectations are also foisting change on enterprises. We’re seeing strong signs of this in retail, where omni-channel capabilities are quickly becoming a requirement, and in wholesale distribution, where B2B buyers are seeking the same sort of experience they get in the B2C world. Legacy systems built in the ‘90s are not equipped to handle this change. Flexible, cloud ERP is.

4. Mergers and acquisitions

The difficulties associated with onboarding a new company make cloud ERP an attractive alternative for enterprises growing through acquisition. Moving that new company to a cloud ERP instance offers similar advantages to the two-tier model and, like two-tier, they quickly see the advantages of extending that to the acquiring company.

There are plenty of other scenarios as well. Every quarter, every month, we’re selling to larger and larger companies with more complex needs. The more we do, the more examples, the more use cases, the more proof there is that other enterprises can make the move as well.

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