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Why Cloud ERP Adoption Is Faster Than Gartner Predicts

200393880-001A recent study completed by Gartner titled Survey Analysis: Adoption of Cloud ERP, 2013 Through 2023 published on January 24, 2014, written by Nigel Rayner advises CIOs and application leaders of financial services institutions to “consider cloud ERP as a potential replacement for aging core ERP systems that are out of support or running on an old technology platforms (such as mainframes).“

The methodology is based on a survey of Gartner Research Circle members from North America, EMEA, APAC and Latin America from companies that range in size from $10M to $10B.

Key take-aways of the study including the following:

  • Including the 2% that already have core ERP in the cloud, a total of 47% of organizations surveyed plan to move their core ERP systems to the cloud within five years. This is because their ERP requirements tend to be focused around administrative ERP (financials, human capital management and procure-to-pay) where there is a wider range of cloud options (compared with manufacturing).
  • In aggregate, 30% of respondents say that the majority of their ERP systems will be on-premises for the foreseeable future as can be seen from the following graphic.

cloud adoption pie chart

  • 30% of organizations surveyed said they planned to keep the majority of their ERP systems on-premise for the foreseeable future.  Manufacturing organizations dominated this survey segment.

Why Cloud ERP Is Accelerating Faster Than Gartner Predicts

Two-tier ERP is the Trojan Horse of cloud ERP.  If Gartner had asked their respondents about if and how cloud-based ERP systems are being considered and used in two-tier ERP strategies globally, their survey and previous forecasts would have been significantly different.

From researching and working with manufacturers where two-tier ERP strategies make perfect sense for extending their legacy ERP systems to move into new markets, the following key take-aways emerge:

  • Achieving faster time-to-market while reducing cost of quality.  This is quickly turning into a year of transition for many supply chains, with the shift most noticeable in aerospace and defense.  Tighter project schedules driven by reduced budgets, coupled with more aggressive launch schedules is making this the year of the agile supplier.  Cloud-based ERP systems are essential to suppliers in this industry especially.
  • Legacy ERP systems lack scalability to support 21rst century compliance. One CIO who is a good friend jokingly refers to the legacy ERP systems populating each division of the manufacturing company he works for as fuel for his silos of excellence.  His point is that legacy ERP systems don’t have the data models to support the current quality management and compliance requirements corporate-wide and are relegated to siloed roles in his organization.  Cloud-based applications, specifically designed for ISO 9100, AS9100 Rev. C can do what legacy systems can’t, which is span across the aerospace manufacturer’s entire operations.
  • SaaS-based manufacturing and distribution software will increase from 22% in 2013 to 45% by 2023.  According to MintJutras, a leading research and advisory firm tracking ERP trends, a survey completed in 2013 shows SaaS-based applications will steadily grow from 22% of all manufacturing and distribution software installed to 45% within ten years.  The catalyst for much fo this growth will be two-tier ERP system adoption.
  • Microsoft’s New CEO knows the enterprise and cloud’s role in it. Satya Nadella has the daunting task of bringing innovation back into Microsoft.  As Anshu Sharma writes in his blog post today Satya Nadella: Microsoft, Coffee and the Relevance Question provides an excellent analysis of the challenges and paradoxes faced by the new Microsoft CEO.  It’s common knowledge in the Microsoft Partner community that the company runs one of the largest two-tier ERP system architectures in IT today, with an SAP R/3 instance in headquarters and Microsoft Dynamics AX running in each subsidiary.
  • All cloud ERP providers including Microsoft intend to monetize two-tier as much as they possibly can, architecting their respective Cloud OS strategies and enterprise suites to capitalize on it. Microsoft released an overview of their Cloud OS strategies in the following presentation, which provides a thorough overview of their perspective of the hosting market and how it relates to their apps business. Also included is the following graphic, Cloud OS: Innovation at Scale.  All of the factors taken together will drive up adoption of Microsoft Dynamics AX 2012 and streamline two-tier enterprise sales across all cloud ERP providers.  Last year at Microsoft Worldwide Partner Conference the announcement was made that Microsoft Dynamics AX 2012 would be available on Windows Azure in July, 2014.

cloud scale

  • Mobility is unifying the manufacturing shop floor to the top floor faster than anyone thinks.  In traditional ERP systems mobile platforms are most often used for material handling, warehouse management, traceability, quality management, logistics and service tracking. From the discussions I’ve had with CIOs and a few CEOs of manufacturing companies, there’s a high level of interest in analytics, alerts and approvals on Android and Apple tablets.  These apps and the speed of results they deliver are the new corporate bling. Intuitive, integrated and fast, these mobile apps make it possible for senior managers to check up on operations for wherever they are globally, in addition to approving contracts and being notified of events via alerts.  For Gartner’s assessment of cloud ERP to have been complete in this survey, mobility also needed to be covered
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3 Comments Post a comment
  1. Louis – you’re right about the importance of ERP mobility, and it has two parts. As you say, the ability to access data and reports on the move is essential. As well as functionality, though, user expectation is key. Systems users are also consumers and they expect their mobile working experience to match their online consumer experience. Great user experience of software is not something that ERP systems are renowned for. Those that get it right will flourish in the next few years. (Disclosure: I am a GM at Infor, a leading ERP systems provider.)

    March 5, 2014
  2. Louis Columbus #

    Tarik,

    I agree with both of your points wholeheartedly, thanks for your comments. Given how in-demand mobility is, the more adept an ERP provider can be in redefining the user experience to align with and exceed expectations, the more likely they will displace traditional, less flexible ERP systems from the past. And what’s most interesting to watch in this area is the organic growth of ERP systems into entirely new areas – driven mainly by mobile.

    I have a great deal of respect for your company and its many accomplishments on behalf of customers. Thanks for reading my blog and sharing your perspective.

    Best Regards,

    Louis

    March 5, 2014

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