Worldwide end-user spending on public cloud services is forecast to grow 23.1% in 2021 to total $332.3 billion, up from $270 billion in 2020.
Garter predicts worldwide end-user spending on public cloud services will jump from $242.6B in 2019 to $692.1B in 2025, attaining a 16.1% Compound Annual Growth Rate (CAGR).
Spending on SaaS cloud services is predicted to reach $122.6B this year, growing to $145.3B next year, attaining 19.3% growth between 2021 and 2022.
These and many other insights are from Gartner Forecasts Worldwide Public Cloud End-User Spending to Grow 23% in 2021. The pandemic created the immediate need for virtual workforces and cloud resources to support them at scale, accelerating public cloud adoption in 2020 with momentum continuing this year. Containerization, virtualization, and edge computing have quickly become more mainstream and are driving additional cloud spending. Gartner notes that CIOs face continued pressures to scale infrastructure that supports moving complex workloads to the cloud and the demands of a hybrid workforce.
Key insights from Gartner’s latest forecast of public cloud end-user spending include the following:
36% of all public cloud services revenue is from SaaS applications and services this year, projected to reach $122.6B with CRM being the dominant application category. Customer Experience and Relationship Management (CRM) is the largest SaaS segment, growing from $44.7B in 2019 to $99.7B in 2025, attaining a 12.14% CAGR. SaaS-based Enterprise Resource Planning (ERP) systems are the second most popular type of SaaS application, generating $15.7B in revenue in 2019. Gartner predicts SaaS-based ERP sales will reach $35.8B in 2025, attaining a CAGR of 12.42%.
Desktop as a Service (DaaS) is predicted to grow 67% in 2021, followed by Infrastructure-as-a-Service (IaaS) with a 38.5% jump in revenue. Platform-as-a-Service (PaaS) is the third-fastest growing area of public cloud services, projected to see a 28.3% jump in revenue this year. SaaS, the largest segment of public cloud spending at 36.9% this year, is forecast to grow 19.3% this year. The following graphic compares the growth rates of public cloud services between 2020 and 2021.
In 2021, SaaS end-user spending will grow by $19.8B, creating a $122.6B market this year. IaaS end-user spending will increase by $22.7B, the largest revenue gain by a cloud service in 2021. PaaS will follow, with end-user spending increasing $13.1B this year. CIOs and the IT teams they lead are investing in public cloud infrastructure to better scale operations and support virtual teams. CIOs from financial services and manufacturing firms I’ve recently spoken with are accelerating cloud spending for three reasons. First, create a more virtual organization that can scale; second, extend the legacy systems’ data value by integrating their databases with new SaaS apps; and third, an urgent need to improve cloud cybersecurity.
CIOs and the organizations they serve are prioritizing cloud infrastructure investment to better support virtual workforces, supply chains, partners, and service partners. The CIOs I’ve spoken with also focus on getting the most value out of legacy systems by integrating them with cloud infrastructure and apps. As a result, cloud infrastructure investment starting with IaaS is projected to see end-user spending increase from $82B this year to $223B in 2025, growing 38.5% this year alone. End-user spending on Database Management Systems is projected to lead all categories of PaaS through 2025, increasing from $31.2B this year to $84.8B in 2025. The following graphic compares cloud services forecasts and growth rates:
Sage Intacct, Oracle ERP Cloud, and Microsoft Dynamics 365 ERP are the three highest-rated ERP systems by their users.
86% of Unit4 ERP users say their CRM system is the best of all vendors in the study. The survey-wide satisfaction rating for CRM is 73%, accentuating Unit4 ERP’s leadership in this area.
85% of Ramco ERP Suite users say their ERP systems’ analytics and reporting is the best of all 22 vendors evaluated.
These and many other insights are from SoftwareReview’s latest customer rankings published recently in their Enterprise Data Quadrant Report, Enterprise Resource Planning, April 2021. The report is based entirely on attitudinal data captured from verified owners of each ERP system reviewed. 1,179 customer reviews were completed, evaluating 22 vendors. SoftwareReviews is a division of the world-class IT research and consulting firm Info-Tech Research Group. Their business model is based on providing research to enterprise buyers on subscription, alleviating the need to be dependent on vendor revenue, which helps them stay impartial in their many customer satisfaction studies. Key insights from the study include the following:
Sage Intacct, Oracle ERP Cloud, Microsoft Dynamics 365 ERP, Acumatica Cloud ERP, Unit4 ERP and FinancialForce ERP are most popular with their users. SoftwareReview found that these six ERP systems have the highest Net Emotional Footprint scores across all ERP vendors included in the study. The Net Emotional Footprint measures high-level user sentiment. It aggregates emotional response ratings across 25 questions, creating an indicator of overall user feeling toward the vendor and product. The following quadrant charts the results of the survey:
80% of Acumatica Cloud ERP users say their system helps create more business value, leading all vendors on this attribute. How effective an ERP system is at adapting to support new business and revenue models while providing greater cost visibility is the essence of how they deliver business value. The category average for this attribute is 75%. Of the 22 vendors profiled, 12 have scores at the average level or above, indicating many ERP vendors are focusing on these areas to improve the business case of adopting their systems.
86% of Sage Intacct ERP users say their system excels at ease of implementation, leading all vendors in the comparison by a wide margin. Implementing a new ERP system can be a costly and time-consuming process as it involves extensive training, change management, and integration. Ease of Implementation received a category score of 75% across the 22 vendors, indicating ERP vendors are doubling down investments to improve this area. Just 11 of the 22 ERP vendors scored above the category average.
Bottom Line: Using AI to measure and predict revenue, costs, and margin across all Professional Services (PS) channels leads to greater accuracy in predicting payment risks, project overruns, and service forecasts, reducing revenue leakage in the process.
Professional Services’ Revenue Challenges Are Complex
Turning time into revenue and profits is one of the greatest challenges of running a Professional Services (PS) business. What makes it such a challenge is incomplete time tracking data and how quickly revenue leaks spring up, drain margins, and continue unnoticed for months. Examples of revenue leaks across a customers’ life cycles include the following:
Billing errors are caused by the booking and contract process not being in sync with each other leading to valuable time being wasted.
When products are bundled with services, there’s often confusion over recognizing each revenue source, when, and by which PS metric.
Inconsistent, inaccurate project cost estimates and actual activity lead to inaccurate forecasting, delaying the project close and the potential for bad debt write-offs and high Days Sales Outstanding (DSO).
Revenue leakage gains momentum and drains margins when the following happens:
Un-forecasted delays and timescale creep
Reduced utilization rates across each key resource required for the project to be completed
Invoice and billing errors that result in invoice disputes that turn into high DSOs & write-offs
Incorrect pricing versus the costs of sales & service often leads to customer churn.
Revenue leakage gains momentum as each of these factors further drains margin
Adding up all these examples and many more can easily add up to 20-30% of actual lost solution and services margin. In many ways, it’s like death by a thousand small cuts. The following graphic provides examples across the customer lifecycle:
Why Professional Services Are Especially Vulnerable To Revenue Leakage
Selling projects and the promise of their outcomes in the future create a unique series of challenges for PS organizations when it comes to controlling revenue leakage. It often starts with inaccurately scoping a project too aggressively to win the deal, only to determine the complexity of tasks originally budgeted for will take 10 – 30% longer or more. Disconnects on project scope are unfortunately too common, turning small revenue leaks into major ones and the potential of long Days Sales Outstanding (DSO) on invoices. When revenue leaks get ingrained in a project’s structure, they continue to cascade into each subsequent phase, growing and costing more than expected.
The SPI 2021 Professional Services Maturity™ Benchmark Service published by Services Performance Insight, LLC in February of this year provides insights into the hidden costs and prevalence of revenue leakage. The following table illustrates how organizations with high levels of revenue leakage also perform badly against other key metrics, including client referencability. The more revenue leakage an organization experiences, the more billable utilization drops, on-time project deliveries become worse, and executive real-time visibility becomes poorer.
How FinancialForce Is Using AI To Fight Revenue Leakage
It’s noteworthy that FinancialForce is now on its 12th consecutive product release that includes Salesforce Einstein, and many customers, including Five9, are using AI to manage revenue leakage across their PS business. Throughout the pandemic, the FinancialForce DevOps, product management, and software quality teams have been a machine, creating rich new releases on schedule and with improved AI functionality based on Einstein. The 12th release includes prebuilt data models, lenses, dashboards, and reports.
Andy Campbell, Solution Evangelist at FinancialForce, says that “FinancialForce customers have access to best practices to minimize revenue leakage by scoping and selling the right product and services mix to allocating the optimal range and amount of services personnel and finally billing, collecting and recognizing the right amount of revenue for services provided.” Andy continued, saying that recent dashboards have been built for resource managers to automate demand and capacity planning and service revenue forecasting and assist financial analysts in managing deferred revenue and revenue leakage.
By successfully integrating Einstein into their ERP system for PS organizations, FinancialForce helps clients find new ways to reduce revenue leakage and preserve margin. Relying on AI-based insights for each phase of a PS engagement delivered a 20% increase in Customer Lifetime Value according to a FinancialForce customer. And by combining FinancialForce and Salesforce, customers see an increased bid:win ratio of 10% or more. The following graphic illustrates how combining the capabilities of Einstein’s AI platform with FinancialForce delivers results.
FinancialForce’s model building in Einstein is based on ten years of structured and unstructured data, aggregated and anonymized, then used for in-tuning AI models. FinancialForce says these models are used as starting points or templates for AI-based products and workflows, including predict to pay. Salesforce has also done the same for its Sales Cloud Analytics and Service Cloud Analytics. In both cases, Salesforce and FinancialForce customers benefit from best practices and recommendations based on decades of data, which should be particularly interesting considering the “black swan” nature of 2020 data for most of their customers.
Cloud ERP is the fastest growing sector of the global ERP market with services-based businesses driving the majority of new revenue growth.
Legacy Services ERP providers excel at meeting professional & consulting services information needs yet often lack the flexibility and speed to support entirely new services business models.
Configure-Price-Quote (CPQ) is quickly emerging as a must-have feature in Services-based Cloud ERP suites.
From globally-based telecommunications providers to small & medium businesses (SMBs) launching new subscription-based services, the intensity to innovate has never been stronger. Legacy Services ERP and Cloud ERP vendors are responding differently to the urgent needs their prospects and customers have with new apps and suites that can help launch new business models and ventures.
Services-based Cloud ERP providers are reacting by accelerating improvements to Professional Services Automation (PSA), Financials, and questioning if their existing Human Capital Management (HCM) suite can scale now and in the future. Vertical industry specialization is a must-have in many services businesses as well. Factoring all these customer expectations and requirements along with real-time responsiveness into a roadmap deliverable in 12 months or less is daunting. Making good on the promises of ambitious roadmaps that includes biannual release cycles is how born-in-the-Cloud ERP providers will gain new customers including winning many away from legacy ERP providers who can’t react as fast.
The following key takeaways are based on ongoing discussions with global telecommunications providers, hosters and business & professional services providers actively evaluating Cloud ERP suites:
Roadmaps that reflect a biyearly release cadence complete with user experience upgrades are the new normal for Cloud ERP providers. Capitalizing on the strengths of the Salesforce platform makes this much easier to accomplish than attempting to create entirely new releases every six months based on unique code lines. FinancialForce, Kenandy and Sage have built their Cloud ERP suites on the Salesforce platform specifically for this reason. Of the three, only FinancialForce has provided detailed product roadmaps that specifically call out support for evolving services business models, multiple user interface (UI) refreshes and new features based on customer needs. FinancialForce is also one of the only Cloud ERP providers to publish their Application Programming Interfaces (APIs) already to support their current and next generation user interfaces.
Cloud ERP leaders are collaborators in the creation of new APIs with their cloud platform provider with a focus on analytics, integration and real-time application response. Overcoming the challenges of continually improving platform-based applications and suites need to start with strong collaboration around API development. FinancialForce’s decision to hire Tod Nielsen, former Executive Vice President, Platform at Salesforce as their CEO in January of this year reflects how important platform integration and an API-first integration strategy is to compete in the Cloud ERP marketplace today. Look for FinancialForce to have a break-out year in the areas of platform and partner integration.
Analytics designed into the platform so customers can create real-time dashboards and support the services opportunity-to-revenue lifecycle. Real-time data is the fuel that gets new service business models off the ground. When a new release of a Cloud ERP app is designed, it has to include real-time Application Programming Interface (API) links to its cloud platform so customers can scale their analytics and reporting to succeed. What’s most important about this from a product standpoint is designing in the scale to flex and support an entire opportunity-to-revenue lifecycle.
Having customer & partner councils involved in key phases of development including roadmap reviews, User Acceptance Testing (UAT) and API beta testing are becoming common. There’s a noticeable difference in Cloud ERP apps and suites that have gone through UAT and API beta testing outside of engineering. Customers find areas where speed and responsiveness can be improved and steps saved in getting workflows done. Beta testing APIs with partners and customers forces them to mature faster and scale further than if they had been tested in isolation, away from the market. FinancialForce in services and IQMS in manufacturing are two ERP providers who are excelling in this area today and their apps and suites show it.
New features added to the roadmap are prioritized by revenue potential for customers first with billing, subscriptions, and pricing being the most urgent. Building Cloud ERP apps and suites on a platform free up development time to solve challenging, complex customer problems. Billing, subscriptions, and pricing are the frameworks many services businesses are relying on to start new business models and fine-tune existing ones. Cloud ERP vendors who prioritize these have a clear view of what matters most to prospects and customers.
Live and build apps by the mantra “own the process, own the market”. Configure-Price-Quote (CPQ) and Quote-to-Cash (QTC) are two selling processes services and manufacturing companies rely on for revenue daily and struggle with. Born-in-the-cloud CPQ and QTC competitors on the Salesforce platform have the fastest moving roadmaps and release cadences of any across the platform’s broad ecosystem. The most innovative Services-focused Cloud ERP providers look to own opportunity-to-revenue with the same depth and expertise as the CPQ and QTC competitors do.
Enterprises are only realizing 35% of the total potential value of their cloud deployments according to a recent Bain & Company study.
Companies that moved development to IaaS and PaaS clouds from Amazon Web Services (AWS) reduced downtime by 72% and improved application availability by 3.9 hours per user per year.
These and other key take-aways are from the recent Bain & Company study, Tapping Cloud’s Full Potential. The full report PDF is available for download here (free, no opt-in). The following graphic from the report illustrates the currently realized value of cloud deployments in enterprises today according to Bain & Company.
The researchers found several critical drivers of cloud value with one of the most important being the strengthening and clarifying of a product and service focus. The following graphic illustrates the critical drivers of cloud value.
Cloud Service Providers Give Manufacturers The Ability To Stay Competitive
Cloud-first strategies designed to accelerate and strengthen shifts in emerging business models is paying off according to Bain’s research results.
Manufacturers choosing to pursue a cloud-first strategy are focusing on evolving their business models, processes, systems and performance quickly to stay in step with customers’ needs. For many manufacturers, their customers’ pace is faster than internal IT organizations can anticipate and react to. CSPs are helping to close that gap.
Here are five ways CSPs are making manufacturers more competitive:
Bringing industry expertise to the shop floor level. The best CSPs serving manufacturers today have management teams that have decades of combined manufacturing experience in specific industries. The CEO of a specialty tools manufacturer remarked that his company’s cloud strategy was more focused on accelerating plant floor performance first. Working with a CSP that had expertise in their industry, this manufacturer was able to gain greater supply chain visibility and improve forecast accuracy, all with cloud-based apps.
Solving legacy and 3rd party system integration problems so that cloud-based ERP, CRM, supply chain management (SCM) systems can scale quickly. When a rust-belt based manufacturer of heating, ventilation and air conditioning (HVAC) systems had the opportunity to grow their business by expanding into build-to-order customized products, their CSP partner made it possible to integrate an entirely new product configurator and cloud-based ERP system module to manage quote-to-cash. Today, 30% of corporate-wide profits are from build-to-order selling strategies.
Knowledge-sharing supplier networks are becoming more attainable for manufacturers thanks to cloud technologies and CSPs. All manufacturers have strategic plans that include greater integration of their supplier networks, with many seeking to create knowledge-sharing networks. One of the best studies of how to create a knowledge-sharing network is from Dr. Jeffrey Dyer and Dr. Kentaro Nobeoka based on their intensive work with Toyota. Their study, Creating And Managing A High Performance Knowledge-Sharing Network: The Toyota Case is a great read. The following graphic from the study illustrates the evolution of a knowledge-sharing network. Manufacturers are relying on cloud platforms and CSPs to enable shifts in network structures and nurture change management to create self-sustaining systems.
Two-tier ERP adoption in manufacturing is growing as CSPs master cloud ERP systems. CSPs are moving beyond providing basic services, specializing in cloud ERP, CRM, SCM, pricing, services and legacy system integration to keep pace with manufacturers’ demands. In one high tech manufacturer, their CSP partner orchestrated the procuring and launch of their cloud-based two-tier ERP system integrated to an SAP instance in their headquarters. Today they operate production centers in Asia, North America and Australia, all coordinated through the main SAP instance in the U.S. headquarters.
Making Service Level Agreements (SLAs) more relevant to manufacturing business models. Instead of just getting SLAs for uptime, security and system stability, manufacturers are getting advanced manufacturing intelligence dashboards that provide visibility to the plant or production center level.
Bottom Line: Manufacturers are increasingly relying on CSPs’ cloud, industry and integration expertise to support the transition many are making to new business models and get greater than 35% of the value from their cloud investments.
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.
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.
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
During 2012 the Enterprise Resource Planning (ERP) market experienced sluggish growth of just 2.2%, yet Software-as-a-Service (SaaS), financial management and Human Capital Management (HCM) applications showed potential for breakout growth.
Through the challenging times of the previous year however, SAP still retained worldwide market share leadership. These and other insights were recently published in the recent report, Market Share Analysis: ERP Software Worldwide, 2012 authored by Chris Pang, Yanna Dharmasthira, Chad Eschinger, Koji Motoyoshi and Kenneth F. Brant.
Overall market growth of just 2.2% and the top ten vendors owning 64% of the worldwide ERP market is leading Gartner to predict further consolidation of the industry.
SAP had just over $6B in total ERP software revenue in 2012, leading the worldwide market with 24.6% market share. Oracle had $3.12B and Sage, $1.5B in software revenues for 2012. Oracle’s market share was 12.8%, and Sage, 6.3%. The following graphic shows worldwide ERP market share for 2012.
Infor achieved 49.5% revenue growth in 2012, increasing their 2011 sales from $1B in 2011 to $1.5B in 2012. Their market share increased from 4.2% in 2011 to 6.2% in 2012.
Microsoft achieved 4.2% revenue growth in 2012, increasing revenue from $1B in 2011 to $1.1B in 2012. The majority of these sales are for the Microsoft Dynamics AX ERP system.
The fastest growing ERP vendors in 2012 include Workday, Cornerstone OnDemand, WorkForce Software, Ventyx and NetSuite.
Workday grew 114.7% in 2012, increasing revenue from $88.6M in 2011 to $190.3M in 2012.
Cornerstone OnDemand grew 61.5% in 2012, increasing revenue from $58.4M in 2011 to $94.3 in 2012.
WorkForce Software grew 39.8% in 2012, increasing revenue from $11.8M in 2011 to $16.5M in 2012.
NetSuite grew 34% in 2012, increasing revenue from $139.7M in 2011 to $187.1M in 2012.
Bottom line: SAP’s continued market dominance depends on how well the company orchestrates it core ERP strategy with the following areas: BusinessObjects 4.0, its highly regarded analytics suite; social application adoption (StreamWorks and SuccessFactors Jam); the many Cloud-based initiatives they have including SuccessFactors and BusinessbyDesign; mobility platform wins; and major wins with their SAP Sybase DBMS and HANA architectures.
The best manufacturers I’ve visited this year all share a common attribute: they are obsessed with making themselves as easy as possible to work with from a supply chain, distribution and services standpoint. Many are evaluating cloud-based manufacturing applications including Enterprise Resource Planning (ERP) and several have adopted cloud-based applications across their companies.
With so much interest, there is much confusion as well. I recently spoke with Cindy Jutras, founder and CEO of MintJutras. Her firm has recently completed a survey of SaaS adoption in manufacturing, distribution and other industries. She found the following:
49% of respondents in the manufacturing & distribution industries do not understand the difference between single- and multi-tenant SaaS architectures. Overall 66% of respondents to the survey did not know.
SaaS-based applications are 22% of all manufacturing and distribution software installed today, and will grow to 45% within ten years according to MintJutras.
The three most important characteristics of a SaaS solution in manufacturing and distribution include giving customers a measure of control over upgrades, consistent support for global operations and allowing for rapid and frequent upgrades.
Why Manufacturers Are Looking To Cloud Computing
Manufacturers are under constant pressure to increase accuracy, make process speed a competitive force, and capitalize on their internal intelligence and knowledge to make every supplier, distributor and service interaction count. The manufacturers spoken and visited with to gain the following insights are in the high tech, industrial and aerospace and defense industries, where rapid product lifecycles and short time-to-market schedules are commonplace.
Cloud-based strategies give these companies the chance to bring their own innate intelligence and knowledge into every sales situation. While on-premise systems could also do this, cloud-based systems were quicker to roll out, easier to customize and showed potential to increase adoption rates across resellers.
One manufacturing manager explained how during a new product launch the speed and volume of collaboration was so rapid on between suppliers and distributors that an allocation situation was averted. That he said, made senior management believers. These epiphanies are happening daily in manufacturing.
Based on my visits with manufacturers, here are the ten ways they are using cloud computing to revolutionize manufacturing:
Capturing and applying company-wide intelligence and knowledge through the use of analytics, business intelligence (BI), and rules engines. For the many manufacturers who rely on build-to-order, configure-to-order and engineer-to-order strategies as a core part of their business models, using cloud-based platforms to capture knowledge and manage rules is accelerating. A key part of this area is mobility support for analytics, BI and rules engine reporting and analysis.
Piloting and then moving quickly to full launch of supplier portals and collaboration platforms, complete with quality management dashboards and workflows. Among the manufacturers visited, those in high tech are the most advanced in this area, often implementing Vendor Managed Inventory (VMI) and demand management applications that deliver real-time order status and forecasts.
Designing in services is now becoming commonplace, making cloud integration expertise critical for manufacturers. From simplistic services integration on iPhones to the full implementation of voice-activated controls including emergency assistance in the latest luxury cars, adding in services integrated to the cloud is redefining the competitive landscape of industries today. Revising a product or launching an new product generation with embedded services can mitigate price wars, which is why many manufacturers are pursing this strategy today.
Accelerating new product development and introduction (NPDI) strategies to attain time-to-market objectives. Using cloud-based platforms in high tech manufacturing is growing today as time-to-market constraints are requiring greater collaboration earlier in design cycles.
Managing indirect and direct channel sales from a single cloud platform tracking sales results against quota at the individual, group and divisional level is now commonplace across all manufacturers visited. Dashboards report back the status by each rep and for sales managers, the profitability of each deal.
Using cloud-based marketing automation applications to plan, execute and most important, track results of every campaign. Marketing is under a microscope in many manufacturers today, as marketing automation applications have promised to deliver exceptional results and many manufacturers are still struggling to align their internal content, strategies and ability to execute with the potential these systems promise.
Automating customer service, support and common order status inquiries online, integrating these systems to distributed order management, pricing, and content management platforms. Manufacturing industries are at varying levels of adoption when it comes to automating self-service. The cost and time advantages in high tech are the highest levels of adoption I’ve seen in visiting manufacturers however.
Increasing reliance on two-tier ERP strategies to gain greater efficiencies in material planning, supplier management and reduce logistics costs. Manufacturers are also using this strategy to gain greater independence from a single ERP vendor dominating their entire operations. Several manufacturers remarked that their large, monolithic ERP systems could not, without intensive programming and customization, scale down to the smaller operational needs in distributed geographic regions. Cloud-based ERP systems are getting the attention of manufacturers pursuing two-tier ERP strategies. Acumatica, Cincom, Microsoft, NetSuite and Plex Systems are leaders in this area of ERP systems.
Reliance on cloud-based Human Resource Management (HRM) systems to unify all manufacturing locations globally. This often includes combining multisite talent management, recruiting, payroll and time tracking. Contract manufacturer Flextronics uses Workday to optimize workforce allocations across their global manufacturing centers for example.
Bottom Line: Using cloud-based systems to streamline key areas of their business, manufacturers are freeing up more time to invest in new products and selling more.
When the CEO of a rust-belt manufacturer speaks of cloud computing as critical to his company’s business strategies for competing globally, it’s clear a fundamental shift is underway.
Nearly every manufacturing company I’ve spoken with in the last ninety days has a mobility roadmap and is also challenged to integrate existing ERP, pricing and fulfillment systems into next-generation selling platforms.
One of the most driven CEOs I’ve met in manufacturing implemented a cloud-based channel management, pricing, quoting and CRM system to manage direct sales and a large distributor network across several countries. Manufacturers are bringing an entirely new level of pragmatism to cloud computing, quickly deflating its hype by pushing for results on the shop floor.
There’s also been an entirely new series of enterprise software and cloud computing forecasts and market estimates published. I’ve summarized the key take-aways below:
Enterprise sales of ERP systems will grow to $32.9B in 2016, attaining a 6.7% CAGR in the forecast period of 2011 to 2016. CRM is projected to be an $18.6B global market by 2016, attaining a CAGR of 9.1% from 2011 to 2016. The fastest growing category of enterprise software will be Web Conferencing and Team, growing at a 12.4% CAGR through the forecast period. The following graphic compares 2011 actual sales and the latest forecast for 2016 by enterprise software product category. Source: Gartner’s Forecast Analysis: Enterprise Application Software, Worldwide, 2011-2016, 4Q12 Update Published: 31 January 2013
IDC is predicting Cloud Services and enablement spending will hit $60 billion, growing at 26% through the year and that over 80% of new apps will be distributed and deployed on cloud platforms. Their predictions also are saying that 2.5% of legacy packaged enterprise apps will start migrating to clouds. Source: Top 10 Predictions, IDC Predictions 2012: Competing for 2020 by Frank Gens. You can download a copy of the IDC Predictions here: http://cdn.idc.com/research/Predictions12/Main/downloads/IDCTOP10Predictions2012.pdf
Last week Plex Systems, a leading provider of SaaS-based Enterprise Resource Planning (ERP) systems announced enterprise software veteran Jason Blessing has joined their company as CEO. He is responsible for the strategic direction and growth of the company, and has a proven track record in many facets of enterprise software, from new application development to professional services. His extensive experience includes previous executive positions at Oracle, Taleo, PeopleSoft and Price Waterhouse. You can find his LinkedIn profile here.
Plex Systems’ success delivering ERP entirely on the SaaS platform to manufacturers have many industry analysts, experts and pundits saying their unique business model is prescient of the future of enterprise software. Originally designed for an automotive parts manufacturer, Plex Online is being adopted by aerospace and defense, food and beverage, high tech and electronics, industrial machinery, and precision metal manufacturers. You can find an overview of Plex Systems here.
I recently had a chance to speak with Jason and get his views on the future of ERP, SaaS in manufacturing and the enterprise, and what he sees as the greatest challenges and opportunities for Plex Systems.
Here’s a transcript of my interview with Jason Blessing, the new CEO of Plex Systems:
What are the three biggest challenges you see to Plex Systems’ growth over the long-term and how will you and the management team address them?
Our greatest challenge is awareness of who Plex Systems is and the value we are delivering to our manufacturing customers today. We’re already putting together programs that will highlight the very meaningful customer base we have and what they are able to accomplish using Plex Online. Second, we’re going to continue making significant product investments. Our owners are growth-minded and we’re looking to create a beachheads in additional areas to compliment our heritage in auto manufacturing. Third, we’re going to expand our sales and marketing investments to provide better coverage domestically and in Europe and Asia. We’re also on a mission to lead the resurgence of manufacturing in America by giving small and mid-sized companies the systems they need to be formidable global competitors.
SaaS-based applications have proved themselves in the enterprise. How and why are manufacturers adopting SaaS-based ERP systems today? How is this going to change in the future?
Credit has to go to Taleo and Salesforce for proving SaaS can succeed at the departmental level in the enterprise. We’re finding that the combination of financials and Manufacturing Execution Systems (MES) delivered in the cloud is very well-suited for small and medium manufacturers. These manufacturers often don’t have a large Information Technologies (IT) staff and want to offload these systems so they can stay focused on their core business. In this sense we free up these smaller manufacturers to get back to work running their businesses without having to hassle with large, complex and costly ERP deployments.
Will SaaS-based ERP systems cannibalize monolithic ERP systems or coexist and compliment them? Or are you seeing a mix of both cannibalization and coexistence? For Plex Systems, what’s the best direction?
We do see customer that adopt parts of our solution, quality for example, to test the cloud model before going wall to wall Plex. Another approach we see is customers who have global operations bring foreign factories online quicker than they had in the past as a result of SaaS. The end result will be the cannibalization of monolithic ERP systems by those that are SaaS-based.
One of the implicit factors in this area of cannibalization is the typical release cadence of a SaaS provider. Most large cloud providers have, on average, 3 releases a year. Here at Plex Systems we’re on a continuous release cadence. When a customer asks for a feature enhancement or entirely new set of functions, we strive to be very responsive with our release cycles and deliver what is needed.
Plex Systems has done well in several key manufacturing industries including automotive, A&D, electronics, food and beverage, and medical devices. Do you see Plex Systems moving into additional industries, and if so, which ones? Pharmaceutical and biotech for example.
We’re going to be fairly disciplined in our approach within the verticals we’re already selling into. We’re seeing increasing interest in moving core shop floor applications to the cloud for example, and we’re going to expand out our coverage in our core vertical markets as a result.
With the majority of sales in the United States, does Plex Systems have plans for Europe and Asia? What’s your perspective of those markets for SaaS-based ERP system sales?
We’re growing at an approximately compound annual growth rate of 30%+ per year, the majority of that growth coming from North America today. We’re also seeing strong interest from EMEA, South America and Asia. What’s driving our foreign market demand is the need manufacturers have for quickly getting production centers up and running on financials, MES and Supply Chain Management Systems (SCM). We also run our own data centers and have hot standby and back facilities supporting our worldwide customer base.
Two-tier ERP delivers significant business value and is growing in adoption. How will Plex Systems capitalize on this trend and what are the implications for the application development priorities?
We’re delivering two-tier ERP implementations today and one of the largest heavy equipment manufacturers in the world uses Plex Online to run their shop floor operations at several manufacturing centers. Their main ERP system is an SAP R/3 instance, and we integrate to that and help this manufacturer be more efficient at the individual plant and shop floor level.
Last year Plex Systems announced IntelliPlex, SmartPlex, in addition to several other significant new services and partnerships. Of these, IntelliPlex has the potential to deliver analytics and business intelligence to manufacturers who may have never had these metrics available before. How do you see analytics in manufacturing improving this year, and how will this augment Plex Online’s analytics strategy going forward?
Much of our success as a provider of SaaS-based ERP systems is due to the breadth of applications that span from the shop floor to the top floor. We’re seeing analytics resonate really well with the people who write us the checks, the top floor executives and their teams responsible for the getting the highest performance from manufacturing operations. We’re going to augment our analytics this year, supporting mobile devices. We’ve also been doing data mining of production data across the worldwide Plex Systems customer base and see the potential to create an index of manufacturing performance. We’re going to look at how this data will be able to help our customers predict economic conditions in their specific manufacturing industries.
There are a myriad of studies out on the impact of mobile technologies on manufacturing. Last year, Plex Systems introduced SmartPlex Mobile, which gives ERP users access to data on iOS and Android devices. Can you discuss the challenges of mobile adoption in manufacturing and how Plex Systems will address them?
Often mobile technologies installed and used on the factory floor are proprietary to the systems and workflows for that specific factory. They are fine-tuned to the specific workflows on the factory floor, and the proprietary nature of their electronics only work with the systems they are designed for and Plex Online supports many of these devices. Material handling, RFID and other logistics projects are based on these kinds of technologies.
We’ve also found that senior management teams want to get as close to real-time data as possible on each phase of manufacturing operations. SmartPlex Mobile is designed to give senior management teams visibility into operations on Android and iOS devices, and continues to gain interest from existing and new customers alike.
Many manufacturers are dealing with “brain drain” or the retiring and churn of their long-time manufacturing, process control, and quality management professionals. How do you see Plex Systems helping these manufacturers to retain that tacit knowledge in their organizations over their long-term?
We talk quite often about this with our prospects, customers and internally in our development meetings. Prospects are especially interested in how to solve this problem as tribal knowledge is often the most difficult to capture and re-use. It’s common to find manufacturers with a myriad of Microsoft Access databases, legacy systems and data locked on spreadsheets. Our architecture is based on a Master Data Management (MDM) model with gives manufacturers a single source or version of the truth. Using our experience implementing these systems in small and medium-sized manufacturers, we’ve found methods and techniques for managing corporate-wide data effectively.
Visualization in manufacturing including the extensive use of 2D and 3D CAD drawings is also accelerating. What are your thoughts on the future of visualization in manufacturing, and more specifically, which key process areas do you see Plex Systems addressing with its visualization strategy?
This area is critically important for the shop floor as it can drive higher levels of production quality quickly. We’re going to continue to invest in this area, and our Actify partnership gives us a strong foundation to build on in this area. The partnership with Actify allows us to embed engineering drawings directly in Plex, allowing shop floor workers to look up specifications on the fly to ensure high levels of quality. The drawings are highly valuable because they are contextualized in Plex (e.g., tied to the product in question) and don’t require any expensive CAD equipment or training to view.
Plex Systems has also built a strong foundation of partners including system integrators and resellers. Do you anticipate Plex Systems will increasingly rely on resellers or stay with primarily a direct sales strategy?
It’s very important to high fidelity relationships with customers when you’re selling SaaS-based enterprise software so the direct model is important to us. That said, partners are also very important to us because of the value they can bring to customers and the added reach they can provide us. So, we’ve been successful in creating a partner program, which has a rigorous certification process that ensures those we partner with have strong domain expertise to serve our shared customers. Partners can quickly become a force multiplier for us, and we’re working towards that goal by keeping direct sales in balance.
Disclaimer: This interview was done independent of Plex Systems. I have not and have never been a paid consultant of the company. I approached them to do this interview based on insights gained from WordPress analytics showing readers’ interest in ERP, SaaS and enterprise software.