Cloud-based ERP is coming to your company whether you like it or not

ERP vendors need to replace license revenue from fading on-premises suites, and social, mobile and analytics all need the cloud to thrive.

Much has been written about the risks and benefits of adopting cloud-based ERP, and whether the technology will ever compete feature-for-feature with its on-premises counterparts. But business pressures in the software industry are conspiring with the transformative trends of cloud, social, mobile and "big data" analytics to make cloud-based ERP, at least in some form, the best option before long.

The real enabler is cloud technology and the easy networking and scalability that it uniquely brings. The cloud is also essential to delivering most of the new capabilities vendors believe their customers have come to expect from their ERP systems.

First, vendors say that users want social media features and social-style collaboration to be accessible throughout the business processes that ERP automates. Social media can't exist without the cloud.

Secondly, more people are demanding dashboards for their smartphones and tablets that can show transactional data from ERP back ends and help execute everyday tasks. Much of mobile software development is focused on apps that run in the cloud.

The last technology pillar driving the future of ERP -- big data analytics -- is seeing most of its innovation and business successes in a newer class of vendors, among them Adaptive Insights and Host Analytics, that pull on-premises ERP data into the cloud where it can be analyzed, boiled down, and returned in neat summaries to web browsers and smartphone apps.

Now the floodgates may have finally come loose, and everyone is sliding fast down the slippery slope to Cloudville. It's no longer a question of whether to sell a cloud version, but how many flavors to offer, and when to put the old systems down for good.

Forrester Research shows the original core of ERP -- financial accounting and planning -- growing at roughly the same rate that on-premises options are shrinking. A crossover to majority cloud-based ERP -- especially for core financials and related functions such as sales, forecasting and HR -- looks inevitable in two to three years.

It's been obvious for a while that the leading vendors of legacy, on-premises ERP are being swept up in economic trends that are forcing them to look skyward to cloud-based ERP. First it was because they saw part of their business bleeding out to a new generation of ERP players who started on the cloud, such as NetSuite and Workday.

Now industry analysts and users seem convinced that the recession is far enough in the past that ERP buyers, who laid low for several years, are finally thinking about replacing their old models.

What will they find in the 2014 model year? Infor 10x products with snappy new user interfaces that sport the big, bright buttons and tiles that are familiar from smartphones, tablets and Windows 8. SAP's effort to freshen its HR line mostly with updates of the cloud-based talent management suite from its SuccessFactors division. And Oracle rebranding everything Oracle Cloud HCM -- even some of its old Fusion HR tools that don't yet run in the cloud -- while building much of its customer relationship management (CRM) strategy around Salesforce, a cloud vendor it once dismissed.

Cloud puts integration where vendors want it

By moving more of their business applications to the cloud, ERP vendors are taking on-premises systems and integration partners and corralling them in a smaller space that gives them back a measure of control. This is happening while cloud-to-cloud integration is getting more attention than ever from developers and standards bodies.

Some of the best parts of the ERP ecosystem are alreading coming from the cloud, including "best of breed" budgeting, talent management and CRM offerings from longtime on-premises ERP vendors.

Now the floodgates may have finally come loose, and everyone is sliding fast down the slippery slope to Cloudville. It's no longer a question of whether to sell a cloud version, but how many flavors to offer, and when to put the old systems down for good.

One analyst says Oracle and SAP as well as smaller but serious competitors such as Infor and Microsoft are actively trying to switch customers to the steadier stream of cloud subscriptions because the wide riverbed of once-mighty licensing is drying up fast.

Christian Hestermann, an analyst at Gartner Inc., has a keen eye for the business drivers behind these cloud ERP moves. He sees the older vendors, all of which got rich from licensing revenue from on-premises ERP, now eager to replace it with the subscriptions that cloud software is typically based on.

He offers Oracle's ups and downs with its Fusion application architecture to prove the point.

"It used to be a broad suite covering almost all of their business application areas," he said. Nowadays, "they hardly talk about it." Instead, Oracle includes some Fusion applications in an even broader catalog that now includes purely cloud-based software. "The original idea was that Fusion would be built on a unified data model, a broad suite, highly integrated." But now the pieces are "devolving" and no longer a true, integrated suite, a trend that Hestermann and other analysts both inside and outside Gartner describe as the essence of the emerging ERP architectures.

Oracle continues to update its old-style, monolithic suites (JD Edwards and PeopleSoft, prominently) to keep large customer bases happy. But the middle leg of Oracle's strategy, especially the Fusion integration middleware, the Application Integration Architecture, "pretty much went away," Hestermann said, and Oracle's cloud strategy is now the locus of its integration story. "They're saying, ''Don't worry about integration: we'll provide it for you in the cloud.'"

The problem, though, is Oracle may be "cloudwashing" the situation by asking people to trust it will handle the necessary integration in the cloud. It's as if Oracle is saying, "we're moving to the cloud to hide the fact that the need to build the integration doesn't go away," Hestermann said.

This is just one prominent example of how the ERP vendors that have always driven the market are quickly jettisoning large -- and quite recent -- investments so they can place equally large bets on the cloud.

In what year will Oracle and its competitors concede the game is over and start to pull the plug on their top-shelf legacy systems?

Next Steps

Read a tip on cloud ERP security

Learn about trends in cloud ERP adoption

Understand hybrid cloud-based ERP

This was first published in February 2014

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