What's the future of cloud ERP? In this Q&A, Oracle’s Dee Houchen sits down with Gabriel Gheorghiu, principal of Questions Consulting, to discuss his recent research, The ERP Buyer’s Profile for Growing Companies. Gheorghiu outlines what his research uncovered about demand for cloud ERP, and why smaller businesses are stealing a march on bigger rivals.
Houchen: Cloud ERP is really hitting its stride now. What’s driving companies to make the move?
Gheorghiu: Companies were relatively quick to move CRM or talent management to the cloud, but migrating ERP is less straightforward. There were concerns around privacy and compliance, and there was the challenge of stripping enormous levels of complexity out of legacy systems before making the switch. Businesses are getting over these concerns now and are ready to change the way they work.
Houchen: I see in your study many smaller businesses are going to the cloud first. Why do you think that is?
Gheorghiu: The needs of smaller businesses can be simpler, which means they get the functionality they need from less complex solutions. By comparison, large enterprises often feel they can only get what they need from a handful of major ERP vendors who deliver a full range of functionality. Also, because legacy ERP systems are often full of patch jobs and spreadsheets that have been maintained and stored manually for decades, many larger companies may also be making the transition to cloud in more measured steps as they try to clean up their systems in the process.
Houchen: So in other words, cloud adoption is the norm for SMBs while at the mid and large level, it has been more of a leading edge initiative until now?
Gheorghiu: Exactly. Midsize and enterprise players will have a cloud adoption strategy, but rarely find a single solution that covers all their needs. An integrated solution is the holy grail, but businesses often mix ERP products to suit their functionality needs—for instance, a separate platform for manufacturing and another for finance.
Houchen: Is that down to functionality or the way cloud ERP is marketed? Major vendors certainly offer a fully integrated solution.
Gheorghiu: Major vendors are still known for the industry standard technology they built their names on. Customers are now coming to realise that established brands like Oracle now offer complete cloud solutions, but we are still in the early days. Integration will be the major differentiator here, and vendors that can effectively articulate the broad functionality they can deliver will come out on top.
Houchen: One thing that stood out in the SelectHub research was that companies are choosing cloud ERP systems based on accounting functionality first and delivery model second. Why do you think that is?
Gheorghiu: It’s not surprising. Our respondents provided qualitative responses based on a best-case scenario in which they have time to completely rethink their ERP systems. In reality, other strategic priorities and cost issues lead many companies to wait until the last minute to invest in new functionality which is why many start their cloud transition in order to expand, or as part of M&A activity. While this approach is fully understandable in a fast-paced market, there is the danger of rushing things and not undergoing a smooth transition.
Houchen: Rushed decision-making is certainly an issue. How can companies avoid falling into that trap?
Gheorghiu: Many respondents said they decided on which ERP system to invest in within three to four months, which is way too fast. Most companies need a month just to lay out their basic needs and priorities before even starting to explore options. Investing in and implementing a new ERP system is a disruptive and potentially expensive process, so the best approach is to take your time, and the best way to give yourself time is to avoid waiting until the last minute to switch.
Houchen: You mentioned that many large companies are making the transition to cloud in stages. Does that mean hybrid IT will be the norm for a while?
Gheorghiu: Absolutely. That’s why our findings around functionality over delivery model are important to bear in mind. When given the choice between a “perfect fit” on-premises solution and a partially relevant cloud one, customers will still choose on-premises. Hybrid will therefore be an attractive option, at least until IT infrastructure becomes obsolete or too expensive to maintain.
Houchen: Is the shift to cloud changing the way ERP buying decisions are made?
Gheorghiu: Yes and no. The cloud has a different service delivery model so companies are paying and budgeting for it differently, but the bigger change is coming from the greater integration between departments that the cloud supports. Finance still carries the most weight in ERP buying decisions, but as the cloud brings finance in line with other departments such as HR and marketing there are more stakeholders involved. We are only at the beginning of this shift, but it is encouraging to see companies work in a more integrated way.
Houchen: Couldn’t agree more. Business leaders just want things to work together seamlessly, and departments will only deliver if they work more collaboratively.
Gheorghiu: Exactly. Cloud ERP systems, particularly integrated ones, are ideally suited to that end and from our research and what we’re seeing in the market companies clearly agree.