By Minda Zetlin
There’s no doubt that an organization starting from scratch with a new enterprise resource planning (ERP) system should opt for a cloud-based system over an on-premises version. A cloud-based ERP system offers more functionality and greater support for collaboration—especially across multiple locations and remote employees—and is upgraded more frequently, along with many other benefits.
“If you’re starting from scratch, there’s no reason to be on premises,” says Ray Wang, principal analyst and founder of Constellation Research in Silicon Valley. Just like people, businesses follow a Maslow-like hierarchy of needs, he explains. Operational necessities such as regulatory compliance and security are at the base of the pyramid for most businesses—they must be dealt with before such aspirational items as innovation, entering new markets, and introducing new products. Because a cloud-based ERP system already takes care of many of these issues and allows for the automation of other basic needs, it lets an organization “flip the pyramid,” Wang says. “You want your best people focused on growth, on adapting your business model, and on your brand,” he adds.
But what if your organization already has an ERP system that’s been functioning well, perhaps for a long time? When is the right time to upgrade to the cloud? It could be almost anytime—the advantages your organization gains in terms of flexibility, agility, and transparency will likely make it worthwhile. But there are certain times when the case for a cloud-based ERP system is so compelling that not taking that leap would be foolhardy. Here, we take a closer look at those four moments of truth.
1. After a Merger or Acquisition
If your company has recently merged with or acquired another organization (see Western Digital), there are often strong arguments for moving to a cloud-based ERP system. For one, it’s highly likely that the systems used to manage each organization before the merger aren’t robust enough to handle the combined organization. “Our first question is always, ‘How big is the company you’re acquiring, and is the existing technology you have sufficient to accommodate all the capabilities they need?’” says Guy Baroan, president of Baroan Technologies, a managed service provider in Elmwood Park, New Jersey. In some cases, if a large company with a robust on-premises ERP system is acquiring a much smaller one, it will simply absorb the new company into its existing system. But more often, the needs of a newly combined organization are best served with a move to the cloud.
Michael Fauscette, chief research officer at software review site G2 Crowd, recalls once working with a company in exactly that situation. “They had acquired an entity that was scattered around the world,” he says. “The architecture was impossible to manage. To do end-of-quarter close, they were manually bridging a dozen different systems.” The answer was to move the entire company onto a cloud-based ERP deployment. If your company hasn’t yet had a merger or acquisition but the possibility is on the horizon, that’s another good reason to consider an upgrade to Oracle Enterprise Resource Planning Cloud (Oracle ERP Cloud), according to Terrance Wampler, vice president of financial applications strategy at Oracle. “If you’re looking to do expansion and growth, it makes sense to get to a platform that makes it easy to add those acquisitions,” Wampler says. “If you have to tell the business that it will be difficult for you to integrate a newly acquired company, then IT becomes an obstacle. You should be running a platform that allows you to have growth.”
Even an organization with no acquisition plans at all can benefit from moving to a cloud-based ERP system, because doing so will standardize and modernize business processes; eliminate customizations; get the organization into a regular ERP upgrade cycle; and allow for more user-friendly, social-based applications, according to Bob Allen, a principal in the enterprise applications strategy and integration practice at audit and advisory firm Grant Thornton. He says he’s working with a company right now facing problems. It has multiple business units accustomed to acting autonomously, with very different operating models and a heavy reliance on customizations. “Their management of the on-premises ERP system allowed for this situation,” he says. “That’s a big reason they’re moving to the cloud—to implement leading practices, operate more commonly, and more rapidly transition to an improved solution.”
2. When Servers Are Nearing End-of-Life
“Typically, equipment is good for three to five years,” Baroan says. That means that if you have servers three and a half years old or older, it’s time to start planning for new ones.
But really, buying new servers these days means spending a lot of money just to delay the inevitable need for updating technology, says Troy Lutes, principal at PwC. “You can upgrade your hardware and your current on-premises technology, but it’s a race to zero. Most organizations are eventually going to move their core applications to the cloud.”
You can upgrade your hardware and your current on-premises technology, but it’s a race to zero. Most organizations are eventually going to move their core applications to the cloud.”—Troy Lutes, Principal, PwC
Fauscette says that very few G2 Crowd users come to the site looking for advice on replacing on-premises servers; instead, G2 Crowd has seen a spike in visitors looking for reviews and best practices to help them move to the cloud. The logic is simply too compelling. “There are a bunch of costs to the on-premises system—not just the cost of maintaining the server and the database software and the infrastructure, but also opportunity costs,” he says. These include a more limited ability to do analytics, auditing, and collaboration. A cloud-based ERP system will come with analytics built in throughout the system, providing data in real time rather than after the fact. “We’re in the information society,” he says. “If you can’t get that information in time to make business decisions, it won’t do you any good.”
Moving to the cloud also gives companies the opportunity to escape from some technical debt, Wampler says. “There may be things that will come up that you don’t expect—such as a new security threat or a new standard—that will be more challenging with an on-premises deployment. By moving to the cloud, you can get out of that.”
3. When You Have Unsupported Core Software
This sort of problem often arises when software has been highly customized, resulting in “version lock,” Grant Thornton’s Allen says. But however it happened, you now face some painful choices. “I haven’t done an upgrade in years, and I’m now a few upgrades behind,” he posits. “Do I want to go through the effort to do the upgrades? And will I be able to do it, or will I have to reimplement?”
Besides, if an organization is so far behind on upgrades to its ERP or core software, it’s highly likely that the hardware is out of date as well. That can lead to unacceptable risk. Lutes recalls discovering that a consumer products company was running its ordering system on a no-longer-supported mainframe application. “There was one guy who knew how it worked,” he says. “Having their entire ordering system go down was not an option. That was exposing the company to unacceptable risk.”
On the plus side, if you’re running an older system, moving to a modern cloud-based ERP system will make a huge difference to your employees and customers. “Employees don’t want to use outdated tools anymore,” Fauscette says. “There is an efficiency gain that will be a giant leap from where they are.” It’s consistent with the current move toward digital transformation, he adds. “When you go to a cloud-based ERP system, it’s the most modern way. You can do things that you couldn’t do before.”
Every organization is striving for business process improvement, Wampler adds, and Oracle ERP Cloud makes that continual improvement possible. “You’re always getting new features perhaps related to machine learning or robotic process automation,” he says. That’s the real value of Oracle ERP Cloud, he adds. “It’s the opposite of what happens today when the business comes to IT and says, ‘We want to do this,’ and IT says, ‘We’ll have to customize or build to get you that feature.’ With Oracle ERP Cloud, a super-user could look at all the features and say, ‘Maybe we should improve our process.’”
4. When an Organization Is Growing Rapidly
For a small or startup organization that’s quickly growing into a bigger one, moving to ERP in the cloud sooner rather than later can save many future headaches. “If you’re a fast-growing business, you don’t want to do more than one financial system migration,” Fauscette says. “Why would you? It’s painful. So move right away to a cloud system that has the ability to scale with you.”
That’s especially true if you’re moving from more-limited, single-purpose financial software into your first full-fledged ERP system. How do you know it’s time for that move? “When the system no longer allows you to do the billing practices you need to,” Wang says. “When you have HR requirements that you can no longer meet, when you’re trying to coordinate among different modules such as finance and HR, and when you work with larger businesses and they want features you don’t have.”
Or, he says, when an initial public offering might be on the horizon. “Most companies would IPO on a robust ERP system. It makes it easier to do all the filings.” Even for companies with no plans to ever go public, increased globalization often creates the need for cloud-based ERP. “Your online presence has made you a global company, and now you have multicurrency issues. Now you have statutory requirements you never expected to have,” Lutes says.
Baroan recalls a small electronics distributor that was running its business on QuickBooks and spreadsheets. His company analyzed the company’s workflow and determined that a move to ERP in the cloud would make the most sense. “We said, ‘We know it’s going to be a commitment and a major investment, but you could take more orders and grow. You would have fewer people manually entering the information, and you would be able to offer client benefits such as online ordering and lookups or return merchandise authorizations.’”
One of the best things about a cloud-based ERP system is that it enables a small business to scale without constraint, he adds. “A cloud ERP solution can mean the difference between success or failure for a rapidly growing company.”
Illustration by Wes Rowell
Minda Zetlin is coauthor, with Bill Pfleging, of The Geek Gap: Why Business and Technology Professionals Don’t Understand Each Other and Why They Need Each Other to Survive (Prometheus Books, 2006).