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Increasingly, businesses are looking to upgrade their ERP systems to take advantage of the latest technology, gain new functionality and operate more efficiently. Some are finding a hybrid ERP environment to be the quickest route.
Admittedly, another way for companies to achieve these goals is by moving their entire on-premises ERP systems to the cloud, which can enable them to become more flexible and more mobile. But lifting these legacy ERP applications and shifting them to the cloud is not easy or cost effective. Enterprises that have spent hundreds of thousands and even millions of dollars on these on-premises deployments are often unwilling to spend even more money to rip them out and replace them.
They can instead surround their on-premises applications with web-based services and cloud applications, creating hybrid ERP models where some pieces -- perhaps "core" financials -- are left on premises and select functions moved to the cloud, said Cindy Jutras, president at Mint Jutras, based in Windham, N.H.
"If companies are not in the cloud -- if they're running on-premises ERP -- there are some hybrid steps they can take where they can put certain functions in the cloud," Jutras said. "Likely you have an on-premises solution and you need to extend it, and in extending it you need to look at the possibility of putting those extensions in the cloud."
Cloud-only an alternative to hybrid ERP
It's also possible for companies already running in the cloud to improve their cloud ERP systems by adding other cloud functionality from the same or different vendors, said Vijay Ramakrishnan, director of product marketing at Intacct, a maker of cloud ERP software based in San Jose, Calif. "Our solution is also built to work well with other cloud solutions," he said.
Intacct's cloud accounting technology uses application programming interfaces (APIs) for open web services, so it's easy for a company to connect its financial system with other cloud applications, Ramakrishnan said. In fact, 75% of Intacct's customers have connected Intacct with at least two other cloud applications.
A lot of companies approach Intacct looking for cloud ERP because they've made changes to the cloud in other areas of their businesses and in doing so discovered that on-premises to cloud integration isn't all that easy, he said.
"Then they see that integrating cloud to cloud is fairly straightforward and the cloud ERP application can offer other benefits," Ramakrishnan said. "It actually becomes something that drives the switch to the cloud for ERP."
Although companies with on-premises legacy ERP systems find the cloud easier to adopt and deploy, the fact is the cloud introduces a lot of data management issues when it comes to integration and shifting the data in and out of the internet, said Patrick Crampton-Thomas, vice president of supply chain solution management at SAP, which is based in Walldorf, Germany.
"The challenge is figuring out how to manage that across multiple systems, he said. "So there's an overhead cost. But it also drives a lot of batch-type processes. And even though I want to get away from batch processes, the cloud doesn't necessarily allow me to drive real-time processes. How do I then enable real-time cloud processes? That's a big challenge."
But some companies can adopt cloud as a way to improve business processes especially where the technical issues are not so challenging. If there's no need for real-time data -- if the data requirements are fairly straightforward -- then companies opt to put those processes in the cloud, Crampton-Thomas said.
In some areas, though, it doesn't make sense, he added. Hybrid ERP may be preferable.
"If I were to take highly execution-oriented and transaction-oriented business processes like production, planning and manufacturing [and] warehouse management that are dependent on orders that are changing every minute and inventory and supply and demand that's changing every minute, it doesn't make sense to look at cloud for those areas," Crampton-Thomas said.
Collaborative processes can work better in the cloud
On the other hand, certain functions, such as e-commerce, electronic payments, or supplier collaboration lend themselves naturally to the cloud, Jutras said, adding that any process that is collaborative in nature is a good candidate for the cloud. That could include product design and engineering, solution selling, and account management where many people in any number of locations may be involved.
Manufacturing and distribution companies are perfect candidates for hybrid ERP, said George Trudell, a partner at Ultra Consultants, based in Chicago.
"Ninety percent of our clients are manufacturing and distribution companies and if I'm one of them, it would be very easy to bolt on -- in the cloud, a forecasting planning solution, a CRM solution, an HR solution -- all of the non-core [processes]," he said. "I can bolt on these other solutions in key areas and that can help keep my old ERP going longer."
Because these bolt-on cloud applications offer a low barrier to entry from a cost and complexity perspective, Trudell said managers of the functional areas that need them will go out and buy them on their own. The result in many cases is a hybrid cloud setup.
However, the cloud in itself isn't the answer, said Kevin Roberts, director of platform technology at FinancialForce.com, which is based in San Francisco. FinancialForce ERP is built on the Salesforce1 platform.
By selecting apps that run on disparate cloud applications and technologies with different user interfaces and security models, a business is actually creating a monster -- an ERP "FrankenCloud," he said, using a phrase his company uses extensively in its marketing literature.
That's why a company needs to choose a platform on which to build its business that provides a single database, single security model, common reporting and analytics, mobile access and shared workflow processes, Roberts said.
"Then, rather than rip and replace, they look at what the particular problems are in the business or what processes they want to improve and use the platform to do it," Roberts said.
Such companies are using the cloud in a more agile way, he said, by keeping their on-premises systems but moving those processes to the cloud. That single platform foundation means that IT can stop wasting time keeping the ERP monster alive and focus on supporting the goals of the business.
"It's not the cloud that's solving the problem but [rather] the platform approach," he said.
The success of a hybrid ERP model depends largely on how well a company's ERP system plays with others, particularly if it works with web-enabled, cloud-based applications, and a lot of that has to do with just how web-enabled a company's system already is, Jutras said.
The advantage of the hybrid ERP setup is that businesses can leave what's working well alone, even though it's on premises, she said. They don't have to rip everything out and can do it a lot more incrementally.
"The drawback is, if your ERP isn't new technologies with service-oriented architecture, with APIs and with all the connectivity that next-generation solutions have, you're sort of delaying the inevitable. Some time you will have to replace it," she said.
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