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Resistance to all-in cloud ERP systems is large

For many enterprises, ERP and HCM deployments may take the path of hybrid deployments, a trend that is supported by Hewlett Packard Enterprise's quarterly earnings results.

The big vendors' hopes that users will go all-in on cloud platforms may not be realistic; a more likely outcome is the use of hybrid models. The latest evidence in support of this theory is Hewlett Packard Enterprise's new earnings.

HPE, in its report last week for the quarter ending July 31, posted a 4% revenue gain that reportedly exceeded analyst expectations. HPE's largest segment is its hybrid IT, which increased 3% to $6.2 billion. HPE has built its future around hybrid cloud systems optimized to move data between cloud and on-premises systems.

The results from HPE point to user interest in hybrid environments. But it also speaks to the resistance of users in moving to all-in cloud ERP systems or any core system.

Jim PettitJim Pettit

For users, changing back-office systems, like human capital management (HCM), "for the sake of change is usually a nonstarter," said Jim Pettit, chair of the International Association for Human Resource Information Management.

It's the total cost of ownership which will drive organizations.
Jim PettitChair, International Association for Human Resource Information Management

"It's the total cost of ownership which will drive organizations," Pettit said. "With these large, multifunctional HCM systems, the transition cost is very large," he said.

Enterprises aren't fired up about all-in cloud migrations

Melanie PoseyMelanie Posey

Organizations "really aren't all that fired up about migrating core back-end apps to the cloud," said Melanie Posey, analyst at 451 Research. It's the time and expense involved that stops them. The number of enterprises with this view may be large.

IDC estimated that 70% of core applications run on traditional IT platforms, which include on-premises systems, as well as those in colocation facilities. Of the remainder, about 23% are in private cloud, and 8% are in public cloud. This initial estimate was made in 2017, but the IDC analyst who worked on this, Ashish Nadkarni, doesn't believe these numbers have changed that much.

Oracle and SAP are working hard to convince users that they will get their best value from cloud ERP systems. But these sellers may be making it difficult for users along the way.

SAP, earlier this year, extended on-premises support for its HCM customers from 2025 to 2030. SAP said, at the time, that it had 14,000 on-premises users. But SAP's support extension to 2030 means migrating to S/4HANA HCM. This has drawn criticism from users because this system won't be available until 2023 and may be out of support in seven years.

Oracle was recently sued by a pension fund alleging that it misrepresented the growth in its cloud segment. The City of Sunrise Firefighters' Pension Fund lawsuit also cited a Gartner report from May alleging that Oracle is using "high-pressure sales tactics," including software audits, to put pressure on customers. "The suit has no merit, and Oracle will vigorously defend against these claims," said Deborah Hellinger, an Oracle spokeswoman.

Vendor roadmaps will have hybrid cloud ERP systems

James Staten, analyst at Forrester Research, believes that vendors are overstating the success in getting users to move 100% to cloud ERP systems.

Staten said that vendors are prioritizing cloud systems for innovation. They tell users that these systems are cost-efficient and safer than on-premises versions. But customers have legacy applications and data that "they simply do not want to move to the cloud," he said.

The vendors will persevere, Staten said. They will continue releasing roadmaps that put new services and capabilities into cloud platforms and SaaS services, "even though there is some customer dissatisfaction that comes with that," he said.

But Staten believes vendors also see a hybrid-by-default model "where they recognize that there is some data that the customers are not going to put in the Oracle cloud or in the SAP cloud."

The HPE hybrid earnings report "validates what our research and surveys show, which is that most enterprises are, and will be for a long time, hybrid and multi-cloud," Staten said.

Modernization in place may be the idea

Recent surveys by 451 Research indicated that, when it comes to mission-critical legacy applications, nearly half of organizations take a "modernization in place" approach, meaning the application stays on premises but the IT environment gets upgraded with modern application and infrastructure architectures.

Attending the VMworld conference in Las Vegas last week was Charles King, analyst at Pund-IT. "The message [at the conference] is quite concise -- that VMware will support customers' devices, apps and data wherever and however they reside, in the cloud or on premises, in any combination."

"Since that point of view seems to be resonating with enterprises -- at least it is today -- HPE is profitably positioning itself on the right side of history," King said.

This was last published in September 2018

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