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Rethinking ERP cloud migrations in the age of AI and IoT

The flight path from your legacy ERP vendor's on-premises software to a cloud version needn't be linear. In fact, you may want to rethink the entire route.

This article can also be found in the Premium Editorial Download: Business Information: Cloud vs. legacy ERP systems: Tug of war intensifies for SMBs

Most companies stick with their ERP system longer than people stay with their first spouse, which statistics estimate to be about eight years. Given the commitment involved, a move to an ERP cloud platform needs to be carefully planned, based not only on what your company needs today, but on a vision for the future.

Brian Sommer, founder of technology advisory firm TechVentive in Carmel, Ind., pulls no punches when he talks about the problems with traditional ERP vendors' cloud offerings. He urges his clients to rethink their use of legacy ERP vendors because modern adaptations born in the cloud integrate AI and IoT capabilities and provide what businesses will need to compete in the years ahead.

"Companies need to kick the tires on new vendors and think about how their competitors will use new technologies against their firm," he said. "Your competitors will use IoT and AI to make sure their machines are always running, and they could kill you in the market if you don't have the same advantages."

The idea of ditching a highly integrated, customized ERP system is daunting, for sure. Business leaders view their ERP as the center of the universe. It's where all of their transactional and operational data lives. But Sommer makes the point that business needs have changed, and data isn't confined to the factory floor anymore.

"Roll the clock forward, and there is vast info that exists outside the four walls of the enterprise," Sommer said. "You need systems that are designed for this new era, rather than systems designed for the old world. You need to be aware of what's available. Look at the new vendors out there; don't reward old vendors who continue to sell old, tired products."

ERP cloud considerations

Indeed, organizations are questioning their allegiance to mega-ERP vendors due to high costs and frustration with those vendors and their inability to meet strategic needs as well as their lack of agility.

In TechTarget's 2018 IT Priorities Survey of IT executives, managers, analysts, architects and engineers at North American companies, 39% said they'd planned to implement or upgrade their ERP systems, and from the looks of the survey data, most of those rollouts will take place in the cloud. In the survey, 29% of respondents said they planned to deploy ERP in the cloud, compared to just 10% who planned to implement business apps on premises.

From my years covering cloud computing, I've seen how SMBs view cloud as a fast way to launch business applications without investing in complex IT systems. Large companies using multiple, interconnected systems see a move to the cloud as a way to untangle them and cut costs. But none of those benefits really apply to ERP cloud migrations.

Survey says cloud dominates ERP deployments in 2018
Most of the ERP rollouts planned by IT pros this year will take place in the cloud.

Consider this: If SaaS applications were cheaper than on-premises software, then Microsoft, Oracle, SAP and other traditionally on-premises ERP vendors wouldn't usher their customers to the cloud. Just migrating ERP to the cloud can cost millions, and five to seven years out, those monthly cloud subscription costs surpass the cost of running ERP on premises.

SMBs also need to consider whether their vendor's ERP cloud options are single-tenancy, rather than true, cloud-native ERP systems such as FinancialForce, Sage Intacct, Oracle NetSuite and Workday, which provide multi-tenancy and persistent versioning.

If the ERP vendor doesn't have what you need to compete in the AI era, then it's time to reconsider your investment.

Few traditionally on-premises ERP providers offer a SaaS-only ERP cloud because they want to protect their valuable stream of maintenance revenue, according to Forrester Research's "Vendor Landscape: SaaS ERP Applications, 2017." As stated in that report, "Your incumbent on-premises ERP vendor may offer an attractive migration path to SaaS, but take care to understand the benefits and costs of such a project -- and whether the new SaaS offering delivers relevant architectural, flexibility, and usability advantages similar to products natively built for SaaS."

Which brings us back to the point Sommer made about considering new ERP cloud options. "Companies want something transformative, but their vendors come to them with the same old [software] that they have offered for the last 30 years," he acknowledged.

His clients want to move away from maintaining a data center and application integration tasks. But if they move to a single-tenant ERP cloud, they'll still have to contend with maintenance. "They don't want to pay IT people to patch software. They want their IT people working on projects that move the bottom line," Sommer said. "And they don't want to be in the integration business; they are sick and tired of things like payroll breaking."

A new day for ERP

Smart IT buyers can see ERP technology is undergoing a generational change -- one that only happens every 10 to 15 years -- and if the vendor you've always used for ERP doesn't have what you need to compete in the AI era, or at least have it on their roadmap, then it's time to reconsider your investment.

"Board [members] want to see companies move to digital business models, and you aren't going to get there with your grandpa's Oldsmobile version of ERP," Sommer noted.  "Vendors are promising a chicken in every pot and can't even give you an egg to start with. There is a lot of hype."

To build a factory of the future, where most of your shop floor will be automated with AI tools and robotics, he said, you'll need accounting processes and operations that support those new models. If, for example, you want to do AI, anomaly detection, have specialized tools and access to data science, then you need to rework your process and consider the new resource planning and automation vendors that are built to service the next generation of companies, he advised.

The takeaway here is that you have more ERP options than ever before. Whether you need a highly specialized ERP for a specific vertical or a system designed for small to midsize companies, make the choice with an eye toward the future. That vendor relationship may very well outlast your marriage.

This was last published in August 2018

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