By Nick Castellina, Senior Research Analyst, Business Planning and Execution, Aberdeen Group
In my report “Your Marriage with Cloud ERP: A Lifelong Commitment,” I examined successful strategies for developing a permanent relationship with ERP, along with the ways in which a cloud solution can impact that relationship.
The key takeaway was that software as a service (SaaS) and cloud ERP solutions have unique benefits that enable organizations to utilize those solutions — for longer periods of time — as those organizations grow and change.
To get a better idea of what I mean, let’s examine two situations that will affect any organization that utilizes ERP, as well as how those situations are impacted by the cloud.
The first situation is upgrades. ERP vendors frequently provide updates to their solutions that either fix bugs or add new functionality, and users need to decide whether or not to accept these upgrades.
Successful organizations are more likely to maintain their commitment to ERP. In fact, my 2012 ERP Benchmark Survey found that 24% of the best-in-class respondents upgrade their system once a year, compared to 19% of all others. Furthermore, 51% of the best in class are up to date on the latest software version implemented, in comparison to 37 of all others (Figure 1).
Figure 1: Staying Current
(Source: Aberdeen Group, September 2012)
Given these facts, it would seem as if every organization would want to upgrade any time a new version becomes available. This is not necessarily true.
There are several reasons that organizations do not want to go through an upgrade process. Many organizations fear disruption to the business; if that’s the case, those organizations may want to consider a cloud solution.
My report “SaaS and Cloud ERP Observations: Is Cloud ERP Right for You?” found that 56% of organizations cite the fact that SaaS solutions reduce the cost and effort of upgrades as a top reason they are willing to consider one. This is because a cloud solution handles upgrades automatically. In fact, 71% of organizations with cloud solutions are implemented on the latest release, compared to 41% of those with on-premise solutions.
And when it comes to supporting business change, cloud solutions come out on top. Organizations that achieve the greatest ROI from their ERP solutions are better able to scale the solution with them. As an organization grows, it may add new products, processes, and business units or be subject to changing regulations — and the ERP solution must reflect these changes. My 2012 ERP Benchmark survey found that best-in-class organizations are 75% more likely than all others to have the ongoing ability to quickly change their ERP solution to react to business change (Figure 2).
Figure 2: Growing the Solution
(Source: Aberdeen Group, September 2012)
While essential, these changes may be costly. There are occasions when organizations may decide to implement a whole new ERP system. A few reasons for this could be a lack of support, newly available or essential functionality, or platform consolidation.
Most times, due to increased costs (one of the greatest enemies of growth), that simply is not an option. Organizations that choose a SaaS solution are more likely to minimize some of these expenses. My report “SaaS and Cloud ERP Observations: Is Cloud ERP Right for You?” found that organizations with SaaS solutions have seen a smaller impact to their bottom line when tailoring their ERP solution to business change, as opposed to those with an on-premise solution (Figure 3). This makes it easier for a company to grow old with their choice.
Figure 3: Avoiding Costs That Impede Growth
(Source: Aberdeen Group, October 2012)
It is also important to note the less tangible benefits of staying modern when it comes to ERP. I noted in my report “The Case for Cloud ERP in Manufacturing: Alleviating Outdated Concerns” that the average age of ERP implementations in manufacturing is currently 6.97 years. The report also notes that the benefits obtained from ERP decrease over time, with particularly large drops at the seven-year mark. Therefore, it behooves organizations to stay up on recent technology.
Cloud ERP is one such trend that organizations may want to take advantage of. ERP is a mature technology, but there are still many strides to be made in order to keep ERP as cutting edge as possible. This is just one of the ways in which SaaS and cloud ERP solution vendors innovate.
Organizations that choose a SaaS solution because they want the solution to support their organization for a long time may be betting that their ERP vendor will continue to innovate. Additionally, replacing an ERP can be an arduous process. Getting in on the ground floor of a technology change is a step toward ensuring that a solution can support your organization for a long time.
A healthy relationship with ERP requires commitment. And when it comes to lack of disruption with upgrades and an ability to scale, as well as the benefits of being on board as a new technology emerges, cloud ERP is able to be an equal partner in that commitment.