ERP: Long, difficult, expensive. Is cloud ERP's next big thing?

Summary:Or just a case of slicing cost differently?

Or just a case of slicing cost differently?

Will cloud ERP like Zach Nelson's NetSuite replace on-premise ERP?

Cloud-based ERP is the way of the future, says NetSuite CEO Zach NelsonPhoto: NetSuite

Enterprise resource planning (ERP) has always been fiendishly tricky stuff.

The history of ERP is littered with horror stories of large-scale implementations that run for years: projects as complicated as knitting together a bath-full of cold spaghetti. In fact, many users would consider sitting in that bath of cold spaghetti infinitely more fun than the system with which they end up.

There is a reason why ERP has taken so long to implement, of course - it's complicated stuff that involves re-engineering the most important functions of a business.

Over the last couple of decades, companies have made vast investments in their ERP systems. This investment, combined with how critical these systems are to organisations, means CIOs have so far resisted the charms of cloud ERP, especially when compared to other varieties of business software such as customer relationship management.

But as software as a service (Saas) becomes a standard part of many companies' IT infrastructure, cloud ERP too has ambitions to become a mainstream technology option, with its supporters insisting it can replace those never-ending implementations and big upfront costs with a simple, web-based subscription model.

Certainly the cloud ERP companies are bullish: "This is clearly the future of software and our approach to running businesses is the way the world is heading. This is what a disruptive technology looks like. When disruption happens it isn't faster, cheaper, better - it's much faster, cheaper, better," NetSuite CEO Zach Nelson told the company's SuiteWorld customer conference last month.

In NetSuite's view, companies can do away with the long rollout times and upfront costs associated with on-premise by using a cloud-based ERP system instead.

"I do think we are hitting a tipping point for complex businesses turning to the cloud," he said, claiming that companies' experience of using software as a service in non-mission-critical areas like salesforce automation and HR had "led them to believe this is a better way of running their business".

Cloud ERP comes of age?

As a result NetSuite, previously focused on the mid-market, is increasingly aiming at larger companies. It says companies of over 1,000 seats is its fastest-growing customer segment, and unveiled a version of its cloud product aimed at large organisations at the event last month.

Deal-of-the-day company Groupon is in the middle of its own cloud ERP rollout, and is slated to have NetSuite running across 26 countries in three months. "We looked at the big boys but they were cost-prohibitive plus the ongoing cost of maintenance and people to babysit the servers," John Bosshart, Groupon's international controller, said of the on-premise ERP vendors.

Similarly Raj Singh, CFO of education company Knowledge Universe, said his organisation had tried to standardise on one supplier but that the costs were too great. In a lot of cases, his company acquires small businesses but the cost of putting in on-premise ERP for them "would be the same as the company's first year profit and that didn't make sense to us", he told SuiteWorld.

According to Paul Hamerman, principal analyst at Forrester Research, SaaS ERP is gaining interest "because you can deploy faster and it has predictable all-in costs and regular software upgrades".

Any trend towards cloud ERP will have implications for IT because much of that maintenance job will effectively be outsourced to the cloud provider.

"You have to change some of the roles and responsibilities that have been owned by IT but are moving over to business. IT has to open up and move to play more of a consultative role. Each company has to look at their culture and look at how they want to adopt this disruptive technology," Hamerman said.

NetSuite's Nelson put it another way - "IT has been hijacked into running software apps" - arguing that having IT staff around who only know "how to shock a server back into life" doesn't help that company.

ERP: Upfront costs versus subscription

However, cloud ERP is still a tiny fraction of the overall ERP market. Chris Pang, principal research analyst at Gartner, said ERP is such a core asset companies are reluctant to let go of it. "Once it's in place, unless there is a major change to their business, they will keep it in place as long as they possibly can."

ERP systems stick around for a long time, with the replacement cycle running at somewhere between seven and 10 years. The last cycle - courtesy of the Y2K panic - was around the year 2000, so many companies are looking right now...

Topics: Tech Industry

About

Steve Ranger is the UK editor-in-chief of ZDNet and TechRepublic, and has been writing about technology, business and culture for more than a decade. Previously he was the editor of silicon.com.

zdnet_core.socialButton.googleLabel Contact Disclosure

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Related Stories

The best of ZDNet, delivered

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.