Their recent analysis of Cloud ERP adoption shows that net new license revenues for traditional ERP systems have been declining since 2013 to a level that has already been surpassed by global revenue from cloud-based SaaS solutions.
These and other key take-aways from Price Waterhouse Coopers’ (PwC) recently published study Beyond ERP: New technology, new options (free PDF, no opt in) provides several useful insights into why Cloud ERP systems’ adoption is continuing to accelerate. Leading Cloud ERP providers including Acumatica, FinancialForce, Intacct, Kenandy, NetSuite, Plex Systems, Workday are all increasingly being integrated into Hybrid ERP and two-tier ERP system architectures as their customers shift gears into new business models.
Key take-aways from the report and the five catalysts accelerating Cloud ERP growth include the following:
- To support new business models, enterprises are integrating cloud-based and legacy ERP applications, creating Hybrid ERP systems that can scale to new customer demands. PwC is seeing enterprises opt for Cloud-based ERP systems and applications that can scale across human resources, supplier management, e-commerce, customer relationship management, selling, service and many other areas. Hybrid ERP systems are enabling enterprises to make the most of their legacy, on premise ERP systems while scaling their IT strategies to align with and accelerate current and future customer-driven business models. Hybrid ERP systems are especially valuable for manufacturers who rely on diverse sourcing, supply chain, production and service operations as they can unify a company across diverse locations. Multisite ERP support has challenged legacy on premise ERP providers in the past, yet the current generation of Cloud ERP providers are looking to capitalize on this requirement.
- Net new license revenues for traditional ERP systems have been declining since 2013 to a level that has already been surpassed by total revenues from cloud-based SaaS solutions. The study predicts that even the traditional ERP vendors’ SaaS revenues will soon surpass their revenues from legacy ERP sales. The following graphic compares trending of ERP maintenance fees, on premise new license fees, legacy ERP vendor cloud/SaaS revenue and total SaaS market revenue. PwC’s forecast of net new on-premises software license revenue being eclipsed by the total SaaS market this year is one of many inflection points showing Cloud ERP’s rising dominance in the enterprise.
- Hybrid ERP systems save up to six times the amount of capital invested cumulatively over traditional ERP systems. Comparing the costs of traditional and Hybrid ERP systems over a five year period amplifies the capital cost savings of Cloud ERP. PwC’s analysis also shows that ongoing costs for Hybrid ERP systems can often be higher than traditional ERP systems. Based on an analysis of the PwC results, enterprises getting the most value from Hybrid ERP systems are making them catalysts of strategic change, not just relying on them cost reduction. The following comparison of five-year cumulative costs of traditional and hybrid solutions compares capital costs to ongoing expenses.
- The more complex a manufacturer’s supply chain, distribution, selling and service channels become to support new business models, the more critical mobility is. Traditional, legacy on premise ERP systems were often designed to support volume-driven business models and slowly-changing selling strategies. They were built for production scale, not market speed. The proliferation of new business models predicated on giving customers greater freedom in how they define their products require ERP systems that can scale quickly for product and service exceptions. One of the best tests of an ERP system is whether it can scale reliability across entirely new selling channels and provide an excellent customer experience at the same time. Enabling sales, production and service teams with mobile devices, while at the same time providing customers with an excellent mobile application experience is the new normal. A recent KPMG study 2014 Cloud Survey Report: Elevating Business in the Cloud found that better enabling mobile workforces (42%) is the second-highest priority CIOs are planning to use cloud computing for in 2015 (see graphic below). The bottom line is that mobility is one of the onramps for new business models now and in the future.
- Capitalizing on the many different cadences customers have, instead of trying to push everyone into a one-size-fits-all customer experience, is an integral to Cloud ERP. The most effective Hybrid ERP systems are deliberately designed to streamline selling, serving and retaining customers over the long-term. Scale and speed need to be measured from the customers’ perspective, not just from internal – and often highly myopic – metrics. Monolithic legacy, on premise ERP systems have often been designed to match a predictable drumbeat of production. That’s not going to work in 2015, when customers are redefining the cadence of entire industries daily and non-standard is becoming quickly the new normal.