key questions executive ask about cloud computing erp

7/31/2019 Key Questions Executive Ask About Cloud Computing ERP

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Key questions every IT and businessexecutive should ask about cloud

computing and ERPBy James B. Mattison and Saideep Raj


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Executives involved in managing

enterprise operations and

optimizing corporate ERP systemsincreasingly need to evaluate

the implications and impact of

cloud computing. Asking the right

questions is the best place to start.


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For executives involved in selecting,implementing, managing and optimizingEnterprise Resource Planning (ERP)systems, the advent of cloud computingmay well be one of the more significantand disruptive events that they will see intheir careers. As awareness and usage ofcloud and software-as-a-service (SaaS)offerings continue to grow, ERP decision-

makers are increasingly being asked toassess and communicate the implicationsand impacts. However, the radical changespromised by cloud computing combinedwith the emerging nature of many cloudservices are making this a difficult task.

In Accentures view, the benefits offeredby cloud computing will ultimately resultin widespread adoption. The question isnot if it s when, by how much andhow fast. Yet this expectation raisesfurther questions. What will moving to

the cloud mean for the existing massiveinvestments already sunk into traditionalcore ERP systems? What are the risks?And what is the longer-term future ofclouds role in ERP?

Growing momentumLeading companies of all sizes and inevery sector are already well-aware ofthe benefits that cloud-based servicescan deliver to organizationsparticularly

in terms of cost, speed and flexibility.The momentum is also building rapidlyon the supply side, with virtually allmajor software companies now takingdollars from on-premise revenues anddirecting further investment toward thedevelopment of SaaS products or variants.

As a result, we believe that the nexttwo to five years will be a pivotal periodfor the build-out and maturing of thecloud market, and for the emergenceof enterprise-grade cloud services.In light of this, it is vital that everycompanylarge and smalldevelops anunderstanding of cloud computing, anda strategy for how to leverage cloudservices to meet their changing businessrequirementstoday and into the future.

The secret to cloud-based

ERP: multi-tenancy, sharingand the community effectCloud computing is a growing realitythanks to the pervasiveness of the Internetand Internet technologies, combinedwith advances in hardware virtualization,and modernmore flexiblesoftwarearchitectures. The additional benefitof multi-tenancy (or sharing) bringstremendous cost savings to softwarevendors through the enhancement

and support of one version of code. Inaddition, a key catalyst has been thevarious introductions of cloud servicesby companies such as Google, Amazon,NetSuite, Salesforce and Workday, as wellas traditional mega software companieslike Microsoft, Oracle and SAP.

When companies are assessingcloud-based (or SaaS) ERP solutions,

we believe they should first seek tounderstand which components of thetechnology stack have multi-tenancy.Then, determine the adequate numberof tenants and objectively consider whyit will not work. Also, keep in mind thatwith more components shared and aseach additional tenant comes onboard,the SaaS providers cost per tenantdrops. The result is lower price and/orincreased product innovation, as well asopportunities for customer-to-customercollaboration within the cloud community

To illustrate the progression towardsmulti-tenant cloud solutions, Figure 1provides the current landscape of SaaSofferings for ERP, ranging from dedicated,on-premise provision via private cloudto public cloud applications hosted atthe providers data center. Investment isshifting at an accelerated pace towardthe more sharing end of the spectrum,initially from box 1 to 2, and acceleratingtoward box 3 and 4.

Higher cost (pay up front)

Specialization Availability (Region/Industry)

Traditional solutions (Greater productfunctionality depth and reference customers)

Insourcing

Lower cost (subscription Pricing)

Speed and flexibility (changing business climate)

Emerging solutions (Product functionality depth in first adopterindustries/countries)

Outsourcing

Less sharing More sharing

Private Cloud

Corporate Data Center

Shared/StandardApplicationFeatures

Shared Infrastructure

2. Hosted (SaaS Pricing)Providers Data Center

3. Software as a ServiceProviders Data Center

Shared Database

IaaS

PaaS

SaaS

IaaS

Accenture High performingbusiness process


Custom Coding/Applications



Dedicated Databases




Dedicated Databases

1. On PremiseAt Site

StandardAppsFeatures

Dedicated Database

Accenture Highperforming businessprocess

CustomCoding/Apps

Dedicated infrastructure Shared Infrastructure

Public Cloud Public Cloud

Multi tenantSingle tenant


4. Business Process as a ServiceProviders Data Center

Accenture Business Process asa Service

BPaaS

Public Cloud

Shared Database

IaaS

PaaS

SaaS




Figure 1: Software-as-a-service trade-offs, and the degree of multi-tenancy. Clients should seek the maximum multi-tenancy/sharing while meeting their business requirements.

Source: Accenture analysis


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Top reasons why customers choose SaaS:

1. Speed: Speed to deliver, ease of use and access via any device, anywhere

2. Cost reduction: Reduced demand on in-house IT staff, upgrades included in service,

customization does not deviate from upgrade path, always on the latest version,reduction in hardware costs, hardware break fix included, etc.

3. Flexibility: Flexible software, end user configurable, flexibility to try with low upfront investment

Top reasons why customers choose hostedmanaged service solutions:1. SaaS-like pricing: Upfront costs deferred

2. Managed service: Lower IT resource demand, support personnel outsourced as part ofmanaged service

3. Credentials/functional coverage: Same code as on-premise so often same credentialsand functional coverage apply

Top reasons why customers choose on-premise:1. Functional coverage: Functional coverage fits best for particular industry/client needs

2. Credentials: Ability to obtain detailed experience/credentials, comfort with familiararchitectures and pricing

3. Prior investments: Desire to leverage owned hardware/software as well as in-housestaff skilled in on-premise

We know that the topics of cloud computing and SaaS are rising rapidlywithin the ERP agenda amid growing interest at the board level. But howcan ERP decision-makers keep pace and come to a timely, focused and

productive evaluation of clouds potential and pitfalls? To help them dothis, Accenture has identified key questions that we believe executivesshould ask about cloud-based ERP. By focusing on these questions, theycan cut through the hype and identify the real opportunities and risksthat result from cloud computing for their ERP systems.

Cloud-based ERP: Key Trends

1. Why cloud for ERP?

2. Is cloud-based ERP really ready for my business?

3. Can I customize and extend a cloud-based ERP solution to my business?

4. Does adopting cloud-based ERP mean throwing away prior ERP investment?

5. What are the risks of moving to cloud-based ERP and how do you manage them?

6. What is the future for cloud-based ERP?

Key questions about cloud based ERP:


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1. Why cloud for ERP?As companies increasinglyunderstand its potential benefits,they are asking Why not Cloud-based ERP as the preferredoption?... Particularly if business

requirements are being met.

We have already highlighted the potentialbenefits of moving to a cloud-based ERPsolution. In summary, these include:

Faster implementation: easier to useand deploy

Greater flexibility: systemconfiguration, pricing is more flexible

Lower total cost of ownership(especially start-up cost): savings can

be 30% to 50% of TCO compared toon-premise ERP

Less dependency on IT staff and/oron-premise hardware

TCO: A case study Hurwitz & Associates

The graph below depicts TCO for a newimplementation of on-premise ERP vs

NetSuite over a 4-year period withoutfactoring major upgrades of software andhardware (typically done every ~5 years).If we add those major upgrades into thepicture, the business case for SaaS is evengreater. The savings in this example areat ~50%, with 30-50% a typical range.But the details are equally important toconsider. Taking a closer look, notice thatthe licensing costs actually went up withSaaS. This can mislead technologists whoare used to comparing just the licensecosts of on-premise providers. With SaaS,the savings often do not come fromlicensing, but rather from the inherentlower IT personnel costs and hardware

outsourcing. Investing savings intoprocess improvements as well as drivingorganizational efficiencies can unlocklonger-term benefits. But those thatdont factor future upgrades into TCO,own perpetual licences, or have available

hardware and IT staff will find the savingsmuch lower, or can reap no savings at all.

Figure 2: TCO Comparison: On-Premise ERP vs. SaaS ERP

Copyright. Hurwitz & Associates. Source: The Compelling TCO Case for Cloud Computing in SMB and Mid-Market Enterprises. 2009.

SaaS ERP Traditional ERP

TCO (NPV)

$1,400,570TCO (NPV)

$697, 656

14%

5%

16%

65%

Application Software $499,152

IT Resources $118,805

Consulting $106,070

Training $37,436

Application Software $381,547

IT Resources $613,725

Consulting $251,550

Training $72,843

Hardware $110,088

Infrastructure Software $62,455

41%

5%

17% 7%

26%

4%


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2. Is cloud-based ERP really ready

for my business?The answer to this question depends onyour specific business requirements and

typically involves some level of fit/gapanalysis. However, as a general guide,the size of your companys revenue, thegeographical spread of its operations, andthe industry sector(s) in which it is activeis a good starting point. To establishwhether cloud-based ERP is a good fit foryour business, apply a three-way decisionmatrix reflecting these three factors.

Annual Revenue

The Cloud-Based ERP LeaderBoard: Size of annual revenue

First movers: Revenue belowUS$750 million

Second movers: RevenueUS$750 million to US$2 billion

Later adopters: Revenue aboveUS$2 billion

In terms of size, companies or subsidiarieswith annual revenue of below ~US$750

million have been the earliest and fastestadopters of cloud-based ERPputtingthem in the first mover grouping.

This is mainly because businessrequirements are simpler and thereis increased cost pressure to keep ITspend in line with revenue. In addition,small and mid-sized enterprises (SMEs)have limited scope for economies ofscale whichcompared to their largercounterpartshas historically made itmore difficult to adopt outsourcing/

offshoring and hardware virtualization.Cloud-based ERP offers these smallerand mid-sized enterprises significantly

greater benefits in terms of cost, andthey are moving quickly to adopt as a

result. It is important to note that muchof this market is comprised of subsidiariesor joint ventures of large enterprises.As a result, many large enterprises havecollections of mid-sized companies intheir ecosystem that fall into this firstmover category.

The next tier in terms of sizebetweenUS$750 million and US$2 billionis anemerging grouping for cloud-based ERPadoption and can therefore be classifiedas second-movers. While some in this

segment are pushing ahead, others arehesitant depending on industry andbusiness-specific factors. As cloud-basedERP becomes more mainstream overthe coming two to five years, our viewis that companies in this size range willincreasingly move to adopt.

The third groupingthe last one totake the plungeis made up of largecorporations turning over US$2 billionor more. In general, they have alreadymade significant up-front investments

in licenses, have outsourced and/or offshored significant parts of theiroperations, and have also reducedtheir IT costs substantially throughserver consolidation and virtualization.Therefore, the business case foradopting cloud-based ERP is lessimmediately compelling for them thanfor smaller enterprises. In addition,functionality requirements yield thegreatest gaps versus the emerging/new SaaS ERP solutions. However, asfunctionality is added and enterprisesexplore SaaS ERP through theirsubsidiaries, the possible savings forthe enterprise can be even greater.

Regional trends

The Cloud-Based ERP LeaderBoard: Regions

First movers: North America,Europe, Japan, Australia

Second movers: India, China,Brazil

Later adopters: Most otherterritories

These demand-side dynamics bring

significant implications for the rate ofadoption in different regions. Currently,adoption among small and mediumenterprises (SMEs) is driving investmentin cloud-based ERP within regionsdemanding high labor costs, such as NorthAmerica and Europe, and in developedAsian markets, such as Japan and Korea.As a result, these territories are leadersin cloud-based ERP adoption globallymaking them the first-mover regions.

In contrast to the SME segment, most

large enterprises already have ERPsystems from the major global suppliersimplemented and running in theirtraditional businesses in North Americaand Europe. However, the burning platformis their need for better ERP capabilities inemerging market subsidiaries to enable/support growth they are seeing in thosemarkets. Interest in cloud-based ERP isgrowing rapidly in places like China andBrazil, and emerging markets will likelybe the next territories where adoptionwill take off. In other regions, take-up

is influenced by specific local factorsincluding regulatory and tax regimes.


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Sector considerations

The Cloud-based ERP LeaderBoard: Sample industry sectors

First movers: Software,consulting services, suppliernetworks and light manufacturing

Second movers: Retail, healthcare Later adopters: Continuous

process manufacturing

The third factor in assessing cloud-basedERP readiness is industry sector. Softwareand consulting services businessesare at the forefront of the adoptionwave. Within the discrete and contractmanufacturing sector, cloud-based ERPservices are gaining tractionputtingthem among the first movers. Incontrast, those industries requiring highly

complex operations, such as continuousprocess manufacturing, (e.g., chemicalsindustry) are likely to move later, as lateradopters, due to the inherent level ofcustomization required to fit their needs.Sectors that are joining the secondmover group include the retail andhealthcare industries, which we believewill press ahead with cloud-based ERPadoption rapidly in the coming years.

While we think these categories providea useful guide to cloud-based ERP

readiness, they are not hard and fast.Even a company that is on the lateradopters list in term of both size andsectorsuch as a chemicals businessturning over US$2 billion+ mayconsider moving now to harness someof the benefits of cloud computing.


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Bringing industry insight to cloud-based ERP solutions

Accenture recently added NetSuite,SAP Business ByDesign, and MicrosoftDynamics AX as strategic componentswithin the Accenture AdvancedEnterprise Suite.

The Accenture Advanced Enterprise Suite(AAES) is a patented framework andset of deliverables that industrializesall aspects of an ERP program andrelated business services. Availablefor 11 industries, it links AccentureHigh Performance Business research,industry-specific leading businessprocesses and key performanceindicators with a preconfigured ERPplatform (either on-premise, privatecloud, public cloud or SaaS) that can beleveraged throughout the applicationlifecycle, from analyze and designthrough implementation and support.

For example, Accenture and SAP realizedthere were gaps in Business ByDesignfunctionality that would be requiredby chemical companies. Drawing onAccentures 30 years of experience inthe chemical industry, we prioritized and

filled five key functionality gaps, knownas add-ons, satisfying certain industryfunctionality foreseen as being requiredby chemical companies. These add-onshelp enable a SaaS ERP system to worktoward key functional needs within anindustry, and therefore have a directimpact on a companys performancebeyond the obvious areas of return suchas elimination of hardware, software, datacenter space and software maintenance.

For companies using SaaS solutionsas extensions to an on-premise core,AAES helps ensure there is integrationof operations between corporations andsubsidiaries within a hybrid IT landscape.

AAES offers clients in all industriesaccelerated delivery of comprehensivebusiness value. It does this by leveragingour distinctive high performance businessmodels, implementation accelerators , andclosely-defined roles and responsibilities,all supported by a powerful and provenoffshore delivery factory. AAES is builton top of the leading ERP software, bothcloud and on-premise.

Figure 3: Accenture Advanced Enterprise Suite

A suite of industry-specific ERP solutions

with leading practices, processes and

technologies, packaged for rapid deployment

Codifies over 30 years of Accenture

experience

Used by 140 clients globally; available

for 11 industries

Patented framework for industry business

process-based integration with underlying

technology

Overall effort savings in the range of

10-23% in large scale transformation

programs

Built and maintained as Accentures core

ERP solution suite within our Product

and Offering Development group

Accenture Research and Point of View

Industry challenges

Industry value drivers

Accenture Business Process ModelRepository

Operating models KPIs

Process flows Leading practices

Accenture Advanced Enterprise Suite

Core solutions

Advanced and emerging offerings

Business diagnostics

Accelerators

Solutions and Offerings

BPM Reference Models

High Performance

Business Research


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3. Can I customize and extend a cloud-

based ERP solution to my business?For corporate decision-makers evaluatingcloud-based ERP, one of the most

common causes for concern is whetherSaaS ERP solutions are customizable totheir needs. There is a perception that, bytheir nature, multi-tenant SaaS solutionstend to drive organizations towards amore inflexible and standardized modelwith relatively little potential for tailoringto the unique needs of the organization.

As a result, executives are concernedthat the costs of customization willoutweigh the potential benefits ofcloud. They may also worry about

how that customization could impactfuture maintenance and upgrades.

Different vendorsdifferent approachesThese concerns regarding customizationraise several issues relating both to theSaaS ERP solutions on the market andalso to organizations own criteria forselecting them. In terms of the solutionsthemselves, it is important to appreciate

that different vendors have takendifferent approaches to the degree andmethod of customization that customerscan apply to their solutions.

For example, NetSuite and Salesforceexpose their application developmentplatform (via their platform as a service,or PaaS), and, therefore, have a higherdegree of customizability than someother SaaS solutions. In addition, they aremaking their offerings highly configurableby storing the configuration settings in

the customers metadata without needing

to expose the core code. The resultingdegree of customization becomes virtually

limitless. In contrast, some other vendorsdo not expose their platform and tend tofollow a more standardized model, makingchanges centrally that may benefit theircommunity of customers.

A tool for standardization?Deciding between configurable versusstandardized solutions will depend onthe organizations specific objectives.For example, the CFO may be looking touse cloud services as a way to remove

inconsistencies and duplication across theenterprise or supplier ecosystem, tacklefragmentation in systems and processesand drive greater standardization. Inthis case, a solution that combines theapplication and platform in a highlyefficient but less customizable way maybe ideal. However, a business with veryspecific needs that require customizedsystems may opt for a more configurablesolution. In general, SaaS ERP solutionsare more end-user configurable andwiththatcomes responsibility. As a result,governance is important.

Either way, there are trade-offs to beidentified and critical, yet challenging,decisions to be made.


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4. Does adopting cloud-based ERP mean

throwing away prior ERP investment?For large enterprises, the simple answer isno. A growing number of corporations

are retaining their existing core ERPsystems while simultaneously realizing thebenefits of cloud services at a local and/or subsidiary level. They are doing this byadopting a two-tier ERP strategyonewhere the company runs a traditionalglobal ERP system at the group level, incombination with separate regional SaaSERP solutions at the subsidiary level.

The consideration of a two-tier ERPapproach is common among companiesthat struggle to push out the core ERP

platform to smaller subsidiaries and jointventuresespecially in emerging markets.This is usually because they face one ormore of three main difficulties:

The core ERP solution is too complexfor subsidiaries needs.

The core ERP solution is too expensivefor the local operation, even with costallocation schemes to remove some ofthe up-front expense.

The subsidiaries cannot afford to wait

for the next release or wave of coreERP rollout because their business ischanging rapidly.

The result is typically a hub-and-spokeERP model which many enterprisesalready have despite efforts by the centralIT function to unify on one system.By looking at the ERP ecosystem, theorganization can identify subsidiariesdue for an upgradeor new subsidiarieswith few common suppliers/customers,local competition and changing local

regulationas prime spoke targets.Establishing SaaS ERP as one of thepreferred two-tier ERP solutions forthese targets enables the enterpriseto gain experience in SaaS capabilitiesoften without the need for an expensivesoftware selection process.

Experience also shows that a two-tier ERP strategy can significantlyshorten implementation times whilereducing capital and operational costs,

enabling greater agility and speeding upacceptance by end-users . Implementing

all the spokes on the same two-tier system brings further cost andoperational advantages because it iseasier and cheaper to link, coordinate andgovern the various local ERP instances.Therefore, selecting SaaS as one of thetwo-tier options also brings benefitsin governance and control termswiththe key benefit being greater visibility,since anyone with a browser and alogin/password can see, in real-time,what is happening in the subsidiary.

When companies move to a two-tier ERPapproach, experience shows that theseare based on one of three models:

1. One core ERP, with another solutionfrom the same vendor for subsidiariesand joint ventures (e.g. SAP core, SAPBusiness ByDesign for subsidiaries).

2. One core ERP, with central IT allowingtwo-tier ERP from another vendor (e.g.Oracle with NetSuite spokes).

3. One core ERP, with central IT allowing a

limited number of two-tier ERPs (i.e. alimited set of approved vendors).

There is a fourth possibilityone core ERP,with central IT allowing subsidiaries tochoose any ERP (i.e., laissez faire model).But this is generally not recommendeddue to the risks of fragmentation andduplication and the challenges aroundgovernance and control.

Case Study: Accenture and

SaaS ERP deploymentsAccenture is working on global SaaS ERPdeployments for large, global enterprisesin two-tier/subsidiary level ERP scenarios.Accenture helped Qualcomm, a California-based mobile technology company, makeneeded enhancements to its financialsystems to support its rapid globalexpansion efforts. Qualcomm is using atwo-tier Enterprise Resource Planningapproach with Oracle at the corporate

level and NetSuite for certain subsidiaries.Accenture is implementing a NetSuite-

based solution to enable Qualcommto begin centralizing its subsidiariesfinancial systems quickly while continuingto handle complex order-to-cashrequirements. With about 140 locationsworldwide running on various localsoftware systems, the companys newlyenhanced solution will play a critical rolein streamlining the management processand supporting the successful expansionof its business. The first instance of thiseffort went live in early October, 2011 andis enabling the financials for a researchand development subsidiary from a recentacquisition. Key drivers of the NetSuiteapproach have been

1. Speed of implementationbusinessunits can be enabled in a matter ofmonths as opposed to years,

2. Cost-implementation is less expensivethan a traditional ERP deployment, and

3. Ability to integrate with the corporateERP-subsidiaries financials can bemanually and eventually automaticallyuploaded for corporate financialconsolidation.

Constellation Research:The Case For Two-Tier ERPDeployments

Subscription pricing, continuousinnovation, and rapid ROI continueto drive organizations to considerSaaS and cloud alternatives in two-

tier ERP strategies. SaaS and cloudproducts are best placed to deliverthe quickest time to value in a two-tier ERP strategy. When combinedwith an overall legacy optimizationstrategy, many clients often applySaaS and cloud to both a renewalprogram and two-tier approach.1


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Accentures Private Cloud Solutions for Microsoft

Where traditional on-premise ERP can be seen as too complex or expensive, andpure SaaS ERP doesnt have the functionality, experience, flexibility, or global reachrequired, organizations find the right balance with Accentures Private Cloud Solutionsfor Microsoft Dynamics AX. These solutions offer subscription-based cost models andcloud-based infrastructure while providing additional agility and functionality in areaslike Retail and Manufacturing. Customers can also control their deployment modeland choose to migrate their cloud solution to on-premise and visa-versa. Users adapt

quickly given the familiar Microsoft Office-like user experience.

Accenture and Microsoft formed Avanade, which is a jointly-owned company thatprovides the deep functional, technical and implementation expertise needed on theMicrosoft platform. Accenture, Avanade and Microsoft have collaborated on more than4,500 projects for over 1,600 clients. Together, these three companies have developedmore than 110 industry-specific and cross-industry solutions.

Accenture helps Oracle customers leverage the cloudfor business agility and cost effectiveness

ERP customers today are looking for the best of both worldsthe proven reliability oftraditional on-premise solutions with the agility of cloud-based, on-demand services.Many enterprises are choosing Oracle as their flexible ERP backbone that can be usedto create a leading-edge hybrid cloud/on-premise environment. Fusion Applications,Oracles next generation ERP product suite, is offered in an on-demand model. It isa good example of how customers can enrich their core ERP capabilities with cloudapplications in an evolutionary way, such as by adding on new capabilities for HCM andCRM. Accentures private cloud solutions for Oracle offer a range of hosting options aswell as industry leading practices, assets and accelerators.

Accenture has one of the largest Oracle practices globally with over 50,000 Oracleskilled professionals, more than 5,400 projects completed and more than 500 clients

served annually. Oracle and Accenture work in a close partnership, bringing togetherthe best of Accentures industry knowledge and Oracles emerging technologyapplications. The two companies partner on both solution development and clientdelivery. For example, Accenture participated in the design and testing of FusionApplications, including partnering to deliver the f irst Fusion Applications FinanceERP implementation.

Accentures Private Cloud Solutions for SAP

SAP customers are hungry for an infrastructure refresh, having staved off the expensedue to a struggling economy. But with competitive pressures mounting, they can nolonger tolerate under-performing systems and must address the need for increased

performance, greater differentiation and lower TCO. Additionally, business executivesneed to make key decisions faster and are looking to analytics to help them makebetter decisions, real-time. Workforces are becoming increasingly mobile and wantaccess to applications and systems from anywhereon any device.

When a SAP customer is eyeing the cloud, but not ready to move business-criticalERP systems to the public cloud, Accenture has implemented the Private Cloud SAPsolution. The solution provides a highly virtualized infrastructure, while allowing thesame level of data security and integrity as on-premise technologies. It provides theefficiency, performance and cost reduction of cloud technologies at a fixed price overa fixed durationleveraging Accentures deep knowledge and relationships with SAP,Cisco, NetApp, VMware and Red Hat.

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5. What are the risks of moving to

cloud-based ERP and how do you

manage them?GovernanceAs customers adopt more end userconfiguration cloud based ERP systems,governance becomes increasinglyimportant to achieve the benefits ofstandardization. Certain configurationsshould be locked down to limit thisrisk. The added combination of end userconfigurable solutions with the adoptionof cloud based two-tier deployment

models results in the need for a disciplinedyet flexible governance approach.

ERP solutions, each of the different two-tier ERP models brings its own specificrisk profile. Hardly surprisingly, the riskiestmodel from a governance perspective isone with a laissez-faire approach to thesubsidiaries selection of the SaaS ERPvendors for the second tier.

Integration risk

Companies looking to maximizetheir return on investment shouldlimit integration. For two-tier ERPimplementations this means performingas many of the subsidiaries tasks insidethe second-tier cloud-based ERP. Mosttwo-tier ERP implementations startwith an integration strategy focused onlimited links such as financial roll-up,and enabling the production and analysisof financial performance at a local andconsolidated level. Further interfaces areonly added if there is a clear need, since

these increase implementation time andreduce flexibility.

Vendor lock-in

Vendor lock-in is another risk thatis top-of-mind for many companiesconsidering cloud-based ERP adoption.When a company entrusts its business-critical applications to a cloud provider,a question that inevitably arises is whathappens in the event that it wants tomove those applications back on-premiseor to another supplier. This question is

further pronounced by the fact that thecloud vendor has the ability to cut offthe supplysomething that is not possiblewith an on-premise solution.

However, the situation with cloud issimilar to what were seeing within theoutsourcing marketwhere a diverseecosystem of vendors is starting to emergeand where companies have the abilityto re-evaluate and change suppliers.Further, as demand increases, we believethat tools will be created to enable easier

re-platforming when a customer wants tojoin or switch to another cloud provider.SaaS vendors are therefore, particularlyvulnerable to customers who decide toswitch to vendors who might be incentingthem beyond the initial sale due to the lackof large upfront cost commitment and toongoing efforts to keep customers engagedby continuously rolling out new features.

While concerns around vendor lock-inare common, there is another risk thatis often overlooked and it is related to

situations where the chosen vendor mightbe experiencing rapid growth, resulting inservice disruption. While the technologyis set up for massive scaling, the people-side of the service may not scale at thesame pace. This risk should be carefullyconsidered by evaluating the vendorsproduct roadmap, financial health,takeover/acquisition/sale strategy, etc.

Security and privacy

Key concerns about cloud computinghave traditionally centered on securityand privacy of data and systems. Theseconcerns have been partially allayed withthe advancements and maturity of cloudservices and vendor capabilities. SaaS ERPvendors have met or exceeded traditionalERP security compliance requirements, suchas ISO 27001 certification, SAS 70 Type II

certification, and/or ISAE 3402 certification.In addition, their data centers provide thesame security measures as traditionalhosting providers, such as physical security,sensors and video surveillance. For thesereasons, many cloud service providers areable to offer security that is at least on parwith that applied internally by enterprisecustomers, and sometimes better.

In parallel, an evolutionary shift isunderway with respect to the attitude ofcorporations towards security of multi-

tenant cloud solutions. Initially, they wereconcerned about what the other tenantscould or could not see. These concernsare gradually fading away due to maturityof tools, processes and skills in deployingthis type of solution.

We believe a future is emerging inwhich companies will be more willingto collaborate with and learn fromeach other. For example, they will usemulti-tenant clouds as an opportunityto improve profiling, benchmarking

and business processes as a result ofcomparing how businesses in similarindustries are managing inventory, cashand other components.


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6. What is the future for cloud-

based ERP?It is widely recognized that as additionaltenants use a SaaS ERP solution, the

underlying cost per tenant drops. Oftenunderestimated, however, is the powerof the cloud community effect. Overtime, as more tenants are added, cloud-based ERP customers will have theopportunity to collaborate with eachother in new ways. In addition, SaaS ERPvendors can provide service in ways notpossible through traditional on-premisedeployments. SaaS ERP vendors, forexample, can update and deploy to allcustomers in Brazil once to comply withlocal policy and regulation changes aspart of the servicesomething that wouldrequire each customer to do individuallyin an on premise deployment model.This method of continuously keeping allcustomers current on the latest version ofcode is promoted by the phrase: cloud-based ERP - your last ERP upgrade.

Cloud services and SaaS will play anincreasingly important role in ERPsystems. As the traditional vendorslaunch pure play SaaS ERP solutionsor expand existing offerings as hostedmanaged services, and as new pureplay ERP providers move up marketand reach the number of tenants to beconsidered cloud, we will see increasingcompetition in the SaaS ERP space.

In the future, customers will have evenmore choices to create a fully SaaS-enabled business, further shifting thetechnology focus from keeping the lightson to supporting customer, process andorganizational improvements. Customersmay chose a best-of-breed approachlike Workday for human resources,NetSuite for finance, Salesforcefor sales and Google for email withcloud-to-cloud integration. Otherswill look for a suite of functionalitylike those offered by NetSuite, SAPBusiness ByDesign or Workday.

The key success factor for vendors inthis marketplace will be the ability to

provide true multi-tenant applicationcapabilities that are invisible to the end-user and supported by world-class serviceprovision. Those providers offering thebest user experience and ease of use ona robust platform will be well placed togain market share as corporations seekto expand the clouds proven benefits interms of flexibility, scalability and costinto their core ERP.

In terms of underlying applicationinfrastructure for cloud-based ERP, PaaS

ecosystems will continue to mature asmore and more providers offer theirsolutions that surround SaaS ERP andenhance the choice and flexibility forcustomers. This trend is already beingforeshadowed by the concept of an appstore offered by various vendors runningon current PaaS solutions.

Towards supply-sidepartnerships

The move to cloud is rapidly breakingdown the traditional boundary betweenERP software and service providers.Customers want their solutions to unitethe best available software functionalitywith services underpinned by the bestindustry solutions and organizationalperformance skills. However, many SaaSERP providers started as traditionalsoftware vendors and this has resultedin a product-focused culture and has,at times, resulted in shortcomingson the services side. In addition, the

ability to scale can be a challenge.

uniting software

and servicesPut simply, software is more easily scalablethan service. But service componentssuch as people and organizationalperformance, implementation expertise,and fast, responsive, 24/7 helpdesksupportare increasingly critical ifcustomers are to realize the full benefitsof SaaS solutions. To provide thesecomponents more effectively, SaaSERP vendors are seeking to form close,collaborative commercial relationships

with leading systems integrators (SI) andIT service providers, such as Accenture, tooptimize the service side of the equationfor customers.

These collaborations will play anincreasingly important role as coreERP systems migrate to cloud-basedmodels. When business uncertaintyexists, customers are increasingly takingadvantage of Accentures resale programand BPO-on-demand underpinned bySaaS ERP offerings. In the future, we

believe customers for cloud-basedERP solutions shouldand willaimto select those service providers thathave close relationships with cloudsoftware suppliers, and vice versa.


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1 Copyright Constellation Research. Source: The Case for Two-Tier ERP Deployments by R "Ray" Wang. February 28, 2011.

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ERPs migration to the cloud:

not a question of if, but whenAccenture believes that the capabilities and potential savings frommoving to cloud-based ERP are too great to ignore. Beginning theexplorative journey early can deliver substantial financial benefits overtime and, for several companies, the transition to a cloud-based ERPenvironment is already well on its way.

In our view, the critical question isnt whether cloud computing willbecome a fundamental deployment model for ERP systems in the nextdecade; it is how successfully companies will profit from the capabilitiesit offers. If your organizations ERP has not yet begun the journey to thecloud, now is the time to start drawing up your roadmap.


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About the authorsJames B. Mattison ([email protected]) is the global SaaS ERPlead for Accenture and has more than adecade of experience in global ERP deliverywith a deep understanding of technologyarchitecture and two tier ERP deployments.

Saideep Raj ([email protected])

is an executive in Accentures Technologyorganization, based in Philadelphia. Heleads Accentures global Software-as-a-Service (SaaS) and North America CloudComputing practices, responsible for cloudservices across functional domains andacross technology platforms. He sponsorsseveral strategic alliances with Cloudtechnology partners and coordinatesresearch and development for SaaS withinAccenture.

Additional ContributorsLaurie A. Henneborn ([email protected]) leads the global Technologyresearch team within Accenture Researchan in-house network of professionalswho have strong knowledge of variousindustries, geographies, technologies, andfunctional domains, as well as researchmethods and techniques. Laurie specializesin cloud and applications-related topics.

About AccentureAccenture is a global managementconsulting, technology services andoutsourcing company, with more than244,000 people serving clients in morethan 120 countries. Combining unparalleledexperience, comprehensive capabilitiesacross all industries and business functions,and extensive research on the worlds

most successful companies, Accenturecollaborates with clients to help thembecome high-performance businesses andgovernments. The company generated netrevenues of US$25.5 billion for the fiscalyear ended Aug. 31, 2011. Its home pageis www.accenture.com.

This document is produced by consultants at Accentureas general guidance. It is not intended to providespecific advice on your circumstances. If you requireadvice or further details on any matters referred to,please contact your Accenture representative.

Copyright 2012 AccentureAll rights reserved.

Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture.

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