March 2019 Bryan Ball Vice President and Group Director ERP, Supply Chain and GSM Practices

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WHY CHOOSING A CLOUD-BASED ERP PLATFORM IMPROVES PERFORMANCE

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All companies are being forced to accelerate their business processes while staying abreast of technology to remain competitive. Visibility and time-to-data for decision making requires real-time responsiveness. On-premise licenses are giving way to cloud-based ERP platforms that can offer a more easily integrated solution across and between all entities and provide ready access to new technologies. This report examines the ERP landscape and why a cloud-based ERP has become a very attractive option for all companies to consider.

Companies recognize they can’t afford to get behind on technology. Aberdeen’s research reveals that profitable growth and customer service rank as the top two organizational goals, followed by modernizing business which climbs the leaderboard as a close third in priority. Changing their ERP provider to leverage new technologies or move past a dated technology infrastructure are the top reasons cited by companies when considering a change. In order to modernize, many companies are also being forced to make a decision due to changes in support and / or policies from their current ERP provider.

Today, a cloud-based SaaS solution can bridge technology gaps without a complete rip-and-replace approach — instead, with out-of-the-box integration across / between multiple sites. Looking beyond the “filling-the-gap” approach, companies must consider migration to a future-ready platform for ERP that continues development and advances technology.

ERP Demographics Make a Compelling Case for Cloud

Aberdeen research indicates that across all companies, only 26% of them have one ERP, which means 74% have two or more. The majority — 52%, have three or less ERPs. That means 48% of all companies have four or more. Further, 33% have six or more and 16% have 10 or more. In some extreme cases — largely due to acquisitions — some companies have over 100 different ERP solutions / instances.

Best-in-Class Definition

Based on Performance Metrics

• Best-in-Class — Top 20%

• Industry Average — Middle 50%

• Laggards — Bottom 30%

• All Others — The sum of the Industry Average and Laggards, equal to the Bottom 80%

The State of ERP Adoption • 54% have ERP

• 73% have ERP / ERP Finance

• 80% have ERP or home-grown system

• 8% are still on spreadsheets

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For any company where there are two or more ERPs, there is a need for some integration, even if it is only for consolidating financial reporting. In assessing their existing environment, all companies should factor in the level of integration that exists and where there are gaps that need to be addressed.

Another factor to consider is the number of data warehouses required to support a given ERP / instance and the number of resources that are dedicated to the system administration for each one. Is the functionality the same across all ERP solutions? Do they have the same type of modules such as finance, HR, supply chain, customer facing applications, eCommerce and CRM? Depending on the number and complexity, it can be a challenging task to even model what is already in place.

Going further into the ERP demographics, Figure 1 looks at how old the most recent ERP installation is. It shows that our ERP systems are aging dramatically and rarely being updated at anywhere near the pace of technologies that are supported by ERP.

A great example is mobility. Consider the type of cell phone that most people had 10 years ago. Furthermore, consider what enterprise systems that phone connected to. The increase in mobile capabilities has grown dramatically as most smart phone owners will acknowledge, but what about the ERP systems they connect to? Have they increased their technology to keep pace with that of mobility solutions? Figure 1 suggests that’s not the case.

Figure 1: How Long Has It Been Since the Last ERP Change?

6%

36%

47%

7%10%

28%

39%

18%

Less than twoyears

2 to 5 years 5 to 10 years More than 10years

Best-in-ClassAll Others

n = 314, Source: Aberdeen, March 2019

% o

f res

pond

ents

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On average, less than 10% of companies have made a change to their ERP in the last two years and only 42% of the Best-in-Class have made a change within the last five years — even less (38%) for All Others. Best-in-Class companies overall are more current than their competition with 89% having made a change with the last 10 years vs. 77% for the competition.

Cloud-based ERP solutions with cloud-based applications are just coming into maturity within the last five years. Without upgrading the platform at some point, no matter how diligent and dedicated to their existing ERP they are, companies without a cloud-based solution will find it increasingly more difficult to leverage new cloud-based technology solutions to grow their functionality as it becomes available.

Staying on the most current upgrade for the aging ERPs will carry organizations for a while, but the time will come where aging technology platforms become obsolete in their ability to advance at a pace that keeps up with the latest innovations in technology.

Why Companies Choose Cloud for Their ERP

The top four reasons why companies choose the Cloud for their ERP are not related to cost (Figure 2) — they are related to technology. Considering that 74% of companies have more than one ERP, it’s not surprising the number one reason for selecting a cloud-based solution is standardization onto a single system across multiple entities. Integration and connectivity are an overarching priority for an enterprise in order to improve their processes.

Figure 2: Priorities for Cloud Selection

39%

30%

21% 21%27% 26%

13%18%

Standardization onto asingle system formultiple entities

Collaboration needsfor multiple locations

Difficulty recruiting ITstaff

Dated technologyinfrastructure limiting

organization

Best-in-ClassAll Others

n = 314, Source: Aberdeen, February 2019

% o

f res

pond

ents

Best-in-Class Performance

Complete and on-time delivery:

Best-in-Class – 98.0%

All Others – 88.9%

Internal schedule compliance:

Best-in-Class – 95.0%

All Others – 89.5%

Improvement in profitability over the past two years:

Best-in-Class – 21.4%

All Others – 5.3%

Improvement in productivity over the past two years:

Best-in-Class – 22.0%

All Others – 5.6%

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This leads to the second reason behind selecting a cloud solution — collaboration across multiple locations. Considering the many instances and options that companies have for hosting already, standardization is the key enabler for collaboration across multiple entities.

Having multiple ERPs not only complicates standardization and integration, it is also an underlying reason why recruiting IT resources can be a challenge. Just finding the right skill set to support unique ERP installations can be difficult and may stretch budget limitations if each one requires a different technical background. A cloud-based solution may provide the key to standardization and integration for a multiple ERP environment.

Expectations When Moving to the Cloud

When moving to the Cloud, expectations from users are that it will be their last major ERP change. All three of the top expectations from a company’s cloud-based ERP provider (Figure 3), address the concerns about staying current and leading in technology.

Figure 3: What Users Expect from Cloud Providers

Customers expect their move to the Cloud to be the last ERP change they will have to make, because they will always be on the current release. They expect to have updates and support packages. Technical support will be a given and likely on a 24/7 basis. The belief is that that the solution provider will continue the deployment and expansion of ERP — not only that they commit to it, but that they have the track record of accomplishments that

30%

28%

27%

Updates and supportpackages

Technical support Continued deploymentand expansion of ERP

All Companies

n = 298, Source: Aberdeen, March 2019

% o

f res

pond

ents

,

Customers expect their move to the

Cloud to be the last ERP change they will have to make.

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demonstrates their capability and will to do so. The term used to describe this environment is the “always up-to-date economy,” where implementing the latest best practices and innovations to keep up with the pace of business is the overwhelming benefit of moving to the Cloud.

Summary and Key Takeaways

All companies are feeling the pressure to stay current on technology to remain competitive. That is why modernizing business systems is high on organizational priorities lists. However, addressing that challenge can be complicated. Is there a need to change ERP providers or stick with the current solution provider?

ERP demographics make this decision even more complex. The number and age of ERP installs make a strong case for adopting a cloud-based SaaS ERP. Only 26% of all companies have one ERP they must manage. For the rest, 74%, there is a need to manage and integrate across multiple ERPs. Sixty percent of all companies have not made an ERP change in the last five years.

Cloud-based ERP presents the opportunity to address technology and integration gaps, but standardizing, connecting and collaborating across multiple entities and locations is perhaps the most critical reason for change.

Future user expectations are that cloud-based ERP will be the last ERP change they will have to make. Aberdeen recommends that all companies should establish a timeline and priorities for keeping their organization current with technology, based on the demographics for the number and age of their ERPs and legacy systems that are running their business. They should assess vendors’ investments in emerging technology and R&D that will keep their organization’s technology current. If changes must be made, they should consider all recognized industry leaders, even if their current provider offers a path, particularly if their current provider is the one forcing the change.

Based on the performance advantage of Best-in-Class companies, following their lead and preference for a cloud-based SaaS ERP solution makes a compelling case for all companies to strongly consider using a cloud-based ERP for their business moving forward.

Aberdeen recommends that all companies should establish a timeline and priorities for keeping their organization current with technology, based on the demographics for the number and age of their ERPs, and legacy systems that are running their business.

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About Aberdeen Group

Since 1988, Aberdeen Group has published research that helps businesses worldwide to improve their performance. Our analysts derive fact-based, vendor-neutral insights from a proprietary analytical framework, which identifies Best-in-Class organizations from primary research conducted with industry practitioners. The resulting research content is used by hundreds of thousands of business professionals to drive smarter decision-making and improve business strategies. Aberdeen Group is headquartered in Waltham, Massachusetts, USA.

This document is the result of primary research performed by Aberdeen Group and represents the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group.

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