This week marks the one-year anniversary of Gartner’s acquisition of AMR Research. In many ways, I can’t believe an entire year has gone by; it’s gone very quickly. One of the striking differences between AMR past and Gartner present is just the “virtual-ness” of the workplace. Given that most AMR analysts were located in Boston, a lot of our discussion and debate happened in a conference room, which is just not possible in such a large organization. That is not to say those conversations never happen at Gartner, quite the opposite. They just occur on the phone 95% of the time. I bring this up because we had some interesting discussion on the phone the other day about the potential adoption of ERP in the cloud, and that combined with some other data, will help influence our research agenda going in to 2011.
During a team call, we discussed feedback from the many analysts who attended and presented at our Symposia events. Beyond discussion of the logistics and attendee feedback, we spent a fair amount of time talking about the key issues that customers were asking about in 1:1 sessions and which sessions had high attendance. The impact of social technologies on customer relationships seems to be a very hot topic, and one that we have a lot of plans to cover going forward. Another interesting line of questioning from attendees was around the potential for customers using cloud-based deployments for their ERP systems. Customers wanted to know who, if anyone, was using this model or trying to find out if others are thinking about it as well. The number of questions on this topic was higher from attendees at our U.S.-based symposium, but it came up in other geographies as well. So that begs a few questions: What is driving this increased interest, and will we see a significant uptick in adoption of cloud for core ERP?
Cloud Success Breeds Cloud Success
We conducted a survey earlier this year that looked at the adoption of applications in the cloud and the benefits expected and achieved from those investments. I have also done a number of inquiries with customers that are asking questions about cloud-based deployment for different applications. The activity and investment has increased in a number of categories, and we expect that to continue. In fact, from our recent survey, 99% of respondents expect to maintain or increase investment in cloud solutions for collaborative supply chain, finance or commerce management, and 72% expect to increase investment. Many companies have had early success with applications deployed in the cloud, and there has been an increasing comfort level for that over the last few years. This helps explain the increase in interest.
Some of the additional attention around cloud-based deployments for ERP comes from the vendors trying to sell that model to new and existing customers. This buzz is coming from all corners of the market, whether it’s vendors like NetSuite, Plex Systems or Workday, which have only existed in the cloud, vendors like Lawson, which are offering customers the ability to deploy its existing or newly-purchased ERP systems in the cloud or investments from SAP and Oracle to develop new ERP platforms that are designed for cloud deployment. The millions poured into marketing these offerings will help drive increased interest in deploying core ERP in the cloud.
It’s Not Time to Declare Victory Yet
While the interest is increasing, we are still far away from cloud deployments of ERP being commonplace. When looking at that same survey data, investments in cloud-based ERP still lag other application categories like customer relationship management (CRM), enterprise content management (ECM), and supply chain. Interestingly, when asked what are the main reasons for not adopting solutions in the cloud, the No. 2 reason is that people have invested too much in their on-premises ERP system. After investing so much money in their ERP strategy, many are reluctant to pull the plug and make a change.
In reality, I don’t think the decision will be so black and white for companies. I see a number of potential deployment scenarios where cloud-based deployment will make a lot of sense:
- Legacy Upgrade — We talk to many companies that are on old versions of ERP systems, running on outdated platforms. These old platforms are becoming very costly to maintain. However, the upfront investment in a new platform architecture is daunting. One possible alternative would be to migrate to a cloud-based deployment to avoid the cost of the new infrastructure.
- Two Tier ERP — While many customers we work with have a single global instance of their ERP system, many do not or are looking at implementing a two-tier ERP strategy to better support their business needs. A cloud-based deployment for that regional or business unit instance may be appropriate instead of deploying it on premise.
- Divestiture — One of the challenges of dealing with a divestiture is creating the new IT infrastructure to support the company being spun out. A cloud-based deployment for that new company may be the fastest way to bring the new entity online.
I expect we will see many more potential scenarios where a cloud-based deployment of an ERP system makes sense, but we are still at the investigation stage for most companies. We are planning to do much more research in 2011 regarding the potential for ERP in the cloud and would appreciate your input into the burning questions you would like us to answer. Are you considering a cloud-based deployment for your ERP system and have questions? Or have you already invested in cloud-based ERP and would like to share experiences and best practices?
I would love to hear your thoughts at firstname.lastname@example.org.
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