Why the death of on-premise ERP is greatly exaggerated

Published on the 07/06/2017 | Written by Donovan Jackson

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It’s curtains for on premise ERP software, right? Not quite; the situation is a little more nuanced…

Before we get into the putative death of on-premise ERP (and its slayer, the mighty cloud), let’s bear in mind that over the course of decades now, the ‘paperless office’ has been just around the corner. The mainframe, we first heard, was dead somewhere in the early 2000s. And even ERP software itself, whether on-prem or not, we have been told as far back as two decades ago, is, you guessed it, dead. Slightly more recently, an amended version of the death of ERP suggested that ‘the big ERP approach’ had met its end.

Except, none of these prognostications have come to bear. Paper is as useful today as it was when papyrus was all the rage, mainframes still chug away dutifully in data centres all over the world (and you can still buy a shiny new IBM zEnterprise), and despite serious market consolidation, there are multiple choices for ERP software today – on-prem and cloud – , as shown in the iStart ERP Buyer’s Guide.

So, who is saying that on-premise ERP is dead? None other than Panorama Consulting, a US outfit which provides useful insights on the market, including its Clash of the Titans report and its comparative assessments of the vendor landscape. In a blog that caught our attention, Panorama made the baldly stated claim ‘Cloud ERP Software or Bust: Five Reasons Why On-Premise is Dead’.

Predictably, those five reasons are all the usual justifications for almost any cloud software: opex vs capex, anywhere-accessibility, focus-on-core-business, better security. Well, that’s three of the usual suspects; the final two are a little more intriguing. Forcing change, and ‘truly transforming’ your IT organisation.

Now here’s the thing where it gets a little more complicated. Panorama’s own research (page 12) shows that the majority of implementations are on-premise at 56 percent (2016), with 27 percent cloud and 17 percent hosted. There is substantial year-on-year growth in cloud, however, as between 2015 and 2016 it went from 11 to that 27 percent.

The situation locally
So, is cloud steamrollering on-premise locally? Again, the answer isn’t cut and dried. There are a number of factors which will point a business to making the choice and at least some of that is down to scale and legacy approaches to IT.

At Soltius, which is an SAP partner, CEO Nick Mulcahy said that the greater proportion of the deployments it handles tend to be on-premise. The reason for that lies in the E in ERP: enterprise. “The five reasons for Panorama’s claim of on-prem being dead are accurate and some can be addressed by private cloud [which would count as ‘on-prem’ to all intents and purposes]. But the real killer is that cloud ERP tends to be smaller, lightweight versions and they have to be as they are multi-tenanted.”

Mulcahy said the options for configuration tend to be somewhat limited, too. “Particularly for certain vertical industries, there isn’t a cloud ERP that is a good option.”

Chad Gates, MD of Australian vendor Pronto Software, said that while on-prem isn’t dead, it is dying a slow and progressive death (much like those IBM mainframes, one imagines). “If you’re talking to first time ERP customers, then the vast majority are going straight into the cloud or hosting. The same goes for those who are scaling up. Our stats show that 75 to 80 percent of those go with this option,” he explained.

And where Mulcahy doesn’t think truly big businesses – airlines, banks, telecoms providers – are ready for cloud, Gates differs. “Some of them will be reluctant just because they have big sunk costs in people and hardware and they are happy to roll those over. But is cloud ERP capable of handling their complexity? Yes, it is quite doable.”

However, Mulcahy concedes that things are changing and will continue to do so. “There are more cloud options and they are getting there. SAP has cloud offerings including Business By Design, there’s NetSuite which has been around for a while, and there are others which are ‘pseudo cloud’ like Microsoft and Oracle Cloud Financials. But while these solutions provide good options for tiered ERP, they are not dealing with business complexity. Absolutely, the key is the E.”

Taking the true ‘enterprise’ out of it
Not so long ago, ERP really meant business management software for properly big companies. Now, obviously, ‘big’ is a subjective measure, but there has been a trend for business management software to be called ERP even when targeted at small to medium businesses. For these (and, as implied in his comment around tiered ERP), Mulcahy noted that, “There would be no reason to do it any way other than cloud.”

And indeed, said Carolyn Luey, New Zealand GM at MYOB, it is seeing strong growth towards cloud through its sweet spot of the entry to mid-market for ERP. “While we have a range of options from on-prem to cloud, clients make their choice based on business needs. And we are seeing a trend towards the cloud for those usual benefits.”

But although that growth is substantial – MYOB has implemented nearly 300 instances of Advanced, its cloud ERP introduced in 2015 – Luey said on-premise is far from dead. “There are still many industries and verticals where on-premise is better.”

For some, that’s as simple a matter as making use of what’s already there. “Clients will say ‘of course we want on-premise as we have invested in IT infrastructure’”.

Within the MYOB stable is its highest-scaling solution, Greentree. Former boss Peter Dickinson was a long-time sceptic of cloud ERP, yet, in 2016, the mid-market vendor went in that direction. Said Luey: “With Greentree, pretty much most of our clients are on-prem. There is a hosted product, but the client base tends to use the bits where there are real benefits to cloud, for example, where there’s a salesperson on the road, or maintenance technicians. So, they have elements of the product in the browser, but the primary deployment is on-prem.”

That strongly supports Mulcahy’s view that where ‘serious’ complexity and heavy lifting are required, on-prem is still the boss. “Is on-prem dead? Well, not yet. It’s up to the market to decide, if there is still market for it, we will provide it,” Luey added.

It’s not just the configuration that matters
However, there are further concerns which don’t relate directly to software structure, if it could be called that. “Issues like data sovereignty come into play a bit, especially for government institutions which are mandated to have it in country. Then there are contractual issues around jurisdiction for suing if things go wrong. And there can even be a bit of paranoia around, for example, the USA’s National Security Agency looking at data – although that tends to be more of a theoretical issue than a practical one,” Gates explained.

Pronto’s own numbers show that there is rapid growth in the cloud, with ‘around 25 to 30 percent’ of its clients opting for this configuration. “That’s driven not only by the ERP solution, but also a trend towards managed services to get rid of the overheads of self-run systems for all sorts of other infrastructure,” Gates said.

That, of course, leaves the greater number of its clients still well and truly on-prem. The trend may be towards the cloud – and it would be, particularly as small businesses ‘born in the cloud’ become bigger ones and follow a natural progression. But like the elusive paperless office, we’re going to pick that on-premise ERP will prove a resilient beast for years to come.

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