Having spent a very enjoyable 4 days at the Microsoft Worldwide Partner Conference in Los Angeles last month, it was essentially impossible to avoid hearing about “The Cloud”. From the various keynote speeches to the breakout sessions to the ISV expo, “The Cloud” was everywhere. While it might have been difficult to develop a consensus around the definition of “The Cloud”, it was undoubtedly the most talked about subject.
For many people, it may seem that “The Cloud” is something very new, but the idea of delivering software as a service has been around for some time now. If you have a Hotmail account, belong to Linked In or have a Facebook page, you have been using “The Cloud” for many years.
With the recent introduction of Office 365, Microsoft’s cloud-based business productivity suite, we are seeing a further move towards the cloud. With Office 365, new updates, enhancements and additional features cam be rolled out to end-users as soon as they are ready to go, without having to wait to incorporate these new features into the next release of Microsoft Office. Indeed, the very notion of a “version” of the software, and the attendant activity around its release, goes away altogether. Simply subscribe to the Office 365 platform, and you will always be using the latest and greatest version of the software, and you will never have to upgrade your system again.
I think basic software services like email accounts are a natural for “The Cloud”, and I suspect that business productivity packages like Microsoft Dynamics CRM will continue to make inroads compared to the traditional on-premise versions.
However, I am still not convinced that ERP systems need to be in “The Cloud”. Certainly there are advantages to being in the cloud, but there are substantial risks as well.
Benefits
Reduce Capital Expenditures. Say goodbye to the upfront costs of a new ERP system, just sign your users up for a monthly subscription. Know your future costs with certainty, but be prepared to expense a not-insignificant amount every month that you own the system.
No more upgrades. With the service provider responsible for maintain both the physical infrastructure and the software environment, upgrades can occur over an extended period of time, with the newest features and functionality being delivered as soon as they have passed quality control.
Reduce internal IT costs. With the service provider taking responsibility, the internal IT team can be re-purposed from supporting the ERP system to more productive tasks, like working on Business Intelligence, eCommerce and other value-add activities.
Scalability. With a Cloud-based approach, companies can easily add and remove user subscriptions as needed, providing greater flexibility than traditional on-premise user-licensing.
Risks
Data security. Without a doubt, this is the area of greatest concern to any company considering a move to the Cloud for the ERP system. “Who can access my data” and “How do I know that my data is secure?” Any legitimate cloud provider will need to have a compelling solution to these questions.
Owning data vs owning a system. “What happens to my data when I choose to terminate the subscription?” When a company chooses to upgrade their on-premise system with another on-premise system, the old system can be ‘archived’, retaining the ability to access the old system for data analysis and inquiry purposes. With a cloud-based system, terminating the subscription will generally allow the company to retain a database full of data and transactions, but without the underlying ERP system, access that data in a meaningful way can be very challenging.
Regulatory environment. For those companies that are regulated (think of financial services, healthcare industry, human resources), there may be limitations and restrictions as to whether this data can be stored in the cloud, and if so, what safeguards and protections can be put in place to ensure compliance.
Hybrid ERP environments
In an informal poll of CFO’s and Controllers, we found mixed reactions to the idea of moving ERP systems to the Cloud. While some are willing to embrace a cloud-based ERP system, others saw some significant hurdles. Most respondents saw great value in moving portions of the ERP system to a cloud-based environment, such as creating and Editing Sales Orders and providing reporting and inquiry tools. Few, however, such a great need to be able to create and post reversing journal entries and other more mundane accounting entries over the web. Surely, that adjusting JE can be posted tomorrow morning from the office.
I think that many companies will continue a slow and gradual move the Cloud. Many systems, such as email, CRM and other business productivity systems are natural candidates for a cloud solution. I remain unconvinced about the rapid adoption of cloud-based ERP systems.
