The Shift of ERP applications to the cloud is on

Posted by Mike Vizard on Jan 22, 2015 3:30:17 PM

When it comes to on premise IT systems, ERP applications are one of the last major bastions. But not only is Gartner forecasting that Software-as-a-Service (SaaS) application spending will reach $20 billion, the market research firm also predicts that within the next two years the majority of ERP applications sold will be running in the cloud.

3978316556_378a9a8a0e_mGartner says the primary driver of this trend will not necessarily be a desire to cut costs but rather to craft more agile business processes. In fact, Gartner says the ERP suite (as it was once known) is being deconstructed into postmodern ERP that will result in a more federated, loosely coupled ERP environment where much of the functionality is sourced as either a cloud service or via business process outsourcer (BPO).

As that transition to postmodern ERP begins to occur, the notion of where one application leaves off and another begins will become even cloudier. Oracle, for example, is starting to make the case for a “data-as-a-service” IT strategy that makes extensive use of identity management software to provide users with access to specific sets of data based on their role in the organization.

Obviously, a well-heeled IT organization could craft such a strategy themselves. But not only would the costs involved be exorbitant, accomplishing that goal would take years of custom development.

Of course, none of this is lost on SAP or any of the other major ERP application providers. SAP, for example, is crafting an enterprise application strategy around the SAP HANA in-memory computing platform in the cloud, where data will be centrally accessible to all applications in real time.

The challenge this creates for IT services providers is that the future of the cloud is about to become much less about technology. Once every application becomes a service, organizations will care less about the underlying technology that enables it. Instead, the focus will be on flexibility and the quality of the service being provided. For IT service providers that means that deep knowledge of business processes is going to be valued more than IT expertise.

Naturally, many IT folks will argue that security and compliance issues will result in mission-critical applications continuing to be deployed on premise. The problem they will face, however, is that the business leaders who pay for these applications don’t necessarily perceive that applications running on premise are any more secure than ones running in the cloud. As for compliance, there’s an argument to be made that it’s a lot easier to be compliant using a cloud application managed by somebody else than it is to do it yourself.

The simple truth is that many of those existing ERP applications are not only difficult to use, but business executives are tired of shelling out millions of dollars to cobble them together to create something as straightforward as an order to cash process, for example.

It may take a few years for every IT organization to make the transition to the cloud. But as demand for business agility continues to grow, the inevitably of making the move to the cloud exponentially mounts.

Photo Credit: Schnaars on Flikr. Used under CC 2.0 license

 

Topics: Cloud Trends

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