Disclaimer: This is a behind-the-scenes document about Cloud ERP and SAP Cloud ERP that is mainly based on our field experience and ideas. Its purpose is to give a quick introduction to Cloud ERP and SAP Cloud ERP to Xpandion customers.
What is Cloud ERP?
The known acronym “ERP” stands for Enterprise Resource Planning software. ERP systems are large-scope applications, intended to manage all aspects of an organization (or enterprise), including solutions for each department. The most well known ERP systems are SAP and Oracle. An ERP system has “modules,” such as a financial module, a production planning module, a CRM module, a Business Analytics (BI) module, an HR module and more. All of the modules communicate with each other through a single database, which enables a joint view on the business without having to use tedious and expensive interfaces.
ERP systems enable the management to focus on the production process from a holistic point of view. Take the manufacturing and distribution of chairs for an example of the different types of questions an ERP system can answer: How many chairs can be produced with x amount of raw material? How much money was required for each step and from where in the budget? Which chair went to which customer? Was the customer happy with the chair?
(For more information about ERP in general, you can read here.)
Most ERP systems require considerable hardware resources, which many small companies often can’t afford. A less expensive option to buying external hardware is to lease it on the cloud. When the cloud came on the scene, it was obvious to ERP vendors to offer “ERP on the cloud,” or “cloud ERP” to their potential market in addition to their on-premises ERP solutions, because it could mostly offer the same capabilities of the on-premises ERP systems but with all the benefits of the cloud. Of course, this required some changes to the ERP infrastructure – like securing the tunnel between the end user computer and the cloud, and converting certain desktop software to web-based software – but most large ERP vendors managed to make the switch successfully.
Why Is SAP Participating in the Cloud ERP Party?
SAP could not just stand by and do nothing while other vendors were already in. In fact, SAP is now looking at the small mid-size market and wants it too. In recent years, SAP has offered solutions to the Small and Medium Enterprises (SME) but now it has decided to go one level down and focus on the Small and Medium Businesses (SMB) who are perfect candidates for the cloud. “The 20-500 person market was previously bundled in with the SME strategy, and we decided that best way to give it the focus and attention it needs was to put it in its own division,” Dean Mansfield, President of SAP’s SMB Solutions Group, said. (For more information, see here: http://www.channelbuzz.ca/2014/07/sap-creates-strategic-division-serve-smaller-firms-10262/.)
SAP understood that SMBs do not “think big” like enterprises, or even as big as the SMEs, they are more focused on quick business success and they need fast results. Therefore, SAP is not only now in the cloud game but is also interested in the SMBs that need cost effectiveness because they are perfect candidates for SAP Cloud ERP solutions for many years to come.
What Are the Challenges?
The biggest challenge is the integration between the application in the cloud and the internal organizational applications. As the base concept of ERP systems is to be integrative, it is expected that the Cloud ERP system will be connecting to other applications in the organization. Some may argue and say that the ERP should be integrative to itself, meaning that the finance module should communicate seamlessly with the production module and they should both be connected to the sales module, which all can be done simply in the cloud. Well, most customers will argue back that they want to see their ERP communicating with their local BI system, their hours-reporting system and their existing AS/400 or local IBM Mainframe applications. However, if the organization is fully moving to the cloud, or it is relatively young, all of its systems, from SAP BI (which is already offered on the cloud), through CRM (like SAP CRM or Salesforce), and up to their email systems in the cloud, like Office 365 from Microsoft, can move to the cloud too. Then, the whole organization will be working in the cloud.
Another significant challenge in the cloud is security. Recent articles (like http://thenextweb.com/insider/2013/09/11/5-reasons-enterprises-are-frightened-of-the-cloud/) claim that security is the main reason that prevents customers from moving to the cloud. If we take this and combine it with the former section, we get the sense that the successful organizations that will leverage from the cloud will be the ones that are willing to take the risk at the beginning: Either the organization trusts the cloud, moves their whole system landscape to the cloud and gains the power of the cloud; or they are afraid of moving to the cloud, moves with only one system, and has an integration challenge that can harm the project’s success.
Can SAP Dominate the Cloud ERP Market?
SAP has a lot of resources, and when they decide to move some of them towards pushing an idea, it will surely gain recognition. From speaking with analysts, the Cloud ERP solution from SAP is being offered aggressively in certain markets, so it is expected that many companies will embrace this solution. But the real question is: Can SAP dominate the Cloud ERP market, meaning can it be at least as strong as it is in the enterprise level? In favor of that, people say that SAP’s cloud solution is secure, holistic and trustable because it has the “SAP” brand behind it. However, many consultants in the industry claim that the base fear of the cloud, together with aggressive competition, will not allow SAP to dominate, but to be merely another option in the Cloud ERP environment.
More and more companies are moving to the cloud and SAP is planting the seeds now for when the majority will be using Cloud ERPs. At that time, there might not be on-premises solutions and then SAP will have the advantage of being one of the first Cloud ERP solutions.
Want to hear more about Xpandion’s solutions in the cloud? Just contact us.