Cloud ERP Adoption Rates Will Overshoot Gartner Forecasts Due to Two-Tier Adoption Strategies

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A recent Forbes article, titled Why Cloud ERP Adoption Is Faster Than Gartner Predicts, makes several bold predictions including the accelerated uptake of Cloud ERP solutions. The author, Louis Columbus, says that the Gartner survey results are misleading because Cloud ERP growth will accelerate faster than what Gartner’s survey predicts.

Specifically, Gartner’s survey “Adoption of Cloud ERP, 2013 – 2023” states that “47% of organizations surveyed plan to move their core ERP systems to the cloud within five years, while 30% of organizations surveyed said they planned to keep the majority of their ERP systems on-premise for the foreseeable future.”

The following is a bit of background. A recent IDC forecast states that “Software (Saas) will account for 77.2% of spending while 22.8% will be hardware”[1] and a Gartner CIO Agenda report states “46% of CIOs expect to have more than 50% of their infrastructure and applications operating in the cloud by 2015”[2].  While cloud is still a long-term threat to large ERP players such as Oracle and SAP, there are a number of barriers to adoption that prevent many large enterprises from widely adopting SaaS.

The dominant strategy of many technology companies in enterprise software is to come out with a very strong main product and then pursue the “vendor stack lock-in” approach by packaging their other service offerings. One can trace Oracle’s growth and dominance to its ability to acquire several technology companies, and package / sell them to companies under the “Oracle Stack.”  Microsoft has the same strategy, starting with its strong base of Microsoft Windows and Office, and then selling MS server, SQL Server, and Windows Mobile. SAP has done the same thing through acquisitions related to its ERP product, by telling CIOs that companies run best by “running all SAP”. The same integration strategies have been used for IBM and many other companies, as once companies are “locked-in” to an IT vendor’s “stack” or solution, they are then at the mercy of that vendor (in terms of pricing), as the switching costs (in terms of investment and user training) are very high.

As a response to this, IT managers often recognize the potential trap of future lock-in, and often try to choose “best in-class” applications, which better meet company needs.  As a result, most large enterprises have a variety of different “stacks,” including databases from Oracle, SAP for supply chain, PeopleSoft Financials, Microsoft for desktops, and custom applications running Unix / Linux.

The main reason why Louis Columbus thinks Cloud ERP growth will be higher than projected is that Gartner did not consider a company’s two-tier adoption strategies.  He terms “two-tier ERP” as a Trojan-horse strategy (which refers to Odysseus’s clever tactic of gaining entry to Troy via a gift horse).

Specifically, the author mentions that a two-tier ERP strategy makes perfect sense for organizations to extend legacy ERP systems to new markets for the following main reasons:

1) Many organizations want to achieve faster time-to-market while reducing cost of quality.

2) Many organizations want to fix legacy ERP scalability issues to meet 21st century compliance issues.

3) SaaS-based manufacturing and distribution software is projected to grow from 22% in 2013 to 45% in 2013.

4) Microsoft’s new CEO is making large bets in cloud enterprise software and is introducing their own Cloud ERP solution.

In summary, as organizations want to avoid vendor lock-in from legacy providers, while still looking for a scalable, cost effective and innovative platform, Cloud ERP is the best way to go. As more CIOs recognize this, they will adopt innovative Cloud ERP solutions, such as Kenandy Cloud ERP.

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