ERP in 2020 – 3 Implications of Cloud Transformation

Wayne Hockley |
February 24, 2020 |
ERP in 2020

As I write this article and reflect on the past and look to the future, I wear a pair of bifocals. I use my bifocals without even cognitive awareness – I just naturally focus on what I am looking at and then move my head intuitively to make sure I can see that object in the clearest way. Well for this article – as we read it, we will need to wear “Trifocals”. I will try to establish 1 fundamental shift, and two significant implications that all of us need to be aware of as we make decisions in 2020 and beyond helping us to chart a direction that meets our business goals.

Many industry watchers are predicting that 2020 is the year of cloud adoption. Software vendors, including ERP vendors along with economies of scale for the cloud have been pushing solutions for business’s in the cloud for many years now, even though the software and technology pieces were immature. 2020 to many is the beginning of the adoption into the mainstream for ERP cloud solutions. Has ERP cloud software reached a maturity that is enticing customers? Software vendors love the cloud path as it will lead them to a treasure chest of recurring revenues, more control over software upgrades and direct customer interaction in a highly scalable model. That’s the view from the ERP vendor perspective. How will this fundamental shift in the ERP industry impact service partners and ERP users?

The view from the ERP service industry in 2020 looks very different – a mix of great and bad news. As we look through this view with our “Trifocal’s the ERP service providers are in the squeeze. ERP service partners bridge the gap between customer needs and ERP vendors software systems – tasked with making them work in the real world. Customers demands have never been higher as business pressures on them drive them to automate and control business processes that in the past were secondary, now they are primary needs. One big implication of the software vendors push towards the cloud is scalability. This version of software development and delivery looks more like a roll out for an operating system – build it once and sell it by the millions (the panacea of software development financially speaking). This approach is more akin to a one sized fits all approach to ERP and business process – clearly a 10 million dollar company needs flexibility in their business processes (a key business advantage) versus a 250 million dollar company who needs business process flexibility and accountability to be locked down (also a key business advantage). This is the “bad news” for ERP service providers. The vendors want to make vanilla software to work with as wide a customer market as possible, but the service providers need to bridge an ever-increasing gap with cloud ERP platforms built to be vanilla. ERP will never be an operating system scalable platform due to the nature of the customer needs. The “good news” for ERP service providers is that this shift towards the cloud is about to drive a wave of customer needs at a time when experienced ERP consultants have plateaued. Demand for top notch ERP consultants will skyrocket, and it will be several years before this lack of ERP consultants will catch up to this new wave of demand.

The final “view” in 2020 belongs to ERP customers – both existing customers and new customers. The summary of this paragraph – as we look ahead to 2020 is that customers who take steps to understand their digital direction and engage in an ERP project with vendors and service providers will have the advantage. What advantages will these companies have?

The key advantages for those who jump in ahead or in the early stages of the cloud ERP wave in 2020 will be:

  • Choice. Currently many software vendors are allowing customers to choose their platform of choice – ERP in house, ERP hybrid (private cloud where the software is hosted by a cloud infrastructure partner of your choice) or cloud. This benefit over time will disappear as ERP software vendors begin to eliminate options on how they will sell their software – dwindling down to the cloud option. ERP software vendors have already started down this path, the earlier you enter this part of your decision-making process the more choice you will have to match this project to your digital direction.
  • Cost. ERP vendors in this move to selling their software over the cloud are squeezing ERP service partners from receiving margins associated with the selling and marketing of the vendors solutions. ERP service partners will now receive a small ongoing commission but make no mistake this change is undermining the viability of the ERP service partners business as costs continue to increase. ERP service partners will be under pressure to increase hourly service rates to help recover this lost revenue. In 2020 this pressure will increase resulting with some ERP service partners withdrawing from the industry – shrinking an already under serviced industry.
  • Implementation. ERP customers who understand the pressure on ERP Service providers and the direction being charted by ERP vendors will look ahead and see that ERP projects will be under pressure and timelines for both selection and implementation will be extended. Most companies need support to move these projects forward, and with a shrinking service partner and experienced consultant pools will be a new normal for the many years beyond 2020. Implementations will be more complex if ERP vendors release immature software with a view to vanilla implementations to customers who understand that their uniqueness is what gives them competitive advantage resulting in a high demand for consultants who have been there before.

In 2020, the relationship between ERP customers, partners and vendors will be more critical than ever as we look ahead, we need a tri-focal view in order to chart the course. Predicting the future is uncertain at best. Thanks for engaging this article we trust you have found it helpful. The team at Mibusoft wish each of you smooth sailing in 2020!

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