Is cloud ERP software ready for prime time?

More organisations considering cloud ERP systems

Yanna Dharmasthira, research director at Gartner, says more organisations like Ninja Van are considering cloud ERP systems, noting that many suppliers have also educated, marketed and sometimes aggressively sold and improved their offerings based on market requirements.

At present, the adoption rate of cloud-based ERP – which Gartner classifies as a software-as-a-service (SaaS) offering – in the Asia-Pacific (APAC) region is roughly half of that of mature regions such as North America and Western Europe.

This is largely by driven by emerging APAC economies, where the market for cloud-based ERP is expected to grow at a compound annual growth rate of 40% over the next five years.

“In our end user survey, in which respondents have already implemented SaaS or have plans to implement SaaS in the next two years, the majority say they have a cloud-first strategy,” says Dharmasthira.

Standardising on the cloud

To Kumar Govindarajan, CEO and chief architect at fast-growing IT services supplier Adita Technologies, moving to a cloud-based ERP was necessary for expansion of the business.

The Sydney-based firm, which is eyeing a public listing, was using different accounting systems across its operations in the US, India and Australia, but has since switched to SAP’s S/4 Hana Cloud ERP system to consolidate its financial applications.

“It was not suitable for us to run accounting systems in silos, so we decided to standardise on a cloud platform that supports multiple countries and regulations, and can be rolled out easily,” says Govindarajan.

Adita Technologies rolled out S/4 Hana Cloud in just 10 weeks in Australia and New Zealand, and is looking to implement the software in India in just four to six weeks.

Implementation support

Govindarajan attributes the speedy rollout to the implementation support provided by SAP, which offered a pre-configured system with standard processes, after which the company could decide if further configuration was needed.

“After we made some small changes in areas such as invoice templates, we did a test with users and went into production,” he says, adding that SAP had also provided automated test scripts to ensure nothing would be broken each time the system was upgraded.

While Adita had looked to replace its accounting systems with cloud-based ERP, such systems appear to be adopted more as “net new” applications in the APAC region.

According to Gartner’s survey, 66% of organisations in the region expect to run new applications in the cloud. Some 37% say they will replace traditional applications with SaaS alternatives.

“It will be more like adding new types of applications or new functionalities, rather than a full replacement,” he says. “For example, if organisations do not have talent management, they may consider purchasing talent management functionality that is offered as SaaS,” he adds.

Limited customisation

Despite the growing popularity of cloud-based ERP systems in the region, it is likely that some organisations will continue to run their own on-premise systems to overcome a key drawback of such systems – limited customisation.

Ignatius Wong, director of SAP Practice at CenturyLink in APAC, says cloud-based ERP systems typically limit the level of customisation as they are built on a multi-tenanted model, making standardisation necessary for suppliers to reduce the level of maintenance and support.

“Some cloud ERP suppliers are providing private cloud deployment options to address the segment of larger enterprises which require a more customised solution to address their unique business requirements,” he says.

Indeed, Ninja Van decided to run its core operational systems on-premise, so that it can have the flexibility it needs to route drivers and assign parcels on the fly.

“We’ve tried using algorithms in cloud-based solutions to do that, and while they worked for a while, our delivery routes started to get more complex,” says Chong. “It was then when we decided to build our own systems.”

That said, Chong, who oversees a team of 35 software engineers, admits that while some cloud-based ERP systems can be readily adopted, businesses with more complex processes could incur higher costs in hiring systems integrators and consultants to customise those systems.

“In our case, we decided our operational systems were way too core for us to outsource any customisation work,” he says, adding that working with third parties to implement the necessary changes on an iterative basis would also take too long.

Cost and security considerations

Such considerations should be on the minds of organisations when assessing the total cost of ownership (TCO) of cloud-based ERP systems.

“It should be noted that as businesses grow, there will likely be an increase in requirements, and the systems may grow to be more complicated, and hence the complexity of integration,” says Dharmasthira.

“TCO needs to be considered not only for a short term, but also in the mid-term of close to five years. Some companies in emerging countries may have business requirements that change and expand rapidly – this should be taken into account before deciding on a SaaS-based deployment model,” he says.

Another key consideration before moving to cloud-based ERP, or any cloud service for that matter, is data security and privacy.

David Hope, president of Workday in Asia-Pacific and Japan, says data privacy is always top of mind, so a cloud supplier must be prescriptive about its services, policies and adherence to the latest regulations in the region.

“But overall, I think we have seen a shift in the past five years or so, with leading chief information officers and chief technology officers stating that their data is actually much safer when maintained by a cloud supplier versus sitting in an on-site server,” he says.

That is certainly the case for Adita’s Govindarajan, who notes that SAP not only has local datacentres, but also meets industry security standards. “We only had to verify that those standards were met,” he says.

No one-size-fits-all solution

CenturyLink’s Wong believes there is still a place for a hybrid IT strategy as there is no one-size-fits-all solution.

He says such deployments make sense, especially when considering the “mission criticality” of the application along with data security and privacy requirements.

“For example, a client can adopt a hybrid IT strategy, where sandbox or non-production systems are hosted on public cloud platforms, while production systems are deployed on a hosted model either on-premise or on a private cloud,” says Wong.