Enterprise Software: On-Premise ERP Systems to be Obsoleted by Cloud Solutions

On-premise highly-customized ERP systems are quickly being obsoleted by more agile and highly configurable cloud-based solutions.  30 percent of service-centric companies are expected to have moved their ERP applications to the cloud by 2017, predicts Gartner in a new report that analyzes how ERP systems are evolving.  But the report suggests that bolting on cloud service features to an existing ERP system, so-called hybridizing the system, will cause more problems resulting from solution fragmentation than benefits — 70 percent of cloud/on-premise hybrid solutions will likely see no discernable cost benefits.

The Gartner report found that “the main beneficiaries [of large-scale ERP systems built in the 1990’s] were the major consultancies who managed the business process re-engineering and implemented the ERP solutions.  These implementation service providers secured themselves a prosperous future by utilizing lucrative continuous service contracts that went beyond implementation into extensive customizations.  The net result of 15 years of continuous customization is that these ERP implementations are now extremely ‘arthritic,’ incredibly slow and expensive to change.”

Andy Kyte, Vice President and Gartner Fellow, said that “the need for agility and responsiveness has led highly customized ERP implementations to an impasse, creating a subset of legacy ERP installations that must be dealt with constructively.  Early ERP adopters, particularly large enterprises in energy, manufacturing and distribution industries, are paying the penalty of a decade or more of excessive customization. Businesses looking to improve administration today can take advantage of lower costs, better functional fit and process flexibility offered by blending cloud applications with on-premises applications in what we now refer to as ‘postmodern ERP.'”

What will be the solution for companies now using these older ERP systems?  Gartner says that “while current ERP implementations are not going to vanish overnight, they will need to adapt. The impact of specialist cloud-based point solutions, combined with very strong growth in business process outsourcing, will provide ample alternatives for business users frustrated by inflexible and expensive ERP modules.”

Nigel Rayner, research vice president at Gartner, said that “longer term, over the next 10 years and more, we envision a scenario where more of the market ‘flips’ to the cloud. Instead of having on-premises core solutions that are complemented by innovation or differentiating processes being supported in the cloud, some organizations will move all their ERP functionality to the cloud.  These won’t be single vendor mega-suites but instead will be loosely coupled suites of cloud functionality, which will create new integration challenges for IT.”