Is Cloud ERP the Almighty Cost Cutter?

Deploying a viable, cost-effective enterprise resource planning (ERP) solution is not a sure thing. In projects gone wrong, a common timeline seems to involve rosy promises early on, with costs that skyrocket and launch dates that get pushed back. And other warning signs can simmer away like flagging executive sponsorship and lack of user adoption.

With Microsoft updating its plans to take its ERP solutions to its own Azure cloud platform, a maturing cloud option has the potential to smooth implementations and help provide solid ROI.  But is this ERP ambrosia, or just another "tastes like chicken" fiasco?

A Better Option?

According to a January 2^nd CIO article, ERP systems are often the most costly investment made by chief information officers (CIOs), but over half of these same CIOs describe their ERP deployments as "failures," either because they can't perform as advertised or cost too much to maintain. Clive Longbottom, a senior research analyst at Quocirca, argues that traditional ERP solutions are dying, and says the cloud is the harbinger of their death.

Simply put, the massive restructuring necessary to condense and remove old legacy systems means an on-premise ERP deployment will constantly encounter new challenges as software conflicts emerge and employees, unfamiliar with the new system, resist change. The result is often an over-budget, past-due mess; funneling these deployments through the cloud, and thereby skirting any need for integration with an existing system, could help streamline costs and download problems onto the provider instead of the user.

Some experts argue that the ERP market is still evolving and that the cloud, also in its adolescence, isn't ready to take on this kind of burden. But in a world of falling or stagnating IT budgets and increasing demands for instant ROI, the days of long-term ERP deployments seem numbered.

Air Farce

In 2005, the U.S. Air Force awarded a contract to Oracle at a cost of $88.5 million dollars for a new ERP system meant to replace over 200 legacy systems and unify their functions. As noted by a recent NetworkWorld article, however, the project costs now total over $1.03 billion dollars, and the new ERP system was never deployed. A military spokesman says the project "has not yielded any significant military capability," would require an additional $1.1 billion dollars to complete and wouldn't be ready to roll out until 2020. As result, Air Force ERP - at least in its current form - has been scrapped.

In another recent announcement, POS and barcode distributor ScanSource recently announced it is suing the Microsoft/Accenture joint venture Avanade, alleging its Microsoft Dynamics AX solution also failed to get off the ground. ScanSource claims that in 2009  the project was set at an initial cost of $17 million, with a time line of 11 months but that quickly changed to $66 million over three years. Avanade, meanwhile, is firm in its stance that any allegations are without merit.

It doesn't seem to matter who the client is - military agencies, barcode distributor, or something else - ERP costs can quickly get out of hand, and may not deliver the kind of functionality they initially promise. But is there a way to improve the status quo?

No Single Answer

Part of the problem, some might say, with cloud-based ERP solutions is that there's no accepted model for doing business in an ERP world - how much of it is SaaS? On premises? Where is the data hosted, and which legacy system get the ax? Who manages upgrades? Getting it right still comes down to skilled solution architects, business analysts, managers, and a CIO who can guide the organization to the right results.  And while many traditional ERP vendors - SAP and Oracle, for example - are are well down the road of adapting their offerings for a cloud-based world, Microsoft remains a relative newcomer to the game, taking a more cautious approach that embraces partner-hosted solutions and hybrid solutions on an equal footing to on-premise ERP. Consider a recent MSDynamicsWorld article, detailing some benefits of Dynamics GP 2013: tighter integration with Office 365 and the Exchange Server both on premise and in the cloud, along with streamlined work-flow channels between GP, O365 and Microsoft Dynamics CRM Online provide the kind of flexibility and visibility missing in a traditional ERP deployment.

Ultimately, over-ambitious consolidation plans become a road to failure in long-term, big budget ERP projects. They aim to consolidate inflexible legacy systems, they are inflexible in doing so and as challenges pile up, an ERP system gets further and further from completion. The result can be a rigid, invisible, but very costly deployment, the likes of which spur government watchdog ire and lawsuits from jilted customers. Dynamics ERP solutions in the cloud - either Azure in the future or via a hosting partner today - combined with hybrid and on premise options, may not be the cutting edge of ERP as the cloud goes through its own growing pains. But if positioned correctly, Microsoft's evolving ERP platform options should help its partners and its own services organization play a "use as needed" tune, rather than the "use what we tell you" song so often sung by providers.