A hidden cost of cloud ERP: Changing project risk

February 9 2020

The latest application of technology to enterprise resource planning software (ERP) is the magic of the cloud. Sales and marketing literature touts a long list of benefits derived from moving ERP and related software from on-premises hardware to the cloud.

The point of this article is not to discuss the technical benefits of a move to the cloud. Instead, it is to examine a serious unintended consequence having a dramatic impact on ERP implementation projects.


efishman71's picture

Hi Peter,

Your article is thought-provoking and makes some interesting points. It is true the the cloud licensing model changes the game for consulting partners in a variety of ways; chief among them is that services need to be client and outcomes driven more than ever before. In the past customers paid the entire cost of licensing upfront, often before they were live. The partner's margin was secure regardless of whether the customer achieved their desired outcomes. Cloud changes that equation in the customer's favor. Now, consulting partners need to deliver a successful implementation and keep capabilities evolving in conjunction with client needs over time, otherwise the customer will switch partners and the new partner will get the ongoing margin, however small. My point is simply that cloud aligns customer value with the economic model better than before.

Your point about ERP being hard to sell is well taken. It's a big decision for customers and one they tend to make carefully. So it should be, I think. I have observed however that with the emergence of cloud software, the sales cycle has shortened significantly and a lot of the traditional work of the sales team - proving solution capabilities - is now achieved in marketing. Customers have access to a ton of high quality information, including pricing, that wasn't always available in the legacy on-premise days. In our business we are finding that prospects are showing up well qualified for Dynamics 365, and they are focused mostly on narrowing the field from 2-3 platforms vs 7-10, and choosing a compatible partner. The number of RFPs has also fallen off a cliff as customers seem more comfortable navigating the decision independently.

Another perspective I'd like to share from our experience implementing Dynamics 365 Business Central after years of (successful) NAV implementations is that cloud ERP (and CRM) implementations are much smoother! I can offer 4 reasons for this:

1. The technical infrastructure risk is eliminated entirely. Previously we had to provision servers and deal with network connectivity, remote desktop access, single sign-on, etc. Now provisioning sandbox and prod environments is a few clicks. This save considerable time and eliminates a major source of "bugginess".

2. Modern implementations have less customization than before since there is a robust app market. Third party capabilities are available for so many customer use cases, and when there isn't an app, a responsible partner really has to guide the customer through a value assessment for customization. Is it worth it? Or is there a standalone cloud solution that can be adopted an integrated (integration is far easier with cloud also!).

3. Cloud offers unique methodology benefits. Since we can easily spin up sandbox environments, it is now possible to offer rapid prototyping sessions in the requirements analysis and validation phase . When customers can see how the software works during the design phase, it produces better alignment on design decisions.

4. It is much easier with cloud to implement a lean solution that covers core operational requirements that the customer needs to run their business effectively and achieve some major wins, while not "boiling the ocean" during the initial implementation. Once customers start working with the live solution, their proficiency and understanding of capabilities increases dramatically and they begin to articulate new requirements and configuration adaptations that can be modeled into the production solution as "enhancements".

I also worth note that upgrades to new versions (released twice a year) are so much easier than they were in the on-prem days! What used to take over 100 hours or more now takes 3-10 hours depending on the setup.

I'm sure experiences are wide and varied and it is still early days so we are all still learning.

Elliot Fishman

CEO, Catapult ERP Services Inc.

PJoeckel's picture


Thank you for reading and the well thought out reply.

For some background to add perspective to my reply, I started out my career implementing MAPICS (the SAP/Oracle of its day) in conjunction with IBM at a "Big Eight" accounting firm. That launched a long career in the PC world that included ACCPAC, Macola, Syspro, Platinum, Great Plains, Navision etc etc and finally Axapta/AX/D365 F&O.

The world of ERP software as it exists today is ideally suited for "QuickBooks" implementations: no mods, no legacy integrations, no complex business requirements and importantly no in-house attorneys.

The majority of my observations revolve around the enterprise ERP space and the partners working those deals. In that space the ERP implementation industry has historically suffered from challenged and failed projects at alarmingly high rates. Here are the numbers for ERP project "success":

• 25% - Success, defined as being reasonably completed on time, within budget, and delivering on a majority of promised functionality.
• 50% - Challenged, set as significantly over budget, over projected time, and delivering on functional expectations.
• 25% - Failed, dramatically over-budgeted dollars, time, and severe misses on required functionality.

Even worse odds than marriage but yet people keep getting married and starting new ERP implementations.

The acute awareness of this has me focused on how to deliver better ERP projects while keeping an eye out for additional challenges that make ERP projects harder to execute.

Here is something "interesting", the numbers on the Russian roulette wheel of pain that I outlined above...they are not getting better. You might be surprised where they are today.