Once thought of as the new frontier, the cloud—as in cloud computing, cloud platform, and all things related—has gone from buzzword to business necessity.
For many companies, the transition to the cloud has been spurred by the COVID-19 pandemic. Digitization of systems, including enterprise resource planning (ERP), became mission critical to running operations remotely and adapting business models to the changing business landscape.
But at the same time, the limitations of ERP systems—whether on-site or in the cloud—became strikingly apparent. From rigid processes to fragmented data and more, ERP solutions that were once hallmarks of core business systems showed they lack the agility to navigate change and bolster innovation in an evolving marketplace.
Perhaps an ERP system isn't quite what’s needed for emerging stronger in a changing world.
Moving forward, companies must be willing to think beyond a “lift and shift” of their current ERP system to the cloud, a process that simply carries over the limitations of an ERP. Neither should they implement just any cloud-based ERP system just for the sake of the cloud.
Instead, companies must uplift and re-shift their systems and processes to align with achieving business goals in the digital age. That takes having a system with a backbone, as in a digital backbone, with an intelligent data core.
In this blog, we answer common questions related to cloud ERP and how Workday, as an enterprise management cloud solution, is different.
ERP stands for enterprise resource planning. An ERP system refers to the management of a suite of software applications that are needed to run a business—which could include finance, human resources, supply chain, customer relationship management, or inventory management—in a single system.
But to really understand what an ERP system is, companies should seek understanding beyond a textbook definition. ERP systems vary widely in their capabilities due to how they’re built. Those differences, well, make all the difference in whether an ERP system is agile enough for the modern business landscape—and perhaps, make companies reconsider if they need a new class of systems.
For example, consider the history of the term ERP system: Starting in the 1960s, integrated software applications primarily focused on processes related to manufacturing, such as inventory control and production scheduling, and were known as materials requirements planning (MRP).
Then in the 1990s, research and advisory firm Gartner coined the term ERP to describe the growth of integrated applications focused on back-office operational systems, such as human resources and finance.
Since the 1990s, the meaning of ERP has continued to change. The term ERP II started to emerge as a way to describe the extended integration of add-on applications beyond core business operations. For example, integration with the data from a customer relationship management (CRM) system can help companies understand the financial impact of customer sales trends. But still, the term ERP was widely used to describe ERP II systems.
In the late 1990s, cloud computing entered the technology scene. Then ERP systems started a slow transition from systems managed on premise toward a cloud-based platform in the mid-2000s. Larger organizations were cautious about moving their on-premise ERP systems to the cloud, citing concerns that included security and data migration complexity. What's more, many of these companies had already made hefty investments in their on-premise ERP systems. Yet, at the same time, companies still were dealing with the limitations associated with managing an ERP system: accumulation of technical debt associated with maintaining costly hardware to host their ERP system, and a heavy reliance on IT to code and maintain new processes or develop workarounds for those processes in the event of changed business needs.
Now, it appears ERP is in the middle of another shift.
Here’s what Gartner® said in the report, “Predicts 2021: Time to Compose an ERP Strategy to Outpace Disruption”: “Demand for greater agility using multiple data and application sources is prompting enterprises to develop more integrated ERP capabilities, rather than follow a strict monolithic approach to application architecture.”
And, advice to businesses from the Gartner report: “Keep up with rapidly changing business requirements by adopting an ERP strategy that is more responsive and composable. They should renovate or replace critical legacy systems to accelerate the move to composable application experiences and reject any new monolithic solutions proposed by vendors or in-house developers.”1
Cloud-based software enables businesses to focus on maximizing the business value of the service provided by a cloud-based platform.
But if an ERP application doesn’t adhere to the monolithic approach, does that even make it an ERP system? Perhaps a system that’s data-centric and more customer-facing deserves a whole new name, one that distances itself from the ERP of the past and highlights the way forward.
Perhaps that system is an enterprise management cloud.
A cloud-based ERP is an ERP hosted on an internet-based data center that’s managed by a vendor. Cloud-based software enables businesses to focus on maximizing the business value of the service provided by a cloud-based platform, as opposed to the costs related to maintaining the hardware and customization of an on-site system.
With a cloud-based system, companies:
Realize faster deployment and shorter time to value. Because they’re hosted online, cloud-based systems are typically faster and less expensive to deploy than on-premise systems. Companies realize a quicker time-to-value on their cloud investment.
Can anticipate predictable ownership costs. Traditional ERP has ongoing maintenance costs—which includes hardware investment and maintenance, customizations, and software licensing costs. Cloud-based systems follow a subscription fee model, so the ongoing costs are predictable and focused on using the service, not on maintenance or upgrades.
Have remote access. A cloud-based system can be accessed anytime, anywhere. That capability became a must at the onset of the pandemic when many companies shifted their workforce to work remotely, and critical tasks such as closing the books needed to be done remotely for the first time. Remote access has become a new standard as more companies adopt a hybrid work schedule.
Cloud ERP adoption is arguably beyond the tipping point—the movement is a full-on avalanche.
According to Emergen Research, the global cloud ERP market size reached $44.83 billion in 2020 and is expected to reach $141.68 billion in revenue by 2028.
“Increasing demand for real-time analytics to improve operational efficiency is expected to further propel growth of the global cloud ERP market revenue going ahead,” the report says.
The high rate of cloud adoption is also happening in enterprise financial management software. Here’s what Gartner said in its “2021 Gartner Magic Quadrant™ for Cloud Core Financial Management Suites for Midsize, Large and Global Enterprises”: “In 2020, Gartner experienced a 10% to 15% reduction in inquiries for new cloud core financial management (CCFM) suites. Inquiry levels for 2021 are up, showing that this market is resilient, as many organizations seek to move to more modern solutions from their legacy and outdated on-premises, license-based solutions.”
The 2021 Gartner report further discussed the market traction: “The market for CCFM suites will continue to achieve strong adoption over the next five to 10 years. By 2025, we expect 80% of all new midsize core financial management application projects, and 45% of large and global ones, to be deployed in the public cloud.”2
Although technological changes are reshaping business practices and business models, technology doesn’t resolve chronic foundational weaknesses in an organization. Companies need to understand what they’re trying to achieve instead of adopting just any cloud ERP for the sake of being in the cloud.
While there's an appetite for increased IT spending on cloud adoption, which includes replacing legacy systems with cloud-based solutions, companies must understand how the prospective ERP system leverages the cloud. In other words, just because it’s called a “cloud ERP” doesn’t mean it’s delivering all the benefits of a software-as-a-service (SasS) solution.
ERP still has risks and challenges. For example, legacy ERP systems have historically been inflexible, causing companies to create custom workarounds or integrate to another system to support new requirements. But when it came time for companies to upgrade their system, customizations and integrations would require additional investment to work with the updated system.
Companies have expressed a desire for more standardization and simplification to drive greater efficiency and lower cost. But that isn’t always solved by shifting an ERP system to the cloud. Many cloud-based ERP systems are software solutions on older technologies and architectures that have just been moved to the cloud—they still have fragmented systems and calcified processes. What’s more, many have complex architectures where data is physically stored across multiple systems. And so, leveraging data for insights requires merged views over that data using separate tools for reporting, which as a result, is outdated by the time business users such as finance get access.
ERP as a term and a concept needs to go the way of the dinosaurs and make way for a new class of software.
Simply put, not all cloud-based ERP systems are created equal. When considering a cloud-based ERP system, companies must avoid lifting and shifting, if they don’t want to perpetuate the limitations of a legacy ERP system in the cloud. A cloud-based system fit for the modern landscape should:
Have an adaptable data architecture. More employees, more sales, and more lines of business all add up to more data. But in legacy ERP systems, data isn’t easily accessible due to the nature of its architecture—data is stored in relational databases, requiring companies to extract data to analyze for insights. A cloud-based system with an adaptable data architecture can transform structured and unstructured data within the system—without needing to be extracted from databases—into insights relevant to organizations across the business. At Workday, we call this an “intelligent data core.”
Prioritize security. Companies should opt for a cloud solution where security is built into the foundation of the application. That means all users are subjected to the same standard of security, but their access to specific data or business processes is configured to what’s relevant or permitted for their role. This also means all actions are tracked and audited. And when an employee leaves the company, it’s as simple as changing the employee’s status to turn off all points of access.
Provide greater operational agility. The cloud doesn’t instantly enable companies with business agility, which CFOs say is missing the most from their current financial management systems. Even with the decision to go with a cloud-based system, some companies get caught up in reimplementing custom functionality and processes, which are not conducive to business agility. Company leaders should evaluate a cloud-based solution for its ability to enable greater agility in their operations. For example, with Workday, you can configure new business processes, set up new legal entities, and add new dimensions, all in minutes and without relying on IT.
But the most important consideration when evaluating a cloud ERP or a cloud-based application is defining desired business outcomes. For example, what are the sales campaigns or lines of business that have an impact on revenue? That means finance needs to access the subledger details, not just a summarized view in a financial statement. By understanding your business drivers, a framework presented in Workday’s Buyer’s Guide to Finance, HR, and Payroll Solutions, your company will be able to identify the right technology for the business, not just any technology for the sake of being on the cloud.
A cloud ERP system has been defined as a suite of software applications that are managed in a single system. At first glance, Workday, with its integrated suite of applications, may seem like an ERP system—but in reality, Workday is an entirely new class of software.
Why? Consider this: It’s not unheard of that a legacy-ERP-system-turned-cloud-ERP still adheres to the inflexible data infrastructure of on-premise, where data remains in separate silos and custom-coded processes cannot adapt to the changing needs of the business quickly enough.
Perhaps an ERP system isn't quite what’s needed for emerging stronger in a changing world.
Workday is the antithesis of that, as explained in our “The Real SaaS Manifesto.” Workday was built in the cloud from the beginning. The very nature of an ERP system doesn’t translate to a native-cloud architecture. While a cloud platform may help lower operating costs, a cloud ERP alone isn’t going to close the gap between process and execution. This is one of the biggest challenges that organizations are facing, as indicated by the finding that 63% of CEOs say their processes and execution are too slow. That acceleration gap, which is the difference between the pace of change driven by new opportunity and the ability of an organization to capitalize on it, is only going to get wider.
“Operating at a new level of speed and agility means you can’t be saddled with an enterprise resource planning (ERP) system of the past,” says Pete Schlampp, executive vice president of product development at Workday.
ERP as a term and a concept needs to go the way of the dinosaurs and make way for a new class of software that closes the acceleration gap and boosts an organization’s ability to thrive during periods of change.
If Workday isn’t a cloud ERP, what is it?
Workday is an enterprise management cloud solution. Workday is a cloud-native operating system for the business, not legacy architecture ported to the cloud.
In an enterprise management cloud solution like Workday, at the center of the architecture is an intelligent data core. And this technology offers four distinct benefits:
Frictionless foundation. In most legacy architectures, transaction processing and analysis functions reside in separate systems, which complicates the process of creating a single source for trusted business insight. But an enterprise management cloud enables data to seamlessly flow across systems and be accessible in real time. Embedded security, modern automation fueled by machine learning, and an open and connected architecture mean a seamless coexistence with your IT ecosystem.
Complete picture. As a result of a frictionless foundation, teams can gain a real-time and complete picture of their finances, workforce, and operations. Live data is always accessible, easy to understand, and secure.
Business-first approach. Processes in ERP systems are hard-coded, making the technology ill-suited for a world where disruption occurs frequently. Companies need the flexibility to change business processes for driving business growth—but also to survive through disruption. Schlampp says it best: “Applications conform to what the business needs, rather than forcing the business to conform to the software.”
Continuous recalibration. Planning and analytics systems typically operate outside of traditional and cloud-based ERP systems due to the nature of their data structure.
Here’s a way to think of it: In an ERP system, employee data is like a square. In a planning and analytics system, the same data is like a triangle. In reality, the “shape” of the data is a pyramid: a square base with triangular sides. It’s still the same data, but viewed from different angles depending on the system. Your typical ERP system does not have the capability to see this dimensionality, as it can only look at data from one angle. But an enterprise management cloud system, such as Workday, can gracefully support multiple types and sources of data, allowing a different perspective on the same data.
That capability is made possible, again, through an intelligent data core. That allows planning and analytics systems to operate within one system along with other applications, such as a financial management system, and be continuously calibrated with the latest data, with plans put into motion directly by the transactional system. Or in other words, companies can plan, execute, and analyze multiple scenarios from different angles as fast as the world changes.
Companies say they’re data-driven, but all too often, their data capabilities are constrained by the code and architecture of their legacy software or ERP systems. An enterprise management cloud doesn’t have those constraints. Companies can leverage the data they already have to create the processes for desired business outcomes and the changing needs of the business. By closing the acceleration gap, businesses can truly be ready for a changing world.
1Gartner Predicts 2021: Time to Compose an ERP Strategy to Outpace Disruption, Denis Torii, Dixie John, Duy Nguyen, Tim Faith, Paul Schenck, 4 December 2020
2Gartner Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large and Global Enterprises, John Van Decker, Greg Leiter, Robert Anderson, 10 May 2021 GARTNER and MAGIC QUADRANT are registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and are used herein with permission. All rights reserved.