When Rohit M.A., co-founder and managing director of Kids Clinic Pvt. Ltd, wanted to select a software for running business operations of the company’s Cloudnine Hospitals spread across India, he was clear about one thing: his customers should get a best-in-class experience.
Rohit chose Microsoft Corp.’s Dynamics 365 enterprise resource planning (ERP) software in the cloud. “Having our business applications such as ERP and customer relationship management (CRM) in the cloud means we can worry less about technicalities and focus more on customer delight,” he said.
Rohit is not alone in taking the cloud route. Some other cases in point: Podar Education Network runs its chain of schools in India on cloud ERP provided by Ramco Systems Ltd; Shree Cement Ltd uses the procurement module of the E-Business Suite of applications in the cloud from Oracle Corp.; and RuralShores Business Services Pvt. Ltd, a business process outsourcing company, expanded operations in India riding on Business ByDesign cloud ERP solution from SAP SE.
In the cloud computing model, enterprises can host software in the data centre of a third-party company or pay for software as a service. The model, which cuts down on upfront hardware and software purchase costs in addition to reducing technical management hassles, has been more popular for functions such as email, payroll and CRM, but it is now increasingly finding acceptance for ERP as well.
Research and Markets, a research firm, estimates that while the global cloud-based ERP market grew at a compound annual growth rate of 6.38% from 2011-2015, this is expected to rise to 8.3% in the period 2016-21. Overall, the worldwide ERP applications market (including cloud-based ERP) is projected to reach $84.1 billion by 2020, as per data available on Appsruntheworld.com, which tracks business application usage.
Research firm Gartner Inc. estimates that the enterprise application spending in India (which includes spending on ERP) will grow from $2.04 billion in 2016 to $2.39 billion in 2017, an increase of about 17%.
Talking about the evolution of ERP over the years, Virender Aggarwal, chief executive of Ramco Systems, said, “Initially, cloud was meant more for single-module products like CRM, human capital management and so on. But now we are seeing the complete ERP also moving to the cloud.” The key difference, according to him, is that cloud ERP is focused more on the front office, on helping organizations connect with customers; in contrast, the traditional ERP systems are more focused on back-office operations and “meeting compliance needs”.
Analysts and chief information officers (CIOs) concur. “ERP solutions have moved rapidly to the cloud because organizations of every size need more modern business applications with intuitive user experiences that can help them drive growth and agility while adapting to rapidly changing business models,” said Mickey North Rizza, program vice-president of enterprise applications and digital commerce at researcher International Data Corporation in a September 2016 report.
“We chose certain ERP modules on the cloud primarily because we wanted to provide easy, flexible access to people outside the organization—for instance, for bidding,” said Manoranjan Kumar, CIO of Shree Cement. For the majority of ERP modules, Shree Cement still continues to use what are called on-premises applications, which reside on the company’s own servers rather than on the cloud.
There are no publicly available estimates of the proportion of Indian enterprises that use ERP on the cloud, but experts agree it is still a small number. There are multiple reasons for this. “Indian organizations have been a little reluctant when it comes to moving their ERP to the cloud. Security is one of the major concerns. Since ERP consists of mission-critical activities such as finance, inventory, supply-chain management, etc., any glitch or any cyberattack can be detrimental to the very existence of an organization,” said Ajay Kumar, national sales consulting director (ERP) at Oracle India.
Besides, many enterprises have large teams of information technology professionals and their own data centres for housing servers, storage and other equipment and find it more cost-effective to run ERP in the on-premises model. “If you look at the cost over a 10-year period, cloud ERP is likely to be 30-40% more expensive than on-premises ERP,” said Manoranjan Kumar of Shree Cement.
Oracle’s Ajay Kumar contended that for certain organizations, cloud implementation can “save a fortune” and free their employees “to be more innovative and creative”.
Martin Hill, vice-president of marketing (international) at Epicor Software Corp., insisted that ERP is falling “rather gracefully into the background” and that is why people now talk more about other software such as analytics and mobility—even though it is “as critical as ever” to have an ERP system as the backbone of enterprise operations. According to him, typically, it is the younger companies with no background in ERP that are choosing cloud over on-premises solutions, giving them “more agility, faster deployment and faster time-to-value”.