Traditional ERP and the Cloud

Now that Microsoft is “All In” for the cloud, can a traditional ERP solution such as Microsoft Dynamics make the transition to a cloud solution?

If getting to the cloud were only a technology problem, the folks at Microsoft could eventually solve it – even with the four distinct and different solutions lumped together into the Dynamics group. The four products would have to be merged into (or replaced by) a single offering (a challenge the company already seems to have abandoned with the end of Project Green). The merged or replacement product would have to be designed for the web from the ground up, not a hybrid of client/server and web services as announced last month. These are challenges that can be overcome, given time and money.

Where will Microsoft and other traditional ERP vendors most likely fail in bringing ERP to the cloud?

  • Architecture. Analysts will tell Microsoft that a cloud-based Dynamics solution must be based on a multi-tenant architecture or it’s not really a cloud solution. Multi-tenant solutions can offer some flexibility in the way customers use the solution, but when all customers share exactly the same software, the flexibility is limited. ERP solutions are complex and far-reaching in an organization, and must adapt to the needs of the organization. Customization of the solution and integration with best-of-breed extensions to the solution are critical in the successful implementation of ERP in most organizations. Although there are some organizations that are willing to do whatever the software vendor says, most will happily pay additional money to get the solution to help address the innovative processes that make their company unique. A simple, multi-tenant architecture doesn’t extend well enough. They need to invent a web-based, single-tenant architecture that can be unique for each customer, but still manageable and upgradable without undue expense. This will require Microsoft and other traditional ERP vendors to turn to a more innovative strategy for applications.
  • Channel. ERP solutions are complex and difficult to evaluate. The sales channel is critical to the success of any ERP company. Customers want to understand how the software will benefit their company before investing the time and energy to implement it. The major benefits come from re-thinking and streamlining (or eliminating) current processes. The sales channel is critical in translating and communicating the benefits to prospective customers, and in differentiating the product from competitive solutions. If Microsoft transforms Dynamics into the low cost, pure out-of-the-box cloud solution envisioned by many, the channel will have no incentive to push the product.  They can’t make money up front to cover sales and marketing costs, there isn’t much left from the monthly fee, and they can’t make money on customization services. Cutting out the channel for Dynamics means cutting off the revenue. Transforming a sales and marketing team from the traditional value proposition of license, maintenance, and services into a cloud-driven team is difficult enough. Transforming a channel will be even harder.
What could Microsoft do to overcome these obstacles? If they can’t transform the channel, they’ll need a reason for customers to buy Dynamics that needs no explanation. Perhaps they could change the rules – try to make cloud ERP all about integration with Office 365. And hope people believe the marketing hype.
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