Hybrid ERP matures as companies develop better strategies

Developing new strategies to ensure that cloud and on-premises ERP systems play nice together is just one part of the hybrid challenge.

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It’s hard to find a company that does not have some form of a hybrid (cloud and on-premise) ERP system. For most, that happened by accident. Someone in the organization bypassed IT and bought a cloud service to fill a need more quickly than they could with an on-premise solution. Salesforce.com, for example, has often been the start of a company’s march to a hybrid environment.

Cloud applications can be relatively easy, low-cost solutions, but they do introduce new complexities when they need to be integrated with on-premise ERP systems and databases, or with each other. Ensuring that cloud and on-premise systems play nice together is just one part of the hybrid challenge. Making the right decisions about what will be in the cloud and what stays in-house is the other.

[ Related: The year of cloud ERP ]

To meet those challenges, organizations are now transitioning from an ad hoc approach to building a hybrid ERP system to a more strategic planning process. That process includes best practices for vetting, connecting, deploying, and testing solutions.

The growth of cloud in the enterprise

“Lines of business bought cloud applications without IT, and they soon ran into issues involving transaction volumes and integration back into the core ERP system,” says Mike Guay, research director for enterprise business applications and ERP at Gartner. This thrust IT into an unexpected support role as they struggled to connect cloud solutions to the core systems securely and reliably. And while cloud solution providers took care of updates, IT at customer sites still needed to ensure that those updated solutions worked properly with both on-premise and other cloud applications. “The more frequent the updates, the more frequent the testing required.”

[ Related: ERP Heads for the Cloud ]

Management was also surprised by unanticipated costs, according to Guay. For example, as sales teams became more dependent on cloud CRM systems like Salesforce, they wanted more up-to-date information on shipments and receivables in the cloud CRM system. This required more frequent integration with customer files and perhaps accounts receivable systems in the ERP system. This created additional activity within the cloud CRM system, in turn raising fees.

Organizations have climbed the learning curve for hybrid ERP, allowing for better planning. The hybrid approach is still not easy, however. “Large organizations are still figuring out how much of their applications to move to the cloud—where the cloud is a fit and how the manage the balance between cloud and on-premise,” Guay says. If an organization understands the value proposition of each part—cloud and on-premise—of the application suite, he added, it will be in a better position to successfully align its needs with the right solutions.

“The state of adoption of much of the new technology available in business applications today is similar to what TV was like in the 1960s. On TV in 1960, you saw someone reading a paper into a microphone – the process of communication hadn’t changed to take advantage of the new technology,” says Guay. New capabilities often available in the cloud can better enable digital transformation efforts, internet of things (IoT) applications, or embedded analytics and machine learning. For example, new technology cloud-based machine learning services are better able to analyze large volumes of data and make recommendations to users of local systems.

Sabre understood this, having used cloud products such as Salesforce and being a provider of cloud-based software for the travel industry. “One of the challenges with SaaS providers is that they are continuously updating their software. As a customer, you have to continuously improve your process to absorb those changes and be able to take advantage of any new value being generated,” says Steve Strout, vice president of corporate systems at Sabre. “For me, that was one of the strategic things we wanted to accomplish—how do we train our business to take new feature/functions on a regular basis? That changes the role of our IT organization. How do we make sure the business is actually going faster and getting to new data?”

“From a culture perspective, continuously looking to adopt new capabilities was a big change,” says Strout. “Looking at connected data in a different way gives you reporting and analytics that allow you to see things faster because it doesn’t take as long to assemble data from different providers. This has allowed us to change a lot of our financial constructs so we have customer- and product-level P&Ls that are more meaningful.”

ERP vendors report that the trend for new deployments is toward the cloud. About 70 percent of new Microsoft Dynamics CRM and ERP enterprise customers are choosing the cloud option, according to Umran Hasan, senior marketing manager, Microsoft Dynamics 365. “The cloud connection ensures data aggregation, financial reporting, intelligence, backup and disaster recovery, and more,” he adds.

“The question [for our customers] is, ‘How much of our workload do we put in the cloud?’” says Sven Denecken, senior vice president of product management, co-innovation, and packaging for SAP S/4HANA at SAP. “We see the trajectory [toward cloud] going up really, really fast.” He added that any consumer-facing application is almost always cloud-based, and that HR applications are also rapidly moving to the cloud. He believes that finance applications are next in line to go to the cloud on a large scale.

“We see growing interest in the classic two-tier ERP if you can support the semantic integrity. If the hub and spoke model is compatible, that not only saves cost when exchanging or recompiling data, it also helps in the long term because you are comparing apples to apples.” Denecken adds,“It isn’t about feature/function. It’s really this idea that [organizations] need to define how their approach to a hybrid model should be taken forward.” Integration should be at the core of that discussion, as is the ability to perform on a platform-as-a-service (PaaS) model.

Platform was top of mind for Sabre when it began the transformation of its SAP ERP system to a hybrid model. “We wanted to build a platform that allowed us to leverage not only the financial systems but also have the capability to plug in SaaS providers, because that allows us to speed up our ability to deliver new value back into the business,” says Strout.

That new platform would allow Sabre to get to new products and services faster and respond to product development group. “The ability to produce new products and services and get them to market was hampered by processes in our financial and billing systems, and what it took to get everything in alignment. The concept was to move to S/4HANA and use it as a digital core of our data where everything connects to it. We leverage SaaS from other parts of the company including our IT service management platform, customer care systems (Siebold and Salesforce), Ariba, and SuccessFactors. HANA becomes our centerpiece where we can get at data and connect it to Hadoop for big data for reporting analysis and data mediation.”

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