By Sean Barbera • October 23, 2018

Cloud ERP Taking Off for SMBs

Small and mid-sized businesses have been wanting cloud ERP long before most consultants and ERP vendors were willing to offer it.

As early as 2010, around 20 percent of SMBs that reached out to Navigator Business Solutions, an ERP implementation consultancy, were looking for cloud ERP. The problem was that consultants shunned the cloud and cloud-based ERP offerings were nascent except for a couple big players that had their toes in the market, NetSuite and SAP.

Grant Fraser, president and CEO of Navigator, saw this trend early and quickly recognized a huge need that was going unfilled. He reorganized Navigator around cloud-based ERP for SMBs, focusing on SAP’s cloud-based Business ByDesign platform and quickly becoming the most active implementation partner for the platform, and saw his company’s share of cloud business grow from roughly 40 percent in 2011 to nearly 100 percent of the business by 2016.

“A lot of partners didn't understand the cloud model,” says Fraser. “They were scared of the cloud model and so they only looked for on-premise business because that fit their business model, while we went looking for the cloud. And at that point, maybe 80 percent of our leads were insisting on the cloud or at least considering it.”

Market data bears this out. Forrester Research has shown that the vast majority of cloud-based ERP adoption—a market valued at $13,238 million in 2016 and projected to reach $32,184 million by 2023—has come from SMBs.

“There’s early adopters, then there is your mainstream and late adopters,” says Ralph Hess, vice president of sales and marketing for Navigator. “I think we're now in the mainstream phase.”

And it is easy to see why.

Why SMBs Choose Cloud ERP

Small and medium-sized businesses often have the same needs as large enterprises when it comes to ERP software. The complexity of the business isn’t less, just the scale.

The problem has been that SMBs cannot afford the large up-front investment in hardware, software licensing and implementation support that comes with the typical ERP deployment, a figure that used to routinely costs between $100,000 and $2 million.

There also is the problem of ongoing hardware and software maintenance for on-premise ERP systems, something that SMBs often struggle with due to lack of internal resources.

But the cloud changes that. Instead of a large up-front capital investment, SMBs can pay as they go using a subscription model. There’s no hardware or software to purchase and maintain because everything is handled by the vendor in the cloud. Further, SMBs get the full functionality that has been developed for larger enterprise clients but at the scale and price point they need because ERP vendors already have the cloud systems in place.

“As far back as 2009, I felt that we needed to come up with a different solution for our smallest customers who didn't have the inside resources to handle an on-premise server and database and all the rest of that,” says Fraser. “Now the SMB clients are getting what the enterprise used to get, basically.”

But at a much lower price point.

This can be huge for SMBs. Toad&Co., an apparel maker based in Santa Barbara, Calif., used to run an on-premise ERP that was a challenge to maintain and wasn’t easily enabling the company to adapt to new online sales trends, according to vice president of operations, Kelly Milazzo. But when the company switched to a cloud-based ERP solution, they cut IT costs by 60 percent and were able to offer new options such as in-store pickup for orders placed online.

"All we're [now] maintaining in our four walls is user hardware," she told TechTarget earlier this year.

A Work in Progress

Because the advantages of cloud ERP were clear from the beginning for smaller firms, many SMBs embraced it even before vendors were ready.

“Early on, around the 2015 time frame and even in 2016, SMBs were willing to accept the fact that [cloud ERP] didn’t do exactly what they wanted it to do,” says Hess at Navigator. “Maybe it isn't exactly the way we want it, but it's cloud, it's quick, it's easy to deploy, it's cost-effective--we're gonna’ go with it.”

As adoption has picked up and the market has matured, however, those functionality sacrifices no longer are necessary. Starting around 2016, SMBs began compromising less as ERP systems such as NetSuite, Microsoft Dynamics and SAP Business ByDesign evolved to the point where they began bringing the full suite of functions that previously only existed in on-premise solutions.

“I think it's a year or two away from really hitting its stride, to be honest with you,” says Hess. But he notes that it is close, and the market is back to where it was with on-premise solutions where significant compromise is no longer necessary to get cloud-based business process functionality.

This evolution has meant an increasing focus on industry-specific solutions in the cloud. Whereas any ERP in the cloud was better than nothing 10 years ago, SMBs and their larger counterparts now are back to looking for ERP solutions that meet specific industry needs like the strict compliance requirements imposed on medical device manufacturers by the Federal Drug Administration.

Vendors have begun rolling out industry-specific cloud ERP solutions like Flexibake for the baking industry, and implementation firms such as Navigator are putting together prepackaged cloud-based ERP solutions for industries such as consumer products and retail, manufacturing, and life sciences.

Shifting Away from Customization

With the move to the cloud has come a new methodology both for business processes and selecting ERP software.

“They don't want a custom solution today like they did a few years ago,” says Fraser. “They want something that's off-the-shelf that they can implement, and implement quickly so they can get back to doing business as usual versus trying to maintain a custom system.”

That’s why vendors and companies like Navigator are moving to prepackaged solutions and standard business processes built around industry best practices.

“We do what we call standard implementations,” says Fraser. “Okay, what vertical are you in? We've got three flavors you can choose. Pick that and we will implement with off-the-shelf best practices. That way you can get up and running probably at 60 percent of the cost and probably 60 percent of the time.”

This requires some organizational change, especially for firms that are moving from legacy on-premise ERP solutions. But as Toad&Co. has shown, the reduction in customization actually improves cost, nimbleness and overall process effectiveness—something SMBs need for global competitiveness.

"We were version-locked [with the on-premises system] based on all the customizations," says Milazzo. Now Toad&Co. can adjust to changing technology and shifting business imperatives far more easily because it is running an ERP that’s in line with current norms and business processes.

So cloud-ERP not only is cutting costs and reducing implementation headaches for SMBs, it also is bringing the cloud methodology of standardization to what previously has been a customization nightmare. This is a boon for smaller firms that can ill-afford reinventing the wheel for areas like accounting, human resources and product track and trace.

SMBs long have wanted ERP in the cloud, and they finally are getting it.

What is Cloud ERP? A Single System To Manage Your Business From Anywhere