By: Barbara Darrow
For most companies, the big question is not if but when they will adopt cloud computing for the bulk of their IT operations, including the enterprise resource planning (ERP) software they use to manage inventory and product manufacturing.
Applications don’t get much more mission critical than that, and up until recently conventional wisdom was that fear of change would keep ERP applications running on premises and not in the cloud.
There are several reasons for the change. Recently, my colleague John Foley sat in as Mark Hurd and Ray Wang – Oracle CEO and Constellation Research founder respectively – discussed why ERP’s future is in the cloud.
[Disclaimer: the author is an Oracle employee.]
Cloud ERP eases financial reporting
One driver is that CFOs love the idea that cloud ERP, empowered by artificial intelligence (AI) technologies like machine learning, can automate routine financial management jobs, and cut dependence on custom reports, Hurd said.
If all the required information is in a cloud, the need to integrate several data “silos” is less than in traditional ERP scenarios.
Cloud ERP also enables financial types to get faster reports. Wang said he sees finance staffs wanting to go from monthly to weekly to daily reports. Cloud ERP deployment enables all that and eliminates the need to wrangle multiple spreadsheets.
Regulatory compliance is another, related, factor pushing ERP to the cloud. In the newly released Constellation Research’s 2018 CFO Priority survey a healthy 41.9% of respondents identified compliance as a top priority.
“The compliance world is increasing,” said Hurd. “All of that has to be automated. And AI-driven reporting dramatically cuts the time and resources needed to meet compliance requirements.
CIOs should care about what CFOs want because many of their concerns – on security, on compliance—overlap. In addition, many CIOs report to CFOs.
Risk management is yet another top priority for CFOs (close to 37% ranked it so). AI-driven ERP can help corporate leadership determine what a company’s risk is in a given scenario as well as what its appetite for risk is, Wang said. And then, the system would recommend a best course of action taking those factors into consideration.
Reached separately to talk about this issue, Wang told me that cloud infrastructure provides businesses with the most modern and efficient way to run their important software applications.
AI plus ERP makes a winning combo
Businesses that opt for cloud over on-premises deployment are able to tap into lower cost computing power at any given time. The fact that cloud software gets regular automatic updates is another benefit.
Cloud-based ERP systems can also use machine learning to help customers not only run their existing operations more efficiently, but potentially also identify “next best actions,” Wang said.
That means the company could find new profit opportunities.
Sifting through reams of internal and third-party data, for example, a cloud-based ERP system could recommend the optimal pricing on a given product. If a company prices a widget (or a car or a doll) too high, it will lose sales. If it sets the price too low, it hurt profit. The big win, to maximize sales and profit, is getting that price just right.
Wang said the advent of cloud plus AI is fundamentally changing the way people buy technology. As he put it during his conversation with Hurd, “The intersection of ERP and AI is shifting the way people are buying. They’re not buying a finance system; they’re buying the ability to ask a question.”
Going forward, people will not be purchasing software so much as they will buy insights, he added. They want the system to serve up the next best action.
“I’m not buying a finance system but the ability to ask questions like ‘do I add 100 people in marketing or do I add $10 million in budget?’”
The combination of powerful cloud infrastructure and smart software could thus lead to truly expert systems that can guide companies to make the best decisions using the best data and best infrastructure available.