Historically, executives considered ERP – Enterprise Resource Planning software – a cost of doing business. They viewed the idea that they could achieve a healthy ROI from an ERP system change with skepticism.
However, over the past 10 years, business leaders have become more likely to express enthusiasm for an expected payback from ERP. We attribute this to the core benefits of cloud, combined with other advances in functional capabilities and data mining.
A majority of U.S.-based distributors have either moved to a cloud-based ERP platform or intend to do so within the next few years. Key drivers of this trend include always-current feature-forward technology, better IT staff efficiency, and the promise of better uptime and security.
We expect that cloud-based ERP will be nearly universally adopted within the next decade, with the rare exception of companies serving the defense industry or those who require a niche-ERP solution which can only be deployed on-premises or in a hosted environment.
The prospect of calculating an ROI for this move to the cloud can be intimidating. But the numbers are not a secret, and ROI formulas involve simple algebraic equations. You can generate the financial payback in relatively short order provided you are willing to guestimate an improvement here-and-there and apply some general assumptions.
There are five key elements that drive ROI from cloud ERP:
- boosting revenue
- cost savings
- improving quality or performance (i.e., cost avoidance)
- capital-requirement reductions
- cloud savings
Examples of common soft benefits include ease of use, improved quality of work life and happy customers.
Companies that outsource the entirety of their ERP technology stack to the cloud yield a compelling financial reward of over $1,500 per user. This cloud-based cost avoidance combined with other functional ERP benefits can realistically drive an annual ROI of more than $3,000 per user.