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Cloud’s Effect on Traditional ERP

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Cloud's Effect on Traditional ERPLast month, software giant Oracle, announced that it intends to acquire the cloud computing pioneer NetSuite in a deal valued at $9.3 billion. NetSuite is one of the largest cloud ERP providers out there, and Oracle’s acquisition of the company is a reinforcement of the commonly held understanding that modern ERP is moving to the cloud.

Cloud ERP is increasing , and as Forrester research shows, planned and actual ERP cloud replacement grew 24% in 2013 and 43% in 2015. You may be wondering what’s behind this massive switch to the cloud? Supporting new business models is important to allowing companies to scale to new customer demands, while cloud ERP systems are able to save nearly six times the amount of capital invested cumulatively over traditional ERP systems. Cloud ERP systems are also much more effective at handling more complex manufacturing lines where speed is just as important as the production scale.

When Oracle acquired NetSuite, it really wasn’t unexpected. NetSuite targeted all of its sales efforts on SMB’s, while Oracle focused mainly on promoting its ERP systems to larger enterprise businesses. At the same time, NetSuite began to realize that those same larger businesses were attracted to their own cloud solutions. Also, Oracle began to notice that its customers were looking for a an ERP system that could be implemented quickly and support a more targeted a business practice. It’s not too hard to see that the line between the needs of small businesses and and large enterprises has been blurred and cloud based ERP solutions are better prepared to handle the needs of businesses of both sides than traditional ERP systems.

There looks to be even more confusion ahead in the classing of the cloud and traditional ERP worlds. In addition to offering NetSuites cloud based ERP system, Oracle is able to embrace the growing acceptance of the two tiered approach to ERP deployment. More often than not, organizations are choosing to augment, rather than replace their on premise systems with cloud extensions.

While Oracles offering of cloud and on premise alternatives would appear to make sense in today’s hybrid world they still need to prove that they can integrate the two options and satisfy their customers’ needs. Reports say that Oracle still has a lot of room to grow in this area.

In Oracle’s defense though, they’ve allowed previous cloud acquisitions to continue to operate in an independent fashion, and many of their employees have chosen to remain following their company’s integration. However, Oracle’s acquisitions haven’t produced much many new innovations that provide new value for their customers.

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