Companies have slowly adopted a cloud deployment model for ERP. But that has changed suddenly and abruptly over the last couple of years. Last year, for the first time, more than half of ERP deployments were cloud or hybrid, meaning the ERP channel will need to adapt, says Michael Bennett, global channel executive of SYSPRO.
Cloud ERP has existed for over two decades, but companies have been cautious about moving their ERP off-premises. Until recently, ERP has typically been slower in cloud adoption.
However, cloud ERP deployment has rapidly accelerated in the past few years. For instance, according to Panorama Consulting’s ERP Report, less than half (44%) of companies deploying ERP chose the cloud in 2019. But by 2022, nearly two-thirds (65%) chose to deploy on a cloud model. That’s 47% growth in the proportion of companies selecting cloud ERP in just three years.
This shift has enormous implications for the ERP channel, a critical part of the ecosystem that makes ERP work for many companies. Many end-users rely on these channel players to recommend the right system, create a deployment plan, identify required customizations and integrations, implement the ERP, and provide ongoing assistance for long-term support and maintenance.
Vendors also benefit from the channel because it acts as a “force multiplier” for local sales coverage, deployment, integration and technical support. Channel companies often possess very specific industry domain expertise that can aid in closing sales. They also increase the chance of customer success by customizing the implementation and advising on recommended business processes before they are automated within the ERP.
But while the shift to the cloud has far reduced the importance of the ERP channel for customers and vendors, it has changed many aspects of ERP channel partners’ roles and required skills. They must adapt quickly to survive and thrive in this shifting environment.
The Channel’s Role in Cloud / Hybrid ERP
While the cloud has changed much for ERP channel companies, there is also much that hasn’t changed. Vendors and customers will still rely on the channel for a deep, hands-on understanding of industry-specific business processes and workflows. Additionally, channel players will still need to be very familiar with the standard third-party applications that the industries they serve typically need integrated into their ERP platform. Indeed, vendors will still need to possess industry-specific domain expertise, but replicating the channel’s on-the-ground industry experience would be difficult and costly to replicate at scale.
The channel’s expertise with on-premises hardware, software stacks and networking will remain relevant. Many ERP deployments will be hybrid in nature, with some functions performed on-premises for performance, compliance or security reasons.
But while much will remain the same, much will also need to change, not least of which will be the business model. ERP channel companies have long built their businesses on up-front licenses complemented by ongoing support fees. In this newer world of cloud ERP, licenses are replaced by subscription models. This change should make revenue more predictable, ultimately providing a stabilizing effect. Nevertheless, it’s a big change and will require adjustment.
The cloud will also require new technical skills. Channel organizations will need deep technical knowledge of the three significant clouds — Google, AWS and Microsoft Azure — and experience with whatever SaaS offerings their vendor partners provide. Technicians must ensure that the on-premises workloads in hybrid deployments interact seamlessly with those in the cloud. Integrating other applications with a cloud or hybrid ERP will require a thorough understanding of cloud and SaaS APIs.
Security, compliance and privacy in the cloud also require a specialized skill set and a clear view of what the cloud providers will take responsibility for and what belongs to the customer. Even among IT professionals, there’s a great deal of confusion about the shared responsibility model under which cloud and SaaS providers operate. Channel providers need to understand precisely where the lines of responsibility are drawn for each cloud provider.
See More: What Is the Future of Cloud: Expert Insights
Hiring and Training Cloud Specialists
Unfortunately, channel companies will find hiring people with cloud expertise challenging. Demand for these skill sets is high. According to the Wall Street Journal, cloud computing job postings grew 94% from 2017 to 2020, compared to 20% growth for tech postings in general. In a labor market that’s already tight, hiring cloud specialists will be especially hard.
But even if one can hire cloud specialists, retaining them will still be a challenge. Recruiters are relentlessly presenting new, well-paid opportunities to these highly-sought individuals. There’s always a “better” job on the horizon.
As a result, channel companies will need to upskill their current employees. With ERP shifts to a cloud model, investing in training isn’t a nice-to-have budget item. Solid training programs are now table stakes to remain competitive. Channel companies can increase their chances of success by choosing easily accessible online training platforms that personalize content for each individual on a micro-learning model. In this way, employees will never feel like their time is wasted on the content they already know or are irrelevant, and learning is more easily integrated into their schedules.
See More: The Value of Cloud-based Analytics: How Understanding Your Data Helps Keep It Secure
A Whole New Sales Cycle
Finally, it’s not only the technical aspects of the ERP channel that are changing. Sales and marketing must also adjust because selling a subscription differs from selling a perpetual license. For starters, the funds will come from a different source because instead of spending capex, customers will be using OPEX. This means that the customer journey will be different. This is usually a different budgeted line item for customers and can have tax and audit implications that channel companies should understand to help the customer address any concerns. For the channel company, this will mean a shift in financial mindset as the revenue comes in a slower but more predictable manner.
So, it’s not only technicians and engineers that will need to upskill. Customers will look at factors such as uptime, performance, cloud security and reliability. Even the customer experiences that contribute to churn will differ. The sales force will need new sales enablement tools and assets, marketing will need to adjust the message, and everyone will need to change their perspective. ERP channel companies must understand all cloud ERP nuances to reach prospects and close sales effectively.
Channel partners shouldn’t be on their own as they make this transition. Vendors have a responsibility to support their channel partners. After all, vendors succeed when their channel partners succeed. Vendors will ideally provide channel partners with thorough, detailed, easy-to-consume training on cloud offerings. They will support their partners with marketing tailored to sell their cloud products. And, of course, they’ll need to provide attractive margins on subscription products, so the business model benefits everyone.
ERP is a long-term play because it’s a core platform on which customers build their day-to-day business operations. As ERP continues to move to the cloud, it will open up new opportunities for the channel. So long as they work together, vendors and their channel partners can forge a new model that works for everyone.
What primary challenges does the ERP channel face as the market rapidly shifts to the cloud/SaaS? Let us know what you think on Facebook, Twitter, and LinkedIn.
