Is a hybrid ERP solution right for your business? [Podcast]

This three-part Sage Advice podcast series features Timothy Harfield, product marketing manager for Sage 100.  He is a philosopher, author, data scientist, and product marketer, although not necessarily in that order. In this series, Timothy shares his insights on the Forrester report released in 2019, Finding the right technology strategy for your unique business priorities. 

Below is an edited transcript of our interview.

Can you give us a quick summary of the Forrester report findings?

Timothy Harfield: Sure. So, for a little bit of background, we really wanted to test the hypothesis that a hybrid approach to ERP was not just an intermediary step between an on-premise solution and a cloud solution, but it was actually a distinct and unique ERP modality that was the right fit for a specific population of manufacturers and distributors.

There’s a lot of hype around emerging technologies and there is a lot of hype around “the cloud.” The cloud is very important and provides a significant amount of value. But, sometimes it’s difficult to sort of cut through the hype to understand if the cloud is actually the right fit for every manufacturer or distributor or small business. Perhaps a hybrid ERP approach was actually the right fit for this population.

What we found was that 51% of small and medium businesses surveyed in this report believe their existing ERP solution was inadequate.  They are looking to make a change to meet their business needs, which tend to be increasing revenue or decreasing costs.  Over 50% of these businesses were actively looking to an on-premise, hybrid solution.

When is a hybrid deployment the right solution for a business?

Timothy Harfield: The distinct characteristics of a hybrid ERP that respondents noted were the fact that it allowed them greater control over their environment, increased customizability, and the ability to update on their own schedule.

Many of the businesses surveyed have needs that are specific to them.  And, they are very particular.  We don’t necessarily see the sort of customizability or robustness, in terms of feature set, in a cloud-based manufacturing solution, as opposed to a more mature on-premise solution. We will get there on the cloud side, but likely not in the near future.

This report identified three types of businesses – continuous improvers, operators, and innovators. Can you talk about continuous improvers and their preferred ERP deployment?

Timothy Harfield:  So, what is really interesting about each of these categories is there isn’t one single preference. In each category you have to ask, “what are the conditions under which a cloud versus a hybrid solution is going to be the right fit?”

The continuous improvers are really, really focused on revenue growth. And, the way they expect to achieve that is through increased focus on customer service. They tend to be a little cloud cautious.  They perceive that the path forward for them is not made easier by introducing new technology solutions that in the short term could actually impede progress.

It’s important to underline the fact that these continuous improvers are not laggards. They are not resistant to change. Where they see opportunity for change is through incremental changes to their existing ERP, through customizations and through connectivity. We found that distributors tended to fall into this category more than manufacturers.

It’s important for the continuous improvers to ensure that the ERP they have is meeting their need for stability and consistency while at the same time not hobbling them as they explore additional technologies that could provide them with incremental return on investment.

Let’s shift to the next group, the operators who prioritize reducing costs.   

Timothy Harfield:  The operators, who were often manufacturers, are focused on cost reduction, optimizing internal processes, and the customer experience.

Like the continuous improvers, the majority of businesses that identified as operators didn’t plan to make significant changes to their core applications.  Many of these companies were already using on-premise solutions for their supply chain management and intended to stay on-prem or move to a sort of hybrid application.

For example, a customer who is on Sage 100, which is an on-prem solution, may move to Sage 100cloud because it minimizes disruption to their existing business processes while opening up additional opportunity to expand into cloud-based applications.

The last group you identified as the innovators. These businesses prioritize customer experience, right?

Timothy Harfield:  That’s right. They are focused on customer experience in order to increase revenue. But in terms of how they are thinking, they are thinking about the customer first.  And, that is what is driving innovation.  Interestingly, not all innovators are pursuing a cloud-native solution.  There are many businesses that fall into the innovator category for whom a hybrid solution is the right approach.  That’s because of its ability to incrementally contribute to the customer experience without disrupting existing business processes.

Finally, the last section of the report deals with some overall recommendations that Forrester has for an optimal ERP solution. Take us through a couple of these.  

Timothy Harfield: Sure. First of all, what are your distinct and unique business priorities? Then, what are your barriers to achieving those priorities? Let that guide your thinking on what a potential solution will look like. So often a business will say, “I am struggling.  I need digital transformation. I need AI. I need analytics.” In many cases the solution will be digital, but it may be as simple as painting lines on the floor to create shipping lanes.  Start with understanding the challenges.

Secondly, identify where you can get the most bang for your cloud investment. Most companies are not going all cloud. In the SMB space only 25% of companies have invested seriously in automation. Businesses have to recognize that moving from a strictly on-premise product to a fully cloud-native product can represent a significant disruption to their business. If that is the right move for them, they have to think very carefully about how to manage change. It may be that moving to a hybrid experience can help with change management.

Lastly, invest in education on new technologies and capabilities. Even if you’re not ready to invest in a new solution or extend your existing solution, understand where the industry is moving.  Understand the potential return on invest.  This allows you to chart a road map into the future for yourself and your organization so that you can continue to be nimble in response to changes in your industry.

Want to hear more from Timothy Harfield? Listen to the full series: Part 1, Part 2, Part 3.