Pitching ERP Upgrades to The Cloud is the Wrong Way to Upgrade ERP to the Cloud

The part of the enterprise software industry that is struggling to move a legacy customer base to the cloud is finding itself in a bit of a pickle. While there’s a host of compelling reasons why their legacy ERP customers need an upgrade, an upgrade that will add significant new features as well as move them to the cloud, the vast majority of their customers are at best sitting on the fence about a cloud migration. And at worse? Many have told me and my colleagues that they have no discernible intention or plans to move their ERP systems to the cloud, at least so far.

This pretty much sums up an industry-wide problem that is plaguing, in varying degrees, all companies with large legacy customer bases and a lot at stake if these customers don’t make the move to their respective cloud ERP products. There’s no doubt that these companies all have customers who are happily making the move, but there’s also no doubt they’d all love to see a much larger percent making the leap.

Why the customers aren’t as excited as they should be is a complicated issue, and each company has its own peculiarities specific to its customer base. But the more I talk to customers across the industry, the more I find an important component to this issue that is shared by pretty much all vendors with large legacy ERP bases and a strategy intended to lure the holdouts to the cloud. That commonality? They’re focused on selling their cloud upgrades primarily to the ERP side of the business, and that means they’re selling an incomplete vision of what a cloud ERP system can do to only one of the many decision makers and stakeholders who stand to benefit from a cloud upgrade.

In other words, an ERP upgrade to the cloud makes the most sense as part of a strategy that extends the benefits of the upgrade to a wide range of line of business stakeholders, and yet many of these vendors’ primary go-to-market strategy is to talk to the CIO who’s been running the vendor’s ERP system for the last decade or two. These vendors are finding that selling an upgrade of the “system of record” in order to have a better system of record isn’t enough for the simple reason that the ROI of the ERP side alone doesn’t add up. It’s only when the ERP upgrade is described in terms of what benefits can accrue outside the traditional ERP domain that its true value can be realized.

At the heart of the problem are vendor sales and marketing strategies that are focused on the ERP CIOs with whom they’ve done business for so many years. While that worked once upon a time, it’s not working now. Those ERP CIOs in many cases are not positioned to make a compelling case to their LOB colleagues about why the ERP upgrade should matter to them and not just be a way for the ERP CIO to feather his or her nest. They’re either locked in their own silos, with little influence outside their ERP domain, or they have trouble seeing things from an LOB perspective, and even more trouble understanding how to describe the value of an ERP upgrade to someone outside the IT department. Or both.

This is why, when I met with a group of SAP CIOs at series of meetings sponsored by ASUG, the North American SAP user group, a number of them told me – and each other – that their senior leadership was concerned about the cost and complexity of upgrading from an on-premise SAP solution to a cloud SAP solution. That cost and complexity had led these companies to ask their SAP CIOs to take a look at whether there was some non-SAP solution that could do a better job. I’ve had similar conversations across the other legacy-to-cloud vendors’ customer base as well. In all too many cases, the feeling is pretty similar: the prospects of a greenfield cloud upgrade looks too costly to justify based on the value of the ERP upgrade. So they sit tight, look at alternatives, and hedge as long as they can.

There’s another factor at play here, and that’s an artifact of the M&A-driven cloud strategy that many of the legacy vendors embraced. These companies all have acquired customer bases that include execs in the lines of business who never wanted to be a customer of the vendor that acquired the products they use. In some cases these LOB decision makers actively resisted that opportunity in the recent past. Now the vendor wants to move the customer to the cloud, and needs the LOB exec to be at a minimum “okay” with the move, if not an outright advocate. And these execs aren’t yet convinced playing ball with the acquirer is in their best interests.

This is a principle reason why pure-play cloud companies thrive in the LOB world: They do as good a job selling against the legacy vendor who “carpet-bagged” into their respective LOB market as they do laser-focusing on a single market opportunity that doesn’t necessarily have to pass through the office of the CIO first. And with the legacy vendors stumbling to sell an “LOB-plus” message, the resulting primacy of the pure-cloud vendors in their LOB markets is pretty much a given.  

How can the legacy vendors fix this? While every vendor is espousing a more comprehensive view of what their overall cloud migration strategy is about – or at least trying/claiming to – the message that is filtered down to the customers is still largely based on five fundamental errors:

1. Selling products the way the vendor builds them (or acquired them), not the way customers want to consume them. This perspective lends itself to complex product and brand-based marketectures that try to cram a bunch of products, united by arrows and swirly lines, into a single market vision unified mostly by a tagline, which leads directly to error number two.
2. Failing to grasp what LOB customers want most: Solve the problems that keep them awake at night, particularly line of business leaders, who awaken at 2 am worrying in very practical terms about things like revenue and margins and customer retention and new business opportunities and new competitive threats. These women and men aren’t lulled back to sleep by marketing slogans, taglines, and swirly lines. They need solutions.
3. But instead of solutions, vendors are selling products, not processes, and brands, not ideas. This is particularly true for vendors that have been building or acquiring new functionality that extends formerly siloed business processes in new and interesting ways. I’m still waiting for some vendor to show how a strategic business process traverses their cloud portfolios from “product” to “product” without making the pitch all about the products and not about the process. Even if they do talk process instead of product, the process they’re showing is so generic and generalized that a LOB decision maker is left wondering what’s in for them. Which sucks because…
4. The LOB needs industry-specific views of the value a vendor can bring to their business, particularly their core processes. A watered-down, generic version of the process doesn’t cut it. They want to see how their process in their industry changes. This is insanely important because the enterprise cloud’s most oft-repeated mantra, fit to standard, looks more like an impediment to industry-specific innovation than a way to move forward in a highly competitive fashion.
5. Which means these vendors need to clarify – really clarify – what’s standard in their fit to standard clouds and how customers can extend the standard to meet their needs. These extension strategies abound in the vendor community – every vendor has a pretty well-thought out strategy for extending the cloud – but they aren’t necessarily communicated as strongly or as coherently to the LOB decision-makers as they could be. Instead, there’s usually way too many ways in which extensions get built, depending on – guess what – which product the vendor is pitching today. That’s where overaggressive brand marketing comes in: vendors create innovation brands centered around products and then pitch innovation as a matter of first deciding the general domain – is it about AI? ML? IoT? Blockchain (gag)? Big Data? Analytics? – and then try to sell the associated product as the appropriate point of entry for the innovation/extension. If you’re struggling as to why this is a problem please refer to points 1-4 above.

Sure is a lot more complicated than selling an ERP upgrade, wouldn’t you say?

I’ve been talking about this issue to most of the vendors in the market who suffer from this problem, and they all get it at the top, but how well that messaging is trickling down to the field is another problem. Making sense to the LOB is a much harder sale, one that requires a much greater knowledge and understanding of both the vendor’s portfolio as well as the prospective customer’s industry-specific pain points. Translating LOB products, capabilities, and experiences into talking points that an account exec can use reliably is no easy task.

I won’t finish this by going all apocalyptic about what’s at stake are if these vendors fail at fixing their ERP upgrade problem, you can read about it here. What I will finish with is that in many cases the ERP system actually doesn’t have to the first line of attack when looking at driving an innovation strategy at a particular company. It’s possible, and often preferable, to look at innovation as something to be started on the edge – the customer and partner-facing edge. Once that innovation is reasonably set, then looking at the ERP side might make more sense: Edge innovation can highlight where core innovation needs to take place, and in turn help cost-justify that ERP upgrade.

An oft-used example (at least by me) are those retailers I’ve encountered who have modern e-commerce websites but are still running AS/400s in their warehouse. The experience running a 21^st  century e-commerce system against 20^th century warehouse (which in my personal experience is a recipe for problems if not total failure) should provide sufficient justification for upgrading the warehouse. (That may have been the strategy at play at these retailers, or it may have been an artifact of a poorly thought-out strategy, it’s hard to tell.)

All the more reason why the cloud messaging of these legacy vendors needs to have a broader message. Wouldn’t it be nice to think that even if a customer put off the backend ERP upgrade in favor of a customer-facing upgrade they did so with a strategic vision of what comes next once the dust has settled, as in an ERP upgrade? And ideally an upgrade from the same vendor that sold them the e-commerce upgrade in the first place?

It’s hard to change decades of muscle-memory directed at selling to the CIO, but it’s got to happen. This problem is stalling the market at an dangerous inflection point, and the time is now to fix this. But you already knew that, didn’t you?