Are Big Companies Ready For Cloud ERP?

Salesforce.com CEO Marc Benioff didn't invent this whole idea of going around the CIO to pitch software directly to business unit leaders. Back when Sandra Kurtzig founded ASK and was selling its MANMAN manufacturing software in the '70s and '80s, her teams regularly skirted IT to get directly to manufacturing chiefs. Dodging IT was so common that Kurtzig admits it's a bit unsettling how often CIOs are the ones initiating a discussion about her new startup's cloud-based ERP software. "It puzzles us because they were always our enemy," she says.

Think of Kurtzig's startup, Kenandy, as marking the outer edge of today's cloud software adoption. Kenandy's software-as-a-service handles manufacturing management, order management, financials and procurement. Its core is the order-to-cash cycle that SAP or Oracle software handles at most big companies. Kurtzig calls it the "heart and lungs" of the business, and she knows it will be among the last tasks transplanted to the cloud.

But Kurtzig saw enough potential to come out of retirement in 2010 to start Kenandy -- at the urging of Benioff. They're beach buddies in Hawaii. She says Benioff pitched her on the idea that companies will come around to running something as critical as manufacturing systems in the cloud, and that her ASK experience (CA acquired ASK in 1994) gave her the cred to deliver it. After meeting with Ray Lane -- a Kleiner Perkins partner and Hewlett-Packard's chairman -- and landing $10.5 million in funding, she started Kenandy (named for her two sons).

Kenandy's SaaS runs on Salesforce's development and data center platform, Force.com, and is written in Salesforce's proprietary Apex code.

Kurtzig notes the typical cloud advantages of not having to invest in hardware or hire as many people to run cloud-based systems. But that's not enough for ERP. Companies get competitive advantage from how well they make use of their ERP systems and features. So Kurtzig's pitch focuses more heavily on advantages like Kenandy's SaaS being more "social" -- it makes it easier to share data on production changes with suppliers and tie the supply chain closely to changing customer orders.

The 'Chiquita Moment'

Kenandy has a lot to prove. It needs more than just a couple of dozen customers. The entire cloud ERP segment needs a Chiquita moment.

It was in 2007 that Aneel Bhusri, co-founder of cloud HR software company Workday, announced at the InformationWeek 500 Conference that Workday had landed the 26,000-employee Chiquita as a customer. It was Workday's first big multinational customer to put HR operations in the cloud. Soon came a deal from Flextronics, a contract manufacturer that had 200,000 employees worldwide at the time. Those deals let other cloud champions challenge their organizations: What's so special about our HR that they can do this and we can't?

Flextronics CIO David Smoley drove the Workday deal, and Smoley's now optimistic about the potential of cloud-based ERP. He's spending time with startups such as Kenandy as well as established vendors such as Infor discussing the idea.

As he showed with Workday, Smoley is comfortable on the leading edge of cloud adoption. A lot of companies aren't ready to put something as critical as manufacturing management in the cloud. But the switch has flipped, and cloud is more often the first preference for new software, not a fallback. The boom in marketing technology spending (see "Why CMO Tech Spending Is Good For IT") is riding on the cloud, with software from workflow automation to analytics often bought as online services. Eighty-five percent of 2012 InformationWeek 500 companies are using software-as-a-service.

"Heart and lungs" functions such as ERP will be among the last to go to the cloud because of the sensitivity of the data involved. And changing an ERP system -- whether in the cloud or on premises -- is a complex job that risks disrupting business operations, so executives need to see a huge benefit. ERP replacements are to CIO careers what barely submerged shoals are to a sailor: a deadly hazard between you and where you want to go. But if the economy improves, and CIOs think about ERP upgrades, they're going to explore whether phasing in cloud elements makes sense.

I don't know if Kenandy has the chops to be a breakthrough startup. Perhaps a more established cloud-based NetSuite, or cloud options from the likes of Oracle, SAP and Infor, will win the day. But I won't be shocked if ERP-in-the-cloud gets its Chiquita or Flextronics moment in 2013.

InformationWeek: Feb. 11, 2013 Issue

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