Cloud Advantages – ERP the Right Way!

I recently attended Oracle’s OpenWorld Conference in San Francisco this October. There was a huge volume of information on the Cloud. As I walked through the Exhibitor’s halls at the Moscone Center, I observed that every SI partner had ERP in the Cloud or could get customers to the Cloud seamlessly. What I did not see is any offering or advisory service to guide ERP customers through the storm clouds to find the right provider. In the next sections we will discuss the key competencies to consider as part of making an ERP Cloud provider selection.

ERP Cloud Provider Key Competencies

Hardware Competence

Typically, this is the first area that customers think of when evaluating Cloud providers. For this discussion, hardware includes servers, processors, network, processors, and storage. Now, I may be chastised by my technology peers but I take a very practical approach to hardware. Business users are more concerned about technology results (reliability, response, availability, scalability) versus what hardware configuration is being used. I’m all for engineered solutions if they provide a material impact to technology results. I would not consider millisecond improvement on response time as a material impact on response time nor would I pay an additional $100 per hr /month for special hardware. Remember to keep the end in mind – you are moving an ERP solution to the Cloud. Review and identify Cloud providers that offer hardware configurations that best aligns to the hardware specifications and recommendations made by ERP software vendors.

Software Competence

For this discussion, software competence focuses on software and standards that enable a viable Cloud solution.

Selecting Cloud Providers – Software Considerations

For brevity sake, we will focus on a few of the key software enablers for the Cloud.

Software Area	Considerations
Open Standards & Technology	Open Standards promotes interoperability and data exchange among different products or services and are intended for widespread adoption. This area will be a key enabler (and indicator) of portability.
Integration	A viable ERP Cloud solution must provide a robust toolset for integration back to the customer’s on-premise supporting systems. Integrations can be a potential point of failure that must be addressed with a cost-effective solution. Cloud + Poor Integration = Failure.
Load Balancing	Load Balancing is vital for effective distribution of work across a multi-tenant hardware environment. Optimal resource utilization, maximize throughput, minimize response time, and avoiding overloads are not possible without a robust load balancing capability. Be leery of simple load balancing algorithms like random choice or round robin.
Virus Protection	Viruses can live in the Cloud. Malware known as Crisis can infect VMware virtual machines. Moving to the Cloud does not end the need for antivirus protection.
Virtualization	Virtualization is a key enabler for Cloud computing. In order to realize the technology benefits associated with virtualization, Cloud providers must be able to provide a robust solution for the following capabilities: Elasticity – dynamic scalability is an integral feature (enabler) for agility and fundamental IT cost savings. Logical isolation for data protection. Hypervisor management for VMs.VMs replications.
ERP Software	Not all ERPs are created the same for the Cloud. Following are areas to review in determining how “Cloud-Friendly” is your ERP solution. Single-Tenant vs. Multi-Tenant – Single-Tenant provides a more formal logical isolation for customer data. Multi-Tenant reduces duplicate upgrade efforts and technology resources. SOA Compliance – How well does your ERP solution expose methods and related data components to external solutions via SOA services? Network Latency – High data volume transfer between Cloud server and the on-premise client. ERP Experience – Also ask if the Cloud provider has “hands-on” experience with supporting your ERP solution. A leading Cloud provider will have a competent level of technical support knowledge for your ERP software.

Security Competence

Security is a key selection criterion for Cloud providers. A realistic expectation is that Cloud providers should have a greater level of security than your current on-premise IT environment. Following is an illustration of the key security areas you should consider as part of your ERP Cloud provider.

Cloud Provider Selection - Security Considerations

Cloud Provider Selection – Security Competence

There are three key areas that I would like to further discuss.

Identify Relevant Security Standards: Viable Cloud providers should be able to assist their customers in identifying and applying relevant security standards for their specific industry.
Security Validations: Leading Cloud providers are able to demonstrate their security competence via (a) audit and evidence gathering, (b) providing security audit findings for customer review, and (c) enabling customers to perform independent security audits if desired.
Data Encryption: Encryption of customer data either in transit or at rest should be a non-negotiable requirement for Cloud providers.

Value-Add Partner Network Competence

Every ERP solution has a portfolio of edge products/3^rd-party integrations to external solutions. It stands to reason that customers should consider the portfolio of ERP edge products that a Cloud provider can host as part of the selection process.

Cloud Providers – Value Add Partnerships

Selecting a Cloud provider is not a short-term relationship so ensure that you can grow and generate greater value from your ERP investment within the Cloud.

Services Competence

A strategic competency that I feel is being overlooked in the Cloud market is the service portfolio that a Cloud provider should deliver. Consider the following reality check:

Reality Check for ERP Cloud. Used by permission.

Technology is only part of the solution. What is the value of providing new ERP features if end users are not formally trained? Who will perform regression testing for both technical and functional upgrades? In my mind, a leading ERP Cloud vendor should provide both an automated testing solution and on-demand training solution to facilitate rapid deployments. Cloud providers should have a services framework such as ITIL or ITSM. This is a validation that your Cloud provider is committed to delivering reliable professional services.

Summary

Overall, I am very excited about the opportunities that Cloud can offer to existing ERP customers and potential customers who could not afford a Tier 1 ERP solution. Yet, we must not forget that there are advantages and challenges that we must address in order to provide a reliable solution for ERP customers. It is also important that we keep realistic expectations for the Cloud. Cloud is more about a new way of delivering computing resources versus being a new technology.

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Previously, I discussed some of the hard realities customers have to manage as part of a Cloud ERP solution. However, these challenges should not deter customers from looking at a Cloud ERP deployment model. There are broad advantages for Cloud ERP including incremental scalability and smaller start-up investment. I would like to speak to some of the less known advantages that a cloud model can provide to ERP customers.

ERP Value Proposition Revisited

In a previous blog article (ERP Makes for an Expensive Custom Solution); I outlined the key advantages and challenges associated with ERP software.

ERP Advantages and Challenges

For a successful ERP implementation, it is vital that the approach address both the inherent advantages and challenges. The right cloud deployment model can address many of the ERP advantages/challenges in a more effective manner than a traditional On-Premise model.

How Cloud Can Make ERP Value a Reality

Let’s briefly discuss how a Cloud ERP model can have an advantage over an On-Premise ERP model using the inherent ERP advantages and challenges as the context for the comparison.

Cloud ERP vs On Premise ERP

Let’s discuss some of the less obvious advantages in more detail:

Standardization: Cloud ERP will have an advantage over an On Premise model simply because the costs tend to be more visible to business users. Traditional internal IT organizations in general do not have a service-oriented price model for their internal customers. The cost of not standardizing business processes gets lost in the general IT overhead allocated back to internal businesses.
Share IT Development Costs: as far as short-term capital expenditures and scalability costs, I can see where Cloud ERP has a definite advantage. Longer-term or Total Cost of Ownership may swing the advantage to an On Premise model given factors like (a) customer size and (b) level of software customization required.

Next, let’s review a comparison between Cloud ERP model and On-Premise model on which model can better address inherent ERP challenges.

Cloud vs On Premise ERP Challenges

Let’s discuss some of the less obvious challenges in more detail:

Organizational change: When you own the change the more likely you are to accept the change. Even though there may be a divide between business users and an internal IT organization, they are both part of the overall organization. A rapid deployment of functionality does not necessarily mean a rapid user acceptance and effective use of technology.
Requirements gathering: Requirements gathering and business analysis is a gap that most ERP Cloud providers have not addressed effectively. Onsite, face-to-face interactions is still the most efficient means of gathering and validating business requirements.

Regardless of the advantages that Cloud ERP may have over an On Premise ERP model, a customer with unrealistic expectations for Cloud ERP will result in a disappointing experience.

Beware Of Unrealistic ERP Cloud Expectations

Cloud ERP is an evolving solution model with as many misconceptions as hype. In fact, many have labeled these misconceptions as cloud washing. Following are common perceptions and misconceptions that customers may have with Cloud ERP offerings:

Huge cost savings: This can be a huge misconception if customers expect to run on the latest/greatest/fastest possible hardware.
Quick solutions: There can be a perception of a real-time, on-demand value generation for customers. It is important to remember that Cloud ERP is only one component of a business solution.
Greater collaboration: Cloud ERP or any technology does not automatically result in greater interconnection between people, departments, and companies.

Be careful of expectations that go far and beyond what the cloud is actually capable of providing. Customers may want everything automated without having the discipline and effort to utilize technology appropriately. As the saying goes “You can’t have your cake and eat it too!”

Summary

Cloud ERP is a maturing deployment model that may provide a greater opportunity to capitalize on an ERP investment. A Cloud ERP model encourages standardization through visible economic drivers and provides the opportunity for greater focus on strategic activities. However, we need to balance our enthusiasm for Cloud ERP with realistic expectations. There is no such thing as a push button solution.

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