Over the last 10 years, I have repeatedly asked large company CIOs about what systems were not likely to go SaaS or be put into the public cloud. If there was consistency, it was that their company crown jewels, ERP, would not move into the cloud. While cloud ERP clearly took hold within the mid-market, large legacy companies largely just said no.
Having said this, things have started to change so I have asked CIOs the question again—specifically, those in the weekly #CIOChat Twitter chat session. This time I asked for their perspective on migrating ERP to the cloud. CIOs interestingly started the conversation by first sharing their battle scars. They said that most ERP projects historically underestimated the time and effort required. They said, in particular, that bad processes, poor governance, and an inattention to organizational change management plagued many on-premises ERP implementations.
Having said this, CIOs said that cloud covers a lot of territory. Moving the datacenter to IaaS provides a lot of benefits for IT, but if the ERP isn’t cloud ready, it will not provide the benefit the business needs. Re-implementing ERP and re-engineering processes has for many been a holy grail but moving an ERP to SaaS is seen as a big undertaking that will likely require the organization to make changes and streamline their business processes.
CIOs assert that they don’t care as much about how a vendor delivers the service, and instead they want to know that the required business change offers the business an advantage. They suggested that if vendors are doing smart management things, a cloud ERP model may work well. Many are looking for a model that provides greater flexibility, where SaaS, they say, tends to bind you into exactly what the service provides. While binding you to what the service provides is useful, it can be constraining at the very same time. CIOs, however, are aware that flexibility by necessity comes with higher costs due to the need to maintain the customization created. Given this, they expect a managed service on IaaS to be costlier than straight SaaS, if only because infrastructure is less optimized and not shared. It will add as well additional administrative overhead.
One CIO said, at this point, they were part of an Oracle ERP implementation several years ago that took years off their life. Clearly, he said that back then he didn’t know better. ERP was effectively designed for C suite, but many times forced on the front-line team. And this led to failure. Years later, the CIO said CRM did the same thing. It was designed for CMO/CRO and sales folks hated it.
For a long time, CFOs and CIOs suggested that ERP would never be in the public cloud or at a SaaS vendor. What changed?
CIOs said that as public cloud matured, people’s perceptions have changed. CIOs and business leaders see the cloud and SaaS today as providing improved security, reduced security liability, laser focus on mission, and decreased costs. Additionally, the willingness to try new things has changed with the maturity of hyperscale cloud. At the same time, CIOs have grown more accustomed to using complex applications being SaaS. In sum, the cloud has matured and been accepted into the mainstream.
At the same time, ERP is no longer the one thing a CIO is measured against for success or failure. Obviously, moving to the cloud depends on the partner and their culture and governance. CIOs believe that it is important to look at SaaS ERP product architecture and features. At the same time, it is important to see how vendors have upgraded their products and processes. Just 5 years ago, moving ERP to cloud was a hassle and vendors had no clue how to do it themselves. Given this, CIOs worried about resilience and agility. However, CIOs say they are now comfortable with the cloud. This increased confidence includes improved contracts with verbiage holding provider accountable for the security of data.
What opportunities are presented to business leaders if ERP is moved to the cloud?
CIOs stress that migrating an on-premise ERP to cloud—the so-called lift and shift–is a bad idea. There has to be more to it for the journey to work. This conversation for CIOs covered a lot of ground from migrating from legacy ERP to SaaS, even cloud-native solutions from various vendors.
In terms of the business opportunities from taking this step, these include the following:
- Speed and regularity of updates
- Reduced or eliminated impact on customers for changes and upgrades
- No legacy baggage
- APIs to other systems
CIOs stress that any time IT moves in a direction that allows the business to easily change directions, add features, or quickly scale a new solution, the result is improved business. Moving ERP to the cloud shifts headcount to a vendor while keeping the organizational strategy and knowledge within the company. This can be a good thing because it shifts the company’s focus more to the strategic differentiators that drive actual business value.
This is versus non-strategic back office component of ERP. CIOs suggest that many organizations have sunk a lot of resources (time, effort, and money into core business systems that are essential, but don’t differentiate or provide any strategic value. The CIOs goal should be to figure out how to maintain these systems at a high level with the fewest possible resources.
CIOs suggest that ability to sit traditional ERP and CRM modules atop an extensible database schema and extend the application using integrated business intelligence and low code tools provides the kind of value proposition that is needed. CIOs believe, for this reason, that moving ERP to cloud should be mostly about migrating to new ERP, because cloud alone won’t justify such a risky or costly project.
Unfortunately, a reason for moving forward in some organization may be their processes are dreadful so they must be fixed. Clearly, for new entities if you don’t have an ERP, moving to the cloud is likely the easy choice because you don’t have to build and support infrastructure and can just operate the ERP. If you’re a legacy shop, it lets you transform a lot. For those that have ERP, the opportunity should be focused upon replacing internal builders with advanced business analyst skillsets. The goal should be to spend less time maintaining and refreshing. However, some CIOs worry that ERPs will remain quite costly and that moving from a usable, currently supported ERP to a cloud SaaS ERP may be a hard business case.
Who is pushing most for moving ERP to the cloud?
CIOs said that this is an easy answer. It is the vendors that are selling cloud the most. From experience, CFOs do not lead this discussion as this is not their expertise. Given this, CIOs need to lead renewal and then refresh of software implementations.
But from a demand side, CIO may need resources, maintenance, and flexibility. And CFO may support the move because it provides UI, modernity, and an extended feature-set. CEO may want it for scale and modernization. Each traditional stakeholder has their own reasoning. At the same time, the move can have the shiny-glossy-new reasons, too. CIOs need to be honest with the business in these cases. The problem is too many organizations feel their ERP is terrible and decide to move to cloud. The problem is if they don’t recognize the people and process issues behind this the change will not succeed. Given this, a move should be an organizational wide effort. Having active sponsors or champions matters. Technology leadership must be at the table from the initial thought for things to work.
If CIO pushes the change, instead of an organization needs it and recognizes it thing, things are likely out of whack somewhere. If the CFO pushes it, and the organization doesn’t, then there’s a mismatch here too. CIOs need to be able to make decisions off of it.
What are the biggest challenges of migrating ERP to the cloud?
CIOs say it is important to treat it as a move/migration rather than a fresh start. Issues include people, process, and then technology. People need to have an ownership culture. Other issues can include a lack of knowledge of the full picture of IT, shared data, and integrations within the ERP environment. This can vary by business stakeholder. Levels of readiness can be an issue as well.
The CIO is responsible for understanding their organization’s dynamics. Where will the most resources need to be spent to ensure a Cloud Native ERP migration is successful. However, CIOs insist that there is no ‘magic pill’ syndrome. The migration will not solve all their problems. Clearly, more difficulty can occur when an organization is a mainframe shop. If you’re in a self-hosted shop the desire for change is often driven for business reasons.
If you’ve never had one, you’re likely considering how the cloud lets you not have infrastructure you can’t do yourself. Doing a migration well demands a staffing strategy, a processes strategy, and an integration strategy. Data has potential cost and integration issues. Data warehouse, partner and integration costs, CIOs say, can be significant. Technical debt is a worry upstream and downstream. For SaaS, giving up your customizations away can be painful. Re-engineering business processes is smart. Not doing so means you’re likely to spend money to do the same thing, which isn’t helpful. And big bang moves are always hard.
In terms of barriers to success, many remember the last time and deeply worry about the impact to their teams. Meanwhile, it is important to be able to explain what the move means to organization’s leadership. You have to identify the value points. ERPs typically are part of a larger ecosystem and all the stars in orbit and interfacing with the ERP also need review in a simultaneous timeframe. In this process, CIOs want to find out where your bad code is? They, also, want to find out where their broken processes are. With this in hand, this is where moving to a service-oriented architecture, possibly with an API gateway or other broker can help to alleviate current issues.
The goal here should be to eliminate a lack of flexibility from vendors to contractually find a sweet spot between old licensing models and true pay-per-use schemes. CIOs should aim not consider these as IT projects, instead they should aim to help the enterprise take advantage of them becoming enterprise opportunities. This is not largely about technology. It is about people, processes, procedures. Plus, you need to calculate and manage to implementation, integration, and change management costs.
Where elements of legacy ERP systems remain on-premises, what functionality will be broken out and pushed to SaaS solutions?
CIOs suggest that the broken-out components will be different organization by organization, but usually data warehousing and analytics tools are likely still on premise along with integrations to partners in financial, healthcare, retail worlds. This part needs a detailed review and plan. Costs and contract can be significantly impacted. CIOs believe that for a migration to take place the functionality needs to enable best of breed solutions. A move to cloud ERP should be a springboard and catalyst to better investment in smarter, integrative solutions. Some CIOs, however, suggest that licensing can get in the way of all of this. These CIOS want to know if vendors have a cloud clue to our contract re-review and new review processes to make the cloud move work. Some…don’t. CIOs believe that licensing can be a real breaking point.
How would you make the business case for migrating ERP to the cloud?
CIOs believe that they need to prove the ROI. CIOs say that they need own whether moving ERP to the cloud is a do-over or a clean slate. They need to show the improved outcomes that will come with this change. CIOs are clear that this can difficult and it is a mistake if the change is only about reduce headcount. It has to be about improved business outcomes and redeploying resources to areas that drive business differentiation. This means CIOs need to think through the real opportunity costs and value created. In this process, CIOs saying using buzzwords is not a good idea. For example, a business case saying the Blockchain Enabled, AI, Big Data, Cloud ERP will magically fix broken processes, un-governed data, and bad habits all go away.
CIOs stress that migration isn’t a business case. It’s an approach. For this reason, CIOs need to ask themselves and those supporting the change what they’re trying to accomplish. This includes how should they best assure data portability, data integrity, data security, business continuity, efficiency, etc. If that assurance is provided in the cloud, the case needs to be made for these.
CIOs, in this process, need to look at where they can add value the equation. If running an ERP yourself doesn’t provide lots of business value, and you can make the cost model work while getting the functionality the business needs, then you should look at the move but, also, at the costs. And for some organizations such as public sector, there will never be a headcount reduction. Furthermore, reducing headcount is fraught with issues if you’re already pretty efficient. More important, there are lots of advantage to spending less time on non-value-add maintenance work and have greater resource flexibility.
The business levers linked to accompanying the strategy + quantifiable process efficiency + technical cost advantage is where the focus should be. One CIO said here that one of the biggest complaints they hear about cloud-based systems is too many clicks. Users complain that now they do in 10 clicks what they used to do in 2. This is what makes calculating ROI difficult for many organizations — we have a difficult time calculating opportunity costs, hidden costs, efficiencies gained. Often CIOs think servers + licenses + headcount= current cost.
At the same time, CIO are candid that vendors will no longer support on-premise and business will have no choice. Forget about innovation in on-premise. TCO may seem simple, but it is not easy in the messy real world. Clearly, it is not a terrible thing to digitally optimize business spend, which cuts prices or raises margins. Lastly, CIOs say it is often tempting for IT leaders to focus on IT versus taking a harder business focus, but this is often wrong. If IT is 2% of sales, focus instead on fixing the 98%.
CIOs are clear that migrating to a cloud-based ERP needs to result in tangible business value. And proving this will by no means be simple. This is big step and there needs to be a business impact and not just the application migration.