Cloud ERP… Is It the Future?

In recent years, a lot has been said and written about “The Cloud” and why we all need it. Obviously, we all use “The Cloud” in our daily lives through our smartphones (e.g. Garmin Connect, Apple iCloud Photostream etc.) or through Microsoft Office 365, OneDrive or Dropbox on our desktop computers. Some even work in genuine “Cloud” applications such as Salesforce, WorkDay or Microsoft Dynamics CRM Online.

However, in this blog post, I would like to discuss what “The Cloud” means to Enterprise-Resource-Planning (ERP) and why it is important for a company to have a strategy going forward.

“The Cloud” obviously comes in a number of flavours, namely:

  • Infrastructure-as-as-Service (IaaS)
  • Platform-as-a-Service (PaaS)
  • Software-as-a-Service (SaaS)

with SaaS being the highest abstraction layer in the stack. Also, “Cloud” services are offered by a number of different vendors including Amazon (AWS), Microsoft (Azure), Salesforce, Oracle and IBM (Softlayer). Each “Cloud” vendor delivers different layers in the stack or a combination thereof. However, it is fair to say that most vendors, except from Microsoft, IBM and Oracle, focus on either IaaS or SaaS.

This blog post will not go into details regarding vendors or market leadership, but this article in Business Insider gives som basic insights.

When designing a “Cloud” strategy, I believe it is important to ask some important questions:

  1. Are we only looking for a flexible, OPEX-based approach to provisioning infrastructure?
  2. Is costs the key driver for the transformation?
  3. Are we looking to convert legacy applications to “The Cloud” or will they stay on-premise?
  4. Are we willing to put mission critical workloads into “The Cloud”?
  5. Does the nature of our data require special attention?
  6. Will we be looking to leverage platform services such as databases and integration middleware in “The Cloud”?
  7. How will we want to deal with security in this new scenario?

In the following, I am sharing some of my experience and views on “Cloud” strategy.

INFRASTRUCTURE (IaaS)

Some wise person said that IaaS is just running your applications on someone else’s hardware and to a degree this is true. However, in my view the main benefits of basing your strategy on at least some IaaS component is:

  • Ability to scale quickly and unconstrained by the limitations of your data centre.
  • Simple and efficient hardware provisioning.
  • Spike management.

For ERP, starting out by using IaaS for development and test environments can be an effective strategy that allows you to quickly scale. Also, this approach gives you the opportunity to iron out issues before deploying production workloads to “The Cloud”.

PLATFORM (PaaS)

Provisioning your platform products as services is a fairly new concept to most of us and takes some real consideration when designing your architecture. With Microsoft Azure you can for instance provision SQL Server as a service, but what if your transactional application resides on premise. Will the network be able to deal with the load?

A number of vendors including Microsoft (Azure) and Oracle (Cloud Platform) offer a comprehensive suite of platform services that allow developers to leverage sophisticated resources such as database services, integration services and analytics services. Also, in the case of Azure, you can leverage complex services including big data analytics, machine learning and Internet-of-Things (IoT) connectivity as PaaS.

PaaS vendors generally have a service, such as Azure Service Bus, that allows you to connect your on premise applications with your platform or application in “The Cloud”, but it will require some re-factoring of legacy applications to support this approach. So make sure to plan for this transitioning and code re-factoring if you consider leveraging PaaS.

APPLICATIONS (SaaS)

Most people will be familiar with applications such as Salesforce, Microsoft Office 365 and ServiceNow. All of these are applications delivered through “The Cloud” and paid for through subscription in some form or other. In the ERP space the key “Cloud” player in recent years has been Netsuite, but now other vendors such as Microsoft is muscling in with Dynamics AX and Project Maidera, which is a scaled-down ERP solution tightly integrated with Office 365.

Obviously, SaaS provisioned applications rely on PaaS and IaaS to function so subscribing to a SaaS application means you implicitly leverage PaaS and IaaS services.

In my experience, the key architectural considerations when subscribing to a SaaS application are:

  1. How will the application integrate with my existing security set up and, who is overall accountable for security?
  2. Does the vendor’s application life-cycle management process align with my existing process and do I have any control over patching?
  3. If the application is mission-critical, how will I manage major incidents?
  4. Does the application contain personal or highly confidential data, which must be stored in a specific geographic location or may not be geo-replicated?
  5. Does my subscription or contract provide mechanisms for existing the relationship?
  6. Will deploying mission critical applications in “The Cloud” require special network connections?
  7. Am I able to get to my data for integration and analytics purposes?

“THE CLOUD” AND ERP

So far, uptake of ERP in “The Cloud” has been fairly limited, but I believe this is about to change. Some ERP-related workloads such as CRM (Salesforce and Dynamics CRM), HRM (Workday), Service Management (ServiceNow) and Expense Management (Concur)  have for quite a while now been increasingly provisioned through “Cloud” subscription and I believe we will see more ERP vendors moving quickly to offering “Cloud” solutions in the near future.

For a small business, already using Salesforce or Dynamics CRM and Office 365, the next logical step is to subscribe to a cloud ERP solution such as Microsoft Project Madeira or Intuit Quick Books Online. These solutions are basically “vanilla” software packages offering fairly comprehensive functionality and integration to other popular small-business applications. For small businesses, subscribing to “Cloud” ERP is a compelling case with low initial costs and rapid implementation.

However, for medium-sized businesses and enterprises the switch to “Cloud” ERP may prove more complicated. As mentioned above, transitioning from on-premise ERP to “Cloud” ERP raises a number of architectural and security questions that must be dealt with through careful architectural planning.

Relationships with existing hosting and Application Management Services (AMS) partners may also need to be revisited to address scenarios that combine public and private “Cloud” applications with on-premise legacy applications and platform products. Staying in control of such an environment requires strong governance and change management skills.

In a transitional phase, we may in reality see “Cloud” ERP in the enterprise being deployed on-premise with some resources provisioned and consumed through cloud services. For Dynamics AX this is what is being promised with Azure Stack when released.

Regardless, implementing “Cloud” ERP in the enterprise will probably never be “vanilla” and should be approached with thoroughness and due consideration.

WILL THE BENEFITS OUTWEIGH THE CHALLENGES?

With Dynamics CRM we are seeing some features first becoming available in the “Cloud” edition and then subsequently released to on-premise. I am not sure this is a relevant reason to go for “Cloud” ERP. However, being able to off load accountability for performance, stability, security and patching to the vendor may be. Clearly, for small businesses unable to hire skilled IT staff this is a compelling reason, but for medium-sized businesses and enterprise with in-house skills our outsourcing agreements this may not be the case. At the end of the day, it probably comes down to an individual choice or business case for each company and costs.

As the workforce becomes more mobile, being able to access your ERP solution from anywhere, anytime becomes increasingly important. Scaling and deploying mobile on a global scale is very difficult and costly, so maybe mobile scenarios will be the compelling reason for some to move to “The Cloud”.

DOES “THE CLOUD” SPELL THE END FOR MONOLITHIC ERP?

Certainly, there is the potential for disruption as ERP moves to “The Cloud”. Specialist vendors seem able to provide comprehensive features across some traditional ERP domains including:

  • HRM
  • S&OP
  • Expense Management
  • Service Management
  • Project Management
  • Accounts Payable
  • Procurement and Sourcing
  • Document management

However, these offerings do not yet strike at the core of ERP namely financials, supply chain management, order management and manufacturing, but who knows…

In my view, the core ERP solution for mid-sized businesses and enterprises will remain a force also in the future “Cloud” world, but we are likely to see more non-core workloads being deployed through alternative “Cloud” offerings.

As you can see from my musings above, I believe we are still in the very early days of “Cloud” ERP and it will be exciting to see what the future holds. I encourage you to use this blog post to share your thoughts and views on “Cloud” in general and more specifically, “Cloud” ERP.

 

 

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About henrikmarx

With more than 20 years of experience from the application space, I have worked in a number of industries including manufacturing, distribution, professional services and retail. Currently, I am a Managing Consultant with PA Consulting helping our clients achieve more with Microsoft technologies.
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