Minimize risk in cloud ERP integrations

Companies considering cloud ERP integration can take steps to minimize risk, according to one analyst.

Companies looking to move on-premises ERP components to the cloud -- or integrate new cloud solutions -- should take steps during the vendor selection phase to minimize the risks associated with cloud ERP integration, according to a new Gartner Inc. report.

Those steps include involving IT and procurement teams in the selection process, determining a go-to-market strategy, and understanding both the short-term and long-term risks of a cloud deployment.

Not minimizing those risks can lead to choosing a cloud application that doesn't fully meet the company's needs, or to saddling the IT department with supporting software it wasn't involved in choosing, according to Pat Phelan, an analyst with Stamford, Conn.-based Gartner.

To start, companies have to take a comprehensive look at short-term and long-term costs, which can be affected by a range of factors, including how well the application integrates with the ERP itself.

"When you're looking at plugging a cloud service into an on-premises ERP … the hooks to get that cloud component hooked into your legacy ERP solution, that's not native stuff with the big ERP vendors," Phelan said.

"Some of the vendors have crafted the bolt-on, if you will -- the hooks, the openness -- to absorb and interface with cloud services, but [for] some of them, that's not a core part of the product. So, what we're finding is that IT organizations have to break new ground in terms of making sure that integration fits, and works with the existing ERP product. That's just new ground. It's not mature yet."

Companies should establish a 10-year total-cost-of-ownership analysis to understand the true cost of the cloud service, according to Phelan, and focus on deployment and sustainment criteria instead of initial cost-saving options provided by vendors. "You don't want to] end up buying something that's cheaper on the surface but in the long run, it's going to cost you more because of all the change involved in migrating," he said.

Start with a long list in choosing a vendor

In the past, companies deploying an ERP system started with a long list of vendors, then narrowed the list down. That changed with market consolidation, Phelan noted.

"As ERP matured, all we really had was a short list. So, what used to be a more long-drawn-out selection process, then it switched to a 'Well, you either pick SAP or Oracle, or something like that.' The bake-off is pretty simple," Phelan said.

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Given the ever-growing number of cloud vendors, companies must again compile a longer list of possible vendors and narrow it down according to the company's selection criteria.

"Historically, when we were writing the requirements for an ERP RFP [request for proposal], our function was to find a vendor that satisfies all of those requirements," Phelan said. "Nowadays, multiple vendors can satisfy requirements. The risk is that the old way of creating RFPs … doesn't work anymore."

Phelan also recommends factoring in that the cloud service provider (CSP) market is still immature, and that some applications that are hot today might not be around in the future. Because of that uncertainty, businesses should factor potential product life into their choice of CSPs, Phelan writes in the report. "Create a process for reviewing the chosen cloud service vendors frequently to confirm factors such as vendor viability and continued fit for purpose."

Get the IT team involved in cloud ERP integration

Some companies fall prey to the hype that cloud applications are always easy to deploy, Phelan notes in the report. In many cases, the central implementation tasks are just as complex and time-consuming as they are with on-premises ERP applications.

To minimize support surprises down the road, businesses should ensure that IT participates in the selection process. The risk is that the business will make decisions about acquiring cloud services without understanding their technical impacts, including long-term support issues, according to Phelan. Having IT representatives on the team helping to evaluate providers can identify technical delivery issues early in the process. "Sometimes what happens is the business will make this cloud service decision without getting IT involved, and then IT is the one that ends up having to support and sustain it [and] manage the relationship after go-live," he said.

Phelan also notes the importance of having procurement specialists involved, in that most business-based selection teams are not regulated by the enterprise's or IT's acquisition standards, and typically are accustomed to cloud sourcing and contracting strategies or best practices. As a result, the cloud services that are acquired often don't meet their company's sourcing guidelines, and that leads to a poor return on investment.

"We're finding clients are not taking advantage [and] that they could have negotiated a better deal," Phelan said.

Follow SearchManufacturingERP.com on Twitter: @ManufacturingTT.

This was first published in October 2012

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