With so many companies switching to a cloud solution, it is difficult to imagine it any other way than good. However, that is far from the truth.
Cloud ERP is unquestionably great for vendors. It shortens the sales cycles, decreases contract negotiations, and above all increases software vendor profits. For vendors it results in a consistent revenue stream. Because of the perpetual nature of cloud payments, the cost of cloud solutions for customers over the long term is much higher than traditional on-premise solutions – and the profits for vendors can be exponentially higher.
For customers, the ease of implementation, lower support costs, and the reduced need for IT resources are all valid selling points. But the reality is that the cloud is overhyped, and has substantive risks and disadvantages. While the cloud has been hyped as “next generation” and “best practice,” there are a number of traps awaiting the unwary or the rushed.
Most ERP software packages being sold as cloud platforms were not designed as native cloud platforms, and they are not ready for “prime time.” In the rush to grab recurring revenue and push the cloud’s advantages, many software companies reverse-engineered their products for cloud adoption to get on the profit bandwagon. The practical effect is that while you may be gaining some more advanced technologies in the cloud, you may be giving up sophisticated functionality that was stronger in your on premise environment. You also may be stuck with decreased functionality because of the inability to modify or customize a cloud solution.
Many ERP vendors exert enormous pressure on their customers to migrate to the cloud, even if doing so might not be in the customer’s best interest. Oracle, for example, notoriously provided sales reps with higher commissions to sell cloud solutions over on-premise solutions in an effort to get customers to migrate.
It is extremely important not to get caught up in the hype about cloud migration. Despite what a sales team or account executive will tell you, it’s not an appropriate solution for every ERP user.
- Don’t underestimate the costs. There are both hard and soft costs in migrating to the cloud. The hard costs are obvious, although we are seeing clients underestimate the downstream expense. The soft costs are more difficult because they involve a change management strategy that could take a year or more to roll-out depending on the size of the organization and the complexity of its ERP system.
- Specify security responsibilities in the contract. Since the user will not be operating or controlling the cloud infrastructure, the contract must specify in great detail the obligations and responsibilities of each party to maintain the security of the data being stored. It’s one thing if a user’s employee forgets their tablet with access to your ERP system on a bus; it’s another thing entirely if the cloud files are breached due to lax protections or security by the software vendor. The provider must ensure the safety of the data, protect it from being corrupted, hacked, or otherwise accessed without authorization, and have experts on hand to react immediately if something goes wrong.
- Ensure there is an out. It is vital to be able to step away from the contract when a problem appears and cannot be resolved to your satisfaction. Another deal breaker should be contract language that fails to protect against cost overruns and completion delays – all too common with ERP.
The bottom line is that the cloud offers many advantages, but it is not a magic potion. You are often giving up robust customized functionality for more generalized but sophisticated technology – and paying more for it over time. Understand what you are getting into, and make sure you can get out of it with minimal business disruption and cost.