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Blue Solutions: The Dark Side of the Moon
Algimantas Brazauskas, CEOBy planning business digital transformation, i.e., analysing possibilities, planning implementation, we will inevitably reach the point where we will have to choose the technical concept. Every company must deal with the cloud versus on-premises question. In the last few years, the clash “between the clouds and the earth” became vivid. It looks like this applies to continents as well.
According to Panorama Consulting Group (2020 ERP Report), 62.7 percent companies in the US choose the cloud for their business digital transformation, the remaining 37.3 percent choose on-premises. Thus, not everyone is on the cloud; somebody is still on Earth. The main reasons against the cloud are:
• The lack of information/knowledge about offerings—40.91 percent
• Risk of data loss—31.82 percent
• Risk of security breach—27.27 percent
The first reason can be eliminated easily, by providing more clarity to evaluate the options, by communicating more intensively and closely, the substantiated understanding would be reached. However, the other two reasons are subjects of strategic choice or risk management, especially when risk of security breach takes the first place (31 percent) in 2019.
There is no doubt that one of the most important barriers to choice is the cost of ownership. However, by evaluating this criterion, the differences between continents come to light. In western countries, where the costs of expert-level IT specialists are high, the cloud is seen as a cheaper alternative, in the Eastern countries, where the costs of IT specialists are relatively low, the cloud is a luxury option with no clear justification.
By choosing the cloud, the companies are choosing a perspective, vendor promises regarding ongoing technology progress, the possibility to use analytics and business insights, Artificial Intelligence (AI), Internet of things (IoT), lower operation costs, to focus efforts on improvement of business processes, not on the operational hardware or software maintenance and updates. This choice supposes directly that we are tying ourselves up with the vendor for a long time and funding vendor’s investments into the technological development of the product, i.e. paying for the future. However, this strategic decision will be wrong (we will be overpaying), if the future of our business will be different, than it currently seems, or if there will be no future at all.
Our aim is to draw your attention to the full picture and help you make the right decision, necessary for the prosperity of your business
Are the companies really paying for vendor‘s effort to develop the product and do the interests of the companies and the vendor match each other?
Let’s take a closer look at the interests of the cloud vendors. Their goal is standardisation, “one size fits all” solution. And yet, who can use “one size fits all”, who can say that their business is “like all”? Favourable conditions for system adjustments, development, customisations are not vendor’s goals. On the other hand, the vendor is not seeking to restrict that all, because “one size fits all” may not fit anyone.
Each business includes some part of non-standard business processes. By choosing an ERP system, the choice is made from the systems that match your processes, do not cause limitations, allow incarnating specific business value and tricks, are scalable for your business needs. However, the competition is inevitably demanding adjustments and customisations. The specifics and business tricks of each customer are not the cloud vendors’ concern; they do not care about that.
63 percent companies in the US are using 11-50 percent customised systems (Panorama Consulting Group, 2019). The customisations are necessary, and they are related to business and market specifics, they bring higher value to your exclusivity, competitiveness and business success.
By choosing on-premises, the company pays money for what it currently needs and will need in five to eight years perspective. The company does not overpay, although, experience shows, that the actual lifecycle of an ERP system is 10-15 years. For such a long perspective, it is not possible to give a solid answer, which option is more economically beneficial, as there are too many uncertainties.
Another fundamental goal of the cloud vendors is to extend customer business dependence on the vendor for the longest time possible. If the business is sustainable and riskless, then the long-term guarantee from the vendor is an advantage. And yet, is this really the guarantee we expect? Being on the cloud means that we will be dependent on the vendor’s decisions. The vendor may change the pricing and payment terms anytime, and, everyone knows, that is always not in favour of the customer. Therefore, we are not sure about the cost of ownership in a year or two. If our business grows to the extent where the product (the system) does not cover its needs anymore, or, if the success of our business is in danger and we want to terminate the agreement, we will remain with our data and customisations, and we will have to decide if they still can be used and how. It is not easy to use the data without a “source” system; the customisations will be worthless for us – lost money.
Finally, are we really going in line with the technology development, are we able to use BI, AI and IoT, once we have chosen the cloud? Yes, there is no doubt about that, however, by going in line with technology development, the customers will have to accept vendor’s decisions on how the system will be developed and scaled, follow them, permanently upgrade the system, transfer and adapt their customisations to each new version of the system and we will never know in advance, when it is going to happen and what impact these changes will have. When choosing the cloud, we must be sure that our business and long-term system development roadmaps are aligned together. If it is not the case, then we are at risk to remain empty-handed. Doesn‘t it look like you are getting on a train and you don‘t know where it is going?
We will be able to use latest innovations (BI, AI, IoT and others) having on-premises as well, because, typically, if a respectable vendor maintains solution (e.g. ERP), the possibility to connect and take advantage of the innovations will be provided, even if the innovations are located in the cloud.
Of course, the cloud increases the dynamism and cost-effectiveness, there is no excess hardware and software, we are only using what we need, and that is a significant advantage if we are not losing anywhere else.
For sure, both alternatives have their advantages and disadvantages, but we are sharing our thoughts to show a different view, not the theoretical, but a practical one, so that you are able to evaluate pro/contra realistically and not simply follow marketing messages from the vendors. Our aim is to draw your attention to the full picture and help you make the right decision, necessary for the prosperity of your business. Just think about it.
