key questions executive ask about cloud computing erp

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  • 7/31/2019 Key Questions Executive Ask About Cloud Computing ERP

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    Key questions every IT and businessexecutive should ask about cloud

    computing and ERPBy James B. Mattison and Saideep Raj

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    Executives involved in managing

    enterprise operations and

    optimizing corporate ERP systemsincreasingly need to evaluate

    the implications and impact of

    cloud computing. Asking the right

    questions is the best place to start.

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    For executives involved in selecting,implementing, managing and optimizingEnterprise Resource Planning (ERP)systems, the advent of cloud computingmay well be one of the more significantand disruptive events that they will see intheir careers. As awareness and usage ofcloud and software-as-a-service (SaaS)offerings continue to grow, ERP decision-

    makers are increasingly being asked toassess and communicate the implicationsand impacts. However, the radical changespromised by cloud computing combinedwith the emerging nature of many cloudservices are making this a difficult task.

    In Accentures view, the benefits offeredby cloud computing will ultimately resultin widespread adoption. The question isnot if it s when, by how much andhow fast. Yet this expectation raisesfurther questions. What will moving to

    the cloud mean for the existing massiveinvestments already sunk into traditionalcore ERP systems? What are the risks?And what is the longer-term future ofclouds role in ERP?

    Growing momentumLeading companies of all sizes and inevery sector are already well-aware ofthe benefits that cloud-based servicescan deliver to organizationsparticularly

    in terms of cost, speed and flexibility.The momentum is also building rapidlyon the supply side, with virtually allmajor software companies now takingdollars from on-premise revenues anddirecting further investment toward thedevelopment of SaaS products or variants.

    As a result, we believe that the nexttwo to five years will be a pivotal periodfor the build-out and maturing of thecloud market, and for the emergenceof enterprise-grade cloud services.In light of this, it is vital that everycompanylarge and smalldevelops anunderstanding of cloud computing, anda strategy for how to leverage cloudservices to meet their changing businessrequirementstoday and into the future.

    The secret to cloud-based

    ERP: multi-tenancy, sharingand the community effectCloud computing is a growing realitythanks to the pervasiveness of the Internetand Internet technologies, combinedwith advances in hardware virtualization,and modernmore flexiblesoftwarearchitectures. The additional benefitof multi-tenancy (or sharing) bringstremendous cost savings to softwarevendors through the enhancement

    and support of one version of code. Inaddition, a key catalyst has been thevarious introductions of cloud servicesby companies such as Google, Amazon,NetSuite, Salesforce and Workday, as wellas traditional mega software companieslike Microsoft, Oracle and SAP.

    When companies are assessingcloud-based (or SaaS) ERP solutions,

    we believe they should first seek tounderstand which components of thetechnology stack have multi-tenancy.Then, determine the adequate numberof tenants and objectively consider whyit will not work. Also, keep in mind thatwith more components shared and aseach additional tenant comes onboard,the SaaS providers cost per tenantdrops. The result is lower price and/orincreased product innovation, as well asopportunities for customer-to-customercollaboration within the cloud community

    To illustrate the progression towardsmulti-tenant cloud solutions, Figure 1provides the current landscape of SaaSofferings for ERP, ranging from dedicated,on-premise provision via private cloudto public cloud applications hosted atthe providers data center. Investment isshifting at an accelerated pace towardthe more sharing end of the spectrum,initially from box 1 to 2, and acceleratingtoward box 3 and 4.

    Higher cost (pay up front)

    Specialization Availability (Region/Industry)

    Traditional solutions (Greater productfunctionality depth and reference customers)

    Insourcing

    Lower cost (subscription Pricing)

    Speed and flexibility (changing business climate)

    Emerging solutions (Product functionality depth in first adopterindustries/countries)

    Outsourcing

    Less sharing More sharing

    Private Cloud

    Corporate Data Center

    Shared/StandardApplicationFeatures

    Shared Infrastructure

    2. Hosted (SaaS Pricing)Providers Data Center

    3. Software as a ServiceProviders Data Center

    Shared Database

    IaaS

    PaaS

    SaaS

    IaaS

    Accenture High performingbusiness process

    Accenture High performingbusiness process

    Custom Coding/Applications

    Shared/StandardApplicationFeatures

    Custom Coding/Applications

    Dedicated Databases

    Shared Infrastructure

    Shared/StandardApplicationFeatures

    Custom Coding/Applications

    Dedicated Databases

    1. On PremiseAt Site

    StandardAppsFeatures

    Dedicated Database

    Accenture Highperforming businessprocess

    CustomCoding/Apps

    Dedicated infrastructure Shared Infrastructure

    Public Cloud Public Cloud

    Multi tenantSingle tenant

    Accenture High performingbusiness process

    4. Business Process as a ServiceProviders Data Center

    Accenture Business Process asa Service

    BPaaS

    Public Cloud

    Shared Database

    IaaS

    PaaS

    SaaS

    Shared/StandardApplicationFeatures

    Custom Coding/Applications

    Shared Infrastructure

    Figure 1: Software-as-a-service trade-offs, and the degree of multi-tenancy. Clients should seek the maximum multi-tenancy/sharing while meeting their business requirements.

    Source: Accenture analysis

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    Top reasons why customers choose SaaS:

    1. Speed: Speed to deliver, ease of use and access via any device, anywhere

    2. Cost reduction: Reduced demand on in-house IT staff, upgrades included in service,

    customization does not deviate from upgrade path, always on the latest version,reduction in hardware costs, hardware break fix included, etc.

    3. Flexibility: Flexible software, end user configurable, flexibility to try with low upfront investment

    Top reasons why customers choose hostedmanaged service solutions:1. SaaS-like pricing: Upfront costs deferred

    2. Managed service: Lower IT resource demand, support personnel outsourced as part ofmanaged service

    3. Credentials/functional coverage: Same code as on-premise so often same credentialsand functional coverage apply

    Top reasons why customers choose on-premise:1. Functional coverage: Functional coverage fits best for particular industry/client needs

    2. Credentials: Ability to obtain detailed experience/credentials, comfort with familiararchitectures and pricing

    3. Prior investments: Desire to leverage owned hardware/software as well as in-housestaff skilled in on-premise

    We know that the topics of cloud computing and SaaS are rising rapidlywithin the ERP agenda amid growing interest at the board level. But howcan ERP decision-makers keep pace and come to a timely, focused and

    productive evaluation of clouds potential and pitfalls? To help them dothis, Accenture has identified key questions that we believe executivesshould ask about cloud-based ERP. By focusing on these questions, theycan cut through the hype and identify the real opportunities and risksthat result from cloud computing for their ERP systems.

    Cloud-based ERP: Key Trends

    1. Why cloud for ERP?

    2. Is cloud-based ERP really ready for my business?

    3. Can I customize and extend a cloud-based ERP solution to my business?

    4. Does adopting cloud-based ERP mean throwing away prior ERP investment?

    5. What are the risks of moving to cloud-based ERP and how do you manage them?

    6. What is the future for cloud-based ERP?

    Key questions about cloud based ERP:

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    1. Why cloud for ERP?As companies increasinglyunderstand its potential benefits,they are asking Why not Cloud-based ERP as the preferredoption?... Particularly if business

    requirements are being met.

    We have already highlighted the potentialbenefits of moving to a cloud-based ERPsolution. In summary, these include:

    Faster implementation: easier to useand deploy

    Greater flexibility: systemconfiguration, pricing is more flexible

    Lower total cost of ownership(especially start-up cost): savings can

    be 30% to 50% of TCO compared toon-premise ERP

    Less dependency on IT staff and/oron-premise hardware

    TCO: A case study Hurwitz & Associates

    The graph below depicts TCO for a newimplementation of on-premise ERP vs

    NetSuite over a 4-year period withoutfactoring major upgrades of software andhardware (typically done every ~5 years).If we add those major upgrades into thepicture, the business case for SaaS is evengreater. The savings in this example areat ~50%, with 30-50% a typical range.But the details are equally important toconsider. Taking a closer look, notice thatthe licensing costs actually went up withSaaS. This can mislead technologists whoare used to comparing just the licensecosts of on-premise providers. With SaaS,the savings often do not come fromlicensing, but rather from the inherentlower IT personnel costs and hardware

    outsourcing. Investing savings intoprocess improvem

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