It seems as if nearly every week, a major business or technology publication carries an article about migrating processes to the cloud. In many circumstances, this makes sense for a range of good reasons. However, for users of ERP software systems, migrating a very complicated and sophisticated management tool with countless “moving parts” to the cloud can easily become a nightmare.
This is becoming a serious issue, as some of the large software vendors and integrators are making a push to get users to move their ERP from a company’s private servers to the cloud.
For instance, SAP will require all S4/HANA users to do so by 2025. SAP says the migration will take users only three years, but many independent ERP consultants insist it will take much longer for large users, with many far-flung operating divisions, to make the transition without causing massive disruptions to their businesses.
Why the Rush?
A growing number of ERP software systems users face pressure by vendors and the large integrators to migrate to the cloud, even if doing so is not in the user’s best interests.
Users should not be in a rush, especially if they have built an extensive infrastructure that is secure, serviceable and well-suited to run ERP software. It strikes us that the real motivation is not what is best for the user, but what is best for the software vendor and integrator. Migrating to the cloud can be a complex proposition, which means big fees for service suppliers.
To complicate the issue when making a sales pitch, companies such as SAP, Oracle, Microsoft, Accenture and other large vendors talk about “best practices,” “next generation” and “good for your company” in an effort to convince executives that if they do not sign up, they’re somehow being negligent.
Much of the time, this is nonsense uttered because customers want to hear it. What is good for a supplier is not necessarily what is best for a user.
Beyond the sales pitch, the reality is that many of the new generation of ERP software systems have their own functional issues and problems. Migrating an immature system to an immature cloud risks compounding the potential for difficulty.
Pitfalls in Migrating ERP to the Cloud
There are a number of traps waiting for the unwary or the rushed. In negotiating and drafting contracts where a user of an ERP software system wants to migrate to the cloud, or is facing pressure to do so, we are seeing a number of places where clients are at risk of falling victim to sales pitches. Before you go too far down the road, keep these five points in mind.
1 – There’s more sizzle than steak. Do not get caught up in the hype about cloud migration. It is not an appropriate solution for every ERP user and despite what a sales team or account manager will tell you, few of the current generation of ERP software systems are ready to go in the cloud. As we do with an ERP contract, we always try to include all of the cloud-related sales material in the contract in case promises are not fulfilled.
2 – Don’t underestimate the costs. There are both hard and soft costs in migrating an ERP software system 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 rollout, depending on the size of the organization and the complexity of its ERP system.
3 – 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 is one thing if a user’s employee forgets a tablet with access to your ERP system on a bus; it is another thing entirely if there is a breach of cloud files 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.
4 – Ensure there is an out. If the architecture of the provider’s cloud is not a clean fit with the ERP software system being migrated, it is vital to be able to step away from the contract when the problem appears and cannot be resolved to your satisfaction. Another deal breaker should be contract language that protects against cost overruns and completion delays – all too common with ERP.
5 – Before signing, ensure the system being migrated is cloud-ready. Despite what a vendor may say, few of the new generation ERP systems are cloud ready. Legacy systems may create issues for a user when they are migrated to the cloud. The cloud contract should include an assurance from the vendor that the ERP software system being migrated will, once completed, perform as it does now.
The bottom line? Be as careful with your cloud contract as you were with the contract for your ERP software system.
Implications of ERP Cloud Migration
The cloud offers many advantages, but it is not a magic potion – it is not right for every ERP user, despite what a vendor or integrator will say. Business decisions around cloud migration are as important to the future of your organization as was the impact of first acquiring ERP. The key to success is to remember that a cloud migration is a technology solution. Answer management questions first, before deciding to float in a cloud.
If you get calls from your vendor or integrator about migrating to the cloud and are unsure how to proceed, feel free to contact us. We will be happy to answer the questions you may have, as well as refer you to recognized independent consultants who can provide you with technical expertise when dealing with vendors.