February 7, 2022
Companies are rapidly moving to the cloud to support business transformation. Comparatively few large businesses, however, have yet leveraged the cloud for their enterprise resource planning (ERP) applications, even though cloud for ERP has the most potential to help them gain access to modern applications and new technologies. That includes hyperscalers, cloud-enabled software and software as a service (SaaS).
ERP modernization has been a significant part of the digital and application transformation projects undertaken in the past year, according to Everest Group. But in 2021, more than half of the estimated $157 billion enterprise applications services opportunity remained linked to on-premise systems, according to the research firm.
Cloud-based ERP that contains ready-to-use best practices, built-in security and real-time access to enterprise data is the optimal way to gain agility, security and resiliency in ERP-supported processes. These capabilities are more critical than ever as ERP systems evolve to meet new economic challenges, which are most visible in supply chains that require global restructuring.
There’s more. An on-premise solution is generally more expensive by about 30% than cloud technology. Cloud value comes from reducing capital expenses for hardware and software, and setting up and running on-site datacenters, and more importantly unlocking deep business insight to drive innovative new products and services and improve operational efficiency.
Why the hesitancy?
It’s often very complex to move ERP to the cloud, which makes most companies hesitant to do so.
Successful migration to public cloud usually takes place when projects are based on our customers’ strategic business outcomes – M&A, line of business transformations, corporate expansions and general business process improvements. We see great success in areas that leverage standard processes in HR, sales management and procurement.
But it’s a different story when customers want to migrate complete ERP systems that contain nonstandard processes for supply chain, manufacturing and customer experience. These areas have been haphazardly customized or highly configured to have functions unique to their industry, regulatory environments or channels. There’s significant technical debt resulting from customization and not keeping pace with new releases. Another problem is that these ERP systems are tightly integrated with tentacles reaching into a company’s own systems landscape as well as those of its customers’ and suppliers’ environments.
The result of all this is that their ERP systems are fragile monoliths, and must be transformed with care.
The need for standardization
Standardization is strategic if businesses are to leverage cloud-based solutions at scale. Standardization makes implementing change across the enterprise swift and global. It enables quick access to best practices to support key business outcomes.
Standardization requires a clean core to reduce the number of customizations. Where customizations remain, they should be made cloud ready and compatible with the new cloud-enabled ERP software — that is, minimized or modernized, and future-proofed for the changes that will come with cloud as a way of life.
Without a strategic view of standardization, the old ways of doing business will continue, and transformation slow to a halt. To mitigate this, companies must plan in advance their approach to standardized and customized processes for cloud-enabled ERP.
A tale of two cloud ERP implementations
Companies have to do a lot of pre-work to understand what cloud solutions can best support their business model. DXC’s long experience of running global ERP functions in a highly resilient and secure private cloud and our proprietary tools and methodology enable us to recommend different fit-for-purpose solutions for our customers. By way of example, we have recently completed cloud ERP programs — one for public cloud and one for private — for two companies that were both created as a result of divestitures.
One of these customers wanted a clean break from the parent company. The plan was to implement as many standard processes as possible in order to support acquisitions and divestitures with a low-cost footprint. Our solution was to leverage a public cloud ERP solution as a greenfield implementation. We implemented the best practices of the ERP vendor to enable significant process standardization. The result was a fast, inexpensive implementation with as-a-service operations.
The other customer wanted to take advantage of its former parent company’s large investments in customizing ERP. Its plan for continuing operations as an independent legal entity included using the same processes, with only minimal changes. In this case, it made the most sense to migrate the legacy ERP solution to a private cloud platform, then modernizing it and reducing customizations. This solution set the client on the road to transformation to take place over time; it already has developed a clean core using our intelligent migration approach with an upgrade to a hybrid cloud solution.
Most of our large customers follow a multicloud approach, with a mix of public and private cloud solutions, and have a very aggressive approach to standardization.
Your path to cloud ERP
Every enterprise should consider cloud ERP as part of its overall technology footprint. To move forward with a cloud ERP program, it’s important to determine your desired business outcomes. Keep your eye on the future, too, protecting your ability to drive business improvements and standardization by making change management a key focus. ERP migrations to cloud, public or private, often fail due to not adopting change rather than to technical challenges.
Do the upfront work to assess standardizing ERP assets and the extent to which you plan to leverage cloud technologies, including creating a standard strategy for multicloud integration. You’ll want to break your program into manageable workstreams and phases, and lean into the hyperscalers and software providers to take advantage of what they do best.
Critically, be sure to build a security workstream into the program. You also should reset your IT operations to be service oriented moving forward.
Last but not least: Consider your master data strategy for the cloud and make changes to unlock the value in your data.
DXC is positioned to help you assess, standardize and modernize your ERP landscape for the cloud, and migrate to cloud ERP platforms. We leverage a cloud approach to help you rapidly maximize value for private and public cloud, and on-premises ERP deployments. Our deep experience and capabilities as an integrator in change management, master data management, process standardization including automation, system integration, testing and migration factories enable us to provide a complete solution. We lean into the hyperscalers’ capabilities and work closely with ERP software companies to enable customers to have as-a-service operations going forward.
Is cloud ERP in your future, and what will your approach be to get there?