Companies that move ERP applications to the cloud often incur costs they didn’t expect and these extra costs may add up to more than what companies get back in benefits.
By now everyone has heard about the perceived benefits of moving applications to the cloud. Those include upfront capital cost savings for hardware and software licensing as well as for maintaining physical space, including floor space, air conditioning, electrical power, and so on.
Furthermore, cloud-based applications can always run on up-to-date technology without the costs or management distraction of making sure upgrades happen on time and on-budget.
All that said, however, a cloud migration may still actually cost your organization much more than if applications run onsite, especially ERP applications. Here’s why:
Upfront Cloud Migration Costs Are High
Upfront cloud migration costs are high and return on investment will take years to recover. If you are already running ERP applications, or you have other applications that are not “cloud enabled,” then you have already paid those upfront capital costs — and very likely those costs are fully depreciated. In that case the smart financial move is to get the largest return on investment you can rather than incur additional incremental subscription costs.
The Cloud Will Have a Minimal Impact on Reducing Resource Costs
The cloud will have a minimal impact on reducing resource costs for support and maintenance. If you represent an organization which is using packaged application software such as PeopleSoft or Oracle Apps you probably have a database administrator and an application administrator supporting your ERP environment. And if your organization is like most mid-sized companies or organizations, you do not have enough work to keep your technical staff busy and motivated.
It’s not that you don’t need these critical skills; you have realized that there isn’t the work effort required to keep them busy. Most likely, you probably face the same issue with application analysts and programmers. Going to the cloud will alleviate back-end database and administration resource needs, however, if you have other “non cloud compliant applications, then you find that you need to continue staffing application developers, database administrators and systems administrators.
Outsourcing on premise DBA and System Administrator functions is a good way to achieve savings to your IT budget bottom line IT costs at a much faster and higher return on investment for on site systems.
Are Cloud Services Really Customizable?
You make a significant investment in cloud technology and then find out that it’s not very flexible to meet the needs of the users. While most hardware and off-the-shelf software has become a commodity item, what is decidedly not a commodity is all the tailoring of your technology that goes on “under the hood” to enable your company to customize the software to represent unique business processes.
The cloud, on the other hand, favors a one-size-fits all approach that makes this kind of tailoring difficult. Moving to the cloud means that you either lose your business processes which are specific to your industry or corporate culture or you work through an arduous and costly third-party process to force fit your business into the cloud provider’s’ service model.
Your cloud provider is not in your business (otherwise they would be a competitor); they don’t speak your language; and so they can’t answer the important “what-if” type questions relating to your special business circumstances. They won’t be as qualified as your own application-support staff easily making needed customizations.
Cloud Migrations Actually Increase Staffing Costs
The people that cost you the most money — functional experts in finance, HR, payroll and application staff won’t be going away after a cloud migration. They’ll just be working harder doing things that used to be easier and faster before the cloud migration — back when they could operate the technology hands-on.
The promise of the cloud is that you can leverage the cloud’s commodity assets when in fact what you should be leveraging are your strategic assets — your internal functional and application support experts. If you want to outsource support to an IT partner, make sure the partner can bring strategic value, not just focusing on keeping the system running.
Make sure the partner will work directly with your internal staff to ensure that the application functions in a way that meets your business needs. And, while you’re at it, make sure that they can work with you in developing solutions that solve the complex needs of your organization.
Keep in mind that the purpose of your application software is to process your information in a timely and accurate fashion that meets your business requirements. You should be able to easily make the customizations and enhancements that will provide you with an easier way to run your business as opposed to having the software dictate how your business is managed.
Dimension Systems is an applications, database and infrastructure consulting company that has worked with enterprise applications since 1984, and with PeopleSoft since 1993. Our goal is to provide business technology support in a way that ensures that your application, database and infrastructure environments work in a way that best meets both your current and future needs.
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