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Economic Downturn Speeds ERP Migration to Cloud

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There’s a general consensus that the economic downturn brought on by the COVID-19 pandemic is accelerating the rate at which application workloads are being shifted to the cloud.

The challenge from an IT perspective is that not all application workloads are created equal. Launching a new application development project in the cloud is one thing. Trying to migrate a packaged suite of ERP applications running in an on-premises IT environment is quite another. Most packaged ERP applications have been customized to the point where completely migrating them to the cloud can take months, or even years, of effort.

Nevertheless, providers of ERP applications have been trying to accelerate that transition by making available cloud-based instances of their ERP applications. To make it cost-effective for the providers of those applications to provide those services they limit the degree to which the core ERP applications can be customized, while at the same time continuing to add additional capabilities intended to eliminate the need to rely on a customized business process.

SAP, for example, just updated the SAP S/4HANA Cloud service to add built-in support for, among other things, event-based revenue recognition for project-based sales processes and intelligent situation automation for the physical inventory processes. Historically, IT teams would have had to hire developers to customize their SAP ERP applications to enable these processes. As part of an effort to reduce dependency on custom code, SAP is defining a so-called Model Company through which organizations are encouraged to rely on best-in-class business processes that SAP has embedded into its application portfolio.

No "easy button" for cloud ERP transition

However, there’s still no easy button when it comes to making that transition. IT teams will still need to spend months mapping existing processes based on custom code to the processes enabled by SAP. Even then, there may be critical processes that an organization relies on that SAP has not replicated. The organization will then need to determine if SAP plans to add that functionality during a forthcoming quarterly update or if it should add that capability using a variety of application development tools and platform SAP provides.

After making that determination, IT teams will also spend a significant amount of testing those processes, which is why SAP also just allied with Tricentis to provide its customers with access to testing tools based on machine learning algorithms. The expectation is those algorithms will significantly accelerate that testing process.

SAP within its core SAP S/4HANA Cloud only allows for minimal customizations. Anything more complex would have to be built and deployed on a separate platform. That approach is necessary to enable SAP to provide a steady cadence of updates without having to worry about backward compatibility issues, says Oliver Betz, senior vice president and head of product management for SAP S/4HANA.

Betz concedes SAP has seen more cloud success with organizations that don’t have existing investments in SAP applications than those that do. These so-called greenfield installations can more easily standardize on business processes defined by SAP.

However, in time more organizations that have SAP applications installed will be making the transition to the cloud because of the economic downturn. Rather than continuing to incur the cost of supporting highly customized SAP applications in on-premises IT environments, cloud-based ERP applications should enable organizations to accelerate multiple digital business transformation initiatives.

“The ones that are most successful focus on standardizing business processes up front,” says Betz.

The pace at which packaged ERP applications will transition to the cloud will naturally vary based on the application expertise of the organization making that transition. In most cases, however, the urgency surrounding these initiatives has increased to the point where failure is no longer an option.

 

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