Cloud ERP Strategy: Goodbye IaaS, Hello IaaS

One of the first deployment models for cloud computing was Infrastructure as a Service (IaaS).  Currently, there is a price war between the major IaaS providers like AWS and Rackspace to provide the cheapest infrastructure. However, enterprise customers looking to move their ERP solutions to the cloud should focus more on Integration as a Service (IaaS).  Integration, not infrastructure, will have a greater impact to TCO and ERP success.    In the next sections we will briefly compare the influences that infrastructure and integration have on an enterprise solution like ERP.

Cloud Infrastructure versus Integration

In a previous blog I reviewed the key competencies to consider as part of selecting an ERP cloud provider (ERP Cloud: Finding the Right Provider).  Both infrastructure and integration are key considerations yet I view enterprise integration the greater challenge.  Consider the following:

Cloud Infrastructure & Integration

Key Cloud Consideration Factors

Cost

The cloud storage war appears to be getting the most press in cloud computing but consider two factors driving this type of pricing strategy

  1. Vendors cannot provide a material differentiation or competitive advantage.
  2. Technology improvements continue to drive down disk storage costs rapidly.  Combine this trend with the economy of scale that cloud providers generate to continue driving costs down by another 40% in the next 3 to 5 years.

Moore’s Law highlights the computing hardware trend resulting in greater technology capabilities and driving down MIPS costs.  However, the same cannot be said for integration.  As discussed in one of my earlier blogs (Best of Breed vs. Integrated ERP), integration costs can be up to 8 times the cost of the ERP software. 

ERP Integration Considerations

ERP Integration Considerations

We have all heard the proverb “A chain is only as strong as its weakest link.” Applying this concept to business software, we would conclude that a business solution is only as strong as its weakest integration.

Business Value Realization

Allow me to make the general statement that outsourcing IT infrastructure to a cloud provider should result in a cost savings to customers.  However, I believe that IT organizations will quickly learn that providing this cost savings is a short-term value proposition to their business owners.  Ultimately, IT-driven innovation will drive business value realization.  Gartner identifies Integrated Ecosystems and Hybrid IT & Cloud Computing as two of the top 10 strategic technologies for 2013.     Every ERP solution has a portfolio of edge products/3rd-party integrations to external solutions to provide holistic support of business processes.  The only true method of creating business value is through business processes.

Socialization & Collaboration

The ERP software industry is realizing that people have the greatest impact on business results.  It is refreshing to see the increase in socialization and collaboration capabilities.  Infrastructure is necessary but integration is the critical path to success.

Market Trends

In my opinion, I expect to see the market changing for IaaS providers.  Given how important integration is to a viable cloud solution either existing IaaS will grow into a Platform as a Service (PaaS) or will be acquired by PaaS vendors looking to provide global support.   Just take a look at AWS and Rackspace’s transition from an IaaS to a PaaS:

Summary

History always has a way of repeating itself.  Recalling the Y2K problem, storage (infrastructure) was seen as a strategic/limited resource.  This view resulted in the programming practice of representing the year with two digits and we all know how that came back to haunt IT organizations.   Infrastructure is a cheap commodity when compared to a collaborative, enterprise integration framework.  Infrastructure is a key enabler for cloud computing but integration will ultimately determine your success of ERP in the cloud.   

About Brett Beaubouef
For the past twenty years Brett has helped customers select, implement, and manage ERP solutions across five industries (manufacturing, professional services, staffing, retail, and telecommunications). Business process knowledge and experience includes human resources, benefits, compensation, recruiting, time & attendance, finance, resource scheduling, contract administration, services procurement, sales, billings, project accounting, and project/portfolio management. Software selection experience includes evaluation of both ERP software and proposed implementation services. Brett has recently authored a book on leading ERP/COTS implementation strategies.

7 Responses to Cloud ERP Strategy: Goodbye IaaS, Hello IaaS

  1. At the Enterprise level, the way that ERP integrates with other systems is the critical factor. Adoption of the system, getting good value for money and giving a business additional flexibility all adds up to competitive advantage. The infrastructure behind this all might be interesting to some but it probably won’t add the value that a large business needs from making changes like this.

  2. Well said John! Thank you for your insight!

  3. Pingback: Cloud ERP Strategy: Goodbye IaaS, Hello IaaS | Pardaan.com

  4. John Dowsing says:

    Surely it is now inevitable that cloud ERP systems are going to be the way forward? You only have to look at other areas in business such as the release of the Microsoft Office 360 whereby everything is saved to the cloud and you just pay a subscription fee.

    • Thank you John for your feedback. Great question! I do believe that Cloud will continue to generate a greater value proposition that customers will be unable to ignore. A subscription-based model is a viable economic model for Public/SaaS ERP. However, there are several ERP solutions that do not handle multi-tenants well and you are seeing a push to private cloud where customers can keep their existing customizations. It’s a little more challenging to do subscription-based pricing in private cloud because there is no economy-of-scale with IT/ERP maintenance activities. At the end of the day – money talks and will inevitably drive customers to the cloud. Just my humble opinion.

  5. Pingback: ERP SaaS 101 – Services Trump Software | ERP the Right Way!

  6. muskaan121 says:

    Great Blog !!!
    I like the way you written the post.
    Post is informative and very easy to understand.
    Eresource provides Infrastructure ERP solution that helps in coordinating all the areas which are very relevant to any construction or infrastructure business.ERP software for Infrastructure companies serves as a ready resource for different areas of construction.
    Thanks for sharing such a nice post…

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