The Month IT & ERP Permanently Changed

Summary:It's been a busy month of software events. But, taken together, they point to several major and permanent changes that will shape IT and ERP for decades. This seven part look at these changes spans hardware, HR software, the ERP leaderboard, changing buyer sophistication and more.

Part 5 – The Reality of Laggard IT Shops and the Cloud

 

In a customer interview last week, I asked a CIO about his cloud plans. He said: “Well, I’m from an older generation and I’m just more comfortable having all my systems in house”.  

And, there it is: a generation gap in IT.

I’ve seen this movie before.

In the early/mid- 1990s, when client server systems were all the rage and mainframe/minicomputer systems were in decline, a CIO at a major airline showed me his key-to-disk machines. That’s right, a major airline was still keying data in neat 80-column format on devices that didn’t even have a monochrome screen. The lesson is that the move to cloud will not come all at once, will not move all IT shops simultaneously and will take time. Time eventually catches up even with the laggards.

Return of the punch card
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Cloud may be the defining point in this, too. A younger CIO I know is all over cloud computing and is actively trying to get his IT group out of the application and infrastructure management business. Why? It doesn’t create value for the enterprise.

When more non-IT executives question the economics and rationale for staying on-premise, especially as the number and maturity of cloud-based solutions increase, the ability of an old-school CIO to continue to have their own private IT world will go away.

One of the benefits some vendors offer is the ability of a customer to take a cloud solution back in-house if they choose so. This one sounds good from a marketing pitch but will likely never catch on. Here’s why:

  • A company that moves its ERP solution to the cloud will likely dispose of (or repurpose) its hardware and drop maintenance or licenses for some of its middleware, systems management, backup/recovery and database software. It may also re-jigger its IT staff complement, too. For this company to bring ERP back in-house, it would need to replace all of these. It’s a massive cost and one fraught with risk. I doubt many CFOs have the appetite for this.
  • Companies that move from in-house distribution centers to third party logistics providers often find this to be a one-way path, too. Once they’ve disposed of their warehouses, sorting equipment, etc., it’s hard to justify the expense of bringing it back in-house again.

Some of the largest organizations (e.g., governmental entities, financial institutions, etc.) will likely stay in-house or go with a private cloud solution. If an organization utilizes a lot of custom coded applications, they are not a great multi-tenant cloud candidate. At best, they’ll be a single-tenant cloud solution user or a private cloud user. This way they can modify the code. They can keep their data and applications physically (not just logically) separated from other firms.

Of course, there will also be entities that for national security or other reasons must have closed IT systems. They may never be cloud candidates or will only do so for certain, non-sensitive systems.

But, as I covered in the first part of this series, we’re moving to a utility computing world. Most firms are going to move to solutions that operate in cloud environments.  The economics for doing so are too good to ignore. But, it is the multi-tenant option that will be most attractive.


“As to the benefits of full multi-tenancy, the numbers are clearly there. I've done the homework/calls/interviews and the reviews of plenty of business cases. In a head to head comparison, multi-tenancy will trounce on-premise.”

And there will be some companies that utilize a hosted version of an on-premise solution. The question that must be asked is why will they do this? In many cases it is because:

  • There is currently no multi-tenant solution for their industry yet.
  • The multi-tenant solutions are too immature or incomplete at this time.
  • They want to modify the software (see above).
  • Their current software vendor does not offer a viable cloud solution.

Bottom Line: businesses will want multiple ways of using ERP. These multi-instantiation options are different enough from the old, familiar on-premise world that they require more study as to true costs and benefits.

I would love to hear from more companies who are exploring any of these new deployment models and discuss your economic assessments of each.  And, in particular, I’m eagerly looking for a company that wants to move through many of these instantiations. That is, are you planning to go from in-house, on-premise to a virtual deployment to a private cloud to eventually a public cloud solution? While I’m having trouble understanding the economics of such a plan, I’d still love the opportunity to have someone explain it to me.

Again, the modern business needs more than 1 or 2 ways to deploy ERP software. Buyers need to be smart about picking the right path for their firm.

(Continue to Part 6 – The Lack of Vision in Some ERP Vendors)

Topics: Enterprise Software

About

Brian is in a unique position to diagnosis the winners and the losers in technology and services. He was the longest running (10 years) and most senior director of Andersen Consulting's (now Accenture's) global Software Intelligence unit - a position that required him to pick the best possible software solutions for hundreds of clients gl... Full Bio

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