WHY NOW IS THE RIGHT TIME TO MOVE YOUR CORE BUSINESS OPERATIONS TO THE CLOUD. by Jeff Vance
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1 WHY NOW IS THE RIGHT TIME TO MOVE YOUR CORE BUSINESS OPERATIONS TO THE CLOUD by Jeff Vance
2 he risks of cloud computing have been completely turned on their head in the past year. Previously, businesses were wary of the cloud due to issues like security and reliability. Now, with cloud vendors having pushed beyond those obstacles, the risk is waiting too long. Many businesses are learning the hard way that the cloud is a competitive advantage for those who aggressively embrace it, but a distinct competitive impediment for those who sit on the sidelines. Volume , Issue 7 1
3 The hype surrounding cloud computing often makes it sound like an old-time panacea. It ll cure vendorlock. It ll ease integration pains. And it s cheap, to boot. Unlike suspicious cure-alls, the cloud tends to live up to the hype, but that doesn t always mean the average IT group is able to take advantage of it. IT buyers in the typical enterprise are anchored to expensive legacy systems. For them, it s not a matter of whether or not the cloud is viable; rather, it s a matter of when and how to move to the cloud without abandoning their existing data and systems and, essentially, starting over from scratch. I like to use a weather metaphor to discuss the future of cloud computing, said Chris Weitz, Director of Deloitte Consulting. There is the weather, which is short term, and then there is climate, which is long term. The cloud computing weather report has all kinds of strange things happening on it. The way the climate is changing, though, is clear. While many organizations may be trapped, at this moment in time, by legacy commitments, if they intend to be around in the long term, they ll embrace the cloud. How they get from here to there, though, fills Weitz s weather reports with all sorts of strange behaviors. ARE YOUR ON-PREMISE APPS STUCK IN A COMPUTING ICE AGE? It s not a matter of whether or not the cloud is viable; rather, it s a matter of when and how to move to the cloud without abandoning... existing data and systems and, essentially, starting over from scratch. The question now is how long must the getting-yourtoes wet stage last, before the typical enterprise is ready to dive in? According to Zach Nelson, President and CEO of NetSuite, what could spark the transition is a tough economic climate. Those relying too heavily on outdated on-premise systems will soon have a tough time competing with their more cloud-aggressive peers. Running your core business operations on-premise forces you to cope with a number of problems, Nelson said. First, most organizations buy multiple applications for different departments in order to run their businesses. You have one app for accounting, another for sales, another for support and yet another for engineering. The typical company ends up paying for a number of duplicate features over and over again, and there is little to no coherence between the various applications. In a down economy, this kind of inefficiency can doom you in the market. Of course, the easiest way to avoid this sort of duplication trap is to collaborate over the Internet. Here legacy on-premise software fails you yet again. Legacy software wasn t designed for the Web. Even with newer versions, Web features tend to be poorly functioning add-ons or homespun, less-than-ideal Rube Goldberg workarounds. Another problem is that legacy software, designed with a one-size-fits all mentality, must be thoroughly customized. An ERP (Enterprise Resource Planning) system for an auto parts supplier will look much different than one for a financial company even if the two companies are using the exact same application. The quickest way to get beyond all of this clutter is to start small. Many organizations have embraced the cloud for testing or , while keeping their mission-critical systems in house. What ends up happening is that customization locks you into a specific point in time, Nelson said. The features and configurations that were available when you customized the system are what you are stuck with. In the old model, updates and 2 Volume , Issue 7
4 upgrades force you to abandon all of your customization. When you are stuck in time and the climate is changing drastically around you, you run the risk of being as unprepared for new conditions as a woolly mammoth in the tropics. WITH INFLEXIBLE SOFTWARE NO LONGER ACCEPTABLE, ASAHI KASEI SPANDEX AMERICA EMBRACES THE CLOUD Asahi Kasei Fibers Corp. is a $10 billion Japanese conglomerate. Its American subsidiary, the approximately $100 million company Asahi Kasei Spandex America, manufactures spandex and other textiles. Asahi Kasei Spandex America was having trouble with its legacy ERP application from SAP. SAP s lack of flexibility forced the company into bad tradeoffs, constantly adjusting business process to the software rather than the other way around which is just plain bad business. An even bigger problem, in these days of tight competition and increasing regulatory pressure, was the fact that SAP could take a month or more to generate financial reports. Finally, the high cost of SAP was tough to justify during such a sharp recession. Asahi Kasei decided to abandon SAP in favor of the cloudbased ERP platform from NetSuite. Early into the deployment, Asahi Kasei estimated that it would save about $1 million in costs over its previous SAP R/3 software, including licenses and the need for additional employees. this into the overall budget, Asahi Kasei went from spending 3% of its revenue on SAP to 0.1% with Net- Suite, a savings level that was achieved within six months. Since the American subsidiary must report to its publicly traded parent company in Tokyo, Asahi Kasei Spandex America CFO David Stover says a major advantage of NetSuite is flexibility. NetSuite provides him with the financial visibility to work with multiple reporting options. Stover adds that since NetSuite is simple to use and easy to customize, managers can tailor it to their business process rather than force their business to conform to the software. SAP is a dictated business strategy, where NetSuite is an open strategy, he says. With SAP, it would take a consultant up to a month to make a simple change, whereas with NetSuite employees can configure reports instantly and on the fly. Part of what weighs SAP down and allows cloudfocused companies like NetSuite to beat it in competitive sales situations is that SAP s legacy as a complicated, shrink-wrap, on-premise application is a poor fit with the Web and new innovations like cloud computing. All the major software providers are getting their software ready for the cloud, said Weitz of Deloitte. A year ago, that wasn t the case. Today, though, they understand they will be left behind if they don t adapt. The cloud is quickly becoming the new normal. While SAP and others like it (Oracle, PeopleSoft, Microsoft, etc.) are trying to evolve, the fact that their developers must focus a great deal of attention on maintaining legacy products means that nimbler vendors who built their products with the cloud in mind have a serious head start in the cloud game. Even though the incumbents have deep pockets, there is no guarantee that they ll catch up to the new breed of low-cost, flexible, service-driven cloud software provider. In this case, the dinosaur incumbents may well go the way of the dinosaur. Moreover, the WAN required by SAP was costing $20,000 per month, ten times more than what the company is now paying with NetSuite. Factoring Volume , Issue 7 3
5 HOW CLOUD ECOSYSTEMS RADICALLY ALTER INTEROPERABILITY AND COLLABORATION Another advantage emerging cloud vendors have is that once a vendor reaches a certain level of acceptance, ecosystems develop around core products. Salesforce.com, Amazon Web Services, Google Apps and NetSuite s SuiteCloud Developer Network (SDN) all leverage active user communities and allow them to develop, trade and monetize any add-on or complementary applications. With legacy software, interoperability with other applications new or not is a struggle, often even violating licensing agreements. In contrast, applications available in cloud ecosystems leverage the openness of cloud APIs to achieve interoperability quickly and easily. Legacy applications have a hard time adapting to Web 2.0 concepts like collaboration, said Aaron Levie, CEO of Box.net. If you try to open up SharePoint for collaboration, you ll find that it s incredibly hard to do. Applications available in cloud ecosystems leverage the openness of cloud APIs to achieve interoperability quickly and easily. Like NetSuite, Box.net s content management platform was designed to be a cloud solution. One thing people run into as they move to cloud-based services is the need to interact with data stored elsewhere, Levie said. With Box.net for NetSuite, users can access, manage and share content from any number of sources without ever leaving NetSuite. Box.net s content management tools enable secure collaboration among various cloud solutions, while also making unstructured data stuck in legacy systems available to cloud applications. Few people realize that the cloud can actually protect your legacy investments by connecting data stuck in various silos, Levie added. This saves you from forklift upgrades when you move to the cloud, enabling a smoother, less disruptive transition. Just because you have to evolve doesn t mean you should do it all at once. 4 Volume , Issue 7
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