Beyond the hype: A more nuanced look at cloud adoption
Cloud Computing

Beyond the hype: A more nuanced look at cloud adoption

PAL Group, a medium-sized manufacturing firm based in the English midlands, faced a challenge shared with businesses worldwide. It needed to replace ageing business applications which had served their purpose for many years but were now lacking the speed, ease of use and functionality of modern systems. Naturally, the business considered migrating to new applications in the cloud, and benefiting from the rapid upgrade cycles and low capital costs the computing model allows.

Cloud computing has achieved phenomenal growth in recent years. Organisations’ spending on the model for hosting software remotely in virtualised environments will reach 54 percent of their IT budgets next year, according to IDC [PDF]. The market for cloud computing software will be worth more than $75 billion, achieving 22 percent average annual growth rate, the research firm showed.

Given this growth, it would be easy to assume the PAL Group’s decision was a no-brainer. But it was not.

The firm makes plastics and adhesive products and has been using a manufacturing system from Swan Business Solution for more than 20 years, but needed to upgrade, says Ross Herbert, business system manager.

“The way you did things in the software was quite cumbersome and difficult. We want to take orders, push through production planning, control stock, and pick dispatches in the most flexible manner. We were doing that with Swan, but it was quite heavy handed,” he says.  

The company considered a range of ERP alternatives before deciding on Infor, which had bought Swan several years ago. It also considered adopting the system in the cloud, but rejected the idea.

Firstly, PAL Group wanted to tailor Infor’s product to a degree which was not possible in the cloud.

“We realised that to get the best from the product we would need to use ‘personalisations’ developed by our implementation partner Inforlogic, and that could not be achieved via the cloud offering at present,” Herbert says.

Also, the system needed to connect to some legacy workstation technology within the PAL manufacturing plant. Herbert says that going to the cloud might force an upgrade to these systems as connections to them become unsupported.

The evidence of a cautious approach to the cloud for business applications is more than anecdotal. Although the headline growth in cloud adoption seems impressive, research from US IT industry group CompTIA shows that if you speak to users, the trends are much more nuanced.

The study of 500 US businesses in July 2016 found only 26 percent use cloud computing to support core business application such as enterprise resource planning, a fall from 34 percent in 2014. There were similar falls in HR software while finance systems remained steady at 32 percent. In financial applications, 60 percent of businesses still support the software on-premise. The majority of all major enterprise applications continue to be hosted in-house, it found.  

The trends reflect a change in the understanding of the nature of cloud computing, coupled with a long-standing caution when making changes to reliable, trusted business applications, says Seth Robinson, senior director of technology research, CompTIA.

“Companies are more properly defining and evaluating what is a cloud application. Before there was a lot of enthusiasm and a little bit of exaggeration,” he says. 

He says that the first applications businesses tended to move to the cloud were personal productivity tools and email. The next might be sales tools, which are only used by a single department. But when considering enterprise applications used by multiple departments, the picture is much more complex, he says.

“Take applications like ERP: companies have already invested in hosting them and sunk in a lot of time over many years doing customisation. They don’t want to begin to replicate that in the cloud. They’ve already paid for hardware and are not interested investing more heavily.”

Meanwhile, cloud vendors are contributing to the perception that more applications are moving to the hosting model than is the case, says Stefan van der Zijden, research director, application strategy and governance, Gartner.

“The vendors are racing to say they have more customers in the cloud than their competitors. That is painting a certain picture. It might be true from their perspective, but we don’t see it from the user’s point of view, as on-premises still dominates most application portfolios.” 

Although the cost of setting up an application in the cloud may be low, some businesses have a huge amount of time and effort invested in customising an application to their specific business requirements, instead of changing business processes to fit the application. On-premises ERP, for example, can manage hugely complex manufacturing processes. 

“The implementation requires a great effort, so the cost of transition [to the cloud] is high. If there are no clear reasons to abandon on-premise applications and move to SaaS in the cloud, then IT simply cannot make the business case.”

Van der Zijden points out that ERP life-cycles can be long. Some businesses happily run applications that are more than 10 years old and see no compelling reason to abandon them in the short term.

But that does not mean the appeal of cloud computing is lost to businesses investing in new enterprise applications. Vantage Power is an engineering company which specialises in retrofitting buses with hybrid electric-diesel engines. Legislation limiting emissions in city centres is driving rapid growth for the four-year-old company, which has doubled in size is a year and now employs 30 people.

Toby Schulz, chief technology officer of Vantage Power, says the company realised it needed an ERP system as it moved from prototype to production manufacturing.

“It is our first ERP system, and the cloud was a defining feature. We wanted cloud because we did not have an IT administrator in-house or the skills to set up and manage servers and software,” he says.

By selecting Infor’s ERP system, CloudSuite Industrial, the company is now able to trace assets through the business. The scale of the software can grow with the company without requiring further upfront investment, Schulz says.

Although sound reasonsc for moving enterprise applications to the cloud remain, businesses are right to exercise caution. It is right for some and not others. Remaining on-premise is not flying in the face of reason, or even prevailing IT trends, and that will remain the case for some time to come.

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Lindsay Clark

Lindsay Clark is a freelance journalist specialising in business IT, supply chain management, procurement and business transformation. He has worked as news editor at Computer Weekly and several other leading trade magazines. He has also written for The Guardian, The Financial Times and supplements to The Times. 

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