ERP vendors are forging ahead to a Cloud-based future, none more so than SAP and Oracle, both using every tactic at their disposal to push their customers onto their Cloud products.
However, many organisations have been reluctant to move their entire ERP suite onto the Cloud over concerns like cost, suitability, and complexities in migration.
But one factor that many don’t consider is ‘Cloud lock-in.’ In this blog post, we’ll analyse what Cloud lock-in actually is, what can cause it, its effects and ways of overcoming it.
SAP customers pay attention!
SAP customers in particular are under pressure given that SAP has placed a deadline (now extended to 2027) for them to move to its Cloud product S/4HANA. We’ve written an in-depth guide that you must read on your upgrade options and their pros and cons.
What is Cloud lock-in?
First, be aware of the difference between Cloud as a platform for your ERP system (such as hosting a traditionally on-premise product on an AWS Cloud), and using a vendor’s Cloud-based SaaS product like S/4HANA:
- With Cloud as a platform, you are merely using someone else’s hardware to run your software in the Cloud – this potentially provides additional flexibility and cost-effectiveness
- Cloud based SaaS products allow you to use a vendor’s software that is hosted within the vendor’s Cloud
It is the second version that we will be talking about in this blog post, as it is controlled by the vendor and where you as a customer can experience Cloud lock-in.
Cloud lock-in means dependency
Customers using a vendor’s SaaS Cloud products are dependent on the vendor for its products and services, plus its support and maintenance. Customers rely on it to provide the applications they need, receive any necessary updates and patches, and host their data. The crucial lifeblood of their organisation is in the hands of a provider.
So far, this might not sound hugely different to an on-premise ERP; you may own the databases, but you expect your vendor to provide the service/support/security you need.
But the key difference between on-premise and SaaS Cloud, is that word ‘dependency.’ On-premise customers don’t have this problem; if they want to approach a new vendor – say they don’t like the look of an upcoming upgrade and want to avoid it – then they have the freedom and the choice to do that.
Cloud customers, locked in to their vendor’s SaaS product, don’t have the same freedom.
What causes Cloud lock-in?
We believe there are three key areas where customers of Cloud-based SaaS ERP products can become locked into their vendors:
- Data lock-in: When moving to a vendor Cloud product, it’s likely that you’re going to have to reformat your data to fit their requirement. That data is likely to only work on their system going forwards. To make matters worse, there is also very minimal advice on how you can export data back out again if you need to, meaning you and your data are trapped.
- Cost lock-in: A SaaS Cloud contract is a costly, long-term agreement with the vendor, with no access to third-party providers of services like support. This is a whole reimplementation of your systems, so whatever you choose, it’s a big investment you are stuck with.
- Process lock-in: Unlike a traditional ERP system that you can customise to fit your organisation’s needs and workflows, with a SaaS Cloud product you have to follow the same processes that the vendor dictates; working in the way that Oracle/SAP like to do it, not necessarily the way you like to do it.
What are the effects?
- You have limited ways of working: On SAP or Oracle’s SaaS products, you’re limited to their user functionality and setup, with very minimal scope for customisations. This links to process lock-in as you can only work the way their products allow you to. This means you will likely need to change your organisation’s processes and workflows before moving across.
- You’re on the vendor’s timetable: Security, patching, upgrades; all these things will be implemented at the vendor’s discretion, not your own. This means that you have to wait for security patches and cannot choose when a potentially system breaking upgrade occurs. There’s also the risk of end-of-support deadlines. For example, SAP has agreed to continue supporting S/4HANA up until 2040. What happens to you once that date has passed?
- You have no negotiation power: Once you’re locked into Oracle/SAP, they know how difficult it is to escape. Expect regular and non-negotiable price rises as the norm.
Can you avoid ERP Cloud lock-in?
You have two choices, move to a vendor’s Cloud (in which case there are a few tactics to defend yourself) or don’t move to a vendor’s Cloud:
Option 1: Move to the Cloud but fight back
If your organisation is planning on moving to a vendor’s Cloud-based SaaS ERP product, don’t despair about lock-in. Fight back! We advise the following three tactics to keep as much control as possible:
- Consider multi/hybrid-Cloud from the start: Before transitioning over to SaaS Cloud, see what other vendors are offering. Their products may suit your needs in addition to your main vendor. Then, you can include these in negotiations with your vendor before the migration, rather than paying extraordinary fees for multi-Cloud after the migration. Also, remember you do not have to follow an all-or-nothing approach. Combining different systems on different Clouds and vendors is likely to be in your best interests.
- Have a way out before you even head in: Just in case something goes wrong. In your implementation strategy, factor in an exit plan and the potential costs in doing so.
- Keep your data backed up however you can: Any and all data which is also held by the Cloud provider should be regularly backed up, stored in your own systems, and in an easily usable format; something which can be imported to another system in case of emergency.
Option 2: Stay on your current systems
Avoid moving onto a Cloud-based SaaS product altogether: It might not seem like a possible option, but it most certainly is. You can walk away from any Cloud discussions and sales tactics. All you need to do is switch to a third-party support provider like Support Revolution.
Third-party support lets you keep your ERP systems as they are now, versions and customisations intact. No upgrades or Cloud reimplementation necessary – you maintain the software that is functioning and familiar to you.
Whichever you choose, don’t overpay for your support
Before we conclude, we will say: if you and your organisation believe moving to the Cloud is your best option, then keep to that. You should do what is best for your organisation. It might just be that SAP’s S/4HANA or Oracle’s SaaS Cloud products have precisely what you need. The dependency or the lock-in element might not be a problem.
However, even if you are planning to move to a SaaS Cloud product, you should consider switching the support of your current systems over to us for the duration of your transition to the Cloud.
Before you transition across, you’re going to be stuck on SAP or Oracle’s support model, paying their costly fees. We’ll help reduce costs in the interim until you’re moved over. This saves you 50% on your support costs as a minimum (existing customers of ours have saved close to 95%). The money you’ve saved with us could be put towards the upgrade.
Alternatively, if your organisation wants to maintain its systems as they are now, we can support your decision as well. Ultimately, you should act in your organisation’s best interests. Whichever option you choose, we’ll help ensure you’re not overpaying for your ERP support.Mark Smith, CEO of Support Revolution
Original article published by Coruzant on 08 March 2020.