On-demand is here! Are you ready?

by / Friday, 14 November 2014 / Published in BLOG

Seven things you must know before ??implementing an on-demand enterprise solution.

After spending over twenty years implementing large scale on-premise ERP systems such as SAP?, I was very excited when the opportunity to implement ARIBA, an on-demand, in-cloud enterprise solution, came my way. Our? customer, a US-based multi-billion dollar consumer goods company specializing in a variety of chicken and turkey products, had engaged us (www.LeanAxis.com) to implement ARIBA for their spend management.

I remember ARIBA from my Y2K days. The B2B space was hot. Companies like ARIBA and Commerce One were redefining the way enterprises did business. They were a challenge to the archaic functionality and outdated implementation methodology of traditional ERP solutions.

Leading solutions, such as SAP?, were too complex. Customers spent way too much money on implementations, most of which ran over budget, while realizing little ROI. It was inevitable that some innovative upstart companies would come up with better ways of doing things and transform the business of transformation.

One innovation was software delivered as a utility. You paid to activate it, then you paid as you used it, much the way you paid for home cable service. As with cable service, you could cancel at any time or switch over to another service provider. Using this delivery model, you could outsource the entire ERP solution implementation to a third party, eliminating the need to spend on internal IT resources, hardware, software, or human capital.

A decade later, with the exception of a few survivors like SalesForce.com, most of the companies in that space are no longer in business.

Hosting is now in the cloud. Software as a utility has morphed into on-demand solutions. Thanks to the high-speed, large bandwidth Internet, in-memory processing technology, and cloud computing, applications are now easier to host, more convenient to access, and much better to experience. Usability is further enhanced by big data analytics, which adds a completely new dimension to any enterprise application. Opportunities for innovative companies seem to be back again?this time with a vengeance. So when the chance to implement the on-demand ARIBA solution presented itself, I was not only curious but also excited about experiencing the difference first-hand.

This paper describes key differences between an on-premise implementation (yesterday?s technology for some and today?s reality for others), and the activation of an on-demand, in-cloud, enterprise solution. More software is delivered as on-demand, in-cloud today than ever before. If you have not yet been impacted, a word of caution–sooner or later it is coming your way, too.

There are seven key considerations to implementing an on-demand enterprise solution in the cloud.

  1. Activation vs. Implementation ? The two may not be too different for you!
  2. Simplicity ? Keep it simple! The value may be in the business model.
  3. Integration with on-premise applications ? Whose responsibility is it anyway?
  4. Legacy data conversion ? How much is just right?
  5. Security access ? Who has access to your data?
  6. Post go-live support ? Are you turning a blind eye?
  7. Cost of ownership ? Are you really saving?

Activation vs. Implementation: The two may not be too different for you!

Sometimes you have the option of bringing the activation team on-site, but this comes at significant additional expenditure. You depend on your software vendor for this service and pay an unnecessary? premium. Hiring a ?big? consulting company is also NOT a good idea unless you want to deal with? busloads of consultants. The best option is to engage a boutique consulting company with significant exposure to the application. Experience in your industry helps, and knowledge of sound business practice establishes a good foundation. Our customer realized this early in the sales cycle and hired us (www.LeanAxis.com) to provide solution expertise, implementation skills and business transformation leadership that were critical for them to succeed.

Simplicity ? Keep it simple! The value may be in the new business model.

Yesterday?s ERP implementation teams mostly worked full time on-site. Users and consultants bonded into high-performance groups and explored all possible options before finalizing the solution. They were able to bring significant changes to the old business processes. Don?t expect such radical transformations from today?s activation team working from the other side of the pond.

This approach increases the potential for communication gaps. Don?t expect much engagement from such a team.

To optimize the cost, most activation team members work from remote sites, often in countries outside yours. They also work? on multiple customer accounts at the same time. Most likely, you will never meet them in person.

Because the activation cost is low and fixed, the software vendor may not spend much time analyzing your requirements. What matters from the vendor?s point of view is what generates profitability: the scope of the solution, the type and the number of users, the number of transactions, and the usage in general. It doesn?t matter so much whether the business process is configured right for you.

While activation sounds like a much better option in theory, think before you get carried away by its promises!

This process was called ?implementation? in the traditional ERP environment. For better execution, you engaged a third-party implementation partner. Your implementation partner arrived with a team of consultants the day the software vendor left. Implementation was significantly more expensive than the software license. At one point, you had to spend as much as 10 times the cost of a software license? on your implementation.

Unlike the old ERP systems that were ?implemented?,? on-demand solutions are ?activated? or ?enabled.? The process is relatively simple, so simple that it can be performed remotely. This service is offered by the software provider, usually at a low fixed cost. You are required to adhere to the out-of-the-box functionality, often referred to as ?best practice.?

Most enterprise customers attribute ERP?s complexity to its not-so-intuitive user interface and archaic technology.

But there is also another reason that is often overlooked. Most organizational processes are complex. Take as an example a typical supply chain process where the product is built in your manufacturing facility in China and sold by your sales organization in the US. The components may be sourced from vendors in Taiwan. The product can then be serviced by field engineers in the US. This is a typical scenario for most manufacturing organizations today.


Imagine a customer?-return process in such a business environment. The product is found to be defective in the field and needs to be returned for refurbishment or replacement.


These organizational processes are fairly complex. The financial transaction requirements within your organization mandate creating different company codes in different parts of the world, making processes even more complex.? With complexity come non-intuitive solutions.


Complex processes do not lend themselves to on-demand solutions. Such requirements cannot be gathered by people sitting on the other side of the phone in a different time zone. On-demand implementations must be simple. If you think your processes are complex, I would recommend that you bring the activation team on-site to understand the requirements thoroughly. It is worth the cost.


For this project, we used ARIBA?s spend management solution only as a repository for contracts. The process of requesting a contract and the workflow to author and publish these contracts were kept simple. Not too many if-then-else business conditions were needed to determine who should be involved in reviewing and approving a contract. Communication with external vendors was done outside the system and simple options were provided to upload the emails for audit purposes. Simplicity was further enhanced by adding intuitive menus, and help tips.


The value of the on-demand solution is often in the new business model that is presented by these technologies; e.g., ARIBA provides access to a network of suppliers. You not only have access to the best-of-breed suppliers through this network but you can also become a potential supplier to others. This is a potential business opportunity which was not? available before.


Integration with existing on-premise applications: Whose responsibility is it anyway?

It is hard to imagine an on-demand enterprise solution that is not integrated to your on-premise ERP or a legacy application. The low upfront cost of an on-demand solution often enamors business users. No IT infrastructure. No post-implementation support from IT. It sounds like a business decision they can make without involving their IT organization.


But watch out! You need to understand the interface capabilities of your on-demand solution. You do need your IT organization here?, not just to assess but also develop. Depending on the number of interface objects, developing these interfaces may become the longest lead item on your project plan. Be prepared for surprises.


For this customer, the ARIBA solution interfaced with their on-premise SAP? solution for several masters, including the material master, vendor master, customer hierarchy and the product hierarchy. We spent more effort on this activity than we had planned for. ARIBA being an SAP? company, we were expecting a much more robust out-of-the-box interface.


Legacy Data Conversion ? How much is just right?

Just as for an ERP implementation, legacy data conversion will be the longest lead item on the project. ERP projects often go over budget because this activity is either underestimated or not managed well.


Managing legacy data conversions is very tricky. The requirements for conversions usually firm up only at a later stage of the project. Activities such as data gathering and cleansing are very laborious and time consuming. These activities are your responsibility, and even more so in an on-demand environment.


Only a handful of data objects such as active contracts, associated vendors, customer hierarchy, product hierarchy and users were converted for this project. Conversion rules were simplified.


Be prepared to see your conversion list expand. Never underestimate the effort to get this right. Managing this activity in an on-demand environment requires the same level of planning and execution as? in any ERP implementation.


Security Access ? Who has access to your data?

This is the number one reason why organizations are reluctant to adopt on-demand solutions. Security breaches like the recent data compromise at Target are still too common, and a serious breach can destroy a company. Security breaches in the consumer application space can be rectified by replacing old credit cards. Rectifying a security breach in an enterprise application space may not be easy.


Make sure you have adequate audit procedure in place that includes a thorough review of your vendor?s security processes. This is an area that needs a lot of work and a lot of research on your part.


I hope that we do not have such a breach with ARIBA for our customer. What can be more sensitive than classified contractual documents in the cloud? We may learn about a security breach in the consumer space through the media. I am not sure how we would even learn about an internal breach within ARIBA. We have reviewed ARIBA?s internal security processes, key performance metrics and commitments in this area. But I do believe? the industry needs to do more work on this.


Post-go live support ? Are you turning a blind eye?

On-demand solutions promise minimal post-go live support. Apparently you do not need an internal IT team to support such a solution.


This is a myth. In my opinion this is where the promise of an on-demand solution falls apart.


In ERP days, you continued to employ the same implementation team after going live for a short period, either by extending the contract of your implementation partner or hiring some of their consultants, until the point when the system was stable. You gathered enough data for your support requirements before you signed a more cost-effective long-term support agreement.


For an on-demand solution, you do not have these choices. The activation team moves on to another project as soon as you go live. There is brief handover to their help desk/support team. This team is not dedicated to your deployment. Every help ticket is potentially worked upon by a different person. Make sure your contract is not limited by the number of hours of support. You may end up spending all your hours explaining your problem to the help desk.


Your vendor may not support your custom interfaces, an integral part of your solution. Make sure your service level agreements (SLA) articulate this issue well.


For this customer, we trained and developed a full time internal IT functional analyst and help desk resources. The end users call their internal? help-desk, who in turn escalates the issue to the internal functional analyst team. Only when an issue is not resolved by the internal functional analyst team is it ?escalated to ARIBA.


The simplicity of the application and adherence to an out-of-the-box supported best practice significantly mitigates the risk of spending too much on post go-live support. You cannot support a customized solution without a team that is dedicated to your application.

Cost of ownership ? Are you really saving?

You may not be able to buy a utility outright, but you can buy a car or a software solution by paying upfront, after which you own them. In that sense I think activating an on-demand solution is closer to leasing a car than activating a utility at home.


People who prefer leasing a car over buying a new one know that unless they move on to the next car in less than three years, leasing is not a competitive option. Does this rule also apply to the buying vs. leasing decision of enterprise software?


Leasing enterprise software is little different from leasing a car. You typically get all the upgrades to your solution without charge. It is like getting a high-performance battery pack without cost on your leased green car. In other words, the leasing option in the enterprise software world is far more complex than leasing a utility or a car. The decision to lease or buy may be subjective based on ?your specific needs.


No upfront infrastructure cost, insignificant activation cost, complementary upgrades, usage-based costing, minimal post go-live support, and no termination cost are a few compelling reasons to deploy on-demand solutions. Let us examine a few of these that I have not discussed above.


No upfront infrastructure cost: The only downside to hosting your solution in the cloud on a third-party infrastructure is the security. You need to decide how much you trust your own internal on-premise infrastructure as opposed to one provided by a third party. It is an excellent option if you are already hosting your existing applications in the cloud and have no internal IT infrastructure team, but? if you already have an infrastructure in place, hosting may not be cost effective.


Insignificant activation cost: Activation cost could exponentially increase if your needs are complex and require either deep customization or business process reengineering. Unlike on-premise implementations, on-demand solutions may mandate that you engage the software vendor?s consulting team, instead of another, sometimes more cost effective, implementation partner. This may make your activation significantly more expensive than was promised.


Complementary upgrades: Unless enterprises upgrade their solution?s to take advantage of the additional functionality available with the upgrade, they usually do not see any value in this activity. They?re forced to upgrade just to make sure that vendor continues to support their software.


I have never seen any organization using upgrades as an opportunity to take advantage of additional functionality. Most upgrades are technical in nature and benefit the software vendor more than the customer.


A free upgrade should be good news, but this may only be partially true. The hard part of the upgrade is the testing of the upgraded solution. This is where your IT organization spends all its time, making sure that all the solution components, including custom developments, interfaces, and infrastructure, continue to work.


You have to plan, execute, and mitigate this risk, just as you do in your on-premise environment.


On-demand solutions are a good alternative for optimizing the cost of ownership of a solution, but you shouldn?t get carried away by its promises. The decision to buy or lease is much more involved than leasing a car or activating a utility and must be considered carefully.


Staple business processes such as payroll, accounts payable, and receivables are very adaptable to on-demand solutions. They?re simple, mostly standardized, and often commoditized.


Other processes?sourcing, market place, collaboration; anything that benefits from network connections?are also prime candidates for on-demand.


The impact of a security breach needs to be considered. Strategic systems?business intelligence, predictive analytics, confidential financial information systems, anything unique and mission critical to your business?should be kept on-premise.


On-demand solutions provide an opportunity to explore the new business models available in the virtual world and the new ways business partners interact using technologies such as social media, marketplace, and network collaborations. They also offer cost-effective ways of experimenting with new technologies. Working with big data, predictive analytics, in-memory computing, and the Internet of Things? requires a large upfront investment in infrastructure, but on-demand solutions make these bleeding-edge applications affordable for everyone.


These technologies are here now and are revolutionizing the business world. On-demand options provide you access to astonishingly sophisticated capabilities that otherwise were only available to giant multinationals with deep pockets. It is time you take advantage of these and be ahead of the pack. On-demand may be well worth considering just for this reason.


What do you think?


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