How to Evaluate Cloud ERP Investments: Part I
Part 1 of 3
In part 1 of this 3-part series, we will explore the first step in evaluating technology investments, focusing specifically on the implications for Public Cloud and Private Cloud ERP decision-making. We will offer an approach for identifying decision criteria (dimensions) for Cloud ERP investments, and for determining the viability of either public or private cloud options for a specific organization. In part 2, we will shift the focus to the prioritization and objective quantification of these dimensions. In Part 3, we will discuss the cloud investment validation process for organizations.
Many customers seek our guidance in evaluating multiple potential solution options. A very common question over the past 12 months has been, “How do I decide whether public cloud or private cloud is the right option for my ERP system?”
To determine the right path for your company, we recommend the following 4 step approach:
- Identify the Key Decision Dimensions
- Prioritize these Dimensions
- Quantify the potential economic impact
- Validate the economics relative to other in-flight or proposed investments
Framework for Cloud ERP Investment Planning:
Identifying the Decision Dimensions:
Understanding that every organization has its own set of unique circumstances contextualizing its decision-making process, we have established the Cloud Adoption Index based on the following decision criteria spanning 8 key dimensions customers typically raise:
- Organizational appetite for change (low to high)
- Desire for simplification and standardization (vs. desire for full customization flexibility)
- Speed to Market and ability to scale
- Organization-led (vs. vendor-led) governance
- Continuous innovation (vs. status quo)
- System predictability and consistency of global performance
- Information security and network security
- Cost structure and pricing model
Prioritizing the Decision Dimensions and Scoring Results:
Cloud Adoption Index: Scoring
The Cloud Adoption Index (CAI) is scored on a scale of 8-80. The scale for each Dimension is 1 to 10 with 10 being “very important to the organization” and 1 being “unimportant to the organization”, The compilation of these scores aligns with one of three possible decision paths:
- Public Cloud Ready: scores of 60 or higher
- Public Cloud Preferred: scores between 30-59
- Private Cloud Ready or Investment not recommended: scores <30
While these dimensions each play an important individual part in the evaluation process, we have found that when grouped together, they enable organizations to best highlight the true drivers of change. Nearly all organizations expect to reduce their Total Cost of Ownership (TCO) or Total Cost of Investment (TCI) when moving to the cloud and many would expect that public cloud would offer a cost advantage relative to private cloud. In our experience, in most cases it does, so much so that cost savings alone has become tablestakes in the Cloud conversation.
The CAI incorporates some opposing forces. For example, an organization may desire the lowest cost deployment model (dimension 8) but wish to retain governance (dimension 4) of its IT infrastructure or applications. While both objectives are understandable, they tend to be negatively correlated because internal governance is very often more expensive or comes with a higher opportunity cost than vendor governance. Conversely, the quicker the implementation cycle (dimension 3), the lower the initial investment in implementation services (8).
In part 2 of this series, we will explore how we applied this assessment approach in a specific customer setting in alignment with the customer’s business objectives and perception of value it expected to realize with Cloud ERP. We will discuss the Prioritize and Quantify steps of the assessment approach.