ERP digital transformation can fail due to hidden cloud costs

An ERP digital transformation is a complex and costly undertaking, but the full costs are not always planned before the project begins.

Many organizations underestimate or simply fail to include costs for vital requirements like change management, or they set unrealistic project timelines for the project's completion. Many companies also fail to take into account the significant architectural planning that must go into migrating applications and workloads to the cloud.

All of this can lead to even higher costs for the projects and even project failure, as an ERP digital transformation doesn't produce the expected ROI.

In this Q&A, Asim Razzaq, co-founder and CEO of Yotascale in Palo Alto, Calif., discusses some of these hidden costs of a cloud digital transformation and how companies can better mitigate project failure.

Yotascale helps companies address cloud cost management and enables IT engineering teams to optimize enterprise systems for public cloud infrastructures, including AWS, Google Cloud Platform and Microsoft Azure.

Cloud is often a core component of a digital transformation strategy. What are some hidden costs, though, in migrating ERP to the cloud?

Asim Razzaq: There are always hidden costs in a typical digital transformation, and one of the key hidden costs is people cost and culture cost, because you can't take people who've been operating in the data center with a fixed mindset and have them work the same way in the cloud. A lot of times what ends up happening is companies want to take all their workloads and put them in the cloud and run them under the cloud architecture just the way they ran them in the data center. They thought they would save money, but that doesn't always happen.

Asim Razzaq

Aside from the people costs, are there hidden technical costs?

Razzaq: There's a lift-and-shift and a lift-and-scale approach, where you take a monolithic on-premises system and try to make it cloud centric, but then you can't autoscale, you can't vertically scale and you can't leverage a lot of the stuff in the cloud has to offer.

A lot of times people want to hurry up [to get to the cloud], and then they realize that there's an architectural effort that needs to happen, there is a realization that we have to turn this into services to take true advantage of a cloud-centric architecture. Unfortunately, they end up blaming it on the cloud. You need to be deliberate about your approach. A lot of people go in and say that they're going to move everything to the cloud, but you have to build some organizational support by getting some wins under your belt.

Where can you start to get some wins?

Razzaq: The way to do that is to maybe start with your [quality assurance] or development environments that are simpler. Start there before you take your production critical workloads like your ERP system to the cloud. You have to have a very measured approach for how you do that digital transformation so you have the morale, the momentum and the support that comes with that. And even there, you can still keep a lot of legacy systems on premises and start net new in the cloud and then think about what are the systems that make sense to move and what should stay, and how you're going to deprecate the system over time.

When should companies expect to see ROI from executing on an ERP digital transformation strategy?

Razzaq: Ultimately, you're not going to start seeing a lot of efficiencies and money savings for a number of years. But you need to consider that you're doing it for agility, competitive differentiation or talent acquisition, which is increasingly becoming a challenge, because if you're still on [these legacy systems] and you've got these engineers that are graduating in this day and age, they question why they should be working on [the old systems].

Who should lead and manage the cloud transformation project and costs?

Razzaq: You need to get people seated who have a high cloud digital transformation IQ, people who have the battle scars and have made the mistakes the first time. You need to bring in leaders who can lead the ship on the culture part. Change management is vital because you have to reskill the people, because the people who are still in the data center mindset will add a lot of friction to the process because they may believe that they will lose their job if you move to the cloud. So, you need to bring them to the table and tell them that you're investing in them and making sure that they're an integral part of this. You also have to set expectations with C-level executives to understand that digital transformation is a journey, and make sure they know what the journey is going to look like because here's what it looked like in the past.

So, companies need to be prepared for a lot of cost upfront for the people side and they shouldn't expect an ROI until a few years down the road?

Razzaq: Yes, it has to be a strategic priority, it can't be a tactical priority. You have to be very explicit and deliberate that you'll invest in people, technology and process across the board. The people investment has to be highlighted quite a bit.

There are situations where they say you're starting January 1 and by the end of the year everything will be in the cloud. But you don't have the right people involved, you don't have the right cloud IQ, and maybe somebody like a [systems integrator] promised you certain things. Then six or nine months into it you realize it's going to take three years, if that. Having that upfront and having the agility mindset to say, 'Let's do this in iterations, let's take some small stuff, let's understand what we're getting into and build the organizational support.' You can't set it up to fail by making broad statements like everything is going to be in the cloud by the end of the year. It's not possible for a company of a certain size.

Jim O'Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.