Cloud ERP moves shouldn't be motivated by pressure tactics

For the past few years, large enterprises with legacy ERP systems have faced the challenges of modernizing those systems and moving them to the cloud.

For ERP vendors, cloud migration offers a predictable stream of SaaS licensing revenue, and the vendors promise that the cloud ERP systems will enable customers to implement modern technology that can change business models and drive new revenue sources.

Still, cloud migrations are complex and costly, and the promised ROI is not always evident. Seth Ravin, CEO of Rimini Street, a Las Vegas-based support services provider for enterprise systems, has a different take. He said it might be possible to unlock IT innovation without undergoing a disruptive and potentially risky ERP cloud migration.

In this Q&A, Ravin discusses the confusion between systems that are mission critical versus strategic, explains why customers should avoid an ERP cloud modernization project without first undertaking a rigorous ROI investigation and warns that end-of-support ultimatums such as SAP's march toward S/4HANA are often manufactured.

Editor's note: This Q&A has been edited for clarity and conciseness.

What is the role of ERP systems in today's evolving IT landscape?

ERP is mission critical, but it's not strategic for most companies.

Seth Ravin: ERP is mission critical, but it's not strategic for most companies. People mix that up all the time, and it causes them to make bad decisions because they equate mission critical with being strategic.

Mission critical means that it must run because it's the lifeblood of the system -- it's doing invoicing, general ledger, so the business runs on it. But most customers could not care less if they use Microsoft, SAP or Oracle. Does it give a competitive advantage over competitors? No, there are very few businesses that can say any of those systems gives them a competitive advantage.

Once you separate the mission critical from the strategic, the transactional ERP systems are infrastructure. And if it's infrastructure, you can start thinking about outsourcing it. Now you can start thinking about why you spend so much time on your ERP system when you can be spending time on other, more important strategic things that can provide advantages in the marketplace.

What can companies do if they are not investing in ERP systems?

Ravin: A lot of companies are taking those savings and putting them into analytics. If they can tell what their customers are going to do a year from now -- what they might buy a year from now with your one-year supply chain -- you can get a home run. That's a competitive advantage. If you have that data and your competitor doesn't, that's a real difference.

How does this change the nature of IT in organizations?

Ravin: The IT center is now in the business rather than being a cost center on the outside and supporting the business, like providing server space, providing email and security. You get into the business when you start getting into the app that a customer goes to. But many CIOs report to CFOs who have a financial asset-oriented mentality. It's all about cost management, so a lot of them approach IT like it's an asset such as a [physical] truck that will last three years.

But your enterprise system lasts 20 to 30 years, and the vendor is coming in and creating fake events, like declaring that a release will be retired. For example, SAP declared that 25,000 [legacy] systems will no longer be supported after 2027, which is not based on technology. That's all business -- it's not based on the technology. The industry is built off creating fake crises.

What should SAP customers consider as the end of support approaches for legacy systems such as ECC?

Seth Ravin

Ravin: [Many SAP customers] are only looking to do a migration because a date's been put out there on support. It's a forced march -- otherwise they're happy with their systems, which are working fine, and they don't need to do a thing with it.

But SAP is now getting desperate, and they've just announced that any innovation is only going to be in the cloud version. This is all part of the pressure game, because they're not getting enough people to move. Customers have looked at S/4HANA and don't know how it's going to improve their business. This software has always been vulnerable to ROI, and when you get people to remove the idea that they must comply with the de-support date, they can then start analyzing the assets they have and its useful life for them as a company.

They need to stop listening to the noise and do ROI analysis, then make a decision and be hard on it. Don't just go along with everyone saying that [the latest version] is better. If they have rigorous ROI analysis, they'll get to the right decisions. If they don't do that rigorous analysis, they fall back on what they've been told -- that they have no choice -- and the only reason they don't move away from the vendor is fear.

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