February 06, 2019

Life Without Customizations in the Enterprise Cloud

Dennis Jolluck

Dennis Jolluck
Vice President - Applications Development & Field Product Management - Latin America Division/Oracle

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Introduction

 

Today Cloud Computing is no longer in the “proof of concept” phase; the paradigm shift has been completed to deliver “IT as a service.”  Enterprises are taking advantage of new delivery models, new vendors, enhanced user interfaces, and faster updates of functionality which is changing the market landscape significantly.  Enterprises are rapidly transforming to Digitization with priorities focused on ease of use, agility, mobility, embedded analytics, big data, chatbots, customer omni-channels, artificial intelligence, IoT and blockchain capabilities. There is no going back to solely on-premise: the market has accepted ERP, HCM, CX and now SCM solutions delivered through Cloud Computing. 

The dichotomy is that the majority of ERP systems on the market today were developed approximately 30+ years ago, and the reality is that these environments have become too large to change at the pace a business needs today in the digital economy. The systems lack flexibility, simplicity, and innovation. And one of the major causes of the current complexity is due to on-premise software customization. 

Based on my number of customer interactions to date, there is an extreme interest and a sense of urgency in moving their enterprise systems to the cloud.  Customers are keen to receive answers on the cloud business model, performance and security, as well seeking our advice: “How do I address my customizations in the cloud?”  Answer: The reality is customizations are no longer a viable alternative. When moving to the cloud, “customizations” are considered a tradeoff in comparison to relinquishing the management of data centers, hiring technical staff, acquiring licenses, installing the software, managing backups and upgrades, applying software patches or addressing security at multiple levels. 

This article is to serve as a guide for senior management on what options are available to you today in the cloud, as well to understand the difference between the concepts of customization vs. configuration and to develop a strategic approach to rationalize your customizations.

 

Modern Architecture: Configuration vs. Customization

 

Applications Development experience as it relates to creating and innovating enterprise systems counts!  If you compare a start-up vendor to an enterprise vendor, how do you match decades of domain proficiency, the deep industry knowledge or the globalization expertise addressing 100+ countries?  When a software vendor decides to make the commitment and investment in re-architecting its’ software to ERP V2.0 (today’s model), you have a tremendous opportunity to take advantage of lessons learned from ERP V1.0 (The 1990 model). What a vendor did not know 20 – 30 years ago, they know today. This is especially true when you can take advantage of customer feedback and attempt to minimize customizations and transform them to configurations. The bottom line: “customization of a core cloud app is generally not permitted because it destroys the economic foundation of cloud computing”

However, there are various software tools (provided an experienced software vendor) at your disposal today with cloud solutions:

Software Package Configuration: A series of decisions the project team and end-users make during the implementation. These changes can fit more closely with an enterprise’s unique needs. But there is no programming intervention and rarely interferes with future software upgrades, since the configuration options are part of the delivered software. By default, the product is easier to implement with minimum or no cost.    

Application Extensibility: Software vendors may provide tools within the application itself to enhance the user experience in order to maximize user productivity. For example: adding mobile apps, adding data fields; hiding, reordering or highlighting screen elements; personalize dashboards; or modify workflows. No programming or technical expertise required, and extensions are considered upgrade safe. 

Country Localizations:  Country specific requirements (includes legal, statutory requirements and country specific business practices). A global software vendor who wants to go to market in a specific country will make this investment to their software product and architecture. Assuming the vendor addresses these country requirements in the core product, then localizations are considered upgrade safe.    

Integration: Software vendors may provide “out of the box” capabilities to import/export data.  Depending on the use case, integration can be accomplished through Web Services, Reporting Tools, Spreadsheet Loader or a File Based Data import approach. By leveraging “open standards," flexibility is provided to integrate the application to other third-party cloud and on-premise solutions. Depending upon the use case, the cost and the upgrade process will vary case by case. 

Modifications: Modifications essentially involve changing code, which requires programming skills from the moment the code has been “invaded” through the lifetime of the software’s use. The software vendor cannot support these changes in a “public” cloud.

 

The Hidden Costs of Customization

 

To better understand why an enterprise software vendor cannot address customizations in the cloud, here are some examples as to how they contributed to the “cost of ownership” in a traditional on-premise model:

  • Increased requirement planning for applications management, maintenance, and integration impact. If you leverage third-party consulting, this cost is significant!
  • Ongoing tech support and “customized” training to support “one-off” technology implementations
  • Retrofitting customization to future upgrades
  • After each upgrade, diagnosing/triaging issues between the customization code and the software vendor’s code
  • Unique end-user issues regarding application and data access and availability, as well as major performance issues
  • Data integrity and communication between modules.  Customization will dilute this benefit
  • The concept of “over customization” leads to a NEW legacy system and ultimately loses vendor support

When migrating an on-premise solution to the cloud, the above concerns no longer exist. As a result, enterprises will automatically contain customization in the cloud and costs become easier to track and measure. The ultimate goal in the cloud – now that solutions are becoming more comprehensive and available in the market today – is to automate your ERP, SCM, HCM & CX systems and drive competitive speed-to-market. It is within this context that senior executive management should ensure strictness is applied when deciding if customizations are vital to your business or not.

 

How Does an Enterprise Address Customization before Moving to the Cloud? 

 

Senior Management must take a leadership role, and own the decision-making process as well as manage this effort between the end-users and the IT department.  Why? There is a natural tendency for end-users to duplicate their current requirements and legacy business processes without taking into consideration a “Modern Architecture” and their inherent business processes.   

End-users are comfortable to leverage their past business requirements. However, in many cases, the architect or “founder” of the customization is no longer with the company, and users can’t remember the business justification for invoking the customization in the first place. This is a result of the users not really understanding the entire business, which can lead to low-level requirements that are completely unnecessary and are not actually “gaps”. 

When moving to the cloud, the enterprise must be prepared to upgrade and consume software updates three to four times a year. Going back to the strategic objectives as to why an enterprise is moving to the cloud:

  • Lower TCO
  • Immediate value (in many cases, faster implementation timeframes)
  • Pay as you grow…. costs migrate from CAPEX to OPEX
  • Future proofing your enterprise through the consumption of frequent updates to take advantage of the latest Mobility features, Embedded Predictive Analytics, Chatbots, Touchless transactions, Artificial Intelligence and Blockchain capabilities, etc.
  • Greater uptime and performance (scale up or scale down)
  • No data center, IT staff, hardware to invest or software to manage
  • Easier to detect and resolve service requests when hundreds/thousands of customers share the same version of the operating system, database, application with up-to-date patching
  • Rapid feature advancements are consumed in the Cloud vs. On-Premise

As a result, customization is no longer a factor during a cloud implementation.  By moving to the cloud, enterprises can take advantage of modern business processes and business practices.  This is an opportunity for an organization to establish standard global business processes and practices, which facilitate measurement and “continuous improvement”.  In addition, keep in mind that technologies related to IoT, Artificial Intelligence and Blockchain will either replace or improve standard business practices as we know them today. We are only at the beginning of this phase where enterprise software vendors will deliver enhanced business processes on “steroids”. 

 

Commodity vs. Strategic Solutions

 

If an enterprise is committed to start the “Digital Transformation” journey, senior management must challenge the “status quo”, even when it’s working well! It will urge continual change, new methods, new strategies, and provide a base to evolve, experiment and change business processes. One approach is to determine whether customization is essential and provides a competitive advantage. 

It is useful to recognize that Enterprise Applications implemented by organizations will fall into two distinct categories: commodity vs. strategic systems. 

Commodity solutions can be defined as very mature business processes, functions and standard business practices which have been generally accepted and supported by packaged application availability over the long term.  For example: 

  • ERP: Consolidations, Financials, Procurement, Sourcing, Contracts, Projects, Budgeting
  • HRMS:  HR, PR, Talent Management, Recruitment
  • CX: Sales

Since these systems generally do not provide a competitive advantage to an organization, and do not vary significantly across industries, they are categorized as “commodity applications."  As a result, there is adequate business justification to move these solutions to the cloud.     

“Strategic applications” are considered essential to the industry in which an organization operates. These applications enable an enterprise to support and provide their core competencies and are often a source of competitive advantage.  Examples include:

  • Constraint – Based Planning
  • Asset Maintenance systems
  • Customer Service systems
  • Supply Chain Collaboration

However, as Cloud Applications mature with deep horizontal and industry functionality over the next three to five years, even the above solutions will have standard robust functionality with extensive configurations to meet your unique requirements. 

Meanwhile, for the interim, the challenges for most organizations are how to establish a disciplined process to justify modifications for these core modules and business flows and develop a business case tradeoff.  For example: 

  • How strategic is this modification to us? What are the competitive advantages?  How do we measure this…Increase in revenue? Decrease in cost? Increase in productivity? What are the KPI’s?  Can we improve upon the current KPI’s?
  • Is the software vendor planning to release any additional functionality to address the requirement(s)? What is the timeframe…short-term? long-term? 
  • Is this requirement unique to the organization or is it an industry standard?
  • Is this customization relevant only to headquarters? How will it affect the overseas subsidiaries and vice versa? 
  • Will a work-around be better than customization? If so, what is the monthly cost to choose the workaround operation?  How many users will this effect?  How many transactions will be processed daily, weekly, and monthly using this workaround?  Is the cost significant?

The final step in the process is to assess the competitive advantage impact to profitability in two distinct ways: a positive impact on revenue and customer service or a substantiated impact on cost and efficienciesIt is important to create a business justification for each customization, weighing the cost of customization against anticipated benefits, and determine if the customization makes business sense. 

 

Conclusion

 

During the ERP V.1 era, many projects failed, due to mis-managed expectations, “out of control” spending, scope creep and customizations derived from “utopian” user requirements. Misguided users will fashion their own “comfort zone” rather than creating shareholder value. At the same time, there are cases where customization is deemed reasonable and necessary. It can reflect an organization’s competitive advantage and address specific needs for a given industry. If this is Senior Management’s perspective, then the enterprise is not quite ready to move to the cloud.

 According to GE CIO Jim Fowler, they are in the process of moving to the cloud 20% of their application load today, and plan to move this metric to 70% by 2020.  Jim went on to comment that they will buy cloud applications that do not differentiate themselves in the marketplace (e.g. how we book an order, print an invoice, track inventory, process reports). These types of applications will not help GE sell another jet engine or gas turbine because they have done that differently (e.g. customize) than their competitors. Commodity applications encompass standards business practices, which will make GE efficient and productive, but not in a strategic sense. He further stated that GE senior management debates this every day as to what differentiates their products in the market place, and this drives their “build vs. buy” discussion. By acquiring cloud solutions, this frees up a couple thousand resources to focus on the build side of what they believe differentiates GE in the marketplace. 

The key point here is investing in the cloud is a senior management decision. If your requirements are not being addressed – then do not necessarily go off on a customization exercise that will prevent you from moving to the cloud. Set up a customization justification process and challenge your project team and the user community. When consensus and adequate business justification has been achieved on the required functionality, then work with the software vendor as a strategic partner and understand their product roadmap. Companies that want to win at digital adoption will soon realize they must reimagine their entire business processes (e.g. multiple internet & traditional channels, mobile apps) as compared to the 20th-century analog approach and thinking. The challenge is to balance all of these conflicting demands and by addressing customization head-on, your objectives will be manageable & predictable.

Comments? You can contact me directly via my AdvisoryCloud profile.

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