R e s e a r c h W h i t e P a p e r

© PAC 2014

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Managing Enterprise Application Workloads in the Cloud

Sponsored by:

Executive summary

Complex ERP and CRM application systems are the backbone on which organizations run their day-to-day operations. Built up over several decades of development, these systems have extended their reach as the shape of the business evolves, expands and diversifies.

But as companies and public sector agencies strive for greater agility and speed in the post-recession era, these systems are increasingly becoming barriers to progress. Maintenance and support continue to lock up a large share of the IT budget, impacting the ability of enterprises to implement strategic initiatives or drive business differentiation.

As a result, there is a groundswell of interest in how cloud computing delivery models can help to improve the cost and flexibility of running core systems. This White Paper explores the different types of cloud engagements for application environments, including the benefits and limitations they involve. It also looks at the various pain points faced when deploying critical enterprise application systems such as ERP and CRM in cloud environments and provides a checklist for commercial and public sector organizations as they consider cloud adoption.

The Paper also provides an independent analyst assessment of the cloud managed services proposition of IBM, one of the largest providers of cloud-related services worldwide.

ABOUT THE AUTHORS

George Mironescu – Senior Analyst, Software & Cloud. George has been working in the software and ICT services industry for over a decade, and joined PAC in 2003. George has been tracking the evolution of software consumption models for many years, with a particular focus on enterprise application software such as SAP and Oracle. As part of PAC’s global enterprise application team, George has also a diversified view on the application services market covering both mature and emerging economies.

Nick Mayes – Principal Analyst IT Services & Cloud. Nick is responsible for PAC’s research on the UK IT services market, and is also one of the lead analysts in PAC’s global coverage of areas including application lifecycle services, business process outsourcing, cloud services, software testing and IT outsourcing. He has more than 15 years experience as an IT services analyst.

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Contents

§ Enterprise applications in the cloud – where we are today

§ Challenges in cloud-based ERP/CRM

§ IBM’s Cloud Managed Services – PAC’s independent view

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Enterprise applications in the cloud: where we are today

ERP and CRM software platforms underpin the core business processes at the vast majority of the world’s largest businesses and public sector agencies.

More than 250,000 organizations use applications from SAP, while Oracle supports more than 400,000 customers worldwide. From accounts and human resources through to supply chain and customer management, these systems have extended their reach across the organization as clients drive integration between operations and the software vendors expand their functionality through aggressive M&A activity.

PAC recently surveyed over 1,500 business and IT leaders about their current and future investment priorities. The chart in Fig 1 provides a picture on where organizations stand today in terms of migration workloads to the cloud for their various application domains. The survey clearly highlights that organizations globally are currently ramping up efforts to move selected application lines within their enterprise application stacks to cloud-based environments.

Fig 1. Current and Future Cloud-based Application Workload Adoption Plans (PAC's 2013 CxO 1,500 Survey)

18%

16%

18%

18%

19%

25%

23%

21%

29%

29%

29%

28%

30%

30%

29%

29%

38%

43%

41%

41%

40%

36%

37%

39%

15%

12%

12%

13%

11%

9%

10%

11%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Mobile device management/mobile applications

Product lifecycle management (PLM)

Supplier relationship management (SRM)

Supply chain management (SCM)

Business intelligence (BI)

Customer relationship management (CRM)

Human resources management (HRM)

Finance management (FM)

Does your company currently use application workloads in the cloud for the following application

areas?

Yes No, but this is planned within the next two years

Public Cloud is no option in this area

Do not know

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Many of these organizations are facing a tipping point in 2014. Their systems are the result of decades of investment, development and customization, and are increasingly acting as a major barrier to the future goals of the business. In the post-recession era, companies are looking to become more agile, collaborative and global, and in many cases, their ERP/CRM platforms give them the turning circle of an oil tanker rather than a speedboat.

As a result, there is growing interest in the potential benefits offered by transitioning current enterprise application workloads to cloud computing delivery models, where systems are hosted centrally by an external partner or internal delivery organization and accessed and paid for on an on-demand basis.

In some cases, companies are ditching their previous on-premise systems investment in favour of pure cloud solutions. For example, Salesforce, the leading CRM software-as-a-service supplier has amassed a client base of more than 100,000 customers. The established ERP and CRM vendors are also experiencing a steady uptake of their cloud offerings. Oracle claims to support more than 25 million cloud users worldwide, while SAP has 35 million business users of its SAP Cloud proposition.

But others are taking a more phased approach. The PAC survey indicates that for a good part of the respondent base, Public Cloud is not an option for heavy-duty application systems. This suggests that given the complexity and critical role of ERP/CRM in operations, organizations may be considering other options for their critical application estates such as private clouds. A significant share of organizations around the world are already utilizing cloud infrastructure to support their business operations, as indicated in the survey findings shown in Fig 2. The reliance on cloud infrastructure is going to increase as organizations become accustomed to cloud as a new IT operating model.

Fig 2. Investment in Cloud as a strategic business infrastructure (PAC's 2013 CxO 1,500 Survey)

23%

13%

36%

37%

27%

30%

7%

11%

2%

5%

5%

5%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Today

Next five years

What percentage of infrastructure resources will your company obtain via the cloud?

Under 10% 10-30% 30-50% 50-70% Over 70% Do not know

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PAC has identified four major categories of cloud-based applications engagements:

• In-house Private Cloud – The implementation and operation of a cloud architecture takes place within the premises of an organization;

• Managed Private Cloud – The implementation of a cloud architecture is within an organization, but the application operated falls into the responsibility of an external provider. Essentially, the external provider runs the customer’s in-house private cloud;

• Hosted Private Cloud – The operation and provision of a cloud architecture is done by an external provider specifically for a customer. The delivery is dedicated but nevertheless the provider has the possibility to share resources such as staff or facilities across several customers;

• Public Cloud/SaaS – Resources based on a cloud architecture are hosted by a provider and made available to a multitude of customers (“one-to-many” model).

There is no universal way in which organizations make use of cloud. Depending on their financial position, competitive environment, vertical industry, IT legacy and IT governance/strategy, organizations use one different cloud form or another, depending on their unique business challenges. In Fig 3, PAC presents the potential benefits and drawbacks of each of these different models.

Fig 3. The Pros & Cons of Different Cloud Delivery Models

Managed Private Cloud

In-house Private Cloud

Public Cloud

Hosted Private Cloud

Flexibility in modifications

Data center location

Scale & Peak management

Pace of deployment

Guaranteed availability & performance

Customer intimacy / Customization

IT Spend CAPEX OPEX

Guaranteed Un-guaranteed

On-premise Off-premise

Limited Unlimited

At organization speed At market speed

High Off-the-shelf

High Low

Tie-up of internal staff Low High

Major Con Major Pro Legend:

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Challenges in cloud-based ERP/CRM

For a growing number of organizations, operating critical enterprise application estates in a traditional fashion is no longer viable in today’s globalized economic environment. They are increasingly challenged to find new ways to address their old models of managing heavy-duty application systems such as critical ERP and customer management systems.

Cloud has emerged as a game-changing technology enabling a new operating model where IT is consumed to support the requirements of the business. Nevertheless, running the ‘old IT’ in the context of the new cloud paradigm presents business and IT leaders with a new set of challenges, highlighted in Fig 4 below.

NEW BUSINESS MODELS

Capital investment is one of primary challenges, given the ongoing budget constraints facing most IT departments. Old ERP and CRM consumption models have required substantial amounts of capital investment on costly on-premise infrastructure. In the past, commercial and

Fig 4. The Key Challenges in ERP/CRM Applications Management in the Cloud

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public sector organizations have been making considerable investments to on-board, refresh and replace ERP/CRM assets and their underlying infrastructure.

In the era of cloud computing, business leaders have been increasingly questioning the feasibility of such capital outlays. Given the economies of scale achieved by cloud providers both in terms of price and infrastructure capacity that are passed on to their customers, traditional on-premise IT asset investment offers limited competitive advantage. Many organizations have been departing from an asset-heavy model, in order to release funds for investment in more strategic areas.

AGILITY & PERFORMANCE

Improved performance and agility is one of the gains that many organizations expect cloud to deliver. We are heading towards a business world where split seconds can make a difference between success and failure. Being able to instantly process and analyze distributed amounts of data can make the difference between winning or losing a customer. Rapid reaction and responsiveness to business requirements becomes more important than ever as new game-changing technologies such as in-memory computing (e.g. SAP HANA or Oracle Database In-Memory) are making IT become truly real-time.

In parallel, new service automation levels enable IT development cycles to be cut down by weeks and even months by eliminating cumbersome routines such as infrastructure setup or middleware configuration. But without the right level of service provisioning and support as well as business understanding, these IT performance and agility gains are rendered useless. Organizations employing such new technologies need trusted partners that can understand customers down to business process level and can secure the optimal infrastructure servicing.

ZERO DISRUPTION

One of the main concerns over moving towards a cloud delivery model is the potential for service disruptions. No organization can afford IT outages to their business. In the world of cloud, IT latency and downtime in ERP/CRM provisioning become much more complex equations, where organizations need to manage not just the IT, but also elements such as connectivity and data throughput. This challenges organizations to maintain high availability to their systems, especially to application operations that require zero service level comprise such as ERP or CRM. Ensuring the right service providers commit to strict service level agreements as well as measuring availability against commitments can be a challenging task.

SCALABILITY

In traditional ERP/CRM environments, the business needs to find ways to finance additional and/or more powerful infrastructure capacity to support short-term projects. Many companies require a higher level of IT infrastructure capacity for determined periods when they run IT solution testing & trialing, need to support seasonal spikes in production activity or when they need to analyze large amounts of post-event data. Yet beyond these occasional events, the IT infrastructure serving the daily business remains underutilized. Cloud addresses this challenge

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as organizations pay only for what they use and they have the flexibility to scale their IT resources up or down based on how the business fluctuates. This scalability has a positive effect on budgets but also on the availability of internal IT resources.

COPE WITH THE NEW IT

The type of IT skills required to support new technology is evolving. With trends such as cloud, mobility and social enterprise, IT is not any longer within a “walled garden”. As the IT function opens up to the outside world, the complexity of securing critical enterprise application systems grows exponentially. The transition to cloud delivery entails a different set of skills for the IT department as new architectures, models and configurations are deployed changing the traditional modus operandi. Acquiring and retaining the right set of IT skills to deploy, run and evolve cloud systems can be a significant challenge, given the very competitive nature of the labor market for IT talent.

INTERNAL IT TO FOCUS ON BUSINESS

Managing critical enterprise application systems can be very labor intensive, locking valuable IT resources into routine IT maintenance and support. With cloud, running enterprise application workloads and monitoring application performance should be automated, reducing the need for internal resources. In a managed services cloud model, all these burdens are taken away from the organization’s shoulders and placed onto the provider. This liberates the IT department enabling it to focus on more strategic projects. In Fig 5, we provide a checklist for organizations considering moving their workloads to a cloud managed by a third party provider.

ONE ERP/CRM

Most organization’s ERP estates are a complex tangle of disparate applications incorporating local variations and customization. Internal handling of heterogeneous application workloads in the cloud can be debilitating, negating the very promise of cloud to provide business agility and flexibility. Consolidation and standardization of enterprise applications on a common technology platform (“one ERP”/””one CRM”) is key to maximizing the potential benefits of cloud migration. Organizations unifying their various applications need to consider migrating workloads from aging or low-value applications, removing redundant functionality and modernizing high-value systems. Such a transformational journey requires the engagement of capable partners that have proven experience in managing these complexities.

GOVERNANCE & COMPLIANCE

Governance and compliance has moved up the list of priorities for most IT departments in recent years, and cloud computing poses an additional layer of complexity in this area, particularly regarding local data protection and data privacy issues. With cloud, organizations need to develop their data governance policies to ensure they comply with the local regulations in the countries they operate. This means organizations need to know exactly where their data is located, how it is transacted, disseminated and disposed in the data lifecycle. Beyond data sovereignty, organizations also need to ensure their cloud-based application operations meet industry regulations and are cohesive with the corporate IT governance.

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There are several key considerations that any organization embarking on a cloud journey with their enterprise application systems should weigh up in order to increase the chances of success and reduce risk:

Best practices/ Customer cases þ

Look for partners that can demonstrate best practice and tangible project references to support you on your cloud

migration journey.

Complexity over price þ

Do not prioritize cost in projects where there is a high risk of failure, (e.g. new roll-outs & architectures, complex integration/

interoperability); a cheaper option may not lead to the best outcome.

Interoperability þ

Consider the interoperability with existing on-premise and third-party cloud architectures, also with regard to the “future-readiness” of your solution to integrate in a multi-cloud

landscape.

Vendor lock-in þ

Scrutinize customer lock-in risks, whether the offering supports platform migration & integration, as well as the cost of

application porting between different proprietary or open source environments.

Provider Solvency/

Feasibility of their business

þ

Qualify and constantly monitor not only the expertise and capabilities of your provider, but also their financial health – since given the tough economics various providers may be challenged to retain their solvency, independence and/or to

continue the same business model.

Hidden costs and delivery

challenges þ

Scrutinize sometimes hidden areas such as application latency, consistency of network performance vs. peak times & outages, business continuity and disaster recovery, cost of connectivity.

Data location & compliance þ

Assess critical aspects around security certification and data privacy/data compliance: verify whether your organization can

enforce its own security policies and ensure control over enterprise data? Verify whether the data center hosting the

application environment is compliant with the regulations in the countries your organization operates in.

Fig 5. Checklist for Organizations Planning to Move Workloads to the Cloud

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IBM’s Cloud Managed Services: PAC’s independent view

One of the major challenges facing organizations that want to adapt cloud delivery models to support their critical business applications is to identify a suitable external partner to support them on their journey. Most major IT services providers, including large international suppliers, local ERP partners and offshore players claim to offer “cloud services,” and it is difficult for buyers to navigate and understand the features and differentiators of their often complex portfolios.

One of the few companies that can claim both decades-long experience in working in critical enterprise application environments such as Oracle and SAP, and the ability to support clients at a truly international level, is IBM. The company has been in the cloud services market since its inception, offering various forms of managed private and hosted private cloud.

With a broad enterprise application services portfolio, IBM’s capability in the area of cloud application workloads spans from infrastructure and application hosting to application performance monitoring. This approach places it in a strong position, as the company combines infrastructure management competences with deep application domain know-how. This expertise is underpinned by IBM’s increasingly industrialized approach to application management, which sees its services built on standard delivery processes, tools and templates, across its global operations. This enables IBM to provide a blend of skills and pricing by application domain, by industry, and by geography. For example, the vendor helped Freescale, a semiconductor manufacturer, cut its Global SAP operations costs by 20% by moving its SAP instances to IBM’s Cloud Managed Services. At the same time, the migration enabled Freescale to benefit from increased speed and agility in handling its SAP environments.

IBM has a long history in delivering complex application rationalization and consolidation projects. The company’s maturity in standardization is also underpinned by its rich set of methodologies and IT automation software tools, especially for SAP and Oracle environments. Furthermore, IBM’s wealth of experience in systems integration coupled with its understanding of cloud environments, and its overwhelming middleware portfolio, places IBM in a strong position to help customers orchestrate integration projects of multi-cloud enterprise application environments. For example, electronics manufacturing company TP Vision utilizes IBM’s Cloud Managed Services to improve customer experience by aggregating SAP services and application intelligence, as well as to scale its business in line with the growth in user base.

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IBM’s end-to-end service delivery is reinforced by its capability to assist the customer throughout the cloud journey, from advisory and project planning to hands-on migration and operation. One US retail giant was seeking a provider that would help it in managing and replacing its aging Oracle Financial & Merchandizing applications. IBM’s Cloud Managed Services delivered the full value chain from the application replacement and required systems integration to application service hosting and availability.

At 99.9% service availability for mission critical applications, IBM’s high availability service is designed to ensure customers can avoid IT meltdowns. Monitoring and controlling workloads performance builds from the infrastructure layer up to the middleware and application level. At a tier-one medical equipment firm, IBM transitioned Oracle HR legacy systems supporting over 250 application users and 8,000 self-service users to a cloud architecture. The customer managed to lower their ERP disaster recovery operations costs while meeting the required levels of Quality of Service and SLAs.

IBM understands customers have different requirements and that the “one-architecture-fits-all” approach is not feasible in the enterprise space. Differing IT and business backgrounds, corporate governance policies and country regulations make every customer unique. In this context, IBM’s Cloud Managed Services is configured as per customer request, including customer-approved data center location. For example, IBM’s footprint in Oracle- and SAP-dedicated data centers spans numerous locations on five continents. In addition, on the back of IBM’s long-established cyber-security practice, the customers are offered an end-to-end enterprise application workload security approach.

IBM is an Oracle Diamond partner, managing the full Oracle stack for three decades. With over 12,000 professionals focused on Oracle Applications, IBM has one of the largest Oracle practices at global level. The vendor’s SAP practice is similarly deep. With over 32,000 skilled professionals, IBM has been one of SAP’s most senior global application partners, running highly complex SAP installations for medium, large and very large organizations. The maturity of IBM’s relationship with both Oracle and SAP is proven by IBM’s templated and standardized approach to these application stacks and by the wealth of tools and methodologies developed around Oracle/SAP deployment and management. For example, IBM and SAP have more than 35 dedicated facilities around the world focused on the collaborative development of functional and industry-specific solutions.

As an overall evaluation, IBM’s comprehensive catalog of capabilities and its proven experience in managing cloud-based application workloads, means that its Cloud Managed Services proposition is a serious player for organizations seeking to migrate and externalize their SAP and/or Oracle application operations to the Cloud.

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ABOUT PIERRE AUDOIN CONSULTANTS

From strategy to execution, PAC delivers focused and objective responses to the growth challenges of Information and Communication Technology (ICT) players.

Founded in 1976, PAC is a privately held research & consulting firm for the software and ICT services market.

PAC helps ICT vendors to optimize their strategies by providing quantitative and qualitative market analysis as well as operational and strategic consulting. We advise CIOs and financial investors in evaluating ICT vendors and solutions and support their investment decisions. Public institutions and organizations also rely on our key analyses to develop and shape their ICT policies.

For more information, please visit www.pac-online.com.

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Copyright Pierre Audoin Consultants (PAC), 2014. All rights reserved.

PAC:

George Mironescu

Senior Analyst Tel: +44 20 7553 3963

g.mironescu@pac-online.com

Nick Mayes

Research Director

Tel: +44 20 7251 2810

n.mayes@pac-online.com

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London EC1R 0BD, UK

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