What’s Missing in the Cloud vs. On-Premise Debate

There’s been a lot of chatter lately about cloud vs. on-premise solutions. Two articles published last month, for example, weighed in on the recent acquisitions by SAP and Oracle of cloud software vendors. In an article published by TechCrunch, “Great Acquisitions! Now Put a Fork in ERP,” Tien Tzuo, the CEO of Zuora and former chief strategy officer/chief marketing officer at salesforce.com, writes the following:

A series of cloud acquisitions won’t help lumbering old ERP one bit. Acquiring cloud companies doesn’t make you a cloud company any more than buying a Giants jersey makes you Eli Manning. It’s not a strategy for an on-premise solutions company. It’s an attempt to distract customers and hope they will forget about the ERP boat anchor they’re stuck with.

And in a Forbes article, “Merger Mania: Why Most Cloud Software Acquisitions Will Fail,” Andrew “Flip” Filipowski, the CEO of SilkRoad Technology, makes the following point:

Frankly, the most likely outcome of these acquisitions will be a repeat of past experiences. History would lead one to believe that an acquisition of an immature innovating business like SuccessFactors, Taleo or Upshot (acquired by Siebel Systems in 2003) leads to the demise of the business. A significant byproduct of these acquisitions is the admission that legitimatizes the new model. Nearly all the benefits accrue to younger, more agile innovators coming up in the ranks no longer hampered by the presence of the acquired competitor.

Although the authors are arguably biased considering their backgrounds in the industry, they raise some interesting points nonetheless … but mostly for analysts, tech junkies, and software vendors.

What’s missing from this whole debate is the customer, and what they really want, which is not software, but outcomes — cost reductions, productivity improvements, revenue growth, increased market share, improved working capital, and so on. As Harvard marketing professor Theodore Levitt famously said, “People don’t want to buy a quarter-inch drill; they want a quarter-inch hole!”

Software, whether in the cloud or on-premise, is just a tool. And in many cases, the missing link to achieving your desired outcomes is not software, but talent — people with the required knowledge, training, experience, and leadership skills to get you where you need to go.

Whether to deploy a software solution in-house or via the cloud is (or should be) a secondary or tertiary consideration for companies. The first step is defining your desired outcomes, both in the short term and the long term. Then it’s identifying the different paths to reaching these outcomes, and the costs, risks, and time-to-value associated with each path. In some cases, outsourcing to a third party service provider is the best way forward; in other cases, it’s investing internally in people, software, and assets. Or maybe it’s a hybrid approach, such as managed transportation services where companies typically keep procurement and carrier management in-house while outsourcing the technology and daily execution tasks to a 3PL (for related commentary, see “Time-to-Value: Developing a SaaS Equivalent for 3PLs”).

As I’ve written before, buying and implementing supply chain software is now the easy part, even though it’s still a time-consuming and costly process. The real challenge is finding experienced supply chain professionals who can connect all of the pieces together — software, process changes, metrics, best practices, continuous improvement, collaborating with suppliers and customers, etc. — to create business value.

The bottom line is that it doesn’t matter if you deploy software in the cloud or on-premise if you haven’t clearly defined your desired outcomes first, and if you don’t have the right people, either internally or via partners, to lead you there.

Comments

  1. Great piece Adrian!

    In summary I would paraphrase Bill Clinton… “It’s the solution, stupid!”

    Virtually all large businesses and most smaller ones that have multiple locations have a centralized IT approach where the mainstream business applications reside on a corporate server supported by the corporate IT team. This is simply another version of ‘cloud computing’, where the company owns the cloud vs. having a 3rd party run it.

    Find the right solution and make a decision regarding who can best manage and support it. There are sound business reasons why using company IT resources or using a 3rd party may be the best choice, but one size does not fit all.

  2. Great article and interesting viewpoints on the cloud vs on-premise debate.As suggested in the last few lines , clear definition of the requirement and selection of the right vendors/partners is critical to successful deployment of software(ERP/CRM) be it on premise or on the cloud. Just read an interesting whitepaper , ‘ Choosing the right ERP solution for your organization ‘ , on advantages of ERP and strategies for successful implementation and selection strategies @ http://bit.ly/zSEOXf

  3. Forgive me if my comments may seem naive. I was doing a consulting job for a local consumer company who was using Netsuite for all their corporate functions (Back office, sales) but strangely, their Warehouse was on manual stockcards using Excel. I had a talk with their Netsuite Reseller based in California & my concern was continuity of service in the event of disasters. Since the Application software and data are stored in Netsuite’s servers, a lot depends on the functioning of the Internet Gateway to the Phils. There was a time when we lost all internet traffic because the submarine cable linking the Gateway between Taiwan and Phils was damaged due to an earthquake. If something like that should occur again or a terrorist attack on a Gateway provider to the PHils, would it be safer for my client to have the application software and his company’s data stored in his own server rather than in another part of the world? By the way, the Netsuite reseller’s reply was that there are other Gateways in the Phils to help out in such an event. That is no comfort as I know how reluctant Telecom companies are to provide service to their rival telecom’s clients. In fact, these telecom companies would rather see their rival clients suffer so that they can offer them to switch providers, isn’t it?