Cloud-based ERP systems provide businesses with advanced technological flexibility and scalability; they can also be more cost-effective than on-premises Enterprise Resource Planning systems, as companies don’t need to maintain data centers and physical equipment, such as servers.
These and other reasons prompt companies to switch to cloud ERP increasingly. According to MarketsandMarkets, the global cloud ERP market, which was valued at $72.2 billion in 2023, is going to reach $130.5 billion by 2028, growing at a CAGR of 12.6% during the forecast period.
While the transition to cloud ERP can be advantageous for many companies, one cannot consider it an easy task–it poses multiple challenges and risks that can negatively affect the technology ROI. This article covers four challenges of cloud ERP migration and provides tips on overcoming them.
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1. Determining the right approach to cloud migration
Companies planning to switch from on-premises ERP to a cloud-based solution inevitably face the dilemma of choosing the optimal migration strategy. They must decide whether to rehost, refactor, re-platform, or replace their legacy ERP with a new cloud system.
The migration approaches vary in complexity, costs, and effort required, making the choice critical and somewhat challenging, especially for businesses embarking on cloud migration for the first time. Thus, a thorough understanding of each strategy’s pros, cons, and distinguishing features is the key to making the right decision.
Rehosting an ERP system
The rehosting approach, also known as “lift and shift”, involves moving an ERP application from on-premises to the cloud as is, without performing any optimizations. In other words, the company does not modify the ERP solution but changes its operational environment.
Speed and cost-effectiveness are the main advantages of this approach, as it does not imply any architectural changes. However, since a rehosted ERP system is not optimized for the cloud, it may encounter stability and performance issues later.
Re-platforming an ERP system
This approach suggests introducing some level of optimization to the legacy ERP system to benefit from the cloud infrastructure, although its architecture and source code remain unchanged. For example, a company might replace specific components of its system with FaaS, CaaS, or PaaS services to make it more flexible and scalable. Re-platforming may be optimal if a company aims to embrace cloud-native capabilities while keeping migration speed high.
Refactoring an ERP system
Migrating an ERP solution through refactoring entails a complete overhaul of the legacy system, including its code and architecture modification (splitting a monolithic ERP into microservices can be an example here). While this approach is more expensive and intricate than rehosting and re-platforming, companies opting for refactoring can enjoy instant resource scaling and increased resilience.
Repurchasing an ERP system
Instead of migrating its legacy ERP, a company can adopt a third-party cloud ERP solution delivered via a SaaS model. This strategy suits companies that want to streamline the migration process and minimize their ERP maintenance efforts, as the cloud ERP provider is responsible for the software configuration and maintenance. However, purchasing a third-party ERP system comes at a price, notably possible functional gaps and vendor lock-in.
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2. Executing the cloud migration
Once a company has chosen a strategy, it is time to implement one, and at this stage, multiple challenges can also arise. Key concerns include ensuring the security and confidentiality of data in transit, running migration testing, and avoiding unnecessary and hidden migration costs. Here are some tips to help you overcome these challenges and ensure a smoother ERP migration.
Developing a proof of concept (PoC)
A PoC is a small pilot project that helps a company verify migration is viable and feasible without committing resources to a full-fledged workload transfer. PoCs allow companies to detect the hidden complexities of the upcoming migration, evaluate the new system’s compatibility, compare the performance of a cloud ERP with that of a legacy system, and estimate the time and resources required for the full-scale migration.
Implementing robust data safety and security measures
Cloud ERP migration poses multiple data security and safety risks, which can cause the loss of sensitive data and harm a business. For instance, Keepnet Labs exposed more than five billion records during the migration because a company’s contractor turned off the firewall for a few minutes to accelerate data transfer. This is just one of several instances illustrating the potential consequences of poor security measures.
Encryption stands out as an essential feature protecting data during its transmission. Even if an attack turns out to be successful, companies prevent attackers from accessing data by utilizing encryption. In practice, a company can use a cryptographic key provided by a cloud vendor to protect corporate data while migrating it to the new storage.
To avoid data loss, it is also recommended for organizations to create copies of the data that will be migrated. Such practice allows for recovering missing or damaged files in case of data leaks or corruption. As an option, a company can use proprietary tools provided by cloud vendors to centralize backups and monitor backup progress across multiple cloud resources.
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3. Ensuring high user adoption
When migrating to cloud ERP, a company can encounter issues related to user adoption. According to Optimum’s survey, 24% of specialists responsible for ERP modernization and migration across companies consider fear and resistance to change as the top challenge preventing smooth ERP adoption among users.
Addressing this challenge can be achieved through role-based employee training and guided onboarding. Additionally, companies can track metrics such as ERP usage frequency and average user session duration to monitor user adoption and continuously identify areas for improvement.
4. Managing and optimizing cloud costs
As a company’s business requirements evolve and change, there may be a need to add new ERP functionality or expand data storage on demand. This can lead to an increase in cloud ERP costs, which in turn can negatively affect the company’s budget.
The adoption of frameworks such as FinOps (the term stands for “finances” and “operations”) allows companies to mitigate this challenge, at least partially. FinOps helps improve visibility into cloud costs, allowing companies to continuously optimize their cloud service spending.
Final thoughts
Switching from on-premise ERP to a cloud solution is often advantageous for companies, yet problematic. Companies should determine the right migration strategy and execute it properly while ensuring that a new cloud ERP platform is stable and cost-effective. Developing a proof of concept and implementing FinOps are possible ways to address the critical cloud ERP adoption challenges.
In addition, companies can enlist support from third-party ERP developers. Experts can help determine the suitable cloud ERP solution, build a tailored migration strategy, and execute it effectively, thus helping a business ensure the highest return on its investment.
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