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As global organizations across every industry adjust to the new normal,
cloud solutions are playing an increasingly vital role in addressing
immediate needs and paving a path to a resilient future. Many
organizations running their SAP solutions on-premises have become
increasingly aware of the need to be more agile and responsive to realtime business, technical, and environmental needs. According to an
IDC survey, 54% of enterprises expect the demand for cloud software to
increase. As global organizations seek agility, cost savings, risk reduction,
and immediate insights from their enterprise resource planning (ERP)
solutions, many of the largest enterprises choose Microsoft Azure as their
trusted partner when moving their SAP solutions to the cloud.
I start by saying “moving” as it’s the first step to realizing the value of the
cloud. Smart organizations realize moving to the cloud should not be just
a zip code change. They should embrace the cloud as a transformation of
how they do business, engage with their clients or partners, empower their
employees’ productivity, and improve operations. These are the pillars of
a sound digital transformation strategy that should be examined as goals
when organizations move to the cloud.
Organizations that run their SAP solutions on Azure can integrate their
SAP and non-SAP data and applications in Azure to gain real-time insights
through a very rich set of data and artificial intelligence solutions and tools
in Azure. Customers can also easily integrate their business processes
with Office 365, Microsoft Teams, and Microsoft Power Platform.
Customers are using Azure’s secure and scalable internet of things
applications to take real-time data from trucks, retail floors, factory
floors, sensors, and other equipment and analyze it to gain equipment
health, perform preemptive maintenance, analyze customer patterns,
increase supply-chain efficiency, and build other operational intelligence.
Additionally, with DevOps with GitHub and Azure Kubernetes Service,
customers can build, manage, and deploy applications on a massive
global network.
Through several examples, this report highlights how customers are
leveraging their ERP solutions in the cloud to respond to real-time
business needs and to drive long-term business transformation. It provides
a blueprint to address key challenges and opportunities as organizations
consider moving their ERP solutions to the cloud and look for the right
cloud-provider partner in this journey.
Talal Alqinawi
Senior Director
Azure Marketing
Drive Agility and Innovation
with ERP in the Cloud
Business transformation is a battle fought on
many fronts, and one of the most important is the
modernization of core business processes. By optimizing
enterprise resource planning (ERP) systems, for example,
enterprises can unlock new insights from business data
for better decision making and to identify new market
opportunities. Large and mid-size organizations can also
better manage finances and inventories, HR operations,
supply chains, and other essential areas. With these
benefits in sight, forward-thinking companies are
upgrading to the latest ERP platforms and moving them
to a public cloud service to reduce capital expenditures
while increasing agility, innovation, and competitiveness
in quickly changing markets.
The need for nimbleness became particularly apparent as the Covid-19
pandemic upended companies throughout the world. Traditional, on-premises
ERP systems aren’t designed for agility—for example, they can’t quickly support
large numbers of people who suddenly must work from home. Organizations
that had already migrated ERP systems to a public cloud were able to make
on-the-fly changes to financial and supply-chain operations to maintain high
levels of customer service, optimize their internal operations, reduce costs
by scaling back service levels, and create resilient supply chains that adjust
quickly to changing demands.
Important as hyper-agility may be during a global pandemic, or perhaps to
capitalize on the next large-scale business opportunity, migrating essential
ERP systems to the cloud offers other equally important possibilities. These
moves are enabling some organizations to expand their business transformation
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HIGHLIGHTS
Companies that had migrated
enterprise resource planning
(ERP) systems to a public cloud
prior to Covid-19 were able to
make on-the-fly adjustments to
maintain high levels of customer
service and quickly react to
changing customer demands.
Migrating ERP to the cloud offers
additional business transformation
benefits by mining data for new
insights to help companies
reimagine their go-to-market
strategies and ultimately reduce
costs and drive innovation.
To realize the potential of running
ERP in a public cloud, enterprises
must understand the potential
challenges, determine the right
cloud provider for their needs, and
map out a two-phase plan for
incrementally migrating critical
business systems off-site.
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To realize the potential of combining
leading ERP platforms with public
cloud services, enterprise leaders
must develop a clear understanding
of the near- and long-term impact
the migration can have on their
organizations.
goals by mining data for real-time and predictive insights
that drive better business outcomes. The new insights also
help companies reimagine their long-term go-to-market and
customer-service strategies and can ultimately improve cost
savings and drive innovation.
One such enterprise is Mars, a global consumer packaged
goods company that sells familiar brands of snack foods and
pet supplies. In the months prior to the Covid-19 outbreak,
Mars was using sophisticated business intelligence analytics
available from its cloud-ERP combination to understand the
shifting preferences of consumers. “Much of our product is
bought by impulse in brick-and-mortar stores, so we were
asking ourselves how we could maintain and strengthen
that connection with consumers when footfall in stores was
declining,” says Praveen Moturu, vice president and chief
enterprise architect at Mars. “We realized we needed to use
innovative channels to get our product to market, as well as
solidify connections to consumers.”
Having a cloud-ready ERP capability in place gave Mars the
agility it needed to face the unprecedented challenges brought
on by Covid-19. The company identified changes in consumer
buying patterns and quickly responded with changes to its
supply-chain operations.
“We are seeing people buying large-sized packages rather
than individual [candy] bars, which is altering what we
are sending to market,” says Joe Carlin, senior director of
technology services at Mars. “We also see changes in the
channels that people are using to buy our products, including
a lot more online sales. We’re able to understand these shifts
and rapidly adjust our supply pipeline to match the changing
demand patterns.”
To realize the potential of combining leading ERP
platforms with public cloud services, as Mars and other
global companies are doing, enterprise leaders must develop
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a clear understanding of the near- and long-term impact the
migration can have on their organizations. Enterprises should
also acknowledge the potential challenges associated with
these projects, understand how to determine the right cloud
provider for their needs, and map out a two-phase plan for
incrementally moving too-critical-to-fail business systems
to the cloud.
How Cloud ERP Impacts Organizations
The combination of ERP applications and cloud services comes
in a variety of forms, the two most common being softwareas-a-service (SaaS) and hosted ERP, also known as cloud
ERP. The SaaS model provides a single, cloud-based software
environment that multiple customers share. While each client’s
data is securely segmented from other subscribers’—one
customer can’t access another’s financial records, for example—
SaaS’s multi-tenant model has drawbacks for enterprises,
including a limited ability to customize the application for
unique business requirements and, depending on the SaaS
product, the absence of some key modules that may be
found in enterprise-class applications, such as supply-chain
management and predictive analytics.
An alternative is to run a comprehensive ERP application
hosted in a public cloud, referred to here as cloud ERP. This
option uses a leading public cloud service to run an ERP
platform that an enterprise may have been managing in its
data center for years. This cloud-ERP pairing is attractive to
organizations because it not only offers the features noted
above that SaaS ERP may lack, but also lets users quickly
capitalize on digital innovations like advanced analytics,
such as artificial intelligence (AI), machine learning, and the
internet of things (IoT), that cloud providers integrate into
the ERP stack.
Carhartt, a 130-year-old apparel company based in Dearborn,
Michigan, is taking advantage of ERP and cloud synergies
to help it continue modernizing its business strategy. The
company had traditionally only wholesaled its line of work
clothing, but in recent years it has been moving increasingly
toward direct sales to consumers through online transactions
and its own retail stores. “Every company has to recognize
that it’s now a digital company,” says Tim Masey, Carhartt’s
vice president of IT infrastructure and security.
Accordingly, the company expects to launch its first cloudbased ERP module—one that manages consumer sales—in the
near future. The program will directly link e-commerce sales
to inventory levels in Carhartt’s retail stores, which means
that consumers for the first time can purchase clothing via
the web and pick up orders at a physical location. That wasn’t
previously possible because Carhartt’s sales and inventory
systems were separate and couldn’t exchange information in
real time. Connecting those systems is possible now thanks
to the integrations available via cloud ERP. In time, Carhartt
White Paper | Drive Agility and Innovation with ERP in the Cloud
Because these migrations
typically happen in multiple
steps over a handful of years,
the payoffs for businesses
come in phases.
executives hope to extend the integrations to select retail
partners so online customers can use those locations as
pickup sites.
Other venerable enterprises are also using cloud ERP to
remain market leaders in highly volatile times. Headquartered
in the United Kingdom, Coats is a manufacturer of industrial
threads and specialty yarns that has been in business for two
centuries and is now well into a multiyear plan for moving
ERP to the cloud. So far, the migration is bringing about
greater agility in the company’s supply-chain operations,
which executives there consider a key competitive advantage.
The added flexibility came about after the company
consolidated the multiple on-premises ERP systems it had
been running into a single instance. That, in turn, enabled
Coats to centrally manage the global supply chains of 130
distribution and manufacturing facilities. “Moving to the cloud
and consolidating multiple [ERP] functions was the catalyst
that made that transformation possible,” says Hizmy Hassen,
Coats’ chief digital and technology officer.
phases. The first phase focuses on the fundamental step of
migrating an on-premises ERP platform to a public cloud
service. IT leaders often use this opportunity to upgrade their
existing ERP suite to the latest version to tap into new features
and performance improvements. Moving to the cloud also
relieves the internal IT staff of having to maintain all the
servers, storage arrays, and other assets needed to support
enterprise applications. Phase one’s other benefit is that it
creates a foundation for reaping more advanced capabilities
in phase two. Even so, the first step can deliver a variety of
relatively quick, high-value returns for enterprises, including:
Phase One Benefits of CloudERP Migrations
Increased agility from on-demand
provisioning of IT services.
These examples illustrate only a handful of the potential
benefits available to business leaders who consider moving
core ERP systems that had been running on-site to the cloud.
Because these migrations typically happen in multiple steps
over a handful of years, the payoffs for businesses come in
White Paper | Drive Agility and Innovation with ERP in the Cloud
Increased systems uptime and availability.
Because public cloud providers run data centers in multiple
geographical locations, they protect against disruptions by
shifting workloads to facilities that deliver the best prevailing
performance levels. “We are an apparel company, not a
computing company,” Carhartt’s Masey says. “There’s no
way we have the resources to create data centers that are as
reliable and available as the leading public cloud vendors.”
Kennametal, a tooling and industrial materials supplier
headquartered in Pittsburgh, Pa., completed the migration
of its ERP system to the cloud in 2019, which culminated a
three-year journey that finished just in time to face the Covid19 crisis. “When we made the rapid shift to remote work, over
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A company may see a
permanent rise in IT demand
when the business grows at
unexpected rates, leaving IT
departments with on-premises
data centers struggling
to quickly implement the
necessary hardware, software,
and networking resources.
6,000 employees were sent home with their laptops,” says
Tom McKee, Kennametal’s CIO. “That move has been fairly
seamless, and I attribute much of that successful transition
to the investments we had made for moving to the cloud.”
Similarly, cloud ERP helped executives at Coats quickly
reduce IT service levels to match the decreased demand the
company was seeing after the pandemic struck. The dial-down,
in turn, significantly reduced IT-related expenses by utilizing
the consumption-based cost controls associated with cloud
hosting. “We’re seeing between a quarter and a half million
dollars in savings,” says Helge Brummer, vice president of
technology and operations at Coats. “That would have been
impossible to do with a traditional data-center cost model and
the fixed-cost components.”
Enterprises that closely manage IT spending can also
implement cost-avoidance measures during noncrisis periods.
For example, IT managers frequently overprovision their
on-premises data centers to prepare for demand spikes that
may occur during holidays or other seasonal events. While
having extra capacity available is necessary during these
intense periods, the extra resources are underutilized during
nonpeak times, resulting in unnecessary costs.
What’s more, a company may see a permanent rise in IT
demand when the business grows at unexpected rates, leaving
IT departments with on-premises data centers struggling to
quickly implement the necessary hardware, software, and
networking resources. Adding additional capacity requires IT
managers to lobby senior executives for new funding and then
go through a lengthy procurement and installation process.
“That delay goes away with cloud” by enabling companies
to adjust processing power as needed, says Masey. “The time
to stand up services goes down exponentially with the cloud
compared to on-premises systems.”
Enhanced security and compliance.
“Cybersecurity risks do nothing but increase over time, and
that means more risk than many security teams can keep up
with,” says Lisa Anderson, president of LMA Consulting Group,
which specializes in supply-chain modernization. “It’s well
worth evaluating how a cloud partner can reduce the risks.”
Although Coats executives and its chief information security
officer invest significant resources in security, they look to a
cloud provider to extend their capabilities. “We are not able to
maintain a team of security people and continuously train them
to fully defend against the ever-changing world of intrusion
and cybersecurity threats,” Coats’ Brummer says.
Regulatory compliance, a close relative of cybersecurity,
demands similar resources for ensuring that requirements
are being met and to gather compliance documentation for
auditors. Because cloud providers take on that responsibility,
“our risk is reduced and there’s a huge chunk of work that has
now gone away from my daily life,” Brummer adds.
White Paper | Drive Agility and Innovation with ERP in the Cloud
Phase Two Benefits of CloudERP Migrations
Once enterprises make the initial move to the cloud, they’re
positioned to extend their ERP applications beyond what
was possible with on-premises implementations. Phase two
involves integrating their ERP platforms with new capabilities
that leading cloud providers deliver to support higher levels of
agility and innovation. For example, some cloud companies
offer extensive data management and analytics services, as
well as support for IoT initiatives. These cloud services work
closely with the core ERP platform to help organizations gain a
better understanding of their markets, develop new business
models, and respond to new challenges. Other benefits include:
More detailed insights from data and analytics.
“We’re seeing companies make better use of data and
consolidated information in the cloud for decisions around
supply-chain management, such as how to alleviate bottlenecks
or ramping up production when there’s a spike in demand,”
says Eric Kimberling, CEO of Third Stage Consulting Group,
an independent ERP consulting company. “Companies can
perform what-if scenarios to anticipate how well the supply
chain can handle a big spike in production needs in particular
areas of a company’s business.”
Opportunities in other areas of business may also arise.
Coats executives consolidated departmental data into a
central data lake, a cloud-based information storehouse, and
are now mining it to improve business in the 50 countries
where it does business. “The underlying data has always been
there, but it has never been fully visible,” Coats’ Hassen says.
“Having a more complete view of our data strengthens our
competitive advantage by, for example, revealing new ways to
increase product quality,” says Hassen. “That’s been one of the
benefits of digital transformation up to this point. In addition,
we’re using IoT data in the cloud to monitor and control our
effluent discharge from the thread-dyeing process. Our ERP
integration of various cloud services has also been instrumental
in underpinning the back-office transformation program.”
More complete analyses by integrating data from
within and outside the ERP platform.
Leading public cloud providers enable organizations to
connect information from other cloud services, including
the ERP vendor’s other cloud applications, and apply analytics
to the combined data sets. Integration also extends to an
organization’s existing productivity and collaboration tools,
such as business automation suites, videoconferencing
applications, and business intelligence programs.
By streaming data from production equipment on its factory
floor and combining it with cloud-based analytics, Kennametal
gets a jump on emerging bottlenecks. “The alerts have been
real eye-openers for the business,” Kennametal’s McKee says.
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“If companies remove that barrier by adopting a newer ERP solution
and then running it in a modern cloud environment, they’ll gain a level
of agility that they’ve never had before,” says Cindu Jutras, president
of Mint Jutras.
“Instead of reacting to issues when someone submits a report
at the end of a shift, factory workers at all levels are seeing in
real time where the next trouble spot will be and responding
before the problem becomes serious.”
Faster access to emerging technologies.
After linking the IoT capabilities of its cloud provider with
its off-site ERP platform, Kennametal has the foundation in
place to automate its factory processes with tools like robotic
process-automation and AI technology to create “smart”
factories that deliver real-time insights enabling improved
factory performance. In time, company leaders hope to
directly connect information about customer demand with
production systems to react more quickly to changes in demand
preferences.
IT staffs shift from managing on-premises data
centers to focusing more on business transformation.
McKee says the automation strategy got a boost because
technology experts were able to devote less time to managing
data centers once IT resources moved to the cloud. “The IT
team is focusing on more innovative opportunities than server
management,” he explains.
A Blueprint for Overcoming Cloud
ERP Challenges
There is a wide range of potential benefits from moving ERP to
the cloud, but IT executives and industry analysts say careful
up-front planning and attention to possible roadblocks are
needed to reduce the chance that migrations won’t live up
to expectations.
integration, we realized the challenge was going to be much
greater than we had initially analyzed.”
As business and IT staffs learn how to fix problems, they’ll
be more prepared to tackle ERP modules that directly support
daily business operations, such as shipping and logistics
activities or accounts receivable and payable.
Update and refine business processes.
Next, the migration team should analyze the organization’s
existing workflows and business processes to eliminate areas
of inefficiency and redundancy that have no place in the new
cloud environment. Moving ERP to the cloud shouldn’t be a
lift-and-shift exercise. “If companies simply move the same
legacy applications they’ve been running for decades into
the cloud, they’re not likely to see any significant advantages
from the project,” says Cindy Jutras, president of Mint Jutras,
a research and advisory firm that specializes in ERP systems.
“However, if companies remove that barrier by adopting a
newer ERP solution and then running it in a modern cloud
environment, they’ll gain a level of agility that they’ve never
had before. That should be a goal of everyone today, because
everything is changing so quickly, and the risk of disruption
has never been higher.”
Upgrading to the latest version of an ERP platform and
migrating it to the cloud does deliver the biggest payback,
including creating a foundation for the phase two benefits
cited earlier. But many of the phase one results also materialize
just by moving an existing version of the software to the
cloud. Thus, both options should be considered, along with
an organization’s transformation timetable and available
resources.
Capitalize on new resources for data and analytics.
Begin with a gradual move to the cloud.
Increasing the odds of success starts with mapping out a phased
migration plan. By gradually moving ERP applications to the
cloud, organizations can learn about unexpected stumbling
blocks, such as inadequate integrations with data storehouses
that impair transactions or stymie trend analyses. “Problems
with the integration and interconnectivity of systems that feed
into the main ERP platform are some of the major issues that
may arise if companies try to move everything to the cloud at
once,” Masey warns. “When we started to do a deep dive into
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Leading cloud providers offer capabilities for aggregating
data from different sources and quickly analyzing it to better
understand volatile market conditions and optimization
opportunities in internal operations. For example, Mars needed
to increase the accuracy of demand planning to ensure that
suppliers could make timely deliveries of the products in the
package sizes that customers preferred. “In the past, our ERP
solution didn’t give us end-to-end visibility and traceability, as
products moved through different layers of the supply chain,”
says Mars’ Moturu.
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To change that, Mars focused on the discrete sets of financial
and supply-chain data that were being stored in individual
departments. The company consolidated the information
within a cloud-based data lake that created a centralized
view of information. “We’re able to leverage all the data for
internal traceability, transparency, and financial reporting,”
Mars’ Moturu says. “This is a huge value add compared to
where we were in the past.”
Better use of data also improves decisions about extending
credit to customers. Business intelligence and AI technology
provided by Coats’ public cloud vendor quickly looks at
the payment history and financial standing of companies
submitting each purchase order. The credit staff, for example,
might receive a recommendation to automatically approve
the order or to review it in more detail to address inherent risk
factors. Since the analytics became available, the number of
manual interventions has declined from 60% to only 15% of
all incoming orders, Hassen says.
The combination of ERP with IoT technology and analytics
from the cloud service provider is yielding improvements in
product quality and helping Coats hone its competitive edge.
The technology combination is dynamically analyzing various
parameters of the manufacturing process to determine which
production orders should be checked for quality. One result is
that the company is reducing the overall number of knots in
its threads. “Before the move to cloud, we hadn’t been able
to visualize the data so well,” Hassen explains.
“Running ERP in the cloud offers new
capabilities like microservices, which
means almost endless possibilities
from an infrastructure perspective for
better supporting the business and
its applications,” says Tim Masey,
vice president of IT infrastructure and
security at Carhartt.
Brummer is seeing IT staffs respond to the idea that they’re
no longer just providing a support function for the company.
“Operations and technology are now intermingled in a DevOps
model that joins them at the hip to do strategy planning and
provide direct input into operations,” he explains. “That sets
free a lot of potential for IT to learn, adapt, and change the
thinking within the company. There’s an excitement in my
department that you usually don’t find in companies that
haven’t adopted the cloud.”
Prepare workforces for working with ERP
in new ways.
Next up: develop a strategy for managing cultural change.
The cloud-ERP transition team should anticipate resistance
from people who are skeptical about having to perform
their duties differently. It’s important to note that because
cloud-ERP migrations impact each work group differently,
targeted messaging about the ultimate benefits, complete
with real-world examples, should be crafted for each group.
For example, business decision makers will likely capitalize on
advanced analytics to identify new market trends and business
opportunities through cloud-based AI, machine learning, and
business intelligence systems.
Bringing the IT staff onboard with ERP migrations may
require communications that alleviate fears of lost jobs. Once
data centers move to the cloud, key members of IT teams
will not only remain onboard; they will likely see new, more
creative opportunities for helping their organizations become
more agile.
“Our goal is for the IT staff to become innovation engineers
as opposed to traditional system engineers,” says Masey.
“Running ERP in the cloud offers new capabilities like
microservices, which means almost endless possibilities from
an infrastructure perspective for better supporting the business
and its applications.”
White Paper | Drive Agility and Innovation with ERP in the Cloud
Finding the Right Public Cloud Provider
Once organizations create a multistep plan, update legacy
processes, and work with staff members on transitioning
to the cloud, they must make the important decision about
which cloud provider is right for their enterprise. Narrowing
it down to the most suitable partner requires a close look at
several factors.
First, find cloud providers that have forged strategic
partnerships with the vendor of the chosen ERP platform.
Signs to look for include joint investments between the
service provider and software. Another important gauge is
whether the two companies use each other’s technology in
their own operations. Each of these moves indicates a strong
commitment from both companies to the success of the cloudERP initiative. That experience gives each vendor insights into
best practices and how to overcome common hurdles that may
arise when migrating ERP to the cloud. Equally important, a
close relationship enables ERP vendors and cloud providers
to jointly develop new capabilities, such as solutions that
address the specialized requirements of individual industries.
Teamwork also provides integrated support services to answer
client questions about migration problems or integration
challenges.
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The key is not only devising a two-phase strategy, but also
capitalizing on new opportunities for streamlining and optimizing
ERP workflows in the new cloud infrastructure.
Decision makers should also look for cloud providers with
strong track records in serving organizations like theirs. For
example, companies with complex ERP needs should target
cloud vendors with enterprise-level experience for missioncritical ERP workloads.
Another criterion to look for in a cloud provider is the
ability to easily integrate the cloud-ERP solution with the
office productivity and end-user collaboration tools used
in the organization. These resources let work groups share
information more effectively, which is critical for realizing
the agility and innovation benefits possible with cloudERP implementations. In addition, leading cloud services
offer business intelligence tools that create comprehensive
dashboards for real-time views into the performance of
business operations.
Similarly, the breadth of partner ecosystems offers a
barometer of the overall strength of the cloud-ERP package.
Third-party partners can provide migration planning and
optimization services, as well as ongoing consulting expertise.
Enterprises should also work closely with cloud candidates
to understand their security and compliance capabilities.
The cloud service should not only demonstrate adherence
to industry-standard cybersecurity practices, but also
provide certifications for specific regulations important to
the enterprise, such as the European Union’s General Data
Protection Regulation or the U.S.’s Health Insurance Portability
and Accountability Act, and the Federal Information Security
Management Act, among others.
After implementing cloud ERP, enterprises will need to
continually monitor how well the implementation is meeting
service-level agreements (SLAs). System uptime and business
continuity, two important reasons for moving to cloud ERP
in the first place, are key metrics to consider. Unplanned
outages should be short term, rare, and well within the levels
defined in SLAs.
“It’s a strong testament to the value of our migration
that unplanned system outages have become practically
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nonexistent,” says McKee. “Especially since we’re a business
that operates 24/7 and serves customers in more than
60 countries.”
Expanding the Art of the Possible
The potential benefits of updating and then moving ERP
platforms to the cloud span a variety of near-term and longerrange returns. In the first phase of these migrations, executives
report increased agility in responding to unexpected events,
like the global Covid-19 crisis. Company leaders are also seeing
higher uptime rates, stronger cybersecurity, more effective
and economical use of IT resources, deeper and more valuable
insights from data, and automations that improve product
quality. In the second phase, veterans of these projects say the
move can expand their goals for ongoing digital transformation
strategies.
The key is not only devising a two-phase strategy, but
also capitalizing on new opportunities for streamlining and
optimizing ERP workflows in the new cloud infrastructure.
Enterprises should also prepare for some common migration
challenges, including cultural change management. IT leaders
say these foundational steps pay dividends once the migration
is complete.
“Being in the cloud is like opening a door and seeing new
things you didn’t know were inside,” says Hassen. “Once you
take the step, you see opportunities for using these services
to expand the art of the possible. It makes strategizing and
innovating that much easier.”
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Harvard Business Review Analytic Services is an independent commercial research
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