A clearer view - Software as a Service/Cloud technology report December 2015

Manufacturing & Logistics IT spoke to a number of key spokespeople from the vendor and analyst communities about the current state of play in the world of Software as a Service/Cloud technology, together with what might be in store over the next year or two.

The Cloud and Software as a Service (SaaS) are terms that have become increasingly familiar within the world of manufacturing, logistics, warehousing and retail etc. over the past few years. There is an ever greater choice of application choices available in the Cloud, but how do Cloud and SaaS compare with the more traditional on-premise model, what are the core strengths of Cloud/SaaS and what are the remaining concerns regarding the former? To address these and other issues surrounding our topic in hand, we spoke with a number of leading analysts and vendors.

To open the discussion, Eric Kimberling, managing partner at Panorama Consulting Solutions, makes the point that, first, it is important to understand the Cloud versus SaaS dynamic, as they are two very different deployment models and are not interchangeable terms. The second is to understand the level of complexity and need/want for control of enterprise applications within an organisation. "Organisations that either view business applications as competitive differentiators and/or require a good deal of control over their enterprise applications are typically more inclined to lean toward a private Cloud model, whereas those that view enterprise systems as commodities and/or want to outsource their applications are typically more inclined to lean toward SaaS solutions," he said.

To Jim Rapoza, senior IT research analyst at Aberdeen Group, one of the biggest questions surrounding Cloud today is how it responds to new technologies that will change and challenge it. "Cloud is used to being the disruptive technology (in how it changed how we think about applications, servers and services) but today, technologies like Software Defined Networking, network virtualisation and converged systems are changing how Cloud-based systems are deployed, managed, even how we think about Cloud," he commented. "There are great opportunities for Cloud to become even more powerful – especially in how it utilises software defined networking (SDN) – but it will need to evolve quickly to take advantage of these opportunities."

Steve Wilson, VP, head of supply chain, Capgemini, sees a significant trend towards an increasing level of Cloud adoption. "For the most part that is private Cloud – hosting for business applications on hardware that is not on the company's premises and is therefore in someone else's data centre but is still secure," he said, adding that the nearer the ERP the more Cloud-based this type of adoption is. While in a distribution context the nearer the physical machinery and equipment then the less Cloud-based it is. "Nevertheless, the general trend is towards more Cloud adoption," he remarked.

However, Paul Hammond, VP, infrastructure services, Capgemini, points out that there are some practicalities to consider, such as where organisations can have SaaS-based solutions provided from. "This can either be an enabler or a disabler in terms of, for example, where companies can legally hold data inside or outside the EU," he said, adding that the Safe Harbour Act has helped to clarify this issue to a large extent. Additionally, Hammond made the point that if an organisation is holding manufacturing data to do with government departments that might be highly secure such as the MOD, then there would naturally be further considerations concerning security within UK boundaries.

Richa Gupta, senior analyst, AutoID & data capture at VDC Research, observes that Cloud-based off-premise deployment is gaining increased consideration with enterprises, many of whom are actively looking to move to subscription-based pricing options. According to VDC's recently-conducted end user survey on the topic, more than half the respondents have already replaced or are in the process of replacing some or all of their legacy enterprise applications (ERP, MES, CMS, SCM, TMS and WMS) with Cloud-based options.

"Both public and private Cloud delivery and deployment models are gaining popularity," said Gupta. "VDC's research shows that the greatest shift will be towards private Cloud deployments (managed internally or by a third party) especially for mission-critical applications, which speaks to the need for more control on information storage and retrieval while also helping generate a greater sense of security and privacy."

Tony Winter, chief technology officer at QAD, believes that, among global manufacturers, risk, compliance, integration and internationalisation are key subjects for Cloud, as is 'depth of features'. He commented that while manufacturers understand the appeal and benefits of moving to Cloud, they also understand that they cannot go backward with regard to features; in terms of introducing compliance issues (e.g. life sciences manufacturers often must operate on an FDA qualified infrastructure – most Clouds do not qualify); in terms of SLAs not delivered and support not provided.

Winter added that moving to Cloud reintroduces app integration requirements that may have already been satisfied on premise. "This implies that multi-site manufacturers are seldom in a situation to 'throw the switch' to Cloud – rather they will have to move a site or a few sites at a time," said Winter. "Thus, a blended approach, where some sites run on Cloud and some run on premise but still fully synchronised, is often appealing."

Gavin Clark, commercial director at Snapfulfil, believes that security is always a key topic, even more so with the recent and much publicised TalkTalk 'hack'. "Taking advantage of known vulnerabilities, such as logging-in as a website admin or accessing open ports, are typical activities of the amateur hacker, but can have devastating consequences to the reputation of an organisation," he remarked. "Utilising a specialist SaaS provider will help to ensure that your chosen application is securely hosted, has been security tested and, most importantly, can provide you with the relevant security information/white papers you need to check all will be well." Clark added that hybrid solutions can be very useful, but again careful attention must be paid to the security of the connectivity between the two networks.

Key benefits

In essence, what are the key benefits of the SaaS deployment model? Rapoza believes that by far the biggest benefits are in ease of deployment. "Without the need to have to deploy a platform in-house on company servers and resources, a business can deploy a major SaaS-based application in the time it takes to buy a present online," he said, adding that ease of management is also very important – no need for constant software upgrades that can disrupt business continuity. "SaaS based apps are constantly updated without any need for the business to do anything."

Kimberling's view is that the technical aspects of implementation are typically more streamlined and less costly. In addition, he believes the pains of upgrades and ongoing maintenance can often times be addressed more effectively in the SaaS model.

Wilson points out that many of his clients are moving to the Cloud for two main reasons. The first concerns cost savings; for example, capex costs. "With Cloud they don't have to build, run and maintain a physical data centre and all of the IT hardware," he said. The other major driver, according to Wilson, is that many companies would like to be able to switch potentially to other applications within, say, a three to five-year timeframe. "Consequently, if they move to the Cloud there is a perception that this makes switching easier," he said.

Gupta makes the point that, according to VDC's research, enterprises' primary reasons for investing in SaaS-based solutions are – reduction in costs associated with solution deployment and integration, ability to improve business agility (flexibility and scalability), and the relative speed of implementation when it comes to application delivery, deployment, updates and maintenance.

Winter considers one of the key benefits as being more business focus while enjoying better service levels. "With Cloud, customers can spend their time focusing on their business and not the ERP infrastructure needed by the business," he said. "This will give them an edge over on premise customers that have to maintain their own deployments. For example, QAD knows our product inside out. On premise customers only have their own system to learn from, where QAD has multiple customer systems to learn from and thus can typically maintain much higher service levels than on premise customers. Some people refer to this as part of 'Lean IT': The ability to reallocate IT resources onto value added projects and letting the cloud vendor do what they know how to do best – operate their own software.

Another key benefit, in Winter's view, is business adaptability and best practices. "With Cloud/SaaS manufacturers may more readily be able to move quickly in new site acquisitions, M&A, using shared services, reorganising subsidiaries and moving towards global standards," he commented.

Additionally, Winter considers Value Stream Collaboration to be a core benefit. "Cloud/SaaS is a natural architecture for certain apps, like supplier portals and EDI – it enables the value stream to share templates, formats, provides better visibility and in general enhances communication," he remarked.

Remaining concerns

Are there any remaining concerns regarding the SaaS deployment model? Gupta maintains that organisations' concerns surrounding data security and privacy of these Cloud-based solutions are very real. "These represent the primary barriers to adoption, especially in highly regulated industries," she said. In addition, Gupta comments that network connectivity, performance and reliability are also not yet optimal, which could also count as potential inhibitors to Cloud-based solution investments and deployments.

Rapoza also homes-in on security as remaining a perceived pitfall. "Some businesses don't want their vital data outside their data centre, even though in the vast majority of cases the SaaS provider has better security than most businesses could manage," he said. Rapoza also made the point that there are regulatory hurdles, especially in where data is stored geographically.

Kimberling reflects that organisations often think that SaaS will eliminate all of the pains associated with on-premise implementations. He commented: "Even though the technical aspects can indeed be less complicated and time-consuming than on premise, organisations still need to address the business transformation aspects of these implementations – such as business process changes, organisational change management, training, etc. – which isn't addressed by the fact that the technology itself may be easier to deploy. In other words, SaaS is no surrogate for all of the people and process issues that need to be addressed as part of any ERP implementation."

In addition to the points he made earlier concerning risk, compliance, integration and internationalisation etc., Winter added that security, availability, business continuity, global accessibility and the new lock-in (dependence on a single Cloud service provider) all remain concerns. "Manufacturing IT and executive management understand that Cloud is not a panacea – there is no such thing as an easy answer," he said.

Wilson considers that one of the potential pitfalls of SaaS is the lock-in side of this type of provision. "There is sometimes an issue concerning getting the integration to work effectively," he said. "So although there is a perception that companies can switch relatively easily I think that is not yet completely proven."

Hammond made the point that some IT departments and IT organisations are not necessarily very well geared up or forward-thinking enough around how they run end-to-end operations when they are using public-private Cloud in a hybrid mode and SaaS applications alongside legacy where they are undertaking integration to the databases. "So, these companies have security operations that now have to span something that is inside and outside of their data centre," he said, adding that these organisations also need to think about a new operating model, which means they can't see that the server lights are flashing when they have some sort of outage or major incident.

Recent developments

What have been some of the most notable developments and improvements within the SaaS marketplace over the past year or two? Rapoza thinks we have seen a major recognition of the mobile-first world we now live in. He points out that over the past couple of years more and more SaaS apps have become much more capable in their mobile interfaces and capabilities.

In Kimberling's view, flexibility and ability to more easily integrate with third party systems have been some of the key improvements. "Best of breed SaaS solutions such as Salesforce, Netsuite, and Workday are providing more robust ecosystems to address those areas that they don't address within their core solutions," he said. "For example, Salesforce has an entire ecosystem of SaaS solutions to augment their core CRM solution in areas such as financials, inventory management, and other critical business functions."

Clark considers that technological advances in storage (SSD), database technology (SQL clusters, 'always on') and data centre availability have made online services faster and more resilient than ever before. He commented: "Historically, the cost of gaining access to these advances has been prohibitive for all but the largest global enterprises. However, the economies of scale available to SaaS and data centre providers have made these advantages far more affordable to all."

Winter remarked that QAD looks to its own approach to Cloud provisioning as a potential breakthrough in Enterprise Cloud Management. "QAD acts as a single point of contact for customers for Cloud implementation and support, yet QAD works with multiple Cloud service providers," he said. "Some Cloud service providers do a better job in some regions than other providers. QAD wants to ensure customers receive the best possible service levels. Therefore, QAD has built its own management layer. It gathers app and system information from all sources continuously, and uses Big Data analytics to spot problems before they occur. The result has been improved services levels regardless of which Cloud service provider(s) are used."

Big Data

What effects do our commentators think Big Data is having on the SaaS/Cloud world? Kimberling focuses on the ability to provide more ubiquitous access to that data anytime and anyplace via mobile devices and other means. In addition, Kimberling explains that this data is more likely to be captured, reported and analysed real-time in a SaaS/Cloud environment relative to on premise.

Rapoza observes that many businesses interested in utilising Big Data are turning to the Cloud. "Let's face it; most companies don't have the infrastructure, expertise and sheer computing power to pull off high-level Big Data analytics – but many Cloud providers do have all of these capabilities," he remarked.

Winter explains that the use of Cloud-based storage gives Big Data a more flexible approach for dealing with very large datasets and complex analyses. "It helps Big Data, but by itself is not the answer to achieving Big Data," he said. "Manufacturers improve their business insight and actions from analytics by developing a data-oriented culture and concentrating on giving each user the right information needed at the optimal moment. Again, Cloud is not a panacea for Big Data, just a helpful enabling technology."

Sector uptake

In what vertical end-user sectors are our commentators seeing most uptake of software provided in a SaaS format? Clark commented that operations that require high levels of item picking across retail and B2B businesses are Snapfulfil's main sources of uptake at present – however, the unique business model is becoming attractive across all verticals.

Winter explained that QAD works primarily with six manufacturing sub-verticals, automotive, industrial, high tech, life sciences, food & beverage and consumer products. He elaborated: "All these verticals are moving to Cloud, and life sciences seemed like the first mover. But recent Cloud growth in automotive is resulting in technology investments that have been needed for a long time – including Cloud. Even industrial manufacturers, historically the latest technology adopters, are catching on. Addressing trends like traceability, which are important in consumer oriented manufacturing including F&B, is also potentially improved by Cloud due to global accessibility."

Rapoza believes uptake has been across the board. "Interestingly, even sectors that used to be laggards in Cloud adoption, such as government and financials, are now more likely to use Cloud-based systems," he said.

Kimberling reflects that functional vertical offerings are more robust than industry vertical offerings at the moment. "For example, sales functions are being well-served by CRM offerings such as Salesforce, HCM offerings such as Workday, and manufacturing offerings such as Plex," he said.

Strongest line of defence

What are the on premise model's strongest lines of defence against Cloud/SaaS? Winter's immediate reaction is: comfort and success. "Ironically, companies who have done a great job with on premise apps, and those manufacturers tend to be 'world-class' in IT, have less motivation to adopt Cloud – 'If it ain't broke don't fix it'," he said. "Nonetheless, often those already best in class move first to Cloud. Some compliance scenarios raise barriers to Cloud. Also, some IT departments culturally feel like going to Cloud reduces their control. We don't see it that way – we see Cloud as an opportunity for IT to focus more on value-added projects and less on 'keeping the lights on' work."

Gupta makes the point that several organisations continue to associate higher levels of data security and privacy with on premise deployments. "This is especially true in highly regulated manufacturing industries like aerospace & defence, medical device and pharmaceuticals," she said.

Clark doesn't believe that any single type of deployment method should be the natural choice. "The choice between on premise and Cloud/SaaS is governed by a range of factors including the availability of IT resources (hardware and personnel) along with accessibility and broadband connection speeds/availability," he remarked. "Purchasers should not focus on the deployment mechanism, but instead on the vendor's ability to deliver the final solution, experience in their industry and levels of service they offer."

Clark added that on premise can often be slower to support, with secure keys and VPNs required, while the lack of a qualified database administrator to provide database maintenance can lock up a system with little or no warning. "Buyers must look at their whole IT estate when choosing a deployment method," he stressed.

Rapoza considers that, with on premise, will always be a benefit of security and visibility. "With an on premise system you don't have to rely on SLAs or take a provider's word for what it is doing," he said. "Businesses know everything that is being done for security, they know where the data is stored and they can view and monitor all aspects of the system."

Kimberling believes on premise still provides a superior amount of control and flexibility for the time being, which still appeals to many buyers. "These two factors – coupled with the inaccurate perception that SaaS/Cloud is not as secure as on premise – are probably the strongest lines of defence for on premise vendors," he said.

Wilson believes there remains a case for on premise because many companies still rely on legacy systems such as AS400. "The cost of change still makes it relatively unattractive for some of these companies because they have invested in the on premise solution, they have their own data centre with all the hardware, and they have people to maintain the applications," he said. "So, to switch to a Cloud-based solution can be a significant upheaval for them and involves effectively disposing of a significant cost base – something that's not an easy thing to do. Their on premise infrastructure is in place and it's functioning, so rather than companies that make a complete transition to the Cloud, we see many of them chipping away at the AS400 type capabilities; replacing pieces of the functionality with the Cloud-based solutions and effectively 'hollowing out' their applications over a period of time."

Hammond added that companies are under pressure on two main fronts. "First, they've got the challenges that Steve referred to – having legacy technologies that they thought were a great idea three or four years ago and that will remain on the balance sheet for maybe one or two years. They've also got enormous pressure to be much more agile in terms of connecting the business to different collaborative marketplaces etc. How quickly companies move to the Cloud really depends on their appetite for transformation, and the speed of change really does dictate how quickly these companies can retire their legacy technology to get to the new world."

Mix and match

What about the 'mix-and-match'/hybrid adoption model as a viable option? Winter believes this model makes sense in some use cases, such as the aforementioned advanced analytics. "In many cases, however, some vendors late to Cloud are pushing the hybrid approach because they are not really prepared for a true Cloud-style deployment," he said. "While hybrid is not a one-size-fits-all solution, there are some types of apps, such as global financial services apps, or e-commerce, where hybrid is a great approach – franchise business models are good fits for hybrid."

Wilson explained that many of his clients have some legacy systems sitting on premise and are then putting in place new capabilities that are on Cloud while retiring one-by-one the old capabilities. "For example, they might have a CRM system that's on premise and retire that in favour of something like a Salesforce, or they might have integration on their website to their fulfilment and warehousing through a legacy order management capability and retire that and replace it with a more fully featured order management capability on Cloud. This is because these days everybody wants Click & Collect, and everybody wants the ability to do far more than the original legacy integrated systems often provided. So we see that gradual chipping away approach. This is pretty common in my experience."

Gupta points out that a hybrid Cloud deployment model (composed of at least one public Cloud and one private Cloud) typically includes a variety of options with multiple providers, making it highly flexible. "This can prove to be more cost efficient than a 100 per cent private Cloud deployment but is generally more expensive than a public Cloud deployment model," she said. "Enterprises can choose to purchase hardware (or not) and base decisions on cost to lease and infrastructure requirements. Data transfer rates on the private network are significantly higher than that on the public internet. Users have the option of meeting dynamic demand spikes with access to public Cloud while having their performance-intensive applications supported by the private Cloud. This option gives enterprises the best of both worlds as they can choose to keep secure data on private, dedicated servers, which offers them greater control on information storage, access and retrieval."

Clark reflects that the chosen deployment model should take into account a wide variety of options, not be chosen for speed of deployment or lowest cost route. "Problems in your warehouse can create unforeseen costs that far outweigh the initial savings made possible by an inefficient system/deployment method," he said. Rapoza thinks SaaS is increasingly vital for enterprise applications. "Paired with private Cloud systems, it gives businesses the security and increased manageability of on premise while letting them leverage the public Cloud for its benefits in scalability," he commented. Kimberling believes hybrid can be a very powerful model for certain organisations, particularly those that are decentralised and have sophisticated IT departments able to handle the technical complexities of such environments.


Are there any remaining issues related to the Cloud infrastructure itself to consider? Wilson and Hammond reflect that when we hear about large manufacturing organisations suffering data security breaches because they were using a provider who didn't have adequate controls and governance in place this really hits home the need for an adequate level of security and control. "These issues remain, and that's why procurement of these solutions requires an active participation by the IT departments within the companies involved, as opposed to making business decisions independent of the IT departments," added Wilson.

Winter considers that we think the notion of 'freedom' is an issue that not just IT departments but manufacturers in general are looking at in terms of Cloud and related technology trends. Do manufacturers want to be locked into a single database? Do they want to be locked into a single Cloud service provider? Do they want feature, enhancements and patches to 'just happen' without any or much user notice – as is typical in SaaS. "The notion of Cloud is to hand over the keys of your apps to a third party – how far are you willing to go?" asks Winter. "At the end of the day the CEO will look to the IT and business leaders for explanations if things go wrong 'in the Cloud' or elsewhere. Yes, the Cloud has some great benefits, but how do you navigate realising those benefits without introducing new risks and problems? Finding the right balance between risk and benefit and maintaining that balance is the ongoing issue for Cloud adoption."

Kimberling believes Cloud providers are becoming a commodity with tons of alternatives, so sifting through all the options is an important consideration. In addition, he comments that CFOs are often interested in balance sheet considerations, with on premise investments typically being balance sheet lines item and SaaS/Cloud solutions being a P&L expense line items. Rapoza reiterates his earlier point that the biggest issue is in how Cloud responds to emerging technologies like SDN.

On the horizon

What do our commentators see as some of the key areas of continuing SaaS/Cloud development to look out for over the coming year or two? Wilson is seeing Cloud/SaaS moving down the solution stack. "It's moving into areas that would previously have been kept on premise," he said. "I think the only thing that's holding back more Cloud/SaaS deployment in warehouses that use more automation technology and in manufacturing plants where MES systems are used for controlling machinery is bandwidth and response speed. This is what held back putting WMS on Cloud a few years ago. Now, WMS is increasingly going on Cloud because people have the confidence that the bandwidth and latency will be reliable and that the system won't come to a halt. So, these network issues have, for the most part, been addressed. The cost has come right down too, which makes it much more feasible. Therefore, I see the solutions stack going increasingly on Cloud, and progressing further down to the level of controllers etc." Wilson is also seeing Cloud being utilised reasonably heavily is for collaboration between organisations and their supply base – and between organisations and their customer base. "This is now very prevalent in areas such as retail and fashion," he said.

Kimberling considers that the concept of Platform as a Service and the corresponding emphasis on development and integration tools as opposed to the more myopic focus on software functionality, will gain further traction over the coming year or two, while Gupta believes software vendors will continue to see tremendous opportunity in the Cloud. "ISVs – including some of the biggest like Microsoft, Oracle, and SAP – have made significant strategic investments in developing a Cloud-based portfolio that appeal to a large base of customers," she said, adding that rising interest in and migration to Cloud-hosted enterprise applications is starting to trickle down to smaller ISVs in the businesses that integrate with these broad-based solutions to support their customers' mission-critical application requirements.

"Allaying users' concerns with data security and privacy is top-of-mind for Cloud-based solution providers," said Gupta. "They also need to enhance offline functionality to compensate for unavailability of always-on network connectivity."

Clark believes Cloud/SaaS deployments will continue to grow, which will drive the need for security technologies and flexible deployment options to support different hardware, mobile workers and people using their own devices from home. Winter points out that OpenStack and open standards continues to gain dominance over proprietary Cloud models. "The 'API economy', though slow to develop, continues to make progress as the development approach for SaaS apps," he added. Rapoza reiterates that technologies such as SDN, network virtualisation and converged systems are changing how Cloud-based systems are deployed, managed, even how we think about Cloud.

Kimberling concludes that SaaS and Cloud adoption is definitely gaining traction, as outlined in recent data published in Panorama's 2015 ERP Report, but the on premise model is certainly alive and well and likely will be for years to come. "Whether SaaS/Cloud versus on premise is right for any particular organisation depends on business requirements, needs, and priorities that are unique to the organisation."

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