Why Today's Uncertainty Will Strengthen The Case For Cloud Software

Victor Hoeck

As the world economy is reeling from the rapid spread of COVID-19 and the drastic measures taken to curb it, many businesses are reconsidering their priorities. Long gone seem the days when one of the most pressing issues a company faced was updating its technological stack and deciding whether it should adopt a cloud solution.

Although these considerations might have temporarily moved to the background, I believe the coronavirus crisis will reinforce the case for moving to the cloud for the following three reasons. I will explain my points with SAP S/4HANA Cloud, as this is the cloud solution I know best.

1. Remote work will become much more widespread

The trend towards working remotely gained traction long before the coronavirus pandemic, carried by a number of wider societal trends. “Telecommuting” helps connect teams in a globalized world. It can help save time and costs for business travel. It can improve employees’ work-life balance, thus contributing to the integration of a more diverse population into the workforce. Additionally, it can help reduce carbon emissions and caters to the preferences of millennials who favor (or idealize) working from a beach bed or a mountain hut rather than an office.

The drastic social distancing measures put in place in response to the pandemic are forcing businesses to conduct an experiment on remote work, and many of them will discover the above benefits (at least partially). Many of them will also discover the limitations of their current technological setup: Can employees access their systems from outside the company’s premises? Can they do so from mobile devices?

Using cloud-based software, they can. SAP S/4HANA Cloud, for example, can be accessed from a web browser, no matter where you are at that moment. You can use any device, be it a smartphone, a tablet, or a laptop. Some will argue that they could achieve similar results with an on-premises architecture and a VPN. But as my colleague and host of the SAP Experts Podcast Alex Greb pointed out recently, “Even DAX heavyweight companies have recognized that it’s not that easy having their people work from home, as their VPN bandwidths have started to hit their boundaries.”

This problem would not occur working with a cloud solution, and on top of that, it would be much easier to maintain from an IT perspective. There is a good chance that many companies will come out of this big social distancing experiment having learned that cloud software made working from home much easier – and thus, made their companies more resilient.

2. There will be renewed focus on operational efficiency

With entire economic sectors in a virtual standstill, a grave economic recession seems all but inevitable. The IMF, for example, assumes that the economic upheaval we are about to face will dwarf the supposedly once-in-a-generation meltdown of 2008. Regardless of whether these fears are overblown or understated, there is little doubt that the longest economic recovery in history may have come to an abrupt end. And as revenue sources dry up in this process, a reinforced focus on reducing operational costs will follow as companies scramble to safeguard their bottom lines.

Cloud software can help cut operational costs. Implementing best-practice processes built into cloud software provides the opportunity to harvest some low-hanging fruit: giving processes a makeover that might have gone unchecked for a long while. SAP is constantly innovating on these best practices, with the goal of reducing 50% of repetitive processes in the coming years. To that end, for example, “intelligent technologies” (machine learning, conversational AI, robotic process automation) are increasingly phased into SAP S/4HANA Cloud, automating more and more repetitive processes. This way, companies can not only profit from a short-term boost in productivity after implementation but continue to improve their bottom lines as they consume new innovations automatically delivered to them.

3. Companies will increasingly favor OPEX over CAPEX

For organizations that are looking into upgrading their IT landscape, this discussion will sound familiar: Do you favor CAPEX or OPEX? An on-premises installation usually tilts your spending towards capital expenditure (CAPEX): Licenses that need to be bought upfront and heavy implementation projects require a considerable amount of liquidity in the early stage of the software lifecycle. Cloud software, by contrast, allows you to spread those expenditures over a longer time period. Subscription payments hit your cash position in regular intervals, while implementation projects are a lot leaner and faster (although consulting might be needed more often to take advantage of the dynamic innovation cycles described above).

Theoretically, the longer you spread out the payments of an investment over time (as you do when you convert CAPEX to OPEX), the more this increases its net present value (= profitability). In practice, finance departments often had less clear-cut opinions about this matter. What the pandemic – and more so, the looming recession – will change about this discussion is that cash will be in short supply in many sectors of the economy for the foreseeable future.

As a response, affected IT departments will ponder deferring investments until the economic situation lightens up. This could be a lengthy process, however, and businesses with an outdated technological setup will find themselves ill-prepared to take advantage of the subsequent recovery. If your organization is currently evaluating upgrading its IT landscape, you should consider cloud as an option to reconcile your organization’s long-term strategic priorities with its mid-term financial necessities.

Those who innovate throughout the recession will win the recovery

It seems certain that we are in for a bumpy ride for quite a stretch. But as economic history suggests, every downturn – as tough as it may play out – is eventually followed by a recovery. The trickier question is, who will be best prepared to not only weather the storm but also to take advantage of the ensuing economic growth?

It stands to reason that technology will remain a crucial driver of competitiveness even in this new economic era. Hence, it would be unwise to stop innovating, to stop adopting new technology at this point. It might be true that, due to the pandemic, the focus will shift more from opening new revenue sources to improving operational efficiency, from open-sky innovation to best practice, from upfront investment to pay-as-you-go, from the open plan office to the home office. But all these factors will strengthen the case for the cloud.

How can you achieve your business goals with SAP S/4HANA? Find out more about the next generation of SAP business scenario recommendations for SAP S/4HANA in our upcoming webinar session on April 27, 2020. Sign up today.

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Victor Hoeck

About Victor Hoeck

Victor Hoeck is an SAP solution advisor based in Vienna, Austria. He covers SAP solutions for managing portfolios and projects in the Middle & Eastern European region.