Best Practices for Managing Integration in a Hybrid Cloud and On-Premises ERP World

An interesting article from Actian reminds me of conversations that were had when the move from mainframe to client server took off : What to do with Cloud if you have an ERP. Aivars Lode avantce

Best Practices for Managing Integration in a Hybrid Cloud and On-Premises ERP World

12 June 2013 ID:G00251013

Analyst(s): Nigel Rayner

The allure of the cloud means many organizations are adopting cloud-based applications that augment an on-premises ERP and increasingly moving core elements of ERP to the cloud. CIOs and ERP leaders need to be prepared with an integration strategy that anticipates this world of hybrid ERP.

Overview

Key Challenges

• The Nexus of Forces is driving the adoption of more cloud-based business applications that have to coexist and integrate with on-premises ERP applications. This hybridization of ERP often arises without advance warning due to departmental purchasing of cloud business applications.

• CIOs and application leaders will have to rethink their current ERP strategy to plan for the hybrid ERP world. It will be almost impossible to pursue a single vendor, single product strategy.

• Integration in the hybrid ERP world means existing integration technology choices must be revisited. This is challenging because cloud application integration technologies (and vendor road maps) are evolving and changing.

• Define a five-year future hybrid ERP scenario: on-premises core ERP with mainly cloud extensions, cloud/on-premises core ERP with a mix of on-premises and cloud extensions/feeder systems, or a shifting portfolio of cloud and on-premises applications.

• Understand the cloud services integration capabilities offered by your business application vendors, any additional costs and their road map. Also, monitor the cloud services integration capabilities of any incumbent integration vendors.

• Define an approach to cloud services integration based on your five-year hybrid ERP scenario.

• Use a Pace-Layered Application Strategy to identify how cloud services integration (CSI) forms part of your connective tissue strategy.

• On-premises core ERP with some cloud-based extensions: 
The majority of ERP remains on-premises but may be augmented by cloud applications in some domains, such as talent management, accounts payable invoice automation or travel and expenses management. In this scenario, the number of cloud-based applications remains relatively small and the existing on-premises ERP applications dominate the application portfolio.

• Cloud/on-premises core ERP with a mix of on-premises and cloud extensions/ERP feeder systems (see Note 1):
 Some of the core ERP elements (such as core financial applications, personnel/benefits administration or manufacturing and operations) have moved to the cloud, or will move to the cloud in the next two to three years. This mix of cloud and on-premises core ERP will be augmented with some best-in-class solutions that could be cloud-based (as in Scenario 1 below) and will also have to integrate with existing feeder systems, most of which are likely to be on-premises.

• Shifting portfolio of cloud and on-premises applications:
 The ERP strategy allows for increasing adoption of cloud applications and no clear boundary has been drawn between what stays on-premises and what moves to the cloud. However, no clear decisions have been made regarding specific applications and vendors at this stage (although there may be some cloud line-of-business applications already in use). Organizations in this scenario often state they have a "cloud first" strategy without necessarily defining which applications will move to the cloud in which order.

• Data import/export:
 These are parameter-driven facilities that allow certain data to be extracted from/imported to the applications using file transfer or simple batch loading processes. For example, most ERP financial applications have some form of journal import/export facility (usually as a .csv file or an Excel spreadsheet) that allows users to perform low-volume data transfers using relatively simple tools requiring little or no IT support. These facilities can also perform simple master data transfers (for example, lists of cost centers or employees) and are often used for initial data loads.

• Application and process-specific connectors:
 Many business application vendors provide point-to-point connectors that transfer master data and transaction data between specific applications and, in some cases, provide end-to-end process support to allow processes to be executed across two systems. These connectors are built and provided either by the vendor or, in some cases, system integrator partners. These connectors have been commonplace in the ERP world but now are increasingly being offered as "cloudstreams," which implement a well-defined integration requirement as a packaged cloud service that user organizations can purchase, deploy, configure and run in self-service mode. An example is Oracle's Talent Coexistence cloudstreams that provide integration between elements of Oracle Fusion HCM Applications and on-premises implementations of Oracle's E-Business Suite, PeopleSoft and JD Edwards.

• Middleware-based integration:
 Some business application vendors offer their own integration middleware as part of a broader middleware platform offering that allows users to build their own application-to-application integrations. Cloud application vendors such as NetSuite and Workday offer integration platform as a service (iPaaS, see "What IT Leaders Need to Know About Integration PaaS for Cloud Services Integration (and More)") as part of their SaaS offerings, while SAP is incorporating iPaaS capabilities in its Hana Cloud Platform.

• On-premises core ERP with a small number of cloud applications (typically less than 5): use point-to-point integration using either data import/export, on-premises connectors or cloudstreams. Using connectors/cloudstreams may be preferable where there is a need for more process-oriented integration as opposed to batch data transfer. If the cloud applications are from different vendors and the ERP vendor does not offer specific connectors, using cloudstreams from the cloud vendors is preferable. You should not assume that packaged cloudstreams will work out of the box with no effort. These are often 70% to 80% complete, but sometimes as little as 50% complete. Therefore, ensure that you understand how to budget to make these packaged integrations fully meet your requirements if you decide to use them.

• On-premises ERP with a large number of cloud applications (typically more than five): this will require a more strategic approach. Although point-to-point integration may work in the short term, the cost and complexity of supporting different interfaces will grow as the number of applications increases. In this case, consider using on-premises integration middleware or possibly iPaaS. Generally, when the center of gravity remains on-premises, it makes sense to use on-premises integration middleware, especially if you use the middleware from your ERP vendor. However, it is worth considering iPaaS as a more strategic way of integrating multiple cloud applications to an on-premises core ERP. Evaluate the iPaaS offerings of your primary ERP vendors against any third-party iPaaS you may already use in your organization. In some cases, the iPaaS of a cloud application vendor may also be a viable option if several of the cloud applications use the same PaaS. You can also consider using an iPaaS as a cloud "gateway" to on-premises middleware (which orchestrates all on-premises integration). This approach makes sense where the core ERP hub will remain on-premises while the number of cloud-based spoke applications is likely to grow.You may also consider a hybrid integration approach, where you still maintain a small number of point-to-point integrations with cloud apps where the integration requirements are not complex (for example, linking a cloud-based accounts payable invoice automation solution with an on-premises ERP financials application). However, use middleware/iPaaS for more complex integrations, especially if the cloud applications are provided by the ERP vendor.

Recommendations

CIOs and ERP leaders should:

Introduction

The traditional view of ERP as an integrated, end-to-end process suite sourced from a single vendor has been under increasing pressure in the last 10 years because many organizations have faced challenges with the cost and complexity of maintaining these solutions and have also struggled to keep pace with vendor-driven upgrade cycles. The emergence of cloud-based business applications has dramatically increased this pressure in the last five years, and now ERP leaders see large elements of the ERP footprint being challenged and even replaced by cloud "upstarts" in areas such as talent management (Oracle Taleo Cloud Services, SuccessFactors) e-procurement (Ariba, Coupa), travel and expenses management (Concur, Infor) and more. In the last two to three years, vendors like NetSuite, Plex Systems and Workday have become viable for mid- and large-size organizations in core areas of ERP like financials, manufacturing and operations and HR. The megavendors are also making their presence felt in hybrid ERP. SAP developed its own cloud domain offerings (like SAP Cloud for Travel) and sells the financial modules from the SAP Business ByDesign ERP suite as cloud-based core financial applications, and it also acquired both SuccessFactors and Ariba. Oracle is delivering Oracle Fusion Applications in the cloud either as core ERP elements (such as cloud-based financials and human capital management [HCM]) or in coexistence mode with its other ERP solutions; it also acquired Taleo.

These developments are part of the longer-term devolution of ERP from the present monolithic solutions to autonomous, discrete, variably coupled components (see "Hype Cycle for ERP, 2012"). However, it will take between five and 10 years for this future state of ERP applications to mature and, in the meantime, organizations will be faced with managing a hybrid ERP environment where some components of functionality will be delivered as cloud services while others will be maintained and managed on-premises. This will create new integration challenges and many CIOs and ERP leaders are caught off guard because users are getting around the corporate "we're vendor X" ERP strategy by subscribing to cloud-based line-of-business solutions without any reference to IT.

CIOs and ERP leaders therefore need to anticipate the hybridization of their ERP environment so they do not get swamped by a new generation of cloud integration "spaghetti." These best practices will help you understand the actions you need to take now.

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Analysis

Define Your Five-Year Future Hybrid ERP Scenario

CIOs and ERP leaders need to immediately revisit their ERP strategy and define how hybrid the ERP environment will become in the next five years. There are three possible hybrid scenarios:

There will be a minority of organizations that can pursue an on-premises only approach, in which case integration requirements will not change. However, any organization that feels it is in a stable position should still anticipate the pressures it may face (especially from users) to adopt a hybrid ERP model in the next five years.

These scenarios are important because they will impact an organization's application integration strategy. All these scenarios involve CSI, which Gartner defines as "the set of best practices required to enable independently designed cloud services and on-premises systems to work together." In many cases, there is no strategic approach to CSI in a hybrid ERP environment because business users subscribe to cloud-based business applications without involving IT. For example, Gartner estimates that around 35% of cloud-based talent management implementations have no formal integration with the on-premises core ERP application: instead, users rekey data manually. CIOs and ERP leaders should use this situation as an indication that a more strategic approach to CSI will be required for hybrid ERP.

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Understand the Integration Capabilities Offered by Your Business Application Vendors, Additional Costs and Their Road Map

Before deciding how you will approach CSI in the different hybrid ERP scenarios, you must first identify the range of integration technologies available. All business application vendors offer a range of integration capabilities as part of their solution and it is important to understand what options they offer to support CSI. These typically fall into the following categories:

It is important to understand the capabilities your business application vendors offer in all these areas because you will need to evaluate these vendors against third-party middleware and iPaaS offerings. You should monitor the road map for any incumbent integration vendors because these vendors will be the obvious potential alternatives to capabilities offered by business application vendors.

Also, as business application vendor portfolios shift increasingly toward cloud, their integration capabilities are changing so you must also understand their future road map. For example, SAP initially offered file extract capabilities and on-premises connectors to link SAP ERP HCM with its cloud-based SuccessFactors BizX Suite. SAP now also offers process integration scenarios using its on-premises SAP NetWeaver Process Orchestration middleware capabilities, and during 2013, SAP will be rolling out cloudstream integration and broader iPaaS capabilities as part of the upcoming SAP Hana Cloud Integration iPaaS. CIOs and ERP leaders will face a shifting range of options that will make it challenging to decide if and when to adopt integration capabilities from the business application vendor. For example, SuccessFactors implemented several cloudstreams using Dell Boomi prior to its acquisition by SAP, and SAP will continue to support these while also offering cloudstreams on its native integration platforms (both the on-premises SAP NetWeaver Process Integration and the upcoming SAP Hana Cloud Integration). Also, these capabilities may incur additional licensing charges so CIOs and ERP leaders must identify what (if anything) is covered under existing licenses.

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Define an Approach to CSI Based on Your Five-Year Hybrid ERP Scenario

The hybridization of ERP will add complexity to your existing application integration strategy. In many cases, this complexity will appear unannounced as line-of-business domains license cloud applications as either ERP-specific add-ons or as best-in-class solutions for a specific business issue without reference to IT. It is therefore important to anticipate the impact of hybrid ERP on your current and future application integration strategy with respect to CSI. Gartner has identified the key challenges of CSI (see "What IT Leaders Need to Know About Cloud Services Integration: Proactively Address the Challenge") and these lessons need to be adapted to each hybrid ERP scenario.

Scenario 1 (on-premises core ERP with some cloud-based extensions) is cloud-to-ground type CSI where the "ground" on-premises applications are the hub, while the cloud extensions are the spokes. The integration challenges are typically simpler in this scenario and Gartner recommends the following approaches:

Scenario 2 (cloud/on-premises core ERP with a mix of on-premises and cloud extensions/ERP feeder systems) is more complex because it requires cloud-to-cloud-to-ground CSI. This is because some of the hub applications are in the cloud and will need to integrate with cloud-based spoke systems, but the cloud hub application will have to integrate with other on-premises hub applications. For example, an organization may have cloud-based talent management applications with a cloud-based core HR system but financials remain on-premises. In this circumstance, the talent management application (cloud) will need to integrate with the HR application (HR), which in turn will need to integrate with the on-premises financials application (ground). There will also be other integrations required in this scenario, making it more challenging from a CSI perspective because there is no clear hub application.

In Scenario 2, iPaaS may appear the logical and more strategic approach because of its potential to work with multiple cloud and on-premises applications. However, there may be challenges. Once a core component of ERP like financials or core HR moves to the cloud, the cloud application starts to become the hub for integration rather than a spoke feeding the ERP core. This creates the cloud-to-cloud-to-ground complexity, because in addition to some cloud-based spoke applications linking to the cloud hub core ERP system, there will be ground-based systems also feeding data into it. This is particularly true of financial applications, which could have many legacy and other on-premises feeder systems. Vendors of cloud ERP applications like Workday and NetSuite have iPaaS as part of a broader PaaS offering and these are potential candidates to provide a strategic approach, but these offerings should also be evaluated against third-party iPaaS solutions such as Dell Boomi and IBM WebSphere CastIron Live.

The volume of transactions and data passing through the hub cloud applications will be an important factor when deciding to use iPaaS. If a particular cloud ERP system processes a significant portion of the transaction data in your organization, this will strengthen the case for using the iPaaS from that vendor (if it has one). However, be aware that iPaaS offerings are not typically used for high-volume integration scenarios, so check references and, if necessary, conduct conference room pilots to ensure the iPaaS can handle your transaction volumes.

Scenario 3 (shifting portfolio of cloud and on-premises applications), where there is no clearly dominant hub application (either cloud or on-premises), it is unwise to make a strategic commitment to a particular ERP vendor's on-premises integration middleware or iPaaS. In this case, it may make more sense to use third-party middleware, ideally from a vendor that offers both on-premises and iPaaS capabilities so that you can shift the balance of integration capabilities as the application portfolio shifts. In this scenario, it may also be worth considering using integration brokerage services from a cloud services brokerage (CSB). However, the use of these providers in application-to-application scenarios is still maturing (see "Hype Cycle for Cloud Services Brokerage, 2012") and it is unlikely CSBs will provide services for all the cloud applications you may deploy "out of the box" (as there are a large number of cloud business applications for niche and specialist vendors). Therefore, this option may prove costly but it may make sense if your IT function does not have significant expertise in complex cloud-to-cloud-to-ground integrations scenarios.

Use a Pace-Layered Application Strategy to Identify How CSI Forms Part of Your Connective Tissue Strategy

In the world of hybrid ERP, cloud-based applications will often initially be deployed to support differentiation and innovation, and over time more systems of record will move to the cloud. CIOs and ERP leaders need to adopt a Pace-Layered Application Strategy to help manage this transition, and addressing the challenges around CSI must become a key part of the application architecture that forms part of the "connective tissue" between layers (see "Connecting Technology for a Pace-Layered Application Strategy"). It is important to view the CSI best practices described above through a pace layer lens. For example, simple point-to-point integration may be the best short-term approach to integrate a cloud-based system of innovation with an on-premises ERP system of record because the integration requirements will not be clearly defined and the system of innovation may be relatively short-lived. However, integrating a cloud-based system of record (for example, HR) with an on-premises system of record (for example, core financial applications) will have clearly defined integration requirements that will be less volatile and require robust integration (thus, a middleware or iPaaS approach would likely be better-suited). You should therefore ensure that you categorize the hybrid ERP application portfolio across the pace layers and align the CSI approach with the layers, as different styles will be required to support different levels of integration across the layers.