IT consolidation is just another word for private SaaS

When a well known bottler of soft drinks in Europe looked at its IT portfolio it noticed that it had separate ERP systems installed in each of the countries where it had operations. That was a major step ahead at the time. Now it turned into a drag. Upgrading all those systems to the next version was a real pain in the neck. The upgrade project had to be repeated multiple times across the entire continent.

This was when they realized that there could be business case in consolidating those systems. Instead of doing twenty separate upgrade projects, it was cheaper to spend all that money on one upgrade project and a better international network infrastructure.

In other words, they had to turn that ERP system into an internal cloud, a private SaaS cloud so to say.

Let’s review the essential cloud characteristics to see to what extend this is a cloud? NIST lists these as:  On-demand self-service, Broad network access, Resource pooling, Rapid elasticity, and Measured Service.

The obvious characteristics are ‘broad network access’, which permits the entire ERP system to be accessed by all group companies. Resource pooling is an important cost driver in the business case, based on a reduced number of servers and support groups, and maybe software licenses. Rapid elasticity is a characteristic relevant to the operating companies, each of which can grow and shrink its ERP usage now much more flexibly than when it had its own system. From the perspective of the group however, the ERP system is not very elastic. Measured service, finally, could apply to operating companies if they are cross-charged for their usage. This can be done in a number of ways, each with different implications.

This brings us to more business benefits. Depending on the cross charging model, this might make it a lot more viable to start a new operating company, as it would have IT costs that grow with its business rather than being an initial investment.  Broad network access and resource pooling might bring additional business benefits if this allows logistics to be optimized across the entire operating region.

Finally the risks. Obviously the international connectivity becomes an important new source of hazard, whether it is a dedicated network or the internet is used. For the central IT, servers, application and support, the stakes are raised a lot higher. A failure of the application affects not just one company but the entire group. On the application management level, the structure and quality of the data now has to be coordinated over a lot more companies. Individual bespoke adaptations will be a lot harder. Even corporate structure may need adapting, as there will be a much more formal relation between group IT and the operating companies. Formal service level agreements probably need to be in place.

So, when you are consolidating IT, it might make sense to apply the lessons that are being learned in cloud computing.

If you want to learn more, visit my list of cloud computing courses and other resources.

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