Are The Days Of A Cloud-Only Approach Numbered?

Companies are reconsidering a cloud-only approach.
The explosion of AI is adding new risks to a cloud-only strategy as more companies move to a hybrid approach.

For a long time, analysts and vendors have painted the picture that cloud will be the de facto for scaling business and cost management. I remember in 2021, Gartner said that the cloud would be the “centerpiece” for new digital experiences and suggested that there could be no business strategy without a cloud strategy. I agreed—it underlined the predictions of many analysts, and business leaders who as far back as 2015, were evangelizing how the cloud would be integral to a winning strategy.

It also mirrored the decisions of companies large and small. Investing in the cloud was a way to unlock innovation, agility and productivity. Our strategy echoes these sentiments. Five years ago, we decided to move to the cloud, and we remain steadfast because it is delivering on those promises.

Contra movement emerging

However, I sense a change in the winds, to the extent that I’ve seen a contra movement start to emerge as businesses weigh up their investment in IT. It’s been most marked in the entertainment sector, where data ownership and privacy are highly prized. A cloud-only approach isn’t working for them. There is too much risk of data exposure and leakage.

I see this argument translating into other sectors, especially those more heavily regulated. In the context of ERP/SAP I am being asked what’s the right balance and how do we manage the risk and sustain a competitive strategy, while also driving out cost?

Changing dynamics

I think it’s a sensible question for leaders to ask. At a time when IT budgets aren’t rising in relation to expectations, and the economy is fragile, leaders want and need to make astute decisions about their investment. There are a lot of macroeconomic risks to manage, but there are also risks associated with running core networks and backend processes in the cloud, just as there are risks if you don’t.

In industries where there are true nuances, and so many of the best of breed applications are cloud-based, I can see why it would make sense to follow a selective strategy and only adopt the cloud where it benefits diversification, agility, scale and cost. Though it might be considered conservative, going hybrid is a very valid choice, particularly if it helps to manage perceived risks on data and privacy.

AI makes the need to reevaluate more urgent

This debate is not new, but it has become a more topical and urgent one as AI rapidly explodes with its continuous evolution. There’s now more pressure to manage a different set of risks, and more complex ones, such as the ethical and practical impact of machines making mistakes.

I think the fear of uncertainty and lack of clarity and experience is to be expected. Any leader considering integrating AI into their core IT infrastructure needs to be aware of the risks.

For instance, could a procurement team using AI to rank suppliers make the wrong decision? Suppose the AI promoted a company that’s underachieving on sustainability but more likely to have stock to the top of the rankings, versus one that has stock delays but is highly ethical. Where would that leave the procurement team in upholding high standards of ESG practice?

A new ‘anti-establishment’ trend

I’ve been reflecting on these types of scenarios, and the conversations I have had with leaders who are heavily invested in large scale ERP and SAP. There’s no doubt there are the beginnings of a new “anti-establishment” trend.

There are more than a handful of companies making a strategic departure from the accepted wisdom that cloud is the future. The overwhelming argument is that there is a massive cost associated with layering the optimization – from physical hardware and virtual schemas to fractional container strategies. It’s true that autoscaling has a place in this debate, but IT leaders are asking, “Is it enough?”

Are they being heard?

I’m not sure they are. SAP, which has long maintained that it would not limit developments to the cloud, recently made clear its intentions to move away from this strategy.

On SAP’s latest earnings call (July 23), Christian Klein, CEO, explained that their forthcoming innovations would only be available in cloud environments and that on-premise customers won’t be able to take advantage of new AI and generative AI, or sustainability functionality either.

Given the anti-establishment trend appears to be gathering pace, I question the timing. RISE celebrated its second anniversary earlier this year, with a reported 2,500 businesses running it. A significant number of those would be affected by this decision in terms of their preference for hybrid models. They will be forced to rethink their plans, and likely it will be to the detriment of keeping their infrastructure options open.

In fact, some are already expressing unease. From the conversations I have had, concern comes mostly from those that have already re-evaluated a cloud-only strategy in favor of hybrid/on prem to manage cost or have never embraced cloud to protect their data.

While they believe their business could grow if they harnessed the innovations SAP intends to introduce, SAP’s decision has left them sidelined. They now face the prospect of an investment that becomes redundant.   

What does it tell us?

I think the departure business leaders are making away from the considered norm illustrates that it is naive for anyone to think of the enterprise landscape as homogenous. Businesses are unique. They have a duty to their shareholders to consider what they buy in relation to what they want to achieve.

If the cost/benefit evaluation of on premise versus the cloud comes out in favor of on premise, then why ignore it simply because it bucks the trend? Yes, there could be consequences for the skills the organization needs, but, in my view, that’s surmountable provided the right human capital investment is made in parallel.

What’s more, I believe it’s up to organizations like ours to adapt and work with companies on achieving their end goals, irrespective of the core network choices they make.

Using the term “anti-establishment movement” might seem like a grand way to sum up an emerging curve, but there’s no escaping the fact that competing in the current climate requires bold strategy and a commitment that goes beyond following the herd.

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