Why Corona will strengthen the case for Cloud software

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 whether it should adopt a Cloud solution. Although these considerations might have temporarily moved to the background, I want to give you three arguments why the Corona crisis will reinforce the case for moving to the Cloud. I will exemplify my points with S/4HANA Cloud, as this is the Cloud solution I know best — but the points I make are valid for any (SAP) Cloud solution you may look at. So here goes:

1. Remote Work will become much more wide-spread.

The trend towards working remotely has gained traction long before the Corona epidemic, the main reason being that it was carried by a number of wider societal trends: “Teleworking” helps connect teams in a globalized world. It can help save time and costs for business travel. It can improve the work-life balance of employees, 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) to work from a beach bed or a mountain hut over an office. The drastic social distancing measures put in place as a response to the Corona epidemic force businesses to conduct an experiment on remote work, and many of them will discover the abovementioned benefits at least partially. Many of them will also discover the limitations of their current technological set-up: Can employees access their systems from outside the company’s premises? Can they do so from mobile devices?

Using Cloud-based software, they can. 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 one could achieve similar results with an on-premise 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 recently hit the boundaries of their VPN bandwidths with so many of their employees working from home. 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, their companies more resilient.

2. There will be a 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 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 in fact understated, there is little doubt that the longest economic recovery in history might have come to an abrupt end. And as revenue sources dry up in this process, a reinforced focus on reducing operational costs is what will follow as companies scramble to safeguard their bottom lines.

S/4HANA Cloud is a good example for Cloud software being able to help cutting back operational costs. First, all processes built into S/4HANA Cloud are based on tried and tested best practice processes. Implementing these best practices provides opportunity to harvest some low-hanging fruit: Giving processes a makeover that might have gone unchecked for a long while. Second, 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 S/4HANA Cloud, automating more and more repetitive processes. As of today, S/4HANA Cloud offers 66 automated scenarios and with every update, more of those will be automatically made available to SAP’s Cloud customers. This way, they will not only profit from a short-term boost in productivity after implementation but will 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-premise installation usually tilts your spending towards capital expenditure (CAPEX): Licenses needing to be bought up front 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 a time scale (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 Corona — 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 set-up will find themselves ill-prepared to take advantage of the subsequent recovery. So, 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 then 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 in time. It might be true that, due to Corona, the focus will shift more from opening new revenue sources to improving operational efficiency, from open-sky-innovation to best practice, from up-front-investment to pay-as-you-go, from the open plan office to the home office. But all of these factors will strengthen the case for the cloud.