Cloud vs. On-Prem ERP: Which One Will Rule?

BrandPost By Tom Schmidt
Mar 19, 2018
IT LeadershipTechnology Industry

cloudvson premerp
Credit: istock

For some time now, industry pundits have maintained that cloud-based ERP will eventually rule and on-premises software is destined for legacy status.

As CIO observes, this is a big change from just a few years ago, when cloud ERP was met with outright skepticism, particularly among large companies with big investments in on-premises systems.

So what’s behind the big change in attitude?

“The original advantages of cloud ERP were faster deployments, immediate enterprise-wide availability of the latest versions of applications, less need for on-site support and simpler pricing,” CIO’s Michael Nadaeu writes. “Later systems featured greater ease of use, mobile-enablement of applications and easier integration with outside data sources. Today, the most up-to-date cloud-based ERP systems have Internet of things (IoT) and machine learning capabilities.”

With cloud-based ERP offering so many pluses, why even consider an on-premises option?

To get a better feel for how IT decision-makers approach this issue, we recently surveyed members of the IDG Influencer Network with this question: How long will it take for “cloud ERP” to be at parity with on-prem systems, or will hybrid on-prem/cloud dominate for years to come? The short answer, according to these ITDMs: The cloud is coming on like gangbusters, but hybrid solutions are likely to have a bright future in IT.

“Cloud ERP is already at parity with on-premises ERP solutions,” says Eric Vanderburg (@evanderburg), vice president of Cybersecurity at TCDI. “Cloud ERP offers many advantages over on-premises. Upgrades and maintenance to ERP systems can require significant resources and sometimes system disruption, but these activities are performed by cloud providers. Despite these advantages, on-premises ERP will still be around for many years, albeit at an ever-decreasing proportion.”

Tony Flath (@TmanSpeaks), principal lead at TELUS Security, says it all depends on the organization.

“Cloud ERP will continue with growth and refinement heavily fueled by organizations that grew up on the cloud and were ‘cloud friendly’ out of the gate,” he observes. “Organizations like Finance, Insurance, and Oil and Gas will be tied to hybrid cloud and on-prem-based infrastructure for a number of years to come with the well-entrenched legacy applications they support.”

Technology writer Will Kelly (@willkelly) likewise says it depends on the organization:

“Cloud ERP will find a home (or not) in SMBs where ERP was formerly out of reach due to lack of budget and in-house technology expertise,” he notes. “Cloud ERP will also grow in the federal sector because of a recent executive order for agencies to move to shared services. The hybrid ERP model will continue to dominate in larger companies for reasons of security, performance, IT staffing constraints, and ‘Hey, if it’s not broke, why fix it?’”

Ben Rothke (@benrothke), principal security consultant at Nettitude, maintains there are plenty of ERP systems that are poorly implemented without effective security controls and the cloud is no different.

“There’s no magic in the cloud,” he says. “If enterprises use discipline and good practices, a cloud solution can be better, faster, and cheaper. If not, it will be just as ineffectual as an on-premises solution.”

“Cloud-based ERP systems are already at parity with most on-premises implementations today,” says Chris Steffen (@CloudSecChris), technical director at Cyxtera. “Simply put, most businesses cannot afford to devote the resources necessary to compete with all the resources a cloud provider can dedicate to an ERP implementation, including modules, updates, and hardware resources.”

That said, Steffen thinks hybrid solutions will continue for some time, primarily because “most ERP systems required a huge capital investment, one that will be depreciated over the span of many years. As the depreciation cycle comes to an end, IT professionals will be allowed to further explore cloud options.”

Jack Gold (@jckgld), principal analyst at J. Gold Associates LLC, expects hybrid ERP systems to be “the norm” for at least the next three to five years, if not longer.

“Many companies don’t do big upgrades to existing systems that are functioning well and don’t need to change,” he says. “But new installations will likely be highly cloud-centric, so hybrid will likely grow.”

David Geer (@geercom), writer/principal at Geer Communications, agrees with that view.

“Hybrid on-prem/cloud ERP decreases risk and increases control for the enterprise ERP customer,” he says. “This hybrid approach will dominate until cloud ERP proves itself out over several years.”

“The inexorable march to the public cloud is well under way. Expect to see rapid adoption as even mainstream businesses look to public cloud for agility and resiliency,” says Avinash Lakshman (@HedvigEng), CEO and founder of Hedvig. “But for mission-critical workloads like ERP, hybrid is the foreseeable future. First, organizations are conservative by nature. Just look how many mainframes are still around. They’re even more conservative when it comes to mission-critical applications, and ERP is atop that list. Second, companies still don’t have a solid security and governance model for their data. Even if public cloud ERP is as secure as on-prem ERP, there will be fear of vendor lock-in and data retrieval issues.”

Chris Dobkins (@chris_dobkins), president/CEO of Njevity Inc., has no doubts whatsoever.

“I predict that by 2022, cloud ERP will surpass on-premises ERP in market share,” he declares. “In the enterprise space, hybrid cloud solutions will dominate as enterprise IT departments work to find the best ways to leverage the power and scalability of the cloud while delivering deep integration with on-prem line-of-business apps, integrating with existing Identity Management Systems and servicing plants in remote locations and/or other countries where Internet connectivity is spotty.”

Richard Duffy (LinkedIn Profile), founder and CEO of SMB Solutions, believes we are “almost on a business functionality par.”

“You can get your on-premises ERP with a subscription model, and you can purchase your cloud ERP solution with a perpetual license, so a lot of the discussion now comes down to how does the solution fit in your overall business systems strategy and architecture?”

Hybrid: ‘faster, cheaper, and lower risk’

David Rowe (@davewrowe), SVP and CMO of Rimini Street Inc., thinks a hybrid model is the winning formula for today’s CIOs.

“CIOs should leverage the cloud to enable new business models and deeper customer engagement, not replicate the vast functionality in on-premises ERP systems,” he says. “Attempting to simply replicate on-premises in the cloud is a big mistake. A hybrid model is the best of both worlds, with robust on-premises ERP as the system of record and innovative cloud applications as systems of engagement. Hybrid is faster, cheaper and lower risk.”

Learn more about what you need to know to exploit the cloud.