Should You Still Be Running ERP Software Using On-Premise Hardware? Six Key Questions to Ask

Larry Dube

What are the most important considerations when considering migrating your ERP system to the cloud? We take a look at some of the most critical in this blog.

Advantages of Migrating ERP Software to Cloud Infrastructure

Using cloud-based infrastructure for running ERP software offers distinct advantages over managing on-premise servers. Server costs are shared between all users of the hardware employed by a given cloud provider, allowing users to benefit from economies of scale. At a strategic level, migrating to cloud-based ERP servers enables organizations to get out of the hardware management business and focus on the areas of core expertise where they can create the most value. Finally, moving your ERP system to the cloud can provide greater financial flexibility, allowing the switch from large CAPEX outlays to predictable yearly fees.

With these high-level benefits in mind, we break down some more specific points to consider when evaluating moving your business-critical ERP software to the cloud.

Question One: How do you calculate the total cost of ownership for on-premise hardware?

When comparing costs between hosted and on-premise ERP solutions, it can be easy to simply look at the “top line” costs of running a server. But maintaining your own data center comes with a number of additional costs that are important to consider. When accounting for the total cost of ownership (TCO) of on-premise ERP servers, consider factors such as:

  1. The cost of doing nothing for too long, until hardware is no longer supported by the vendor and the business is at risk should a system fail. By comparison, a hosted solution will always provide a supported platform, allowing your business to stop worrying about the pace of change in hardware.
  2. The cost of accommodating changing business needs. If a new division is acquired and the system needs to be upgraded, how long will it take, and at what cost? Hosted solutions have the advantage of being able to quickly scale up or down in response to fast-paced changes in business requirements. 
  3. The cost of redundant systems like power and communication, which are essential for operating a resilient data center.
  4. The cost in IT time and resources spent managing hardware, patching operating system software, and keeping up with best practices for security.
  5. Ongoing operational costs of maintaining an on-premise data center, including utilities, staffing, annual maintenance for hardware, and software support.

These costs are all included in the fees of a cloud provider, so it’s important to include them when comparing the economics of cloud versus on-premise hosting. 

Question Two: How long will your on-premise hardware be in use?

The working life of your ERP server can have a decisive bearing on the economics of maintaining an on-premise deployment. Consider how long your server will need to continue performing and how many upgrades and other maintenance tasks will need to be conducted over this time frame.

In many cases, of course, this duration may be difficult to determine. The answer may be, “until it can no longer meet our business requirements or is no longer supported by the vendor.” The flexibility of a hosted solution offers a solution to this uncertainty, particularly when considering investing in new hardware—a large capital investment need not lock the business into a specific server for the next decade or more.

Question Three: Does your ERP rely on integrations that may not be able to communicate with a hosted solution?

Today, the right tools can enable cloud-hosted ERP deployments to continue communicating with other systems that remain on-premise. In most cases, a well-planned cloud-hosted ERP system will work seamlessly, functioning identically as it did when it was hosted on-premise. 

Certain requirements, however, may pose difficulties when integrating with cloud-based infrastructure. For example, operations that generate an extreme volume of transactions (such as complex global warehousing and logistics management systems) may experience latency when communicating with a hosted solution. In this case, one solution is to move the system generating the extreme transaction volume closer to the hosted IBM i solution. If this is not possible, then an on-premise solution may be the best option.

Question Four: Will there be limitations for legacy applications running on modern hardware and/or operating systems?

PSGi takes pride in our commitment to working with even highly modified legacy applications, and we recognize that legacy software can continue to deliver exceptional business value. However, cloud ERP hosting services are generally only available for more recent hardware and operating system versions. 

When considering a move to the cloud, be sure to take stock of any legacy applications and their potential compatibility issues. If there is a limitation here, ask whether your cloud ERP provider can help address it. For example, PSGi is currently working with some clients to address compatibility issues associated with certain legacy applications’ SQL database queries in IBM i 7.4 and newer. 

Question Five: What are the physical risks to your on-premise data center?

A physical, on-premise server may intuitively feel more secure, but it’s important to note an array of risks, from extreme weather, to burst pipes, to fire, that may affect just about any on-premise data center. At least one PSGi client was spurred to the cloud by a fire’s near-miss of their business-critical on-premise systems.

Most cloud-hosted ERP environments are run on hardware in tier-one (SOC2) data centers with state-of-the-art security and extensive redundancies, protections, and disaster recovery capabilities beyond those of any in-house IT operation. Consider the risks of a catastrophic event at your data center, and the costs of any downtime it would impose, when weighing your ERP hosting strategy, and discuss disaster recovery capabilities with potential cloud providers.

Question Six: Does your organization have specific regulatory or audit requirements for on-premise hardware?

As our discussion of the first five questions above demonstrates, the right cloud ERP strategy can offer cost savings, strategic flexibility, and the ability to get out of the hardware management business. In this context, we should note the single most common reason an organization cannot leverage cloud-based infrastructure for ERP software: a regulatory or audit requirement for on-premise hardware. While this limitation may not be flexible, the right service provider may still be able to help modernize your ERP through the integration of external cloud-based point functionality: we take a deeper look at this “hybrid” approach in our webinar here.

Is cloud-hosted ERP software right for your business?

Moving your ERP system to a cloud-hosted solution offers significant strategic flexibility. For many businesses, however, on-premise solutions continue to deliver excellent value. As the questions above demonstrate, weighing the advantages of a hosted versus on-premise solution is not always a straightforward proposition.

Ultimately, the optimal choice will always depend on your business’s unique requirements. If you need help identifying the best path forward for your organization, we encourage you to reach out to our team.

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