Should I stay (on-premise)? Or should I go (cloud)?

SUMMARY:

With financial applications moving to the cloud, businesses must carefully consider the options for when and how to go cloud, writes NetSuite’s Mike Arntz

Door opening to sunny blue sky © Studio Sarah - Fotolia.comWith the emergence of new cloud-based financial applications on the market, many businesses that had been putting off decisions about their on-premise software now have some thinking to do.

The argument over whether to go cloud or not is over. Aside from a few businesses in select industries with regulatory demands, most companies now acknowledge that they will eventually be moving their applications to the cloud. New software start-ups are not building on-premise apps. New businesses are not investing in on-premise solutions.

Indeed, carve-outs and divestitures provide a perfect example. Forced to move off the existing systems of their former parent companies, these businesses are not rebuilding the systems they know, they’re starting fresh, moving as many of their applications to the cloud as they can. They see the economies, the scalability and the flexibility of the cloud.

Yet those with the considerable sunken costs in on-premise financial systems don’t have the luxury of starting over. Indeed, they essentially have three choices: stay put on their existing systems; move to their existing provider’s revamped, remade or rehashed “cloud” version; or migrate to a new system entirely.

Staying put

For companies running some of these legacy applications, the case for staying put had seemed much clearer if their existing vendor was being acquired. It made sense to sit back and wait to see how things shook out, see what new upgrades brought — and put off the daunting prospect of another ERP implementation, given some of the tortured history of ERP projects in those days.

Years later, the case for moving on may be just as clear. These businesses face the prospect of reduced support, limited investment in a product being sunsetted and constant pressure to move to the newer “cloud” version.

Certainly there are third party providers eager to provide support, but that introduces continued business rigidity. I don’t know of too many businesses these days that don’t need to be able to adapt their business rapidly to changing conditions, be it entering new markets, offering new products or services, or simply expanding.

Moving to a newer “cloud” version

With the march to the cloud inevitable, many of these companies had entrusted their existing vendor with the mission of providing a new, cloud version of their on-premise software — and an easy migration path. They’re still waiting.

Some options are finally beginning to emerge, while others have already come and gone (though not by design). But the fundamental truth to this option is it’s still a reimplementation. It’s going to require the data migration, business process evaluation and training.

Furthermore, businesses running legacy, on-premise financial systems are stuck between a job skills rock and a hard place. People with the skills to manage the old, legacy systems are aging and leaving the workforce and there’s little incentive for new people to acquire these skills, driving up salaries and forcing many businesses to do their own training. On the other hand, because the newer products are not fully mature and have seen minimal adoption in the marketplace, those skills are just as, if not more, scarce.

And whether it’s a shiny new database in the cloud, or an amalgamation of a bunch of different products, they’re still based on applications built before the Internet even existed. If you’re going to do a reimplementation anyway, why not…

Move to a new system entirely

We’ve already seen businesses reap massive returns by moving to cloud ERP, simply by scrapping all the servers it took to keep those aging systems going. Their upgrade nightmares are over too. And while it’s a re-implementation, after tens of thousands of projects we know it’s easier in the cloud than it was with on-premise.

Better yet, their businesses are instantly more flexible and able to adapt to changes in the marketplace. Multi-language, multi-currency, multi-tax compliance, revenue recognition and more — features that have been built for the modern business to allow them to quickly and easily expand into new countries, change the way they sell their product, and add services to their product business or vice versa.

Thankfully, the cloud argument is over. For many organizations it’s a matter of ‘when’ not ‘if’. And the faster the better.

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    Comments are closed.

    1. Thank you Mike for your guidance. I like the fact that you call the effort a “reimplementation” versus a “transition” because of the level of effort. Also, it is important to note that the cloud will require greater discipline than an isolated, on-premise software. Cloud can bring out the best of ERP. https://gbeaubouef.wordpress.com/2011/11/23/cloud-erp-advantage/

    2. says:

      Excellent article Mike! I agree, cloud argument is somewhat over. However, when it comes to deciding what to choose, most of the businesses compare on-premise and cloud in a single dimension i.e. cost.
      They think that on-premise requires cost only when something is needed to put a solution in place and with the cloud, the cost never stops. They have to pay for the recurring monthly/annual costs with the cloud.

      Security and privacy are also some of the other concerns for businesses that are resulting them to stay with on-premise solutions. But for many, cloud is a synonym for scalability, flexibility and ease of use.

    3. Short view: Cloud ERP architecture currently done like an ADT SaaS service is self-serving for software companies profitability, not serving user experience productivity.

      Long view: Cloud ERP an app store architecture, iTunes and Google play (and some early success by SFDC App Exchange) are solid growth cases.

      A coda: Users preferences for iPhone / Android “on-person” productivity are akin to “on-premises” user experiences from prior generation ERP clients.