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On-Premise or Cloud ERP? It's more than just Total Cost of Ownership

Do you work with an organization that currently has an on-premise ERP and is considering a move to a cloud-based solution? Or perhaps you work with a company that does not have an ERP system and you’re trying to decide whether cloud or on-premise is the way to go? The truth is, choosing the best ERP solution for your company is an exciting but potentially daunting challenge, as there is no easy “one size fits all” answer.

As you go through the decision process, account for the particularities of your company, with its culture, its legacy systems, the skills of the IT team and the budget available, and then cross-reference that with what is happening in your industry.

Speaking with our customers, some of whom opt for on-premise and some who decide to go with an ERP Cloud Solution, one theme that emerges is that making like-for-like comparisons between on-premise and Cloud ERP functionality and only relying on traditional metrics such as Total Cost of Ownership (TCO) is a mistake.


Don’t Settle for Similar Outcomes

We all know the cost saving delivered by Cloud ERP; no hardware, no upgrade costs, faster deployments, etc. However, a decision to move to the Cloud should not just be based on cost-savings alone.

Choosing a Cloud-based ERP is not about doing the same things you do with your current ERP, but doing it in the Cloud. It is an opportunity to transform and optimize.  If you only use traditional tools like TCO to measure the success of the project and don’t also consider opportunity cost, you risk underestimating the immense business value that can be delivered by moving to the Cloud.

That is not to say that you should necessarily abandon your on-premise ERP completely. Maybe the best strategy for you and your company is to take it step-by-step. The decision is a complex one and should not be based on cost alone.

Rod Johnson, GVP - ERP & SCM Cloud GTM, Oracle in this short but insightful blog on ERP Cloud Adoption provides a good point to kick-start your reflection:

Do we stay the course and look for incremental innovation through best-in-class extensions? Or do we start to re-architect our core operations for the digital world? These non-trivial choices will have massive economic and competitive implications for every company.


The Real Estate Analogy

To bring this discussion to life let’s imagine you’ve outgrown your family home in the city and you are faced with the following choices:
  • Stay in the same house but add an extension (hybrid Cloud model)
  • Move to a bigger house with a more modern layout in a different neighborhood (Upgrade & Extend your current ERP with various Cloud functionalities)
  • Decide to leave the city and move far away to a house in the countryside (Upgrade your current ERP and move to a fully Cloud ERP model)
Each of these solutions solves your basic problem of lack of space but each decision brings with it different levels of disruption, financial implications and promises potentially very different outcomes. You’d never make such a fundamental decision like this on a cost basis alone.

Oracle’s ERP Cloud

Most cloud-based solutions, such as Oracle ERP Cloud, are out-of-the-box solutions that require no integration with external applications and few customizations; the idea is that the organization’s processes adapt to optimize the business values i.e. digital transformation has to take place to facilitate a move to Cloud ERP. 



In summary, if you’re only comparing cloud TCO to on-premise TCO, you may have asked the wrong question. If you’re considering adopting cloud ERP and are allowing TCO to dictate your decision-making process, perhaps you should ask yourself why you want to adopt a cloud-based ERP.

Tags: Cloud ERP, Compare ERP, ERP, ERP Selection, Oracle ERP, ERP Strategy

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About the author

Emma Corbett

Emma works in Marketing with Redfaire. Managing marketing and communication activities, Emma researches & shares relevant ERP content with the Oracle JD Edwards community.

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