A robust and reliable ERP is crucial for medium and large companies from all sectors to have a unified and secure view of data for management and for the company’s daily operations — especially regarding the execution of mission-critical tasks.
In today’s business world, with technological evolution and the growing demand for flexibility and efficiency, the debate about the coexistence between on-premises and cloud systems is increasingly gaining relevance among C-suite executives and board members. Thoroughly understanding these approaches is essential in gaining operational efficiency and delivering true innovation and value to organizations searching for better gross margins.
The truth is that not all companies work in the same way. The needs of one company may not be the same needs as those of thousands of other companies. This is important to consider when thinking about integrating systems and applications or migrating to a new cloud solution, especially if we’re talking about enterprise software of the complexity of an ERP.
For a long time, on-premises systems were the standard solution adopted by companies, but as issues related to cloud security evolved, many started to adopt IaaS (Infrastructure as a Service), taking their legacy systems to clouds such as Microsoft Azure, Google Cloud and AWS.
Mission-critical systems such as ERPs have completely different purposes from strategic systems or innovation applications aimed at user experience. Therefore, different objectives call for different usage models, and this is why it’s essential for companies to have clear business cases regarding systems that need to be in the cloud and SaaS as opposed to those that should remain in the on-premises deployment and perpetual license model.
SAP’s change of strategy
The market was surprised when SAP announced in 2023 that their newest innovations would only be delivered in the public cloud or in the private cloud delivered by GROW with SAP or RISE with SAP.1 This strategic decision, in accordance with the software vendor, involves innovation with AI and sustainability in which the company is investing.
In practice, the vendor demonstrated something that many customers had feared for a long time: SAP seems more than willing to leave companies behind if they don’t convert their software licenses to cloud-based subscriptions. SAP’s decision seemingly places the highest value on their own profitability.
This scenario has been the focus of SAP’s cloud migration strategy, which could complicate the future for customers that still use on-premises solutions. Regardless of the obstacles, many companies prefer to keep their systems stable and innovate independently, choosing alternatives such as third-party support, which allow companies to maintain their existing systems, maximizing the investment that has already been made.
On the one hand, no one wants to miss out on the best possible technology for their company. After all, it is necessary to constantly adapt to a dynamic and competitive business environment. On the other hand, companies do not want to give up their already-customized systems and extensive investments made over many years.
In accordance with data from Basis Technologies2, only 57% of companies using SAP’s on-premises solutions are on track to migrate to the S/4HANA cloud system before mainstream maintenance ends in 2027. And, despite this deadline, as of 2024 about 73% of SAP’s customer base3 had not yet started its migration to the cloud system.
A DSAG Investment Report 20244 61% of DSAG members surveyed in Europe do not have the intention to migrate to the cloud service. Furthermore, respondents are critical of SAP’s migration strategy and want to ensure that on-premises companies continue to have access to SAP’s strategic innovations. In a nutshell, many SAP customers still do not see clear business cases to make such migrations.
What to do with customizations and significant investments that were already made
The adoption of a new ERP in the cloud doesn’t happen overnight. It is not uncommon for the migration to last two or three years, being carried out in a gradual and strategic manner, and often even becoming a hybrid model in which on-premises and cloud deployments coexist within the same organization. In the IaaS or PaaS (Platform as a Service) model, it is possible to combine the advantages of infrastructure or even cloud applications with other systems that are still on-premises and highly customized.
It’s important to highlight as well that migrating an on-premises system to the cloud may result in the loss of some active customizations, especially if they are highly specific and deeply integrated into the system’s base code. This can happen due to SAP’s Clean Core approach, which aims to keep the core of the system as clean and standard as possible — that is, with the minimum number of customizations and changes to the code and using the functionalities and configurations offered by the platform itself.
Therefore, a detailed analysis should be carried out before considering migration to assess which customizations are part of a valuable and consistent legacy, and how they can be implemented in the new environment, thus mitigating the risk of data loss and service interruption.
The advantages of a hybrid strategy and innovation around the edges
The cloud is a market reality that is here to stay; there is no doubt regarding this. But when it comes to migrating to this model, beware of pressure from software vendors and the deadlines given by them to end support for old versions of their software. There are alternatives and, in these cases, it is up to each organization to know and understand the market options that are most strategically suited to its objectives and business roadmap.
The so-called innovation at the edges, or composable ERP, refers precisely to directing the IT budget on technologies that are easy to implement and have the potential to bring relevant and significant ROI. In this way, IT leaders can achieve technological solutions to meet their innovation needs while ensuring real and sustainable benefits for their companies.
If an on-premises ERP is in place and is meeting your organization’s requirements today, that’s great.
If your organization has the budget that is required and wants to perform the migration to the cloud, that’s great too.
The key strategy is to understand that companies may have other priorities besides adopting a new version of their systems that are already operational and efficient. The focus should be to think strategically about what your organization needs, with on-premises, cloud or even hybrid systems. In the end, you must make the choice that is best for your company, in the timeframe you have.
1.SAP’s Newest Innovations Will Be Cloud Only | SAPinsider
2.Enterprises near migration bottleneck as SAP deadlines approach | CIO Dive
3.Over 50% of SAP customers forecasted to run out of mainstream maintenance by 2027 | Basis Technologies
4.S/4HANA-Cloud-Strategie auf dem Prüfstand, RISE with SAP mit Potenzial | DSAG
