Considering a migration to cloud ERP from on-premises? Keep these 5 key considerations in mind for success.
There’s been a rapid acceleration in the adoption of cloud services in recent years, leading to a shift from traditional, on-premises enterprise resource planning software (ERP) to modern, cloud-based ERP solutions. For many organizations, migrating their ERP solution from on-premises to the cloud is a logical step as there are numerous benefits of moving to a cloud ERP solution.
With cloud migration, organizations can take advantage of cost efficiency, scalability, and flexibility, and reduce or eliminate a lot of their operating expenses. However, while the benefits of moving from on-premises ERP to the cloud are undeniable, the migration journey can be complex and there are several factors you should consider when deciding to migrate. In this article, we’ve rounded up the 5 key factors to keep in mind.
On-Premises ERP vs. Cloud ERP Software
The primary distinction between cloud ERP and on-premises ERP lies in their deployment methods. An on-premises ERP system is set up directly on the local hard drive of your computer, with the system and servers being maintained internally by the organization's IT department.
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On the other hand, a cloud ERP solution is provided as Software as a Service (SaaS), meaning that your ERP system and its data are stored in the cloud and can be accessed through a web browser. The vendor takes on the responsibility of managing the solution and its associated processes.
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🔗 Read More: Cloud vs. On-Premises ERP: Which to Choose?
Why Do Companies Migrate from On-Premises to Cloud ERP Software?
While cloud migrations may seem like a technical decision, they are business-related, and knowing the right time to move to the cloud is crucial to your company’s growth and efficiency. There’s usually a catalyst for considering a cloud migration and these typically include:
🔹 Reduced Operating Expenses
On-premises ERP software racks up massive hardware and IT infrastructure costs. Migrating to the cloud can reduce and eliminate a lot of these costs as the cloud provider hosts the software.
🔹 Software Licensing Renewal
Most companies have annual licensing agreements with their primary IT vendors. These agreements need a substantial budget to cover the operating system and virtualization properly. The cloud can assist by offering a pay-as-you-go option, which can lower these expenses.
🔹 Hardware Refresh
If you’re extending your budget on renewing hardware or paying for data center locations, it’s a good time to consider cloud migration. With cloud ERP, your vendor will host the software, cutting out the need for costly leasing.
🔹 Software End-Of-Support
If your legacy ERP solution is reaching its end-of-life date, this can be an opportunity to migrate to the cloud to ensure business continuity. End of life means no more security updates or bug fixes which can leave legacy systems at risk for cyberattacks and security breaches.
🔹 Need for Innovation
Over-allocated IT resources and on-premises systems can hinder the adoption of modern services, applications, and emerging technologies. Staying on outdated on-premises ERP software can mean risking business opportunities and losing your competitive edge.
🔗 Read More: The Costs of Maintaining Your Legacy ERP Software
5 Key Factors to Consider When Evaluating a Move to the Cloud
1️⃣ Total Cost of Ownership
The first factor to consider when deciding whether to migrate from on-premises to a cloud-based ERP solution is assessing your Total Cost of Ownership (TCO).
TCO is a financial estimate that will help you determine the economic value of your ERP investment against the total direct and indirect costs over your ERP solution’s system life cycle. Consider costs such as:
Software licensing fee
Implementation costs (which include training and customization)
Operating costs for 5 to 10 years
For on-premises ERP software, you will also need to factor in ongoing costs, such as infrastructure and hardware expenses, ongoing IT support, and yearly maintenance fees, which can often run up to 18% of the current list price. For cloud ERP software, consider monthly or annual software fees and costs associated with additional users and storage. Your company should assess your TCO for each option and compare the two before deciding to migrate.
2️⃣ Types of Cloud ERP Options
Another factor to consider is deciding the type of cloud software that best suits your business needs. There are three different ways cloud ERP solutions can be deployed. While they may offer some of the same benefits, the differences in the way they are set up can impact your company in terms of finances or flexibility. These include:
Public cloud, where you share the same hardware and storage with other organizations. This option is typically the most popular. It offers lower costs, high reliability, and scalability. However, you have limited technical control.
Private cloud, which is exclusive to your company only. It offers improved security, high scalability, and flexibility. However, this option has higher costs.
Hybrid cloud, which combines your on-premises infrastructure with a private or public cloud. It offers high flexibility, and reliability, and is cost-effective. However, the added infrastructure can increase complexity in terms of configuration, maintenance, and usage.
When you’re thinking about on-premises to cloud migration, you will need to evaluate and choose the type of cloud deployment that is right for your business, based on your needs, priorities, and budget.
3️⃣ Cloud Migration Options
Formulating a solid migration plan is critical and should be a factor when evaluating a move to the cloud. Cloud migration requires extensive planning across the business, especially since migrating data can be challenging. Having a defined strategy, roadmap, and executive buy-in will help smooth the process significantly.
There are different migration strategies present and understanding your business needs and technical requirements will help you determine which method is right for you. For instance:
Replace: If your legacy ERP system provides some value but a cloud-based off-the-shelf replacement with a lower total cost of ownership is available. Also known as “drop and shop”, your data is taken from your on-premises system and moved over to a cloud-native ERP system.
Rehost: Rehosting involves keeping the same basic functionality of your legacy system, but moving it to the cloud where it is easier to manage and less expensive to run. This is also called “lift and shift.” This is typically used when your legacy system provides good value but is expensive to run.
Reenvision: Reenvisioning is the process of rebuilding the application in the cloud using modern technology, a new architecture, and best practices, as well as adding more business value to core functionality. This is used when a legacy system is providing good value but cannot be easily moved.
Replatform: This strategy involves making modifications of your legacy applications to take advantage of cloud capabilities without a complete overhaul. This is typically used if your legacy application is providing great value and not incurring a TCO but requires additional value and benefits.
You might find that a mix of different approaches works best for your company. You should also assess your timeline and consider which applications or core functionality will deliver the most value by moving to the cloud. Your cloud ERP implementation partner will play a big role in helping you create a solid migration plan and walk you through the different phases of the process.
4️⃣ Security
Security is another key factor when deciding to migrate to cloud ERP. With on-premises solutions, the company is solely responsible for security which includes setting user access policies, installing firewalls and other protective software, ensuring security patches are installed correctly, and guarding against cyber attacks. This is often seen as a disadvantage because outdated or poorly managed systems and human errors can leave a company vulnerable to costly security breaches
Security for cloud ERP software is handled by cloud providers, who generally invest heavily to ensure multiple levels of security and can offer enterprise-grade security and compliance. Most public cloud software has built-in features and specific security tools to ensure a company’s security. All security patches and updates are also handled for you.
When selecting a cloud ERP provider, it is essential to research their security protocols and measures. Find answers to questions such as:
How are the data centers protected?
How often are security fixes run?
What measures are in place against cyberattacks?
What are their backup and recovery capabilities?
What is their disaster recovery plan?
5️⃣ Change Management
When evaluating a migration, make sure that a solid change management plan for cloud transformation will be in place to help your company during the transition period once the new system goes live. Ensure everyone is on the same page by communicating essential information and changes to existing processes. Some strategies to put in place include:
A clear business case for the cloud project
Identify champion users
Foster communication and feedback
Create employee training plans
Assess adoption rates
Successful change management has numerous benefits as it leads to higher adoption rates and satisfaction levels among end-users, higher ROI from your new ERP solution, and helps you avoid loss of productivity or push-back due to lack of buy-in or understanding.
How to Get Started with a Cloud ERP Migration
The benefits of cloud migration can be immediate in terms of time and budget. Migrating from on-premises to the cloud can help you be more agile and respond to business needs faster. Reducing your operating and IT costs also allows you to take those savings and invest them back into your business for more growth.
Whether you’re in the early stages of assessment or are ready to plan your cloud migration approach, the team at Kwixand Solutions is here to help you. We are a Microsoft Dynamics 365 Partner and we guide businesses across the US and Canada through all stages of their ERP and cloud transformation.
Book a free consultation to learn more about cloud migration and talk to us about your objectives and challenges. We’re happy to answer any questions you may have.
