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Hybrid ERP considerations: Choosing on-premises vs. cloud

Deciding what to run where requires balancing business processes and strategic goals with infrastructure options. Several experts share advice on how to approach the problem.

Companies are increasingly looking to the cloud to modernize their infrastructure, and that extends to their ERP deployments. But that doesn't mean they're ready to go all-in on a true public cloud service.

According to Accenture, 51% of CIOs prefer to deploy their ERP systems in a private cloud, while 35% are still clinging to on premises. However, some organizations (10%) are gingerly exploring cloud options by opting for hybrid ERP.

Using a hybrid environment for their ERP systems lets them move some functions into the cloud but keep proprietary data on premises. Alternatively, they might store sensitive data in a cloud environment that might be more secure than what they can set up on premises and keep some processes on site.

This hybrid ERP approach recognizes that some organizations just aren't ready for a fully cloud-based ERP system and that moving certain functions to the cloud is a way to start the cloud journey.

Are there rules for hybrid ERP?

Technically, there are no hard-and-fast rules for when companies should stay on premises or move their ERP systems into the cloud, according to Sean Feeney, cloud practice director at The Nerdery LLC. But there are indicators that can help companies decide whether a hybrid ERP implementation is right for them.

"To start, decision-makers should look at their existing hardware and software systems and examine how complex their workloads are to identify the investment required to migrate them to the cloud," Feeney said. For example, licensing or regulatory constraints might require that workloads are physically separated, which lends itself naturally to a hybrid approach, especially for organizations that want to host sensitive workloads on premises while exploring new use cases with the cloud, he noted.

What to consider before moving workloads

Before moving workloads into the cloud, IT decision-makers need to analyze their existing systems and workloads, align the hybrid ERP deployment strategy to long-term business goals and work with stakeholders to ensure they understand what the hybrid cloud infrastructure will look like, Feeney said.

One of these decisions is choosing hardware or software options. For example, organizations can choose between pure software like Azure Arc or Google Anthos or hardware and software options like Azure Stack or AWS Outposts. Additionally, some companies are extending VMware environments into the cloud to migrate their workloads, he added.

Cost will always be an important factor in the decision to move ERP workloads, both actualized costs and opportunity costs, according to Feeney.

"Because of previous misconceptions and a lack of visibility into IT assets, many companies falsely believe public cloud is more expensive than on-prem. However, most hybrid options come at additional ongoing upkeep costs, while transferring workloads to a cloud environment and working natively within the public cloud might save you money in the long run," he said.

How fast you need to get new functionality up and running will also play into the decision of what moves to the cloud, according to Adam Mansfield, commercial advisory practice leader at UpperEdge. Typically, cloud applications can be rolled out faster than on-premises versions, bringing these new functions to users much faster.

"SaaS should be considered when there is a need for value to be brought to the intended users in a short time frame in order to achieve a desired competitive advantage," Mansfield said.

What companies need to ask before moving anything into the cloud in these situations is whether they anticipate needing to scale quickly to address significant spikes in data coming in from multiple sources, in addition to how quickly they need to make new functions available. If the answer is yes to both, the cloud is likely the best option, Mansfield said.

Don't neglect the core

Every ERP system, even in a hybrid deployment, needs a core that includes functions like logistics, finance and procurement. Before moving to a hybrid ERP model, companies need to define the requirements of their core ERP system, according to Renat Zubairov, CEO and co-founder of, a maker of enterprise integration software. For example, some organizations need inventory and supply chain at the core, while others require procurement, he noted.

But the core requirements aren't precluded from being hosted in the cloud, Zubairov said. "We see the opposite scenario very often, where specialist solutions are developed and hosted in house, while the core is of as-a-service components hosted in the cloud," he noted.

Finally, it's important to look at future goals before moving to a hybrid ERP architecture. "While the hybrid cloud makes sense for certain companies, it might not be the best environment for your software applications down the line," Nerdery's Feeney said. A hybrid environment may be a good short-term solution, but it won't fulfill all business objectives. IT decision-makers need to look at the goals for a cloud deployment, as well as associated costs like maintenance and other overhead, before moving anything off premises.

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