Cloud migration will continue to provide a growing ROI
As Unit4 transforms into a Cloud organization, market trends, presented in this recent Nucleus Research report, continue to affirm investment in Cloud systems - they find that the cost of legacy systems is higher than the ROI that Cloud migration will bring.
It’s interesting to see that the benefit-to-cost ratio of Cloud migrations has increased by 12.5% since 2021 ($3.43 to $3.86 for every dollar spent) while on-premises costs continue increasing.
The report also recognizes the growing investment and gains that can be found in Cloud migration, and how costs associated with on-premises systems will keep increasing while innovation will stagnate.
Cloud migration is a key priority for 73%
Cloud migration is a key priority for 73% of the 480 organizations that Nucleus interviewed throughout the past year. The report finds that most organizations have a combination of on-premises and Cloud solutions, but there is a conscious effort to transition a majority of their tech stack onto the Cloud.
Nucleus finds that “the elimination of cost areas associated with an on-premises operation is the largest benefit area, representing 78 percent of a Cloud migration’s ROI” suggesting that “the value of having Cloud ERP is predicated on the costs of running an on-premises IT ecosystem.”
It’s clear that the value proposition of the Cloud remains the same and will continue to increase; on-premises costs will keep increasing while the Cloud continues to set the pace for ERP innovation.
This suggests that legacy on-premises systems, as well as those with hybrid tech stacks, will struggle to reap the full value proposition of the Cloud.
Analyst Ray Wang, of Constellation Research, who recently presented at our global virtual X4U event adds that:
“In the on-premises world, let’s be honest, we don’t always upgrade. We don’t often move our software; we don’t often maintain it the way we should. Even if you are getting a continuous stream of innovation, you won’t often test it or put it in place, but this happens in the Cloud.”
This suggests that legacy on-premises systems, as well as those with hybrid tech stacks, will struggle to reap the full value proposition of the Cloud. You can watch Ray Wang’s full X4U keynote to hear more.
Managerial productivity can be increased by 15%
Besides reducing total IT spending, migrating to the Cloud returns several other benefits thanks to its continuous innovation which can lead to gains in productivity, user experience, employee experience, and more.
Nucleus, in the report, highlights some of these benefits:
- Increased user productivity
- Improved user experience
- Data is more accessible when integrated into the Cloud
- Access to the latest functionality and innovation
- Automated patches and upgrades
Isaac Gould, Research Manager of Nucleus Research, also highlights the benefits of migrating ERP systems to the Cloud:
- Up-to-date upgrades
- Cutting-edge security and compliance
- Global ‘always-live’ availability
- Managerial productivity can be increased by 15%
- 20% reduction in IT costs
He adds "We expect organizations moving their ERP to the Cloud to cut IT costs by 20%, through a combination of administrative time savings and server provisioning costs and increase managerial productivity by 15%.”
Increased IT costs are one of the most significant drivers of the improved ROI for Cloud migration
Organizations with on-premises deployments often lack the funds or resources to expand their existing systems, but these deployments could be costing them money.
Nucleus determined that increased IT personnel costs and increasing hardware and maintenance costs are the most significant drivers in the improved ROI for Cloud migration.
Machine learning and generative AI projects have caused a surge in demand for computing power and storage. Yet, per-unit costs for Cloud processing and storage have decreased or remained unchanged while increasing the storage of on-premises hardware is particularly costly.
Hardware and supply chain issues continue, with the same chip shortages and rising energy costs negatively impacting on-premises operating costs but have less of an effect on the Cloud.
Unlike Cloud customers, on-premises organizations are also responsible for their own hardware maintenance, expansion, and procurement. This not only requires management of IT personnel but comes with its own costs and management issues.
As the business scales, maintenance and space requirements grow too. While the Cloud is hyper scalable, scaling on-premises servers is tough as they are based on hardware, not in digital infrastructures.
An on-premises system has a lot of personnel cost implications related to hardware maintenance, security, and IT teams, that won’t exist on the Cloud. In the Cloud, all these tasks are offloaded to the Cloud provider or SaaS vendor allowing the customer organization to reallocate IT FTEs to more valuable tasks.
Ray Wang makes clear: “Even if you have 2.3 FTEs in security, the Cloud vendor has hundreds of people, maybe even thousands of people, working on security - versus your 2.3 FTE, that’s not even a match.”
Specifically, organizations relying on legacy systems will dedicate more headcount to managing cybersecurity. With technical IT staff becoming more expensive to hire and retain, the personnel costs associated with on-premises solutions increase concurrently as a result.
The business case for Cloud migration is stronger than ever
Nucleus’ report makes it clear that most organizations see Cloud migration in their future, and that those who invest in this migration sooner rather than later will likely save money, and benefit from the innovations the Cloud allows.
While Cloud innovation will only continue to increase, the value proposition for on-premises systems is stagnating, with increasing costs and little innovation available to those who use them.
The report suggests that Cloud migration is becoming a question of when, not if, and those who invest in digital transformation will find clear benefits, cost savings, and efficiencies. Learn more about the Unit4 Cloud migration journey for Unit4 ERP, Unit4 Financials by Coda, or Unit4 FP&A, and watch Ray Wang’s full X4U keynote.
