In recent years, the business landscape has been steadily shifting toward Cloud adoption. Cloud providers have effectively demonstrated the benefits of their platforms, positioning Cloud solutions as the ultimate paradigm for business transformation. However, before transitioning to the Cloud, organizations must conduct a comprehensive evaluation of their operational and strategic requirements. Industries dealing with sensitive data—such as Finance, Healthcare, and Government—often require stringent control over their IT environments. Similarly, large enterprises with dedicated IT teams have invested heavily in customizing their ERP systems to maintain operational integrity and compliance. For these organizations, a migration to the Cloud demands meticulous, phased planning to mitigate risks and align with business objectives.
When it comes to adopting the new SAP S/4HANA, we see a lot of brownfield migrations, meaning customers go to great length discussing the pros and cons of moving to S/4HANA On-prem vs S/4HANA Cloud. A Cloud solution always offer a better value in terms of scalability, maintenance, cost, and turn around time, but it also comes with a few limitations like lack of high customization and privacy. The other important consideration to keep in mind for On-prem S/4HANA: Any customization might lead to delayed or complex migration to Cloud in the future.
This blog lists down the pros and cons of adopting a Cloud based S/4HANA vs an On-prem S/4HANA. Here the Cloud refers to the public Cloud, we will follow up this blog with a more elaborate discussion on moving to private Cloud.
Category | SAP S/4HANA On-Premise | SAP S/4HANA Cloud |
Licensing | Traditional perpetual licensing with higher upfront costs. Customers own the software and pay annual fees. | Subscription-based licensing with lower upfront costs and flexible scaling options. |
Infrastructure & Maintenance | Fully managed by the customer’s IT team. Requires investment in hardware, data centers, and skilled personnel. | Managed by SAP, including updates, security patches, and system maintenance. |
Speed of Innovation | Customer-driven upgrades and testing can delay adoption of new features. | Automatic quarterly updates ensure the latest innovations are deployed without customer involvement. |
Implementation Approach | Highly customizable for unique business needs, leading to longer implementation timelines. | Standardized configuration with limited customization. Ideal for businesses with simpler processes. |
Functional Scope | Comprehensive ERP functionality with extensive integrations for diverse industries. | Focused on core ERP functionalities and key scenarios, with integrations for common SAP solutions. |
Data Control & Compliance | Full control over data, with hosting options to meet stringent compliance needs. | Data hosted in SAP’s infrastructure. Customers rely on SAP’s compliance certifications. |
Scalability & Flexibility | Scaling requires additional investment in hardware and infrastructure. | Highly scalable without significant infrastructure changes. |
Total Cost of Ownership (TCO) | Higher initial costs as physical servers need to be installed and maintained, along with maintaining a dedicated in-hour IT team | Lower upfront costs with ongoing subscription fees, reducing IT overhead for organizations. |
The decision to adopt SAP S/4HANA On-Premise or SAP S/4HANA Cloud depends on the unique goals, priorities, and constraints of an organization. Customers must evaluate their business requirements, compliance needs, IT capabilities, and long-term value objectives before selecting the appropriate deployment model. While the on-premise solution offers greater control and customization, the cloud edition provides agility, innovation, and cost-efficiency. Clearly defining the desired outcomes and strategic goals will ensure a successful transition to S/4HANA, regardless of the chosen deployment model
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