S/4 Conversion—On-Prem, Hybrid, Private or Public Cloud

In the summer of 2023, the Walldorf-based software giant SAP announced that it would only support innovations, such as the use of artificial intelligence, in S/4 in its cloud solutions. This is despite the fact that SAP itself continues to offer an on-prem version. This announcement has been a cause for concern for many SAP users.

This situation creates a cost and effort dilemma: due the limits imposed to cloud-based innovations, such as AI in S/4 Hana, companies running SAP on-prem face the problem of missing out on important technological advances. At the same time, the decision to remain on-prem, while preferable for reasons of control and security, can result in higher operating costs and a lack of flexibility compared to cloud solutions. The cost and organizational effort associated with moving to the cloud is also significant, but offers long-term benefits such as scalability and cost efficiency. In addition, the integration of existing systems and processes into the cloud is a key variable to consider. 

Companies are faced with a clear dilemma: do they opt for lower operating costs and a cloud solution that requires significant integration? Or do they maintain control through on-prem and rely on independent security, but at a much higher cost of ownership? Despite this dilemma, many companies are expected to continue to run SAP on-prem for the foreseeable future. In some industries, such as financial services and insurance, on-prem is a common choice for security reasons. So how should companies decide? What do they need to consider?

On-prem remains strong

At SAP, all signs point towards the cloud. Even a large company cannot escape the general trend. From a software vendor's perspective, the SaaS operating model is attractive, both as a public and private cloud. It is simpler, more efficient, and less expensive; the standard code base is easier to maintain; and limited customization on the customer’s side reduces the cost of operating the solution. It also eliminates third-party intervention and makes the cost of running the solution more manageable for the customer.

This is exactly the strategy that SAP is pursuing. While S/4 Cloud can be customized to a certain extent, it offers far fewer options than the on-prem version. Companies with complex or highly customized business processes need a flexible solution that can be customized. For example, large pharmaceutical companies or large manufacturing companies whose internal processes are well established and do not require any alterations. An on-prem ERP system still offers better customization options and can be redesigned and modified to meet individual business needs. However, there is a downside to having complete control over the entire ERP system—sole responsibility for system performance and security is in the hands of the company. 

Regular maintenance and updates are essential to keep software and hardware up to date. In addition, training employees on cybersecurity practices is important to minimize human error. Companies should also conduct regular security audits to identify vulnerabilities; additionally, they can consult external experts for independent assessments. It is also important to implement backup and disaster recovery plans to respond in the event of an outage or attack.

Despite the rise of the cloud, software vendors such as SAP will need to provide on-prem support to many companies for the foreseeable future. These customers are often fundamentally skeptical about the cloud. This is reflected in the argument that cloud is not secure because the data is "on the internet". However, this view ignores the fact that cybersecurity is a highly complex area. Even the most secure systems can be easily breached if users unknowingly bypass security mechanisms. Issues such as social engineering or poor access management are also points of attack for on-prem solutions.

Security in cloud and on-prem

The recent status report by the BSI (German Federal Office for Information Security) clearly shows that the threat landscape continues to evolve and that cybercriminals are becoming more skilled and sophisticated in their attacks. Cloud providers have experienced teams of infrastructure and server security experts, however, those who have chosen the on-prem S/4 option require skilled in-house security experts and often additional security software, adding significant cost to an already expensive approach.

In addition, cloud applications based on the SaaS model are fundamentally easier for users to use. They do not have to worry about installing, configuring, operating, and maintaining their applications. However, in this case the principle of shared responsibility applies: the provider operates and protects their own systems, while the user company is responsible for implementing security measures in the applications.

Another clear advantage of the cloud is compliance. Providers, and especially hyperscalers, have all the usual security certifications. This applies not only to information security management in accordance with ISO 27001, but also to specific industry standards such as TISAX (automotive) or HIPAA (healthcare), as well as regional requirements such as FIPS from the US Federal Government. This makes it easy for organizations to demonstrate that their IT meets the best practices of each certification.

However, on-prem compliance has its own advantages, including complete control and customization of compliance measures. Organizations can tailor their systems to meet their industry and region’s specific needs, which is not always possible with cloud solutions. This is especially important for industries with very specific security standards or regions with strict data protection laws. On-prem also provides greater data sovereignty. Because all data remains on-premises, organizations can ensure that they are fully compliant with regional data protection regulations, such as the GDPR. This can be more complicated with cloud solutions, as data may be stored on servers in different countries.

Integration of cloud and local apps

Another important aspect to consider when deciding between on-prem and cloud is the integration of S/4 Hana with a company's various systems. 

Integration is particularly easy with pure cloud approaches. However, these are rare and more common among start-ups and newer tech companies. Most other companies inevitably choose a hybrid IT approach to continue using on-prem solutions that are difficult to replace. Moreover, no company can completely avoid the cloud. Some types of applications are primarily available in the cloud, such as advanced CRM solutions or AI tools.

Those who value easy integration are gradually replacing all business applications with their cloud variants. However, if you want to keep your stable on-prem applications for the foreseeable future without giving up on more modern cloud solutions, you need a specialized integration platform (iPaaS) that offers a variety of vendor-independent connectors for all business applications.

On-prem remains essential for SAP customers

No one can deny the benefits of the cloud. Scaling up and down is easier, faster, and less expensive. Changing business requirements can be implemented quickly and cost-effectively. Nonetheless, on-prem applications provide greater control over the operation of applications, storage locations, and data flows. They can also support highly individualized business models through customizations and custom development. SAP’s decision for their new policy to deliver innovation primarily in the cloud is in line with the current trend towards delivering modern technology almost exclusively as cloud services. However, this does not mean that S/4 users will be left behind. By using iPaaS, they can integrate innovative cloud services into their application landscape and are not dependent on SAP's decisions—brand independence ensures freedom of choice.

boomi.com