Enterprise System Spectator blog: ERP and enterprise system vendor evaluation, selection, and implementation.

The Enterprise System Spectator

Tuesday, February 12, 2019

When Are On-Premises Systems Justified?

There is near-universal agreement that cloud computing is the future for enterprise IT. Our research at Computer Economics certainly indicates so. In just one year, our annual IT spending survey showed the percentage of IT organizations with 25% or fewer of their application systems in the cloud declined from 72% in 2017 to 61% in 2018. We expect a further decline this year.

Four Factors Favoring On-Premises

Even though the trend is strongly in the direction of cloud, are there situations where on-premises deployment is still justified? In a recent article, Joe McKendrick outlines four situations where staying on-premises may be preferable to cloud, at least for now. He writes:
To explore the issues of when staying on-premises versus cloud makes sense, I asked industry executives about any areas that were not suitable for cloud, and better left on-premises -- especially from the all-important data perspective. The security implications, as well as geographical presence requirements, are obvious. But there are also other facts that may make staying on-premises the most viable option.
Joe goes on to outline four factors:
  • Legacy entanglements: where the system is just one part of an integrated set of applications, especially where there are dependencies on certain database or platform versions. “Monolithic legacy applications” with custom system administration tools are another example.
  • Cloud sticker shock: where data storage requirements are so great that cloud deployment is simply not economical.
  • Security: where “some data cannot risk even a hint of exposure.”
  • Need for speed: where large data sets are maintained for “real-time user data interaction, high-speed analytics, personalization, or recommendation.” Some IoT applications may fall in this category. 

The Four Factors Not as Great as They Once Were

While these four factors are worth considering in a cloud vs. on-premises decision, I find them to be less of a factor than they were even a few years ago.
  1. The legacy system factor is certainly reasonable in some situations. To this I would add, staying on-premises may be justified when requirements for a new system can more easily be accommodated with an add-on to the legacy system. Be careful with this, however, as this can be a prescription for further entrenchment of the legacy system.
  2. In my view, cloud sticker shock is only a factor for a small percentage of cases, perhaps for very large data sets. Declining costs of cloud storage should lead to fewer instances where this is a legitimate objection. Often, IT leaders making a case for on-premises systems based on cost are not factoring in all costs, such as the cost of personnel to maintain and back up that on-premises storage.  
  3. The security factor I find to be largely an excuse. Although business leaders often underestimate the impact of a potential security breach, they also tend to overestimate the capabilities of their own security staff members, processes, and technology. The level of security maintained by internal IT organizations is usually far less than what is achieved by cloud services providers. If one of the big three credit data providers (Experian) could not protect consumer data maintained on-premises, what makes you think that your security capabilities are greater?
  4. The need for speed, in some cases, may be a legitimate reason for keeping some systems on-premises. However, most enterprise applications do not have this requirement. Even manufacturing execution systems—systems with low latency requirements—have been successfully deployed by cloud applications providers, such as Plex. In other cases, local buffering of data may be possible to accommodate any latency between the local system and the cloud provider. In such cases, it may be better to make investments in high-speed data communications, with redundancy, rather than continue to maintain such systems in local data centers. 
There is one more factor in favor of on-premises systems: Where there are regulatory requirements that the organization demonstrate control over the production environment. This includes FDA-regulated companies where a system is used to support regulated processes, such as quality control in medical device or pharmaceutical manufacturing. Although it may be possible to meet the requirement in a multi-tenant cloud environment, many regulatory affairs professionals are more comfortable not fighting that battle. In such cases, it may justify an on-premises deployment or at least a single-tenant hosted deployment where control of the production environment can be more readily assured.

Cloud First the Best Strategy

As discussed, there are situations where a true on-premises systems may be legitimately justified, although the case is getting weaker year by year. Nevertheless, for most new systems, business leaders should be adopting a “cloud-first” strategy, even if "cloud only" is not practical for now. If there is a cloud solution that will meet business requirements, that should be the preferred path forward. The advantages of cloud systems, especially in terms of alleviating the burden of system upgrades, are too great to ignore. On the other hand, if no true cloud system meets business requirements, or there are other limiting considerations, an on-premises solution may be a legitimate option. But even then, we would prefer to see a hosted solution, in order to achieve some of the benefits of getting application systems out of on-premises data centers.

Labels: , ,


by Frank Scavo, 2/12/2019 01:21:00 PM | permalink | e-mail this!

 Reader Comments:

Frank, a pattern I have noticed....

Smartphone applications are really hybrids. The client application is on the phone, a personal on-premises app. The data is saved to the cloud, either directly or synchronized with the cloud to deal with latency and reliability. The application is typically kept up to date by a marketplace push delivery.

I know that when we converted our on-premises micro ERP suite to this hybrid pattern, issues such as ability to automatically roll fresh on-prem updates to PC desktops across multi-sites sent our customer satisfaction through the roof. We also handled automatic database updates and strictly kept to one code-line. Same as smartphone customers could choose when to trigger upgrades. Another aspect any customized reports or any executables were automatically backed-up.

I now see this pattern evolving in Google Maps on Android, where AI detects a regular commute and automatically downloads a map the smartphone to speedup response. I expect top drawer enterprise applications vendors will move to a hybrid combination superseding both pure online and pure onprem. The robust product engineering required to do so, I expect will trigger further consolidation in EnSW apps (probably needs $4 billion run rate to amortize R&D).


 

Post a Comment

Powered by Blogger

(c) 2002-2018, Frank Scavo.

Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

About the Enterprise System Spectator.

Frank Scavo Send tips, rumors, gossip, and feedback to Frank Scavo, at .

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision. My consulting firm, Strativa, offers assistance that is independent and unbiased. For information on how we can help your organization make and carry out these decisions, write to me.

My IT research firm, Computer Economics provides metrics for IT management, such as IT spending and staffing benchmarks, technology adoption and investment trends, IT management best practices, IT salaries, outsourcing statistics, and more.


Go to latest postings


Search the Spectator!
Join over 1,700 subscribers on the Spectator email list!
Max. 1-2 times/month.
Easy one-click to unsubscribe anytime.

Follow me on Twitter
My RSS feed RSS News Feed

Computer Economics
IT Spending Ratios by Industry and Company Size
IT Spending as a Percentage of Revenue by Industry, Company Size, and Region
Outsourcing Statistics
IT Spending and Staffing Benchmarks
IT Staffing Ratios
IT Management Best Practices
Worldwide Technology Trends
IT Salary Report


Awards

2014 Best Independent ERP Blog - Winner 2013 Best ERP Writer - Winner Constant Contact 2010 All Star Technobabble Top 100 Analyst Blogs


Key References
Strativa: Business strategy consulting, strategic planning
Strativa: IT strategy consulting
Strativa: Business process improvement, process mapping, consultants
Strativa: IT due diligence
Strativa: ERP software selection consulting and vendor evaluation
Strativa: CRM software selection consulting and vendor evaluation
Strativa: Project management consulting, change management
StreetWolf: Digital creative studio specializing in web, mobile and social applications
Enterprise IT News: diginomica


Spectator Archives
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
October 2004
November 2004
December 2004
January 2005
February 2005
March 2005
April 2005
May 2005
June 2005
July 2005
August 2005
September 2005
October 2005
November 2005
December 2005
January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
September 2012
October 2012
December 2012
January 2013
February 2013
March 2013
May 2013
June 2013
July 2013
September 2013
October 2013
December 2013
January 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014
August 2014
September 2014
October 2014
November 2014
December 2014
February 2015
March 2015
April 2015
May 2015
June 2015
July 2015
September 2015
October 2015
November 2015
February 2016
May 2016
June 2016
July 2016
August 2016
September 2016
October 2016
January 2017
February 2017
May 2017
June 2017
October 2017
January 2018
April 2018
May 2018
January 2019
February 2019
Latest postings