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Advice and Information for Finance Professionals

Cloud delivers 4 times more ROI than on-premises

Guest Author

By Andrew MacMillen, Research Analyst, Nucleus Research

Cloud ERP providers have long touted the benefits of SaaS, such as a flexible and predictable cost structure, better and more accessible data, and reduced dependence on IT for routine maintenance. Yet many enterprises continue to postpone migration, fearing that the initial cost will take too long to recoup. A new study by Nucleus Research  not only shows that such fears are unfounded, but also that the time to value for cloud business applications continues to accelerate.

According to the report, in the past two years, cloud technology deployments delivered:

  • 4.01X the return-on-investment (ROI) compared to on-premises deployments, up from 3.2X during the previous two-year period.
  • 2.5X faster recovery of initial investments, an increase that Nucleus expects will continue to grow rapidly as the COVID-19 pandemic accelerates cloud adoption.

Here’s a closer look at the drivers behind the dramatic difference in ROI for on-premises and cloud solutions, with a focus on ERP.

Breadth and repeatability

The fundamental pillars of ROI are “breadth” and “repeatability.”

Breadth refers to what a solution can do — its capabilities. In this case, the first solutions merely simplified management of the organizations’ general ledger, but in the decades since, ERP functionality has expanded to cover nearly every major business process. Best-in-class solutions integrate financials with supply chain, operations, reporting, manufacturing, and human resource activities.

With on-premises deployments, these additions required major upgrades not only of software but also hardware — a process that was often slowed or delayed because of custom software modifications. With cloud applications, new capabilities come online without the need to manually upgrade software or hardware, and they work with a familiar user interface that makes them easier to learn. This means that organizations can adopt new capabilities more quickly, accelerating ROI. In addition, cloud-based ERPs can access expanded capabilities by connecting via API to function- or industry-specific third-party solutions.

Repeatability is related to the usability and efficiency of a solution because they are essential to multiplying solution benefits over time. Basically, the best applications in the world result in zero ROI if no one adopts them. Cloud provides a platform for automated delivery of applications and keeps the solutions up to date in the background, so there’s always a live, current version. Organizations don’t have to worry about capital expenditures, and users don’t have to stop working or change how they work. Higher adoption and usage rates over time drives exponential benefits.

This is especially true when it comes to applications with sophisticated analytics and forecasting based on real-time data, which take advantage of the powerful compute and storage capabilities of the cloud and deliver tools that anyone can use to drive value from that business data. What’s more, the flexibility of a cloud deployment means that companies do not need to build infrastructure to handle volume peaks, and instead can pay only for the compute and storage needed at any moment.

Together, the greater breadth and repeatability of cloud ERP vs. on-premises solutions mean that business users spend less time learning software or waiting for IT to install or upgrade solutions, and more time responding faster and more intelligently to changes in the market. The outcomes include increased top-line revenue opportunities and less inefficiency dragging on the bottom line.

What’s more, top-performing cloud-based ERP systems like Oracle Fusion Cloud ERP support current best practices and unify data for a single source of truth across the value chain. This increases efficiency and data availability to inform decision-making while reducing errors and increasing data security. Organizations can uncover opportunities for improvement with data that flows freely from one function to another, eliminating silos and exposing inefficiencies and bottlenecks.

IT departments, for their part, can spend less time, energy, and resources maintaining on-premises software and infrastructure and more time developing innovative solutions for internal and external customers.

Rapid deployment, democratized savings

The Nucleus Research data indicates that the ROI gap between cloud-based and on-premises solutions will continue to grow into the foreseeable future. But cloud migration will have other positive effects beyond ROI. Because SaaS shifts much of the cost from capital to operational expense, the barrier to entry is much lower. This means that midsize companies unable to make the investment in software and infrastructure — not to mention the ongoing cost of internal and third-party maintenance, customization, and more — can pay a monthly subscription for an enterprise-grade solution that will grow along with them. Organizations of all sizes will recoup this smaller initial investment more quickly, experiencing time-to-value for their SaaS solutions sooner than those residing on premises.

Download the full report from Nucleus Research.

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