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SAP S/4HANA on-premises vs. cloud: Learn the differences
Differences between the S/4HANA on-premises and cloud software products include flexibility, costs, scalability, security and timing of software updates. Learn about each.
As with many other on-premises and cloud software products, S/4HANA on-premises software and the S/4HANA cloud products differ in some important ways.
Understanding those differences and other factors, such as an organization's budget and its need for flexibility, scalability and control over the software, might cause a company to select S/4HANA on-premises software over cloud versions or vice versa. Security approach is another difference between S/4HANA on-premises and cloud that might influence IT leaders to choose one type of software over the other.
Learn more about the differences between the two software types.
5 differences between S/4HANA on-premises and cloud
Here are some key factors that distinguish S/4HANA on-premises and S/4HANA cloud versions.
1. Flexibility
The level of flexibility that companies achieve by using S/4HANA on-premises software instead of cloud is often seen as a major difference, yet this distinction is often overstated.
Most cloud deployments do require some degree of standardization. However, SAP's S/4HANA Private Edition option gives users a fair amount of flexibility around customizations, third-party integration and upgrade timing. It can be considered the option that affords customization closer to an on-premises choice, as compared with the fully SaaS Public Cloud version.
Some S/4HANA cloud implementations are highly standardized, but Private Edition gives companies one way to enjoy the benefits of cloud computing without sacrificing flexibility.
2. Expenses
Companies that use on-premises S/4HANA must pay for the necessary IT infrastructure to run their ERP software and house their data. The cost of operating an in-house data center can be substantial because the expenses include hardware investments, considerable time investment by IT staff, infrastructure software and monitoring, utilities and occupancy expenses, among other costs.
Comparing the total cost of ownership for existing SAP infrastructure to the cost of operating S/4HANA in the cloud can help IT leaders understand the differences.
The difference in payment options comes into play as well.
S/4HANA is available through a subscription-based pricing model, like most other cloud-first products. This model makes the software a good fit for organizations that are better suited to pay regular installments for operating costs instead of making large capital expenditures. However, on-premises software offers more payment flexibility. Companies using on-premises S/4HANA can choose between pay-as-you-go pricing and a traditional perpetual license with annual maintenance fees.
3. Scalability
Scalability refers to the ability to expand capacity to meet growing demand. Companies that expect rapid growth, or that have fluctuating capacity requirements, will likely find S/4HANA cloud options to be a better fit because of the cloud's flexibility in this area.
On-premises software can be difficult to quickly scale up or down. For example, hardware upgrades can take a long time and disrupt operations.
4. Security
Security is a major concern for every organization, and cloud software might provide more peace of mind around potential security issues.
Cloud providers typically manage security and compliance for the software. Although in-house IT teams can perform these functions, staying on top of security requires employee resources. Many companies prefer instead to outsource their security to service providers that employ dedicated security and compliance personnel.
5. Software updates
SAP pursues a different approach for cloud software updates than for on-premises updates.
SAP takes care of cloud software updates, which frees up a company's IT resources and ensures that new software tools are available immediately. However, SAP controlling updates results in a lack of flexibility for the timing of these rollouts, and the updates can be disruptive for companies with lots of software customizations.
S/4HANA on-premises vs. cloud products: Key distinctions
On-premises software provides companies with significantly greater control over the software and enables extensive customization if needed.
The S/4HANA cloud options offer greater scalability than on-premises software as well as predictable costs and a more streamlined implementation.
Jim Kofalt spent 16 years at SAP working with SME business applications and was a product manager for integration technology at Microsoft's Business Solutions division. He is currently the president of DX4 Research, a technology advisory practice specializing in ERP and digital transformation.
