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Cloud computing gained traction roughly a decade ago as some of the foundational technologies of the workplace — human resources, customer relationship management, supply chain management, even SharePoint — migrated away from on premises instances.
A decade later, one holdout remains: enterprise resource planning (ERP).
However, signs suggest ERP in the cloud is picking up steam.
Why Enterprise Resource Planning Stuck to On Prem
Enterprise resource planning systems integrate and manage an organization's core business processes. These comprehensive software solutions automate tasks, enhance data visibility and facilitate cross-functional collaboration across departments such as finance, human resources, manufacturing and supply chain management.
ERP systems have historically been implemented on-premises for several key reasons:
- Control and customization — On-premises ERP systems provide businesses with full control over their software and data, allowing extensive customization to meet specific operational needs. Companies with complex or unique workflows in particular benefit from this.
- Security and compliance — Industries with stringent regulatory requirements, such as finance or healthcare, require the enhanced security and compliance capabilities on-premises ERP offers.
- Internet connectivity — On-premises systems do not require internet access to operate, ensuring continuous productivity even in areas with unreliable connectivity.
- Long-term cost considerations — While initial costs are higher, on-premises ERP can provide long-term cost savings by avoiding the recurring subscription fees associated with cloud services.
- Integration with legacy systems — It's easier to integrate on-premises ERP systems with existing legacy systems.
As technology evolves, ERP systems continue to play a crucial role in supporting business growth and innovation, particularly with the adoption of cloud-based solutions that offer scalability and real-time insights.
ERP Vendors in Search of the SaaS Income
Organizations have been moving their ERP to the cloud in the search for value, Gartner analyst Nick Duffy shared at the recent Gartner CFO conference in Sydney.
Cloud enterprise resource planning (ERP) establishes a new standard of value, with finance functions keen to tap into the advanced features associated with subscription model cloud ERP systems, he said in a statement.
"It’s telling that on-premises ERP was the most discontinued technology in this survey, with almost 20% of respondents planning to discontinue or already having discontinued its use," he said. "On premises ERP is now considered a low-value technology as we see a growing preference for cloud ERP systems."
It is hard to know how many companies this actually affects, but according to Deep Analysis founder Alan Pelz-Sharpe, SAP alone has over 400,000 customers. Add in Oracle, Microsoft, Infor and other major players and you get some idea of the scale.
“Nobody really knows for sure, but it’s fair to say the majority of these systems are on-premises, and quite possible that the vast majority are on-premises,” he said.
That's a problem for ERP vendors, as they want to move away from maintenance fees and onto SaaS based annual subscription plans, he continued. Enterprises understandably don’t want those pricing models as they have long ago figured out that cloud-based pricing is typically much higher over the mid- to long-term.
“So there is a tension there, with ERP vendors putting increasing pressure on them to move, and enterprises pushing back. Pressure comes in many forms, but the most obvious being to sunset support and maintenance for older systems,” he added.
Options remain, however. For example, if SAP won’t provide the support and maintenance, an army of services firms will, Pelz-Sharpe continued. The appeal of new features and upgrades is low, as companies haven’t made much use of past upgrades and features, viewing them more as a burden (in terms of patches, fixes and upgrades) than as added benefits.
The Technical Challenges of Migrating an ERP to the Cloud
Vendors claim migrating to the cloud is technically easy. Decades of experience show that it is not, it's a major and at times high-risk undertaking, Pelz-Sharp added. No two ERP systems are alike and what works for one company will not work for another.
"Buyers of ERP systems are by nature risk averse," he said. "Let’s say it is relatively straightforward to migrate the core application and data to the cloud, what about the decades of custom coding and complex integrations?"
Pelz-Sharpe added a final word of warning for enterprises and ERP vendors related to the interest in AI and AI agents.
"In theory and to some degree in practice the ERP vendors can leverage AI and Agents very well indeed," he said. "On the other hand the core platforms were never designed to do this, which means they can do some things really well and others only with a huge amount of custom development and cost."
A Change in How People Work
A shift to the cloud is not just a technology upgrade, it's a mindset shift, insightsoftware's VP of product management for ERP reporting John Miller told Reworked. "It takes people. It takes training. In addition, it takes time. But this transition also unlocks new possibilities — in collaboration, in tooling and in entirely new workflows," he said.
While productivity may dip in the short term as teams adjust, this period is a crucial opportunity to align on strategy, enhance cross-functional collaboration and rethink problem-solving approaches. For finance teams in particular — many of whom have been constrained by limited data access and inefficient email-based approvals — the cloud provides a scalable, automated and reportable solution.
“Cloud migrations aren’t just IT projects. They’re springboards for how we work next,” Miller said.
These migrations are fundamentally about people. It is easy to become engrossed in technical discussions, but at its core, an ERP system exists to support the teams that rely on it daily. The key question to ask is: What do our people need to complete their tasks more efficiently, effectively and with better outcomes?
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"From there, it’s about identifying the processes we want to improve,” he explained. “Cloud ERP enables us to streamline workflows, eliminate manual steps, and integrate capabilities like AI and machine learning to support faster, more informed decision-making. Real transformation happens when tools genuinely make someone’s day easier or enhance their planning process."
“So for me, it’s people first, process second and platform third. That approach leads to better outcomes and better adoption every time,” Miller said.
When AI and ML Meet Cloud ERP
Hitachi Digital Services's Bhusan Chand agrees. The cultural shift from on-premises ERP to cloud-based systems requires a strong change management strategy.
Clear communications, training programs, employee involvement early in the process and an emphasis on the benefits will support faster adoption and create excitement about the journey, he continued.
Robust security measures are necessary, including encryption, strong multi-factor authentication/password policy and role-based access controls, he said.
Chand also noted an increase in AI and ML integrations in cloud ERP systems to enhance data-driven decision-making, task automation and real-time insights. AI is also helping to automate mundane tasks, such as invoice matching, data entry and order processing.
“Cloud ERP systems are incorporating NLP to allow users to interact with the system using natural language, simplifying data handling, reporting, and customer interaction,” he said.
To Cloud ERP or Not to Cloud ERP?
Ultimately, the move to the cloud isn't a foregone conclusion. Companies that bought ERP systems 20 years ago aren't happy with them, due to the cost and continued drain on the budget every year, Pelz-Sharpe said.
A staggering amount of ERP customers were keen to replace their systems, according to recent research by Deep Analysis. Agentic AI appears to promise a way out. Whether it does or not is another matter, he said.
What is clear is that new use cases that previously would have defaulted to the legacy ERP have competitive and often lower cost AI-based options.
"The bottom line is that ERP vendors want to expand their customers’ usage of the system and move them to the cloud to increase revenues — enterprises on the other hand are keen to reduce costs and complexity and are looking for more modern alternatives," he said.
Ultimately, Pelz-Sharpe concluded, completely disengaging from an ERP system that your organization is dependent on is very hard. But enterprises are looking for under-used, ineffective and overpriced items in their tech stack as a first step in that journey. They just should be prepared for how long a journey it will be.