Why Are On-Premise Customers Moving to the Cloud?

Many on-premise Dynamics GP, Dynamics NAV, and Dynamics AX customers are moving to a cloud solution like Dynamics 365 Business Central or Dynamics 365 Finance & Operations.

Every company’s situation and needs are different, therefore there are different factors to consider when moving to the cloud. This article will share some common reasons that my clients are moving to a cloud solution.

Table of Contents

The Evolution of Technology Infrastructure

Traditional on-premise software has dominated in the past, and Microsoft has been a big part of this. It’s likely that your current on-premises system is currently running on Microsoft Windows Server with Microsoft SQL Server backend, accessed by client machines running Windows 10. That’s been the standard for at least a couple of decades.

Almost all technology companies now are moving to cloud enterprise resource planning (ERP) solutions, with Microsoft leading this transformation.

Organizations today are rapidly embracing cloud solutions more than ever. An example is Microsoft Office. In the past, you would purchase and install Office on your desktops for applications like Outlook and Excel. Now, everyone subscribes to Office 365 for such applications, using cloud-based Software as a Service (SaaS) solutions.

We see clients that are on our on-premise systems like Dynamics GP, Dynamics NAV, and Dynamics AX who are migrating primarily to Dynamics 365 Business Central and Dynamics 365 Finance & Operations. We also have on-premise CRM clients that are moving towards Dynamics 365 Customer Engagement. All of which are true cloud solutions.

Why Shift to a Cloud ERP Solution?

Agility for Your Business

Keeping your business and systems agile is one of the best features of a cloud ERP like Dynamics 365.

Rapid Deployment: Because cloud applications, such as Dynamics 365 Business Central, are subscription based, they offer rapid deployment without the need to install or configure software. In terms of upgrades, they are much more agile than on-premise systems. Unlike costly and disruptive on-premise upgrades, true cloud applications automatically stay current with the latest releases, with no downtime at all. Although user testing is still necessary with a cloud ERP solution, the overall process is less painful compared to on-premise upgrades.

Flexible Scaling: While on-premise systems are rigid, Dynamics 365 offer scalability; allowing you to easily adjust resources based on your changing business needs.  Subscription licenses and cloud admin tools provide the flexibility to purchase only what you need, when you need it.

There is flexibility in subscription licensing, but Microsoft also has licensing programs that allow you to manage your licenses how you see fit. Microsoft’s NCE program allows you to lock in your subscriptions for the best pricing, or you can stay flexible and pay your licenses month to month, or you can do a hybrid of both. Either way, you have control to manage these subscriptions for how you do business best.

Global Access: True cloud solutions offer unmatched accessibility from anywhere, transforming your business operations and offering a level of risk mitigation when the unexpected happens. Cloud-based solutions, such as Business Central, not only secure your data but also facilitate temporary relocation, which could be a major factor between staying in business and closing during a crisis.

I often receive feedback from clients who have transitioned from on-premise systems like Dynamics GP to a cloud application like Business Central, highlighting an overall better look and feel. Business Central is notably easier to navigate, with pages resembling web pages. Consistently, clients who have moved to Business Central express that its much simpler to use compared to Dynamics GP. This ease of use simplifies the onboarding and training of new employees and contributes to current employees’ satisfaction.

Collaboration

Microsoft’s cloud solutions are designed to work together. For example, Dynamics 365 Business Central seamlessly integrates with Office and Teams, while Power Automate is built directly into the software. This integration makes data sharing across your organization second nature for your staff, enhancing collaboration and increasing employee efficiency.

As a single platform, it optimizes processes, maximizes data visibility, and enables you to configure the applications to work together exactly the way you want them to.

In the diagram below, you can see that Dynamics 365 Business Central and Dynamics 365 Sales (CRM) seamlessly work together as an ERP and CRM system should, leveraging Microsoft Office 365. These applications are tied in with Microsoft Power Platform, giving you the power to customize and integrate your systems or build workflows in a low-code environment.

Screenshot of a diagram of Microsoft cloud applications that work together to further enhance the value of Microsoft 365.

Unleashing Innovation in a Cloud ERP Solution

Cloud innovation is quickly becoming the main driver for on-premise clients looking to move to a cloud ERP solution. Clients are increasingly asking about how they can use artificial intelligence in their business to make them faster, smarter, and more efficient.

Since the release of ChatGPT, on-premise clients have been seeking access to new technologies such as artificial intelligence and machine learning for their business. While these technologies aren’t yet available for on-premise systems, like Dynamics GP, Microsoft cloud applications, including Microsoft Copilot, a Shopify connector in Business Central, Power Automate workflow capabilities, and the native integration of Power BI, already offers these capabilities.

This is a significant differentiator from on-premise solutions, and clients recognize the importance of leveraging these tools to stay competitive in their market.

Security in Microsoft Azure Cloud

Cloud security has been a major concern for on-premise clients that are looking at moving to a cloud ERP Solution.

On-premise clients often felt secure knowing that their data was within their own walls and on their own networks. But as cyber threats have become more sophisticated, this has changed dramatically.

Microsoft invests heavily in advanced security, surpassing that of an on-premise system or network. Protected by the Azure Cloud Security model, Microsoft’s investment in security outweighs anything a typical business might implement. Using artificial intelligence and machine learning to analyze, identify, and block threats faster than ever before, you can be sure that your data is protected.

With end-to-end encryption standards, your data is safer in Microsoft’s cloud ERP applications than on your own networks. Microsoft backs up your data daily, and these daily backups are kept for 30 days. Extended backups are also taken, and those are stored in different geographical locations, so you know your data is safe with Microsoft.

Economics of Cloud vs. On-Premise

Cost is a significant factor when considering moving from on-premise to a cloud ERP solution. Microsoft’s Dynamics 365 applications are typically cheaper to run and maintain, and over time, the total cost of ownership savings will be significant.

Below is a comparison of a mid-size Dynamics GP customer and a Dynamics 365 Business Central customer both with 18 users on the system, using mostly financial modules.

Total Cost of Ownserhip diagram.

On-Premise Software – Dynamics GP

If you’re currently using an on-premise system, what are the costs going forward?

  • Annual maintenance fees are $16,800 per year.
  • Upgrade costs. Microsoft requires that customers on the modern lifecycle upgrade each year, but we typically work with clients to manage that upgrade every two years. Upgrading the system costs approximately $15,000 every two years.
  • Every four years or so, your hardware will need to be replaced. At the same time, we recommend that you upgrade your SQL so that it stays in lockstep with Dynamics GP. This costs $20,000 every four years.
  • IT Management costs. The costs for somebody to maintain the servers on your network are around $1,000 per month, so $12,000 annually.

The total cost of ownership for your on-premise system for four years is approximately $165,000 while an eight-year term would be $330,000.

Cloud Software – Dynamics 365 Business Central

Let’s look at a Business Central system for the same number of users, 18 users, mostly the financial modules.

  • Implementation fees: Transitioning to a cloud ERP solution is no small project. We would need to migrate your GP system onto Business Central. The cost of such projects ranges from $50,000 to $150,000 and in this example, we will use $90,000 as an estimate.
  • Licensing fees: Business Central offers annual subscription fees for 18 users that would total to $20,520 per year. Notice that that’s the full price for those fees. As a Microsoft client, you may qualify for promotional pricing that would significantly reduce that cost.

Notice that I didn’t include upgrade fees, hardware, or software costs for Business Central because there aren’t any; your annual fees become your subscription fees. When totaled, the total cost of ownership for four years is $172,000 and $254,000 for eight years.

Comparing Dynamics 365 Business Central with Dynamics GP, you break even after year four, even with a one-time implementation fee of $90,000, and thereafter, you will be saving about $20,000 annually. This comparison really shows that investing in a cloud ERP solution like Business Central makes financial sense for your business.

Embracing the Cloud: A Strategic Imperative

My most successful clients are embracing cloud solutions, recognizing it as a strategic project with the potential to transform their business. They are eager to adopt the latest technology, using it as a key differentiator.

The journey to the cloud is ongoing; these businesses will continue to adapt. Even after transitioning to a cloud ERP solution, clients will continue to leverage the flexibility to adapt to meet new business challenges.

Being in a true cloud solution is a key first step.

Navigating the Transition Journey to a Cloud Solution

Transitioning to a cloud ERP solution like Dynamics 365 Business Central or Dynamics 365 Finance & Operations requires planning and effort. At Encore, we will work with you to map out your full technology roadmap. We take the time to understand your business needs, processes, and goals to create a cloud strategy that will unlock growth for your business.

We will work with you to create a technology plan based on your current environment, your procedures and processes, business needs and goals, and what you would like to see in your new environment. If you currently have integrations with other systems, we will review them and determine how to modernize those integrations to work best for your business. If you would like to learn more about the next steps for your Dynamics GP, Dynamics NAV, or Dynamics AX solution, please visit our From On-Premise to Cloud page to find information specific to your product.

When you are ready to begin your transition to a cloud solution like Dynamics 365 Business Central or Dynamics 365 Finance & Operations, we will provide all the support that you need. If you think that the transition is three years down the road, engage with us now so we can start planning with you.

For more information or to begin planning your transition to Dynamics 365, please reach out to your Encore account manager or contact us.

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