On premise vs cloud
As you select the best ERP for your business, you will be considering your own situation and the benefits and challenges a cloud based or on premise ERP deployment is most appropriate.
When the concept of ERP systems began these were hosted on an organization’s own servers or data centers – known as on premise. However, the cloud revolution that started in the 21st century arrived at the door of ERP and transformed the choices that companies had when selecting their enterprise resource planning software. But what is right for your business?
What are the main differences of ERP on premise vs cloud?
On premise ERP is installed and then managed by your own IT staff or by a managed service provider. A company would buy the licenses in advance for a set period of time (usually on an annual basis and then renews) with a maintenance contract included (a percentage of the license cost normally). In addition to the license and maintenance cost, a company would buy or lease enterprise-grade hardware to run it and data held (servers, networking and storage). When costing out an on premise ERP (held on the Capex line within your company budget, as it is a capital cost with depreciation), a business needs to allow for support, customizations, security (antivirus, backups etc.) and upgrades.
Cloud based ERP or SaaS ERP is both hosted and managed by the ERP vendor, providing the “software as a service” model. The vendor takes responsibility for the application maintenance, storage of data, the data center security and infrastructure, and pushes feature upgrades. The licensing model is normally per user and per month, with the flexibility of more easily adding and removing user licenses to fit with your business. Because it is SaaS and the company doesn’t own the software or need to account for depreciation of assets, it is managed as a Opex line on your company budget.
For some niche organizations and certain highly regulated sectors, migrating all business processes to the cloud may not be an option due to control and compliance reasons. However, these carry the burden of maintaining the security needed themselves which comes at a cost and skills requirements.
Some organizations who have the right resources prefer to go on premise because of the ease of modification, customizing their software as and when they need it. This scenario can result in a system that is hard to support with a high level of configuration, so the IT department needs to keep an eye on the latest processes and technologies to avoid becoming stuck in the past or not following current industry best practices.
Benefits of on premise ERP
Challenges of on premise ERP
On premise ERP systems and the customizations that organizations feel able to do, mean longer implementation cycles – which can equal business disruption and overhead costs (direct costs when outsourcing to an IT vendor).
Upfront capital investments in one go is the largest financial burden that companies who opt for on premise ERP software have. Add in hardware and other infrastructure items and provision for fixes and upgrades.
Allowing for skills resource to maintain your on premise software, either building an internal IT team or outsourcing to an ERP vendor to maintain and support your users. Ensure that there are no competing priorities for either option you take, so that the upkeep, relevance and usability of your software does not suffer.
On premise ERP can be more difficult to integrate with, for example if you are using another vendor application for ecommerce you will want to have seamless visibility. Your IT resource will need to allow for external access to manage this.
Due to the reasons above, the decision making process of deploying a new ERP for your business will be longer, securing more budget, getting buy-in from more stakeholders plus hiring and training the right IT resource.
One of the main reasons for a cloud migration is predictable and affordable budgeting for the ERP software. SaaS by its nature is costed over time (i.e. monthly) and pricing plans from ERP vendors reflect features and usage.
Access to up to date and innovative technologies. Even for SMBs, the ability to use modern ERP systems that are more stable and constantly updated, with more intuitive user experiences and processes is a major plus point.
Hybrid and remote working plus global supply chains. Your ERP system should reflect modern ways of doing business, and our increased use of mobile devices and flexible working patterns. Choosing an ERP that is accessed via the internet by employees, vendors and partners, no matter the location of the user can be a key specification when switching systems.
Scalability of cloud based ERP vs on premise – for those companies on a growth path who want their ERP to grow with their maturity (use of additional features and more users) and corresponding budget; SaaS is a good option for the short and long term.
Benefits of choosing the cloud rather than an on premise ERP
Risks of choosing cloud based ERP
Reduced control and customization. Because the third party ERP provider takes the burden of integration, updates and customizations – internal IT lose this level of control. This may simply be a matter of cultural shift or it can be a real business need in highly regulated industries.
No matter what ERP software you select – the security risk needs to be met; on premise and cloud systems equally need to have the right backups and firewalls in place, this is a key question to ask your SaaS ERP provider.
In the same area, compliance to standards of a sector or geographic location need to be met by the ERP on the cloud; for example, data residency requirements and standards need to be ensured. This can be a challenge for many cloud ERP as data can be stored in multiple cloud data centers across different regions.
Visit our dedicated page for more information about specifying a cloud based ERP.
