What are the benefits and critical differences between cloud vs on-premises ERP?
If you're contemplating Enterprise Planning Software or ERP, you will need to make a lot of decisions – from selecting the right software vendor, choosing an ERP partner, and so on. One other major decision you'll have to make is figuring out whether you need a cloud ERP solution or an on-premises system.
While traditionally on-premises ERP was the norm, cloud ERP has come a long way and is more common than ever before. Almost every vendor offers some cloud deployment option, while others are spending more resources on their cloud offerings than on-premises.
However, is cloud ERP right for your organization? Understanding the basic pros and cons behind each will help you determine the better fit for your organization. Here are some factors to consider when making this critical decision.
Key Difference Between Cloud ERP and On-Premises ERP
The main difference between cloud ERP and on-premise ERP is how they are deployed. An on-premises solution is installed locally on your computer's hard drive. The system and the servers are then managed in-house by a company's IT team.
On the other hand, Cloud ERP is offered as SaaS – where your ERP solution and data are hosted in the cloud and accessed via a web browser. The vendor is responsible for maintaining the solution and related processes.
This fundamental difference of deployment also impacts how cloud and on-premises ERP solutions are typically priced. As a SaaS offering, cloud ERP is typically priced under a monthly or annual subscription. In contrast, on-premises ERP is priced under a one-time perpetual license fee, with recurring fees for maintenance, updates, and more.
Advantages & Disadvantages of Cloud ERP
The main advantage of Cloud ERP is the cost. Thanks to the subscription model, they have a lower cost of entry compared to on-premises. It's much easier to get up and running with cloud ERP software since you don't need to spend time procuring and installing IT infrastructure in-house. Faster rollouts also add to significant time savings. Typically, the cost of ownership is lower for cloud ERP overall.
Another advantage: system updates, enhancements, and patches are handled by the vendor; a Cloud ERP requires minimal in-house support, which means you are less reliant on your IT department for operating your ERP system.
Scaling is much easier with Cloud ERP as well. Cloud ERP offers a dynamic allocation model. You don't have to pay for any server upgrades if you want to scale. This makes the initial growth and stages of scaling quite simple for growing companies.
Cloud ERP also often delivers better performance and can guarantee uptimes. For instance, cloud ERP solution like Dynamics 365 Business Central has a guaranteed uptime of 99.9% and a robust disaster recovery plan. Microsoft also invests heavily in data security research and development to ensure your system is secure.
A disadvantage of cloud ERP can be the customization when compared to on-premises solutions. While the out-of-the-box capabilities work well for most companies, they may offer less flexibility for enterprise organizations that need a lot of customization for their system.
Advantages & Disadvantages of On-Premises ERP
A major advantage of on-premises ERP software is the ability to customize the software to specific needs and requirements, which companies in niche industries might require. As the software is "on-premises," your company has complete control over the software and associated data. While this might be an advantage to some organizations, it should be noted that security and safeguarding the system and data falls on them. You need to have a dedicated, robust IT team that can safeguard your data.
In terms of disadvantages, cost is usually a big factor. It costs a lot more to purchase, operate, and maintain an on-premises system than a cloud ERP. Your in-house IT team is responsible for system updates and upgrades. Companies with on-premises solutions are often running on outdated versions as the process can be complicated and time-consuming.
On-premises ERP is usually the best option for large companies with all the necessary hardware and resources. Even though on-premises ERP can have huge upfront costs, you can reduce the costs in the long run by implementing efficient management and operation techniques.
Factors to Consider When Deciding Between Cloud & On-Premises ERP
Let us consider some of the factors to consider when you're torn between Cloud and On-premises ERP.
If you cannot invest a huge sum upfront, then Cloud ERP is the best choice for you. On-premises ERPs usually have many upfront costs such as hardware, data center costs, maintenance, scaling costs, etc. You also must consider the resources available in the long term. With Cloud ERP, you only must pay for the resources you use. You can scale up or down as per the requirement and pay only for what you use. However, with the on-premises ERPs, you may have to spend a lot of money adding new features and scaling up.
If you are looking for highly customizable software, then an on-premises ERP may be the best choice for you. The service provider usually manages cloud ERPs. Even though this reduces the management costs, it will prevent you from customizing the software however you like. If your company has very specific needs that no cloud service provider can meet, then an on-premises ERP is the best choice.
If you are looking to deploy an on-premises ERP, then ensure that you have the IT power to maintain it. On-premises ERPs require a substantial IT team and a lot of support. In the case of Cloud ERPs, the service provider offers this support itself.
Cloud ERP has a lot of benefits, and small and mid-sized enterprises will find cloud-ERP solutions flexible, with lower up-front costs and ease of access and scalability.
On-premises solutions are more suitable for larger, enterprise-sized businesses who have bigger budgets, unique processes that require a lot of customization, and have the existing infrastructure and IT resources to host and maintain their system.
Work with a Partner to Make the Right Decision
Investing in an ERP system is a massive undertaking, and picking the right ERP deployment model for your business can be challenging. Make the task simpler by working with an ERP partner that can guide you and help you pick a solution that will further your business's goals and objectives.