Key differences between on-premise and cloud ERP solutions, helping you make an informed decision.
As if you don’t already have enough things to consider when running a business. One of the most critical questions you will face is – should I host my ERP system on-premise or in the cloud? We resonate with you on the pressures of decision-making at this transitional stage. In light of such hardship, we have used our expertise to help you make an informed decision on what will be the best choice for your company.
What is the difference?
A vendor will host cloud-based ERP systems on a server which you access via a web browser. Therefore, they require access to the internet to work. This element also means the system can be accessed from almost anywhere in the world, providing the end-user has access to a standard internet connection and a compatible device, making it the easier of the two options to set up.
On-premise software is installed locally on a business’ own servers and computers. When a user needs to access company information, they would need to be in the office to do so.
Now you know the fundamental variation between the two. You can find further reasons for and against each deployment option below.
On-premise software bills as a one-off fee; with this option, you need to consider whether you can financially afford to front what could be a substantial investment. Whereas the cloud option is often billed as an ongoing subscription fee as you are paying to use someone else’s services. There is a lot to weigh up here. Also factor in that choosing cloud ERP may mean that you spend more in the long run as payments will continue until you no longer require the service. However, having your system setup on-premise will also involve hardware and maintenance costs. Maintenance can either be handled by yourself or by outsourcing (adding further charges). Bear in mind that outsourcing will add additional fees for IT and maintenance services as and when required.
We touched upon the cost to upkeep your system if you choose to host on-site earlier in the post. It’s not only the monetary cost associated with IT and maintenance support, but you should also consider the cost of time. How much time can you afford to be lost or wasted?
Your ERP system is managed in the cloud by the vendor you chose to work with. If an application experiences downtime, then the vendor is paid by you to resolve these kinds of problems within an agreed amount of time. They will be contractually agreed to adhere to the time set. Now consider hosting the system on your site. Do you have an IT support person on-site that can dedicate their time to managing the performance of your ERP system? In most cases, they are responsible for maintaining all of the systems within the business (not just the ERP system) and being on hand to help with other issues, especially between core working hours.
One of the main factors to help you make up your mind is to evaluate how critical your business systems are in line with the operation of your business as a whole. Can you afford downtime? If yes, how long is too long for the system to be down?
We are more concerned than ever before about the protection of our information. Our concerns aren’t surprising if we look at how the press publicise breaches in security. So how do you decide whether to manage the burden yourself or trust in the cloud service provider to handle it for you?
If the system is cloud-based, both the company and the cloud provider will be responsible for security, often referred to as the shared responsibility model. On-premise solutions leave the safeguarding solely down to you or your in-house IT team. Your decision on which option to take will depend on how important security is to your organisation. A secure environment is one that someone monitors 24/7/365. You should ask yourself if you have the resource available with the appropriate abilities to commit to the task.
According to Finances Online, ‘some of the largest barriers to cloud ERP adoption are perceived risk of a security breach (29%)’. The uncertainty of cloud security could be related to the premise that if you opt to host anything in the cloud, you are also then sharing the security responsibility with the cloud provider. Sharing accountability adds to the risk for an organisation. Your customers are relying on you to protect their data. However, you are relying partly on someone else to fulfil that commitment. You must decide if you would be comfortable with handling security off-site.
On the contrary
Cloud service providers will guarantee to keep your systems updated to reflect any changes to security requirements. Can you rely on your people to do the same? Gartner offers a stance on the matter in that, ‘the challenge exists not in the security of the cloud itself, but in the policies and technologies for security and control of the technology. In nearly all cases, it is the user — not the cloud provider — who fails to manage the controls used to protect an organisation’s data.’
What about the Hybrid option?
There are strong reasons for and against both deployment methods. On-premise options have a long track record of success, yet hosting in the cloud allows users to enjoy a low upfront cost and easy setup. What if I told you, you could have the best of both worlds? A hybrid ERP solution is a combination of both on-premise and cloud-based capabilities. Hybrid might be a better option for your business if:
- You have an existing ERP system hosted on-premise, but you could benefit from adding some cloud apps or additional features
- Remote workers or field-based staff need to access information on the move
- Your system requires the integration of web-based services
- The industry you work requires you adapt to changes in technology quickly. Integrating Artificial Intelligence (AI) as an example.
- You would rather a staggered migration to the cloud rather than a full commitment from the start. This option could reduce the number of bumps along the road.
Using the cloud has enabled a lot of small businesses to experience the benefits of modern technology. In the case of ERP, it has meant there are a lot more affordable options to choose from. The cloud is changing whom vendors and consultants work with, and it brings plenty of new opportunities. Traditionally, the target of ERP is big corporations in the manufacturing space. However, today, ERP has moved into countless industries and is much more capable. This shift is arguably due to cloud-based options coming to the forefront.
Research conducted by Aberdeen Group in 2016 indicated changes were already coming. When asked what deployment methods they were considering for their next ERP implementation, ‘the percentage of organisations that would consider a cloud solution for ERP has increased from 23% to 59%’. There is no right or wrong decision; statistics will only help you to paint the picture.
At Gradient, we accept that every business is different and what works well for one won’t work for another. The methods we use during the specification and selection of a system will ensure your requirements are clearly defined so we can recommend the most suited option to you. Whether that be an on-premise or cloud option is ultimately your decision.