Cloud technology – it’s no longer a buzzword! The Cloud is now firmly part of our vernacular and for very good reason. Many best of breed solutions have emerged to provide consumers and businesses with amazing software solutions that enable them to enhance their lives, improve their businesses and access new technologies in a very accessible manner.
However, when it comes to the Cloud in relation to ERP systems this is a totally different kettle of fish!
The buzz generated around Cloud technology may lead some business owners to believe that moving their ERP system to the Cloud is absolutely necessary but this couldn’t be further from the truth. What we have found is that a move to the Cloud may be the right decision for some but its definitely not for everyone.
At present our on-premise solution remains the most popular option for companies. What we advise companies to do is to review the positives and negatives associated with both On-Premise and Cloud ERP solutions to enable them to make a decision that is not influenced by hype. In this way, your decision will be guided by what is the right solution for your business.
In this article we’ll compare the pro and cons of both options to give you a foundation to further your research in this area. Before we start let’s breakdown exactly what we mean by On-Premise Versus Cloud ERP.
On-premise ERP is the traditional licensing model where the user acquires the license per user or per company installed in the user’s office site or premises. It’s a CAPEX payment structure with the full cost of the software and implementation fees paid in year one.
Post-implementation, an ongoing annual payment is required to cover the software support agreement. It provides for ongoing upgrades and support for issues that may arise after the system has gone live.
On-premise software is installed locally, on a company’s own computers and servers.
Cloud-based ERP is a subscription-based or SAAS (subscription as a service) model where the user pays the service annually, quarterly or even monthly per user in perpetuity. This recurring payments usually also include the support or maintenance agreement.
Cloud-based software is hosted on the vendor’s servers and accessed through a Web browser.
So let’s dig a little deeper and compare both options under the headings of:
- Cost
- Security
- Customization
- Implementation
Cost |
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Cloud Based ERP |
On-Premise ERP |
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An Operating Expense Cheaper upfront Investment, however costs are payable in perpetuity, therefore over time system costs tend to converge. No additional hardware investment in servers is required. |
A Capital Expense The long term cost of the system may be lower, however heavier upfront investment is required. You may have to invest in additional hardware assets e.g. new server |
Security |
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Cloud Based ERP |
On-Premise ERP |
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Vendors Responsibility The security of your data lies solely in the hands of your vendor. Vendors pledge strict data security standards, however given recent security breaches some organisations may not be 100% comfortable with this arrangement.
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Business Owners Responsibility Data security is in the hands of the organisation. Therefore, it is important for organisations to adhere to proper data security protocols. |
Customisation |
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Cloud Based ERP |
On-Premise ERP |
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Robust but less Customisable This option is, in general, less customisable. Cloud ERP systems are based on standard workflow, business best practices or most common way of doing business. Many companies customise their business processes in order to achieve better performance and efficiency, therefore it may not be feasible from a strategic point of view to change these processes to conform to the standards of the chosen cloud solution as it could result in loss of competitive advantage.
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Customisable but Fear Not If you are unwilling, or indeed, unable to work with an out of the box solution an on premise solution may be more suitable for your business. However, this will impact the speed of implementation as obviously customisation requirements need to be accommodated. Some business owners fear customisation as they believe they will be locked into a particular version of the software or it may cause issues when software upgrades take place. This can be the case for some solutions but that’s not always the case. An ERP solution like Intact iQ was built to facilitate out of the box customisation. This means the customisation is codeless, therefore it doesn’t requirement development time. It can be delivered on site by Intact consultants or the system administrator themselves. As its codeless you won’t be impinged from receiving any future updates thus future proofing your investment. |
Implementation |
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Cloud Based ERP |
On-Premise ERP |
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Shorter Implementation Cycles As this solution is less customisable the implementation process is therefore shorter. |
More Control – Longer Time Frame Customisations are not made without a proper business process review taking place to ensure customisations are well thought out and add value. Then of course the customisation requirements need to be included. These factors obviously have a knock-on effect to the implementation timelines. |
The Elephant in the Room
Broadband Connection!!!!!!!!!!!!!
For many, limited access to a strong broadband connection means a Cloud ERP solution is simply not an option for them. They may use less mission critical cloud technology for some elements of their business but relying on the Cloud for the business system that forms the backbone of their organisation would be foolish. According to Integra’s latest whitepaper: Upward Mobility—Moving Business to the Cloud, 45% of organizations cite bandwidth requirements as a barrier to cloud adoption, so it’s very likely your current network and access to reliable broadband could be an issue if you’re considering migrating your business to the cloud.
To Summarise,
There are more options than ever for businesses of all sizes when it comes to choosing a new ERP system. Whatever option you choose ensure it’s the right one for your business today, tomorrow and indeed 10 years from now. Don’t get swayed by the hype.
Whilst cloud-based deployment models have made this software more accessible—these systems come with a few drawbacks, such as more limited customization and potential security concerns. Conversely, on premise ERP systems offer advantages in customization and control, but are more expense up front.
If you like to read more on this topic check out our blog – Cloud ERP Software
