When choosing a new enterprise resource planning (ERP) system for your organization, one of the most critical considerations is whether to go with an on-premises ERP system or a cloud-based ERP solution.
Today, nearly every ERP vendor offers some cloud deployment option, and some have even discarded their on-premise ERP offerings.
However, there are several reasons why a small or midsize business may choose a traditional on-premise ERP system. So, which one is right for your organization? Here are some pros and cons of each to make your choice easier.
DIFFERENTIATING ON-PREMISE AND CLOUD SERVICES
What are On-Premise ERP systems?
An on-premise ERP is installed either on a business’ on-site servers or on third-party servers that the company controls. Because the systems are housed on-site, you can undertake extensive customizations to meet your business’s unique needs and processes.
Typically, when choosing to go with an on-premise system, companies must purchase a perpetual software license with an upfront, lump-sum payment. With this licence, users have access to and can use the software indefinitely, providing they comply with the vendor’s terms and conditions.
On-premise systems also commonly need a one-time capital investment for hardware, software, databases, networks, and the hardware infrastructure required to deploy the system. In addition, the company will need a dedicated IT team (internal or external) once the system is running on-site to manage it, handle any issues or outages, manage security and backups, and deploy updates or changes.
On-premises systems are usually considered capital expenditures, as opposed to cloud-based ERP solutions that are mostly treated as operational expenditures.
What Is a Cloud-Based ERP System?
Rather than being hosted on a business’s private servers, cloud ERP systems are hosted on the software vendor’s servers and are accessed by the users through a web browser or mobile app rather than an on-site network. It is crucial to know that by choosing a cloud-based ERP software, your business will depend on the vendor’s network, infrastructure, hardware, and databases to deploy and use the system.
In contrast to on-premises systems, cloud-based ERP is considered software-as-a-service (SaaS), where the company pays an ongoing subscription fee to maintain access to the system. Due to the software being hosted on the vendor’s servers, companies with cloud-based ERP do not need an on-site IT team for maintenance. Support, maintenance, and upgrades are typically included in the monthly or annual subscription fee.
Hosting can be set up as a single-tenant or multi-tenant architecture. Multi-tenant architecture is where a single version of the software serves multiple customers, still maintaining the privacy of each customer’s data and ensuring inaccessibility to all other customers.
Just as you would imagine, single-tenant architecture means that a single customer uses one version of the software. Each customer has its database and is financially responsible for a large portion of the system’s maintenance and management. This can require hiring an on-site IT team or outsourcing the maintenance to someone else.
Like everything in life, there are pros and cons of a cloud-based ERP, and it’s crucial for businesses to carefully assess their unique needs and concerns before choosing one system over the other.
Which Implementation is Right for Your Business?
Unfortunately, there is never a one-size-fits-all ERP solution, and choosing between on-premise and cloud-based solutions isn’t always a cut-and-dry decision. Selecting a new ERP system, or migrating away from an old one, is a massive endeavour for any business. It needs time, expertise, and resources—and a deep understanding of a company’s unique needs and goals. Your decision about which system to pick should hinge on what features will benefit your business the most, rather than being pressured to use the latest technology. Every business needs to understand the functional differences in ERP software, deployment types, and pros/cons before you commit to any system.
To help, BHC Group has compiled some key features and pros and cons of on-premise and cloud-based ERPs.
Conclusion
Today there are more ERP options than ever for businesses of all sizes, and cloud-based deployment models have made this software significantly more accessible for SMBs. However, remember that these systems have a few drawbacks, such as more limited customization and potential security concerns.
Contrarily, on-premise ERP systems offer advantages in customization and control; many don’t support mobile and are more expensive upfront.
If you are still unsure which deployment model is suitable for your organization, give us a call and connect with one of our advisors to help you find the right tools for your unique needs and industry.
