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Over the last few years, ERP systems have become imperative for streamlining enterprise operations and maintaining business resilience. The pandemic-induced shock has also contributed to an upswing in resource planning software. As a result, the global market of ERP digital solutions is projected to hit over $93 billion in 2028. But while the bright prospects of ERP systems are statistically proven, the dilemma of cloud ERP vs on-premise hosting remains unsolved.
Each option has its advantages and limitations, and you have to find a balance between a bunch of factors. You need to consider the cost of ERP ownership, your requirements for system performance, its customizability, and many more. In this article, we’ll look at these and other main debating points of cloud ERP vs. on-premises ERP through an expert prism.
Key considerations before going for cloud vs. on-premise ERP
According to Accenture, around 58% of companies prefer private or public cloud-based ERP systems. On-site platforms make up 25% of all ERP software. While these figures may already suggest the winner, the choice of cloud vs on-premise ERP depends on a whole range of factors.
Cost of ownership
The question of costs is one of the first to surface when debating cloud ERP vs on-premise one. Cloud-based enterprise systems can be purchased and governed without large upfront costs. Cloud users are charged a recurring fee which can go up or down based on the resources used and the number of users.
Operating expenses such as infrastructure maintenance, recovery, updates, and others lie on cloud providers as well and are distributed among all cloud adopters. It means that cloud-based ERP software translates into total cost-of-ownership savings thanks to the shared business model.
Moreover, the absence of additional IT infrastructure costs for the cloud solution also contributes to the cost-saving potential of a cloud ecosystem. This has been highlighted in the TCO case by NetSuite, where small and medium businesses have seen lower overall TCO for a cloud-based NetSuite system compared to on-premise enterprise platforms.
Conversely, local systems imply a higher initial investment for adopters. Companies also cover hardware costs, database maintenance, security, and other capital expenditures, all combined into a significant initial outlay.
Therefore, cloud solutions are more affordable for businesses looking for a lower initial bid price.
System performance
Critical business applications must be available 24/7, making uptime and reliability paramount for enterprise business management systems. At first sight, cloud servers give odds to on-site systems due to automated monitoring, disaster recovery, easier back-ups, and downtime expectations which are the core prerequisites in cloud SLAs.
Moreover, data centers scattered across different locations eliminate a single point of failure, making your data accessible even if one of the cloud servers shuts down.
Unlike cloud-based solutions, with your data backed up by different instances, an on-premise system won’t work if your server crashes. Therefore, an on-site enterprise takes diligence and dedicated resources to ensure minimized downtime and stable performance.
Yet, distributed servers aren’t immune to unplanned outages, leaving business owners at the mercy of connectivity issues. And in this case, an outage or unstable internet connection can knock out your access to important files and enterprise applications.
Security
Companies seem to place a high degree of trust in cloud data security, with 48% of organizations storing their critical data in the cloud. Indeed, cloud ERPs come with in-built advanced security measures beyond what most businesses can afford. Role-based access controls, end-to-end encryption, threat detection, and other safeguards reduce the risk of a data breach or unauthorized data access for cloud adopters, and thus, minimize your data security concerns in general.
However, cloud-based solutions do not grant full control over your software and threat landscape. Also, if any sensitive data spills through the cracks, it’s the business that faces incurring costs and legal repercussions. Cloud misconfigurations also account for 15% of breaches.
With on-premise ERP applications, you are in charge of data governance and the entire infrastructure, which makes it possible to implement tailored security measures and meet strict security requirements relevant to financial institutions or governmental organizations.
Integration
Cloud ERP solutions offer rich integration capabilities that help connect software applications for better visibility and data interoperability. With low maintenance and easy deployment, companies can set up the cloud ERP infrastructure from a variety of stand-alone modules based on their business processes and needs. Odoo-based ERP solutions, for example, allow businesses to join a broad spectrum of business apps into a centralized well-integrated system.
But despite a plethora of integration options, cloud integrations are still tied to a limited number of connectors. Therefore, you might not be able to cover all the integration needs or establish a seamless connection with other internal business systems.
On-premise ERP solutions, on the contrary, bode well for bespoke integrations that do not need an Internet connection. Yet, on-premise data connectivity calls for a dedicated IT team and a significant one-time investment.
Customization
Cloud ERP vendors offer customizable innovation as paid a-la-carte options. Since around 85% of business processes are the same across companies, standard cloud modules and extensions meet the majority of customization needs and best business practices.
But despite their diversity, cloud extensions tend to be more rigid, especially when it comes to individual ERP deployment. The collection of unique design changes, e-forms, integrations, and system dependencies are impossible to take into account with the generic cloud approach.
Local platforms take the lead in terms of customizations since your development team can adjust your ERP system to internal processes. Yet, custom deployments and configurations come at a high cost and require rich tech expertise.
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Control
Ownership of data is another big rub in the duel of ERP cloud vs on premises. Legal concerns, vendor lock-in, and unpredicted fees incur risks to business operations and a company’s well-being. Since the cloud provider can be legally considered a custodian of the data, your access to data assets can be suspended at the provider’s sole discretion during an investigation of any suspected violation.
On-premise ERP systems are based on single-tenancy infrastructure which keeps your critical data assets away from prying eyes. This way you have higher control over data configuration, security, and management because you can access the data physically. Full data control is especially important for mature enterprises with strict internal security standards.
Compliance with standards and regulations
Data governance and compliance issues have been plaguing cloud systems since the dawn of time. Over 50% of the companies struggle to meet compliance and audit requirements when employing Infrastructure as a Service cloud solutions. The root of compliance worries is often the shared nature of the cloud. Once an organization moves to the cloud, managing access controls or keeping an eye on the available compliance enablers becomes much more difficult.
But despite higher compliance risks, distributed cloud systems cover the majority of data protection regulations, including GDPR, CCPA, HIPAA, and others.
On-premise solutions help meet the evolving regulatory landscape thanks to full control over user access policies, security patches, and other compliance measures. Moreover, data localization regulations prohibit data from being processed in the cloud, making on-premise hosting the only option.
Updates
Dubbed better than on-premise software due to its flexibility, the cloud eliminates the hassle of maintaining software. Cloud ERP providers make sure you’re always running the latest ERP version with cutting-edge functionality, while your IT department can save the time and effort of installing new patches. However, the choice of updates is left to the vendor, putting you in a subjective position.
On-premise infrastructure makes updates more resource-intensive, yet grants full control over the choice of innovation.
Mobility and accessibility
Finally, ERP on premises vs in the cloud differs in how portable they are for users and applications. On-site platforms can usually be accessed locally. Remote access is only possible using VPN or remote desktop technologies. It can complicate the team’s collaboration and limit the accessibility of the system.
Conversely, the cloud is accessible from anywhere provided you have a stable internet connection.
To sum up the differences between both systems, we’ve curated the main differentiators in a concise table below.
On-premise vs cloud ERP compared
On-premise vs. cloud ERP dilemma: three questions to ask
Along with the criteria mentioned above, there are additional factors that should guide your choice.
What project timeline can you sign up for?
Cloud resource planning software is almost a synonym for fast and easy implementation. On average, an experienced development team can get your cloud solution up and running within a few days to a couple of weeks. The specific timeline can vary based on your migration needs and system maturity. On-site infrastructure is more time-consuming since it is built from scratch.
Therefore, if you’re aiming for reduced development time, the cloud is a great tradeoff between fast deployment and decent customization.
Do you need a unique solution?
The next thing to look at is whether the ready-made functionality covers your business and development needs in full. Contacting a team of specialists is the easiest way to validate each building block for your cloud ERP system.
However, if your business vision runs counter to a ready-made suite, a custom on-premise infrastructure is the best way to fill in the functionality gaps.
Should your system be able to scale?
Usually, resource planning platforms do not have ambitions for rapid growth or high workloads. However, scalability is still important to help your enterprise systems adapt to the changing needs and demands of your business.
In this case, cloud elasticity can easily attend to your scalability needs. On-demand cloud scaling allows you to ramp up or down your IT resources without building out more hardware. Conversely, on-site software is more challenging to scale, since it requires additional hardware, CPU, RAM, or other boosters.
In terms of scalability, cloud infrastructure grabs the trophy as an easily scalable enterprise solution.
Cloud vs on-premise ERP: which one is right for you?
The best ERP hosting solution will be unique for each company based on the budget, time constraints, compliance requirements, and other prerequisites. Cloud ERP infrastructure is the preferred solution for a quick and easy take-off that doesn’t need a large upfront investment. Locally installed systems grant full control over your assets along with unmatched customization and integration options.
If you are struggling to choose between on-premise and cloud, our vetted experts are ready to help you make the big decision. We can also take over your deployment needs and set up an ERP platform fully tailored to your business requirements.
Ready to build an ERP on time and on budget? Reach out.
