Cloud Vs. On-Prem ERP - When to Choose What?
In the early 90s, Enterprise Resource Planning (ERP) had caught the imagination of leading organizations across the world. Thirty years later, it is unimaginable to do business without it.
ERP helps organizations of all sizes manage every aspect of their business, including finance, HR, supply chain management, customer relationship, etc. It is hardly a surprise that the ERP software market is set to grow to $47 billion in revenue by 2020.
While organizations have warmed up to the idea of using ERP, they often face difficulty in choosing between cloud and on-premise (also called on-prem) ERP solutions.
In this blog, we will discuss these two ERP solutions, and when should you use it.
What is Cloud and On-Prem ERP?
Traditionally, organizations have always used on-prem ERP for business. On-prem ERP is physically located in the organization’s in-house servers and is available through an internal network. The internal IT team manages all the servers and software updates.
On-prem ERPs had a stronghold until in the late 2000s. After that, organizations started moving to cloud-based ERP solutions. Cloud ERP system is deployed on a cloud platform, which can be accessed using a web browser. The ERP vendor centrally manages all the aspects such as hosting, software upgrades, security, etc.
How are they different?
Before we understand which solution would fit your business, let’s look at the differences between both.
Both on-prem ERP and cloud ERP have their set of advantages and limitations. On-prem ERP gives you complete control over your data security and maintenance. You also have the option to customize it the way you want. However, as a legacy system, on-prem ERP can be rigid when you want to scale it, upgrade it, or integrate it with other online applications.
You can address these shortcomings with the help of cloud ERP. It is flexible, easily scalable, and can integrate with other systems without any hassle. The limitation comes when you want control over the system. Add to it, the data security concerns as the vendor controls everything centrally.
So, when both have their plus and minuses, how do you determine which would fit your business? We will discuss it right away.
When to use on-prem and cloud ERP?
There is an unspoken understanding that large enterprises prefer to keep their ERP on-premise, and small-medium businesses prefer to move to the cloud for its cost-efficiency and flexibility. Do not limit your choice to the size of your organization.
Here are a few things you must check while making a decision.
Do you want to reduce then Total Cost of Ownership?
As you know, cloud ERP is subscription-based and on-prem ERP has a one-time fee. If you have the budget to pay upfront, then you may choose on-prem ERP. If you want a cost-effective solution, cloud ERP could be ideal for you. You have to pay only until you consume the vendor’s service. Studies show that you can save your total cost of ownership by 46% by moving to cloud-based ERP.
Is data security important for you?
If your business requires high secure data, we recommend you to opt for on-prem ERP as you have full control within your premises. There is also less scope for data theft, as only people with access can use the data. This doesn’t mean that cloud ERP is unsafe. Reputed cloud vendors adhering to PCI DSS standards can be trusted with your data.
Additionally, they have a dedicated team that will help you mitigate the risks. So, weigh in the pros and cons before you choose the right solution.
Do you require scalability?
Business needs change every time. Your ERP should be flexible enough to accommodate these demands. If the foundation of your business involves quick scalability, cloud ERP will be the right solution for you. You can add as many resources and computing power you want without investing too heavily in procuring the hardware and software.
Do you have an IT team for maintenance and support?
If you do not have a large IT team to support and maintain your ERP system, cloud ERP will be the right solution for you. However, ensure that you choose a trustworthy vendor. Their highly skilled experts will help you with maintenance remotely.
Do you need quick deployment?
On-premise ERP deployment is slow because you need to arrange for proper infrastructure to run the system. Cloud-based ERP implementation is faster, even across multiple locations. So, if you lack time and resources to deploy ERP, cloud ERP would be the right solution for you.
How much customization do you need?
If your organization requires customized ERP solutions, on-prem ERP would be the right choice for you. Considering that you have complete control over your ERP, you can modify it the way you want. Of course, you can ask your cloud vendor to make specific customizations. However, that could cost you extra.
What type of integrations do you need?
Businesses have made their interaction with customers more personalized. If your approach is more customer-centric, you would require integration with other systems. Cloud ERP allows you to interact with other systems easily using API connections. On-prem ERP will need additional functionalities to integrate with other systems, and that could lead to potential downtime.
According to Allied Market Research, 57% of the participants still preferred on-prem deployment to the cloud. But there is a growth in the adoption of cloud solutions. Like with any other technology solution, the one-size-fits-all approach does not work with ERP as well. We hope the above-mentioned pointers help you make a more informed decision.
Hire the best ERP experts to help you in your journey.