How Cloud ERP Compares to On-premise ERP (Part 1)

If you’re considering an ERP system for your business, chances are you’re being bombarded with choices. As you consider your options, one of the most important decisions you’ll need to make is whether to select a cloud-based ERP solution or one that’s installed locally.

The basic difference between on-premise ERP and cloud ERP is clear: On-premise ERP solutions are installed locally on your company’s hardware and servers and then managed by your IT staff while cloud ERP – also called SaaS, or Software-as-a-Service – is provided as a service. With this type of deployment, a company’s ERP software and its associated data are managed centrally (in the Internet “cloud”) by the ERP vendor and are accessed by customers using a web browser.

What may not be so clear is that the type of ERP deployment model you choose can have a significant impact across your business. Here are some key factors that you need to consider when weighing whether to use on-premise or cloud-based ERP software.

Ownership Costs

On-premise ERP systems usually require large upfront and ongoing investments to purchase and manage the software and the related hardware, servers, and facilities necessary to run it. If your company doesn’t have a large or experienced IT staff, you may also have to also invest more time and money in additional personnel and train them. Even more importantly, on-premise systems require that your IT team spend a significant amount of their time and budgets ensuring your system is up-and-running when you need it, including maintenance of hardware, server rooms, and more. When its time for your ERP system to be upgraded, IT must then redeploy the system across the various users’ computers and re-implement various customisations and integrations that your business installed on your previous software.

For cloud-based ERP, initial costs are typically much lower because you simply implement the software to your requirements and then access it through your computer’s internet connection. The cloud ERP provider hosts and maintains all of the IT infrastructure for you, ensures the system is always running, that the data is secure, and that product enhancements are rolled out painlessly to your solution without breaking your previously implemented customisations.

Ultimately, this all allows your IT resources to focus on innovating and helping grow the business more effectively, rather than spending a disproportionate amount of their time on maintaining and managing your on-premise systems. Cloud ERP also offers a predictable, pay-as-you-go subscription model that can make cash flow management and planning much easier.

Over time, those IT savings add up. When comparing the total cost of ownership of on-premise ERP solutions relative to cloud systems, one industry analyst study found that cloud-based ERP can cost 50 percent less than on-site ERP for a 100-employee company over a four-year period.

System Upgrades and Enhancements

On-site ERP software can be customised, but those customisations are tied to your current software deployment and are not easy to re-implement with future versions. As your ERP provider releases new product updates and enhancements, your previously implemented customisations will be wiped out when you upgrade and your IT team will have to start customising from scratch again. That’s the main reason many companies simply avoid upgrading their on-site ERP software and just settle for running their business on out-of-date technology. In fact, two-thirds of mid-size businesses are running outdated versions of their ERP software.

In contrast, cloud ERP solutions are continually upgraded by the provider so you can be sure you’re always using the latest, most advanced version of your ERP software. Because of the cloud platform today’s leading cloud applications are built upon, your previously implemented customisations and integrations automatically carry forward when the solution is updated without additional investment.

Stay tuned for Part 2.