For businesses that are looking to deploy an enterprise resource planning (ERP) system, choosing between a cloud-based solution or an on-premise one is a crucial decision.
Cloud ERP software systems have become increasingly common, with more and more vendors offering some type of cloud-based solution to clients. Many have also gone as far as to stop offering on-premise ERP systems altogether.
However, when it comes to small and medium-sized businesses, the conventional on-premise ERP system offers several benefits, which, until quite recently, was the go-to option in the industry.
Ultimately, the decision comes down to you, but it is a decision best made after understanding and weighing the benefits and drawbacks of each system, with respect to your workflow and resource allocation.
That’s why we’ve created this piece, where we will comprehensively weigh the pros and cons of on-premise and cloud-based ERP systems.
Deployment: On-Premise vs. Cloud ERP
The primary difference between on-premise and cloud-based ERP systems is in how they’re deployed.
- On-premise ERP systems are locally installed on an organization’s own computers and servers.
- Cloud-based ERP systems are hosted on the provider’s or the vendor’s computer servers. The client accesses the system using a web browser.
Pricing: On-Premise vs. Cloud ERP
There is also a significant difference in how the two ERP systems are typically priced:
- While there are exceptions, cloud-based software is generally subscription-based, with monthly or annual charges, along with additional fees for updates, training, and support.
- On-premise ERP system software, on the other hand, typically has an upfront license fee. The fee depends on the number of users and/or the size of the company. As with cloud-based systems, recurring fees for updates, training, and support apply.
Based on the pricing structures, on-premise ERP system software is usually taken on as a capital expenditure (an upfront investment). Cloud ERP systems, however, are taken on as an operating expenditure (additional overhead cost).
While cloud-based ERP software’s low entry fee is partly due to its popularity, the costs of the two systems ultimately converge.
On-Premise vs. Cloud ERP: A Complete Breakdown of Pros and Cons
In this section, we’ll provide an in-depth breakdown of the pros and cons of each type of ERP system software based on four primary factors:
The upfront investment and costs of hardware and IT for an on-premise ERP system may be seen as riskier by some, while the predictable costs of a cloud-based system are seen as more business-friendly. However, there is a good chance that businesses may end up spending more on a cloud-based ERP system over the course of its lifecycle.
Most buyers of ERP systems are rightly concerned about security. This is no surprise considering the kind of sensitive business data stored in ERP systems—employee information, trade secrets, client lists, company financials, and much more. That being said, there is a significant difference in how security is approached and enacted in the two ERP systems.
Organizations understandably have security concerns about cloud-based ERP systems. By virtue of being based online, there are some inherent risk factors. Moreover, with cloud-based systems, the security of the software is in the hands of the vendor, not the organization itself.
While some may see this as a possible advantage, the data security standards of the vendor may not satisfy every organization. Moreover, because cloud systems provide a greater level of accessibility across devices, such as personal tablets and mobile phones, the security risks are higher.
On-premise ERP systems, on the other hand, give organizations more control over their security. They can administer their own protocols concerning security breaches and cyberattacks.
Generally speaking, on-premise ERP systems allow users a greater ability to modify them. For several organizations, especially those in more niche industries like manufacturers that use unique and specialized processes, the ability to customize is crucial. On the other hand, customizations do tend to slow down implementation time.
With cloud-based ERP systems, customization is heavily limited and mostly controlled by the vendor. Businesses aren’t provided the sort of flexibility needed to modify their systems the way they wish.
In other words, a cloud-based ERP system is generally more “out-of-the-box.” The plus side of having modifications and customization in the hands of the vendor is that the stream of updates is more stable.
One of the primary benefits of using an on-premise ERP system is that implementation is in the hands of the owner. The vendor will, however, provide training and support should you need it to smoothen the process. The downside of implementing it yourself is that, in some cases, the process may take longer.
While implementing a cloud-based ERP system generally takes less time, that is typically due to it being a result of less modification and customization.
The Final Word on the Two ERP Systems
The ERP space has significantly grown, and businesses from a variety of industries now have access to more options than ever before. While cloud-based systems have provided greater accessibility, their limited customization capabilities and legitimate security concerns are important factors a business should consider.
On-premise ERP system software, conversely, offers far greater control and customization capabilities, but it can be a little pricey upfront. The price point is something to consider carefully because, for many businesses, opting for a cloud-based system means they may end up having to pay more money in the long run.
If you’re in the process of determining which ERP system works best for you, get in touch with us at gotomyerp.
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