Monday, October 22, 2018
Which option should you choose
ERP: Cloud VS On-Premise
It’s time to upgrade your ERP system, and one of the most crucial decisions you face is whether you should choose cloud ERP or the traditional on-premise ERP. Maybe a combination of the two?
The main difference between the two is how they are deployed. Cloud-based software is hosted on a third-party vendor’s server and is accessed through a web browser, while on-premise software is hosted locally using the organizations own servers and computers. Another option is a private cloud. In this model, your ERP would reside on your company’s intranet or in a private data centre.
The answer depends on your business requirements, but this article will help you consider the main advantages and disadvantages associated with the two approaches from different perspectives: cost, flexibility, security, customization and implementation time.
Cost is a big factor as there are vast differences to how each option is priced. Generally speaking, cloud software is priced on a subscription model (annual or monthly fee) while on-premise is priced under a one-time perpetual license fee (based on the size of the organization and number of concurrent users). In addition, each model has recurring fees for support, updates and/or training.
Given the large upfront investment, on-premise systems are normally considered a capital expenditure, while cloud-based systems are an operating expenditure.
The attractive low-cost entry for cloud-based ERP vs. large upfront investments for on-premise has definitely contributed to its popularity and adoption. According to the “Global Cloud ERP Market: Trends, Opportunities and Forecasts (2016-2021)” report, the cloud based ERP market grew at a CAGR 6.38% in the period 2011-2015, and in the period 2016-2021, the growth rate is expected to be at 8.30%. And when you consider that in addition to the cheaper upfront investment, the cloud provider manages the entire IT infrastructure for you, thus eliminating additional hardware or software costs, this trend is likely to continue.
When comparing the total cost of ownership (TCO) of on-premise ERP relative to cloud, one industry analyst study from Hurwitz & Associates found that cloud-based ERP can cost 50 percent less than on-site ERP for a 100-employee company over a four-year period.
Another strong advantage of cloud is that it allows companies to take advantage of the best practices in cloud applications and to accelerate their time-to-value. For instance, cloud ERP systems typically offer out-of-the-box data management and analytics capabilities that are easy-to-use tools over a relatively short time frame.
Naturally, security plays an important role in deciding which type of ERP system to go with. With Cloud ERP, data security is in the hands of the vendor who abides by strict security standards. Some organizations might feel uneasy with this arrangement while others find it an advantage, because it offers them a higher level of security than what their IT department can achieve on its own.
Renault Sport CIO, Pierre D’Imbleval shared his point of view on Cloud VS On-Premise by stating that his company will never spend as much as Microsoft does (Renault Sport utilizes Microsoft Dynamics 365) on security so for him the security risks are minimized.
Privacy and confidentiality
Privacy and confidentiality of data is a valid concern to companies considering cloud ERP as it is crucial to ensure that only authenticated users can access company data. Cloud providers have their own set of Identity and Access Management (IAM) procedures which can make the process of managing identities more complex. With proper planning and assistance from an IAM expert, you can often find a satisfying solution whether that is via private cloud or very tight SLA with the chosen cloud provider.
While Cloud ERP is generally less customizable, you can work with the vendor to see what changes can realistically be made to the system, and if they are absolutely necessary.
On-premise ERP systems are not only more customizable, they also offer greater control over your data.
Implementation time is another key item to consider. While on-premise ERP implementation processes can take significantly longer than those in the cloud, your organization will have more control over the implementation process. Besides, the shorter implementation times with cloud ERP systems are largely a result of less customization.
The best of both worlds
Both on-premise and cloud have their advantages. One way in which companies are able to get the best of both worlds is by implementing a hybrid strategy. This approach uses a mix of on-premise, private cloud and public cloud services that communicate with each other via the different platforms. This option gives you the ability to implement proprietary processes either on-premise or in a private cloud while still using public cloud for other needs and capabilities.
A hybrid strategy is all about finding balance. It’s very important to meet the current needs of the organization and finding a way to keep it progressively moving forward.
Which option to choose?
There’s no easy answer to this question, as every business has its own set of unique operating
conditions. These pros and cons can help you get a feel for which option would better suit your business.
Is your answer one or the other or somewhere in the middle? There are some business-critical factors that can be non-negotiable so those could, in essence, make the decision for you
Since this is a big decision, not to be made lightly, your technology partner can help you determine which path to take. Contact us at firstname.lastname@example.org to make the right decision for you.