Cloud vs. On-premise ERP: Which Is Right for You?
It’s important to review ERP data and hosting requirements to determine the best hosting design for your business. We take a look at cloud, on-premise, and hybrid ERP hosting options.
Researchers expect the ERP market to reach $86 billion by 2022 as adoption continues to increase. ERP, short for enterprise resource planning, is a must-have tool in the current digital business environment. It works as a single point of access for key processes, including procurement, asset management, business intelligence, accounting, supply chain operations, HR and others.
If you’re switching to a new ERP or implementing an ERP solution for the first time, hosting is one aspect you’ll have to consider. Should you opt for a cloud-based solution or host your ERP on-premise?
Cloud-Based ERP Considerations
An estimated 83% of enterprise workloads will be in the cloud by 2020. Here’s why that approach makes sense for a lot of ERP systems:
- Lower up-front costs – On-premise represents a significant starting investment since you need to purchase hardware and build your system from scratch. With cloud hosting, you can roll out an ERP by paying a monthly subscription fee. It’s a less disruptive process, and the ERP launch typically happens a lot faster.
- Scalability – Scalability is one of the major advantages of cloud-based platforms. A cloud-based ERP solution uses hardware resources managed by the vendor. They can easily add more resources as your system grows.
- Vendor support and disaster recovery – Hosting your ERP in the cloud reduces the workload for your IT department. You’ll have the opportunity to work with cloud experts and benefit from their expertise and support. Vendors usually build disaster recovery into most cloud ERP service-level agreements.
- Ability to easily upgrade – The cloud environment makes it easy to upgrade your ERP and remain current on the latest version of the ERP.
Most users host new ERPs in the cloud. Cloud ERP hosting includes many benefits, but the one significant downside of cloud-based ERPs can be the cost. Cloud-based ERPs can be more expensive in the long run compared to on-premise ERPs due to the SaaS subscription model.
On-Premise ERP Considerations
An on-premise ERP gives you more control over your system. Here are four advantages of the on-premise approach to consider:
- Security and compliance – Industries with strict compliance requirements and internal controls for data storage can benefit from an on-premise solution. Retaining physical control of the storage medium can strengthen data governance and reduce risks linked to third-party vendors.
- First-party ownership – A sound data management strategy needs to address the question of ownership. Establishing ownership is crucial for sensitive data or intellectual property. An on-premise solution creates a simpler infrastructure in which ownership is transparent.
- Maintenance costs – On-premise ERPs eliminate the ongoing cost of a monthly subscription to a cloud service.
- Flexibility and customization – You can customize an on-premise ERP to meet your precise business needs. You’ll have more control over which products you install and when you roll out upgrades.
On-premise ERP systems remain prevalent in strict regulatory and compliant environments, have been on the market for decades, and generally include more mature functionality than cloud-based ERPs. Unfortunately, on-premise ERPs also have high startup costs, such as a large one-time license purchase (with annual recurring maintenance fees), not to mention the infrastructure investment required to run the ERP system.
Hybrid ERP Solutions
An increasing number of businesses are opting for a hybrid ERP system. That approach combines on-premise ERP capabilities for core functionalities with cloud-based features. Hybrid ERPs often rely on the cloud for features that require more flexibility, including collaboration and CRM software. Here are some advantages of the hybrid approach:
- Self-hosted ERP with cloud functionalities – The hybrid approach leverages the integration capabilities of the cloud. Companies host some core functionalities on-premise, and integration creates an articulation point with cloud-based features. Businesses can, for instance, host sensitive data on-premise and move their CRM and collaboration tools to the cloud.
- Cloud transition – There are situations where moving an ERP to the cloud isn’t realistic. A hybrid solution makes sense because it allows organizations to keep core functionality on-premise while benefiting from the flexibility of the cloud for other processes. A hybrid solution can also be a first step toward transitioning to the cloud since moving every process to the cloud at once can be more disruptive.
- Cost considerations – Cost is a potential caveat with hybrid ERP solutions since there are ongoing costs linked to SaaS and an initial investment in hardware. A detailed cost analysis of the hybrid approach can help lower costs by identifying the best hosting option for each functionality.
Hybrid ERP solutions are an excellent choice to take advantage of the best features of both cloud and on-premise hosting. The hybrid hosting model generally includes a more complex architecture to support on-premise storage, cloud features, backups, and more. Not all ERPs will include a hybrid option. Hybrid solutions are typically more expensive due to the SaaS licensing plus the initial hardware investment to support the on-premise components.
The best ERP hosting solution will be unique for each organization. Start by identifying your goals to best understand which ERP hosting configuration is best for your business. Review the compliance and performance requirements that your ERP system must meet to compare cloud, on-premise and hybrid solutions.