Cloud ERP Vs On-premise ERP

By CIOReview | Monday, July 18, 2016
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Historically, Enterprise Resource Planning (ERP) suites have been viewed as complex software that supports very small range of business functions. Not far from the perception, ERP suites in their early days had limited scope of operation and they were hard to manage. In tandem with the growing complexities of business world, the landscape of ERP has witnessed revolutionary changes. Today, most of the verticals integral to any business are under the scope of a typical ERP’s operations, from marketing, to sales and distribution, to production planning, and cost control. 

From a simple on-premise solution to software as a service (SaaS) with the virtue of Cloud technology, the transformation has been great so far. Usually, a cloud ERP manifests abstraction of hardware management and elastic infrastructure capacity. In case of on-premise ERP, the solution is licensed, the licensee’s servers and systems host the software, and finally maintenance and operations are handled by its personnel.

Mobility, cloud, and ease of accessibility are buzz words in the ERP arena. In sync with these, a cloud ERP felicitously incorporates these demands. Meanwhile, while being in the transition phase from on-premises to cloud, hosted ERPs were also tried to a certain amount of success. Hosted ERPs differ from their on-premise variants as deployment and maintenance are handled by the vendor.

Let us delve into more details about cloud and on-premise ERPs and try to fathom out which is the best option for your organization.

Differences:

Cost of operation and maintenance: Cloud ERPs significantly reduce the installation and maintenance expenditure as there are no hardware upgrades, purchase of user licenses, IT support, and system specific deployment process. The merits of Cloud ERPs make them more suitable for small and medium scale businesses as installation and maintenance of on-premise ERPs necessitate monetary expenditure. License fees have to be paid on the purchase of on-premise ERPs, where as cloud based ERPs are available after the payment of subscription fees, which usually see northward movement at the time of renewal.

Rapid updates and upgrades: Cloud ERP suites are upgraded periodically and rapidly as compared to on-premise ERPs. The users of a cloud ERP receive notification about updates at short intervals and thus are merited with features and changes, which are in sync with the market and business needs. The regular updates also enable the system administrator to implement the processes, which are compliant with the regulatory measures. However, the updates after short interval may act as an obstacle in the highly customized system. On-premise ERPs usually do not have provision for timely upgrades and updates.

Better accessibility: With the passage of time, even the vendors of on-premise ERPs have started offering mobile access to the users. However, the ease of usage cannot be ensured if the third party is tasked to provide mobility to the user. On account of web nativity, cloud ERP bestows the user with mobility and ease of accessibility.

Customization and integration: On-premise ERP suite scores brownie points over cloud ERPs when they are compared over the degree of customization. Many cloud ERPs are not suitable for higher degrees of customization and the user has to re-design workflows according to the features offered by the cloud based ERP. In case of on-premise ERP, the user can have customized system that is also integrable with third party services and applications.  

Security risks: In any enterprise, data serves as the foundation for most of the business actions and this necessitates stringent security measures. The user community is always concerned about the security and confidentiality of the data as cloud ERP suites have been exploited by hackers in the past. Large enterprises, which heavily invest in data safeguarding measures, view security breaches due to cloud nativity of ERP suite as a measure threat. On-premise ERP enjoys the trust of the user community and it is viewed as more safe and secure.

Scalability: Cloud ERP is the best choice to be in sync with variance in the demand for resources. Cloud ERPs offer resource optimization and elasticity in resource allocation whereas their on-premise variants are not suitable for scaling up the operations. The scalability of cloud ERPs proves more beneficial for small and medium enterprises in their competition with their large peers.

Improved disaster recovery: Cloud ERPs provide sound mechanism for disaster recovery with backup routines. Due to web nativity of cloud ERP, the system availability is not an uphill task unlike in the case of on-premise ERPs.

Data ownership and system control: The users of on-premise ERPs have more control over their data and system resources as compared to the users of cloud ERPs. Though the installation and maintenance of an ERP system lead to more operational cost, the in-house IT team of an enterprise exercises absolute control over the resources. Cloud ERPs lend very little or negligible data and system control to the users and most of the functions are managed by the third party.