Choosing the right Enterprise Resource Planning (ERP) solution for your business depends on several factors. And while Cloud-based ERP systems (Cloud ERP) have grown in popularity in recent years, many small and midsized businesses still favour On-Premise ERP systems.
At some point in your evaluation, you’ll have to choose between a Cloud or On-Premise approach to housing your data. To help you make an informed decision, here’s a quick look at the pros and cons between the two.
Why Use On-Premise ERP?
With On-Premise ERP systems, your software is installed locally on your premises, using your own servers and hardware. This is the more traditional approach to implementing ERP systems and involves upfront payment for user licenses and hardware, plus annual maintenance fees.
There’s a lot of talk about taking businesses to the Cloud, but there are still many benefits to on-premise ERP—which is one of the reasons AFON provides both options. Below are the Pros and Cons of an On-Premise system.
- Your lifetime investment is usually lower.
- You have full control over your data, and can change and upgrade your security features at any time.
- Your on-premise system is flexible and can be customized as you wish - especially important when your business is in a specialised industry with very specific reporting and operational requirements.
- It is easy to further customize your system as your business and data needs evolve.
- Can be built to comply with industry-specific specifications that restrict some or all of your data from being stored in the Cloud.
- Upfront IT and hardware costs are higher.
- Ongoing security costs are generally higher.
- You will be responsible for determining when you need to upgrade your security and software, and for maintaining it.
- Due to the advanced ability to customize your system, it can take longer to get your on-premise ERP up and running.
- You must set up a system in place to back up your data.
- Scaling up or down and upgrading to later versions may be more difficult.
Why Use Cloud ERP?
With ERP on the Cloud, hosting is provided by your vendor on a shared server. Instead of upfront fees, you pay a subscription fee per user or per block of users on a monthly or yearly basis.
Cloud ERP has been growing in popularity in recent years, but the popular choice isn’t necessarily the right choice for your specific set of needs. Here are the pros and cons of a Cloud system.
- Lower upfront investments and no new investments required in hardware or software.
- Your Cloud ERP security is in the hands of your vendor, saving you the hassle of scheduling security updates on your own. Updates and upgrades in security, features, and functions are all taken care of by your vendor.
- Fast and easy to get up and running.
- Data backups are automated by your vendor.
- Typically more scalable – simply pay a subscription fee for another user.
- Your initial investment may be low, but your lifetime investment may be higher.
- You must verify that your vendor’s data security measures are always up-to-date.
- Control is handed over to your vendor, and undesired changes to your software may be made as a result of automatic updates.
- Data security may not be sufficient for all industry compliance and regulations.
- Fewer customization options means the software may not fully meet all your needs.
Which System Is Better For My Business?
Your Current Needs
The first thing you need to do is clearly identify your current needs for data storage, security, compliance, customizations, integrations, and overall infrastructure.
For example, if Cloud software is unable to integrate with your standard or proprietary software—On-Premise is the way to go. On the other hand, if you feel that your data is safer with more frequently updated security measures, opt for Cloud instead.
In addition, you must consider how you see your needs evolving over the next few years. How do you see your business growing? Scaling up is easier with Cloud, but customizing your system as your business evolves could be easier On-Premise. Less extensive customizations may also be supported by the right Cloud solution.
In terms of budget, the lower costs of getting started with a Cloud ERP system provides an affordable entry point for small businesses using ERP for the first time, whereas the lower lifetime costs of an On-Premise solution may make more sense for those already familiar with ERP software.
Your IT Department
You should also keep in mind the time your IT department will spend on managing and maintaining your on-premise ERP solution, as well as their expertise in the area. If you opt to go On-Premise, your IT department has to have a solid plan in place for updating data-related hardware, licenses, and contracts.
Control vs Security
Make sure to weigh the importance of control versus security of your data. While you might feel more secure holding on to your data On-Premise, Cloud vendors are able to provide multilayered security features bundled with your subscription costs at lower price points due to economies of scale.
Cloud on the Side
Also, bear in mind that you may be able to utilize the Cloud as a lower-cost option for some of your projects, even if the majority of your data is stored on-premise. Cloud can also be set up to share data from multiple offices around the nation. Which system’s security features suit you depends on how sensitive, valuable, and extensive the information contained in your system is.
Be sure to inquire about industry-specific ERP solutions designed to meet industry standards, or that have a suitable infrastructure in place that you can customize as needed. Working with an ERP vendor experienced in serving other companies in your industry means that you can be sure that they are familiar with common requirements and concerns faced by businesses like yours, and have either developed features specific to your needs, or can advise you on the best way to meet your requirements with what’s available out of the box.
Time for an Upgrade?
Modern on-premise ERP solutions are far more compact, efficient, and versatile than in generations past—so instead of switching to the Cloud, it may just be time for an upgrade. In many cases, it is the only option for larger businesses, or companies with sensitive client and business data. The mobile accessibility of your on-premise solution may be somewhat limited, but we can work with you to identify a suitable solution for out-of-office accessibility.
The choice between ERP Cloud or on premise will vary from one business to the next, but we will work with you to determine which is best for you.
For a more in-depth look, subscribe to our newsletter via our subscription form on the right (or below, if you are viewing this on mobile) or reach out to a member of the AFON team today.
Alternatively, you could check out The Ultimate SME Guide to ERP Systems below for an in-depth look at some basic questions on ERP software -- it's free!