On-Premise ERP

This post helps you understand the difference between cloud, on-premise and hosted private cloud ERP implementations, including the pricing and why you might choose one over another.

New technologies have increased your options when it comes to how you’ll deliver the software you need to run an effective business. The range of choices and technical jargon can create confusion for decision-makers, especially when you’re undergoing a significant digital transformation such as implementing a new Enterprise Resource Planning (ERP) solution.

Let’s break it down, and explore the three main options.

Key differences between cloud, on-premise and hosted ERP deployments

On-premise is the traditional way that people have purchased and used software. You pay the total cost up-front and receive a product that you own the licenses to and is installed by your ERP provider and run on your own server. You need to own and manage your physical computer server or servers internally, and complete all the back-ups and upgrades to the software. On-premise software can be set it up so users can access it online and remotely.

How it compares on…

Technical deployment: Your ERP provider will install the software licences on your own office-based server. On-premise installations can overcome barriers such as slow or unreliable internet. You also need to maintain your server, which means you need access to technical expertise.
Cost: Often requires a large upfront capital expenditure to purchase the software and implement it. But there are no continuous subscription fees. You’re also responsible for all ongoing costs of managing the security, maintenance, and replacement of your server/s.
Software functionality: Your ERP provider will apply updates and patches to the software. The software is less scalable: if you need more bandwidth or users you may have to invest in more servers.

Cloud-based ERP

Cloud-based is a more modern and increasingly popular approach where a business pays a subscription to use software, which is made available to them online via a server that is owned and managed by the software vendor. Cloud computing means the server infrastructure, security, data integrity, backups and updates are all managed by the vendor.

How it compares on…

Technical deployment: It’s generally faster and simpler than an on-premise deployment. There’s no need for expensive, on-site infrastructure.
Cost: The prevalence of the cloud-first, Software as a Service (SaaS) model of software and efficiencies of scale it enables for vendors, makes it a more cost-effective option. Many businesses appreciate being able to pay monthly for their software subscription using operational expenditure. You also save on IT management and support costs.
Software functionality: It’s easy to create and build on a mix of integrated functionality, or increase the number of users – helping you scale your business faster if you grow or expand overseas. Updates are automated meaning your software remains current and highly functional.

Hosted ERP

Private hosted cloud means your software (whether you opt for a perpetual license or subscription) is accessible in a cloud environment that dedicated exclusively to your business, via servers hosted and managed either within your company (on-premise) or by an outsourced vendor. This provides the benefits of cloud computing but allows businesses to retain greater control over things like when to implement upgrades.

How it compares on…

Technical deployment: Private clouds are a more complex deployment because you either need to set-up virtual private cloud hosting, or have your own proprietary infrastructure on-premise to create a single-tenant cloud environment. You’ll require access to IT expertise to successfully implement and maintain a private cloud.
Cost: Because your cloud environment is private you will pay more than you would for a public cloud, especially if you need to maintain your own data centres. Added costs will depend on the level of support you require from your virtual private cloud hosting provider.
Software functionality: You can access all the real-time workflows and data-sharing, self-service and scalability that come with having applications available in the cloud.

Cloud vs On-premise vs Private Cloud Security: a comparison

It’s a persistent myth that cloud-based software is less secure. Leading ERP software vendors like SAP, Sage and MYOB are large and innovative companies whose success has been built on a commitment to delivering top-notch, secure cloud infrastructure, and hefty investments in research and development.

While cloud-based systems significantly reduce the responsibility for managing IT within your business, they don’t significantly reduce the quality of IT management your business can depend on when it comes to the security of your ERP software and business data.

It’s an irony that having greater control over your server or data centres via an on-premise or private cloud deployment can actually make you more vulnerable. Ownership of your own infrastructure does not negate the risks of cyber attacks or downtime—it simply increases your organisation’s control and accountability. You need to have high levels of confidence in the people and systems you rely on to keep your on-premise infrastructure secure and well-maintained.

How to choose between cloud, on-premise or hosted?

It’s easy to see on the face of it how a cloud-based ERP solution could be more appealing because it reduces the resources you need, and increases the flexibility with which you can access functionality and your data. The majority of our clients prefer a cloud-first approach.

Cloud-based software is multi-tenanted, which means multiple companies run the same software side by side (although their data remains private). Conversely, a hosted private cloud has a single tenant—your business. That makes it ideal if you have an especially complex implementation, stringent security needs, or sensitive data: but you will pay a premium for the privilege.

An on-premise implementation can make sense for some companies, especially those that prefer to have more control over costs and their IT infrastructure. Limitations posed by patchy internet access can also make on-premise more suitable in some cases.

Cost is always a factor, but remember that regardless of which option you choose—you will still need to make an additional investment to ensure the successful implementation of the software, and any development work associated with customising the software for special use cases.

[FEATURE ARTICLE – Addressing cloud-based ERP implementation costs]

Conclusion

Ultimately your decision should be based on what will work best for your business by considering the pros and cons of each deployment option against factors including your budget, internal resources and future growth plans.

It can help to ask yourself:

What option best matches my internet and infrastructure capabilities?
Do I have, or want to continue to invest in, significant internal IT skills/resources?
What’s the best payment option, given my budget, cash flow or tax considerations?
How flexible and scalable does my system need to be to match my evolving business model, talent management approaches, or strategic plans to enter new markets/countries?

If you need more help weighing up the pros and cons of different ERP software deployment methods you can talk to an experienced consultant from Leverage Technologies. Call 1300 045 046 or email [email protected].

Cloud ERP vs On-Premise ERP, which is the better option for my business?

As we have learned from many years of implementing such solutions, there is no single right or wrong answer to the Cloud vs On-Premise debate for Enterprise Resource Planning systems.

We have implemented Cloud, Hosted, Private Cloud and On-Premise solutions since 2005 and we want to help organisations better understand the pros and cons of each solution. Much has been written about the benefits of Cloud vs On-Premise and we want to give our own view with particular focus on ERP systems.

This blog has been written to help educate organisations on some of the questions to ask that might help you with your Cloud ERP vs On-Premise ERP dilemma.

Why Cloud is becoming the new normal

There has been very strong acceptance of Cloud-based solutions for CRM (Customer Relationship Management), Office automation (Microsoft Office 365) and mobility tools.

The acceptance of ERP solutions in the cloud has been a little slower. Why?

Because potential cloud based Enterprise Resource Planning adopters have been concerned about data, privacy and security.

There was a mindset that said “I don’t want my debtors book exposed to the internet / cloud”. Most of that anxiety has gone away over the past few years as the uptake of cloud based ERP solutions by businesses has increased.

Companies have realised that their cloud deployment is no more or less exposed to the outside world than an on premise solution (with remote connectivity).

As a result of these changes most companies evaluating ERP solutions will be considering cloud and on-premise as a deployment option.

The question that we are often asked is “which is the best option for my business? Cloud ERP or on-premise ERP?”.

The Cloud ERP vs On-Premise ERP decision comes down to this

Before deciding which is the correct option for your business ask yourself these questions:

Cash flow – Am I more comfortable with an upfront investment or monthly payments. Not having to outlay large sums of money upfront for software, hardware and infrastructure helps ease some cash flow pains. One cautionary note – paying for cloud software and services is an on-going commitment – monthly or annually for the lifetime of the software. This is an important aspect to consider when evaluating the target ERP Return on investment for your business.

Internet – Like it or not any Cloud based solution that you use will require fast, reliable internet. If you can’t get a fast, reliable internet connection then an On-premise solution is for you.

Geography – Remote offices can sometimes struggle for a decent internet connection. Multiple geographies and different office locations does however lend itself to a cloud deployment. One of the major advantages of Cloud ERP is that you can add new users, offices and sites with ease. Tell your Cloud provider you need additional users and you are immediately up and running – no server, infrastructure or hardware configuration required.

Infrastructure – An On-Premise solution requires hardware, routers, back-up solutions and infrastructure. With a Cloud based ERP solution that infrastructure is taken care of and is constantly updated.

Tax – The treatment for tax purposes of an upfront software purchase (asset) is usually quite different to the tax treatment of monthly “operating cost” invoices for Cloud. Consult your external accountants or tax advisors for more information in this regard.

Capex vs Opex – As detailed in the tax section above. As a business you will need to decide whether the Capex (asset purchase model) or the Opex (monthly pay as you go) is better suited to your business. Factors like cash flow, depreciation deductions, balance sheet review, investor perception should all be considered.

Functional requirements – Yes, even your functional requirements should be part of the Cloud ERP vs On-Premise ERP debate. Cloud lends itself to faster, easier deployment of ERP solutions. If you have extensive integration and development requirements your business might be better suited to an On-Premise ERP deployment. At the very least, if you have complex functional requirements and you are planning a true Cloud deployment of ERP, ask your ERP vendor or reseller how upgrades will work to ensure continuity of service during a generic Cloud upgrade across a highly customized solution. I am not suggesting that Cloud based ERP solutions can’t be customized – quite the opposite. True Cloud solutions tend to use the latest technology across operating system, database and mobility. As a result Cloud based ERP solutions tend to be easily customizable. The challenge is when you have extensive development and integration (see note below).

Development and integration – The nature and scope of your development and integration work should be considered. A true Cloud solution lends itself to a standard ERP implementation (the less development and integration required the better). Standardisation and repeatability are key for a true Cloud solution. The more standard the solution, the easier the role out and the less disruptive the standard solution updates and upgrades.

Users – The number of users and the pace at which you add (or deduct) users should be considered. Cloud solutions lend themselves to the ability to easily and quickly add or deduct users from the solution – the true “pay as you go” model.

3rd party solutions – If you want to add 3^rd party solutions to your Cloud deployment of ERP solutions you will need to ensure that these 3^rd party solutions are available in the Cloud and are compatible with your Cloud deployment of your chosen ERP solution.

ERP Upgrades – In a true Cloud environment the ERP Cloud provider takes care of all upgrades. The Cloud provider does a staged or full upgrade to all systems at a certain time.

Conclusion

After having implemented ERP solutions for many years we have learned that the Cloud ERP vs On-Premise ERP decision comes down to a understanding your specific business requirements and propensity to adopt two distinct technology adoption models.

On one side you have your monthly ongoing “pay as you go” model, the Cloud ERP option. Here, the reduced upfront cost and included ERP maintenance are the main advantages.

On the opposite side you have your On-Premise ERP deployment. In this instance the ERP software and infrastructure resides at your office location and you own all the related setup and ongoing maintenance tasks.

In conclusion, our key advise for choosing between Cloud ERP vs On-Premise ERP is to ask lots of questions, get the right answers and then decide which options are best for your business.

Have we missed anything? Let us know in the comments below!