Cloud-based vs On-premise ERP for Optimal Business Performance

An in-depth look at some of the key differences between cloud-based and on-premise ERP solutions – and why working with an ERP consultant is vital.

Investing in ERP solutions has the potential to be one of the best investments that a business can make. With carefully-considered commercial objectives, expectations and deployment support from skilled ERP consultants, implementing software such as Microsoft Dynamics 365 can be hugely profitable. Whether you specialise in warehouse management or you are an industry-leading logistics operator, harnessing the power of digital transformation and learning how an ERP system could optimise your business operations is key to success.

Nevertheless, investing in ERP software isn’t about clicking your fingers and seeing results straight away. You need to think carefully about your objectives, budgetary restrictions and deadline, not to mention your deployment method. This means deciding between cloud-based or on-site ERP solutions.

The Difference Between Cloud-based and On-premise ERP Solutions

Choosing between cloud and on-premise ERP is one of the most important decisions you need to make when integrating a new strategy. Both are built to help businesses streamline workflows and optimise essential commercial operations, such as inventory management, interdepartmental communication and shipment tracking; the difference is in the deployment methods.

Traditionally, businesses have relied upon on-premise systems to reap the benefits of enterprise resource planning. These are integrated locally, using a company’s own IT infrastructure, and can be accessed from the computers and servers it owns.

Today, this traditional approach to ERP is changing. Although many businesses still choose to implement on-premise systems, cloud-based business management solutions are rising in popularity, especially those delivered through Software as a Service (SaaS) models. Unlike on-site software, SaaS-deployed cloud-based ERP is hosted by the system provider’s service. It is not actively installed on computers or other devices and can be accessed via the internet.

Many industry-leading ERPs, such as Microsoft Dynamics 365, offer both on-premise and cloud versions to their clients. This gives organisations the flexibility to implement whatever solution is best suited to the needs of their business. Hybrid ERPs, which involve a combination of on-premise and cloud solutions, have also become popular amongst companies that already have on-site ERP infrastructure to support corporate functions, but are planning to progress with cloud-hosted solutions to run their various business units or regions.

Cloud-based ERP vs On-premise ERP for Optimal Business Performance

It is important to note that cloud-based and on-site ERP software solutions offer many of the same modules and features. One system does not automatically perform better or more efficiently than the other; it is simply that one solution may suit your needs more closely, depending on the unique requirements of your business.

To make sure you are equipped with the information and experience needed to choose the most appropriate deployment solution, we recommend hiring specialist ERP consultants. Hiring professionals with first-hand experience of implementing end-to-end systems, such as the Microsoft-certified team at ICS, is one of the most effective ways to ensure a successful digital transformation.

Nevertheless, you should also consider the following factors and how cloud-based solutions compare to more traditional on-premise alternatives when facilitating healthy business growth and commercial performance.

Deployment Time and Process

A factor that will largely affect your decision will be the IT infrastructure your organisation already has. If your company has traditionally relied upon on-site ERP solutions – and has recorded great success from doing so – it may be more economical to keep your current IT systems in place.

For organisations that are taking their first steps into the world of enterprise resource planning, integrating cloud-based software is generally considered to be the most time-efficient option, as cloud systems do not require hardware installations. They can be accessed online via web browsers, so it is much quicker for companies to set up and start using their chosen modules and features.

A crucial aspect of implementing a profitable ERP system is making sure that it can be customised to the needs and objectives of your organisation. Both on-site and SaaS ERP deployments allow module and feature customisation, but as always, there are benefits and drawbacks to each.

For example, it is certainly easier to adjust cloud-based packages as your business develops – adding new modules and features when they become needed can be done fast. However, SaaS-deployed ERP solutions do not always allow the same level of control and oversight as on-site deployments. If your business requires highly customised software, you may be advised to choose an on-premise solution.

Scalability and Expansion

If expanding your business operations is part of your long-term strategy, finding ways to ensure secure and sustainable growth is essential. This means prioritising practices and systems that allow scalability, something that is especially important if your organisation plans to tap into global markets.

Of course, one of the greatest benefits of utilising enterprise resource planning software is the ability to scale up business processes. ERP systems allow you to track financial insight, product supply and demand, customer satisfaction indicators and other essential metrics from one source, making it possible for employees from multiple branches to access the same information in real-time.

Both ERP deployment options allow efficient scalability, however, cloud-based systems offer a unique level of flexibility. Due to the responsive nature of cloud computing, cloud-hosted solutions allow organisations to deploy modules and features across different locations quickly without additional investments in IT infrastructure.

Upfront and Long-term Fees

Because cloud-based enterprise resource planning systems often take less time to deploy, they generally have lower upfront fees than on-site alternatives. Additionally, SaaS ERP deployments do not require local infrastructure, allowing businesses to save on installation fees and the cost of ongoing IT maintenance. If your provider’s server fails, you won’t be responsible for resolving the issue.

Nevertheless, these lower upfront fees may amount to costly subscription and cloud storage charges over time. If your organisation relies on SaaS ERP, you will need to account for the cost of ownership (including software updates and service charges) and potential price increases. These things considered, you might end up paying about an equal amount for your cloud-based ERP in the long run.

It’s important to remember that the total cost of an ERP project can be affected by many factors – from license and implementation fees to the duration of the implementation, the number of customisations and integrations required, end-user training costs and so on. Whether you choose an on-premise or cloud-based system, you should carefully review your budget with the assistance of an experienced consultant.

Data Security

No matter the industry you work in, protecting your company data is of paramount importance. ERP solutions are designed with this in mind, allowing employees to access information from a trusted, centralised database rather than multiple networks and servers.

When it comes to data security, choosing between the two deployment options truly is a matter of company preference. If your organisation would like total control over the information stored on the database and its permission settings, installing the software directly to your IT equipment may give you peace of mind that your data is safe. Alternatively, some companies prefer their ERP providers to take responsibility.

It’s worth noting that the global pandemic saw a huge surge in cyberattacks on businesses (due to the security vulnerability of remote work and the shift to virtualized IT environments) and the number of these attacks has been steadily growing ever since. The attacks are also becoming more sophisticated (e.g., SolarWinds hack) and more varied with ransomware being considered as the most prominent and destructive threat to enterprises and government agencies these days. While ERP packages from leading providers are built to offer high levels of protection, if you are not fully confident in your company’s own IT security, you might opt to entrust your data with your cloud ERP provider who usually tend to have comprehensive cybersecurity measures in place.

Here, as always, we recommend discussing your preferences and requirements with dedicated ERP consultants so that you can make a fully informed decision.

Deciding Between a Cloud-based or On-premise ERP System

Deciding whether to implement ERP software on your business premises or to invest in a cloud-hosted solution should not be made on a whim. You must think carefully about your organisation’s commercial goals, experience in implementing and managing ERP projects, current IT infrastructure and budgetary requirements, amongst other factors.

Both deployment methods have the potential to take your business to new heights, but finding the most suitable solution for your commercial needs is key to success. For example, you may be attracted to the upfront costs and integration process of cloud-based packages, but if your business requires a highly customised solution, you may benefit from on-site management. These are all factors that you should consider with the help of an ERP consultancy service, such as ICS.

Choose ICS for Expert ERP Implementation and Consulting Services

Investing in enterprise resource planning software could have incredible benefits for your business, but avoiding implementation failures, overstretched budgets, missed deadlines and business downtime requires the expertise of professional ERP consultants. At ICS, we’ve been working exclusively with Microsoft Dynamics AX/D365FO solutions for over 16 years offering seamless customisation, integration and project management services for clients across the world.

As specialists in both remote and on-site implementations with extensive experience in end-to-end ERP development services, we are well-equipped to help your business thrive. No matter the requirements or complexities of your project, you can trust our highly-skilled Dynamics consultants and developers to achieve exceptional results.

To learn more about our services and how ERP solutions could benefit your business, contact us today.