Cloud ERP Vs. On-Premises ERP Systems: What’s Ideal for Your Business?

In the present business scenario, all businesses are switching to cloud ERP to boost efficiency and agility to have an edge over their competitors. Implementing the best ERP system will improve productivity, help to streamline operations and enhance the efficiency of the staff. In this blog, we will discuss the important areas you need to consider between cloud and on-premises ERP solutions before making a final decision.

In a recent Allied Market Research report, the global cloud ERP market is expected to have a 10% growth by 2030. The revenue of the cloud ERP market is projected to have an annual growth of 16.4%, and have a market volume of $84.7 billion in 2024.

Let’s find out the differences between these two ERP systems –

How Are Cloud and ERP Solutions Different?

Cloud ERP uses the power of cloud to offer flexibility and scalability. It operates using the internet and eliminates the need for having on-site infrastructure and provides seamless remote access. These features make it an ideal choice for businesses that require scalability, quick deployment and affordable solutions.  The ERP software market is projected to reach US $52.33 billion in 2024.

On-premises ERP on the other hand, depends on localized servers and IT infrastructure. Companies can control their systems and data. It is best suited for companies that have specific customization requirements and concerns related to data sensitivity.

Source: Columbus

12 Major Parameters To Evaluated Cloud and ERP Systems To Make A Better Choice –

To make sure that the ERP system you opt for meets your needs perfectly, here are some parameters you need to consider-

1. Assess the Needs of Your Business

First and foremost understand the basic needs of your organization.

Cloud ERP systems are ideal for small and medium-sized businesses that require quick deployment and affordable solutions because of their flexibility and scalability.

In contrast, large organizations with complicated processes can find on-premises ERP more suitable because of customization options and controls.

2. System Upgrades and Improvements

Though on-premise ERP software solutions are tailor-made, replication of their future versions might be tough.

In the case of new products and enhancements, old customizations will be wiped out. They will have to be implemented right from the start. Concerned with extra workload and costs, businesses often continue with outdated systems.

However, cloud ERP systems upgrade the ERP periodically, enabling you to gain access to the latest version of the tool. The customizations and integrations done earlier are moved forward to the integrated solution without any extra expenses.

3. Ownership Costs

To use on-premises ERP systems, organizations often have to manage the ERP-related servers and hardware. Their IT teams also need to spend a good deal of time, effort, and other resources to ensure the proper functioning of ERP when you need to use it.

As the cloud ERP partner will be responsible for hosting and maintaining the system, you can implement the solution according to your needs and access it from any device using the internet.

The initial costs associated with a cloud-based ERP are considerably lower since you can implement the software as per your needs and access it using your internet connection.

These solutions are flexibly-priced and you don’t need to pay high upfront costs. Most cloud ERP software developers follow a subscription-based method. As you are already aware of the subscription cost, you can plan the cash flows.

The vendor will be responsible for running and maintaining the cloud-based ERP solution, protecting existing data, and upgrading the product. The in-house IT teams will be able to focus on innovation rather than managing the on-premise ERP. So, ownership costs of ERP on-premise vs cloud will to a great extent influence your choice.

4. Deployment Speed

ERP deployment requires attention to detail. It requires careful planning and might take time. However, the deployment speed for cloud ERP is better than on-premises ERP. Cloud ERP installation doesn’t require any extra hardware. So, you don’t need to waste your time and resources on IT infrastructure.

ERP deployment may take up to 3-6 months in case of on-premises ERP. However, cloud ERP can be seamlessly rolled out across numerous regions, subsidiaries, and divisions. These solutions are easily scalable. So, as your business grows, you can add more users without making extra investments.

If you are using an on-site ERP solution, you will have to spend on new hardware. As per a survey by Aberdeen Group, cloud ERP implementations are done at a 22% faster average than on-premises implementations.

5. Data Security and Compliance

Cloud ERP solution providers invest highly in security, following the existing international data protection regulations. This assurance helps business owners have peace of mind as they are assured that their data is safe from security breaches.

On-premises ERP systems allow companies to control their data security while achieving and maintaining high-security standards. But this requires considerable investment.

6. Access and Mobility

Cloud-based ERP is highly accessible. So, managers and staff can access real-time information from anywhere, using any device with an internet connection. It is ideal for retailers based in multiple locations or those who need remote access capabilities.

On-premise systems offer secure data access. However, they restrict the physical location of servers. So, they are not ideal for businesses that have a flexible work environment.

7. ROI and Long-Term Value

Cloud-based ERP systems usually provide a higher ROI since they have low upfront costs and faster deployment speed. They offer companies long-term value through mobility, scalability, and automatic updates. Businesses therefore incur lower expenses on IT and can adapt more quickly to changing needs, enhancing efficiency and competitiveness.

In comparison, on-premises ERP systems usually have a longer ROI timeline since they are implemented slowly and upfront costs are high. Though they offer control and customization, their value, in the long run, depends on the business’s ability to manage ongoing IT expenses efficiently. They are ideal for businesses that have specific requirements and have ample resources for customization and maintenance.

8. Downtime and Continuity

Cloud based ERP solution providers usually offer robust recovery and backup solutions as a part of service offerings, reducing the risks of data loss and downtime if there are system failures, cyberattacks, or natural disasters.

When it comes to on-premise ERP implementations, companies need to invest in disaster recovery plans and infrastructure on their own, which requires extra expenses and resources.

Source: Oracle

9. User Experience and Adoption

User experience and ease of adoption can have a major impact on the success of ERP implementation. Cloud ERP systems, because of their intuitive interfaces and regular updates, offer a better user experience as compared to on-premises solutions which require a lot of training and customization to satisfy the needs of users.

10. Geographical Considerations

Cloud ERP solutions provide global accessibility and are therefore ideal for businesses operating across different countries. However, data residency and compliance with local regulations related to data storage and processing might influence the choice between cloud-on-premises ERP systems, especially in industries that are highly regulated or regions that have strict data sovereignty laws.

11. Data Migration and Legacy Systems

Transitioning from legacy systems to a new ERP system, be it on-premises or cloud-based, requires good planning and consideration. On-premises ERP implementations might involve complex data migration processes and integration with existing systems.

In contrast, cloud solutions usually provide smoother migration paths and tools for transition.

12. Follow Industry Trends and Practices

Monitoring industry trends and best practices in ERP implementation can help you choose between cloud and on-premise ERP solutions. Though cloud ERP adoption is popular because of its flexibility and cost-effectiveness, specific industries or niche markets can still prefer on-premises solutions for specific functionality or compliance requirements.

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Pros and Cons of Cloud and On-Premise ERP Systems

Both cloud and on-premises ERP systems have their share of pros and cons. Here is the ERP system comparison of the two based on their advantages and shortcomings –

Cloud-based ERP systems

Source: ERP Software Blog

Pros

Automatic Updates

Cloud-based ERP systems get automatic updates and patches, ensuring that companies can always use their latest version.

Accessibility

ERP systems are ideal for employees who are working remotely or are on the move as they can be accessed from anywhere using an internet connection.

Scalability

Companies can scale cloud ERP systems as their needs change. This makes it easier to adjust to fluctuations in demand.

Lower Upfront Costs

As we have stated earlier, cloud ERP systems require less upfront cost on IT infrastructure, software, and hardware. So, it becomes easier for smaller businesses to start with an ERP system.

Cons

Limited Scope of Customization

Cloud-based ERP systems might have limited options for customization since companies are dependent on the system provider for managing both software and infrastructure.

Data Security

Sometimes, cloud ERP systems can raise concerns related to data security since data is stored in remote servers that are managed by the vendor. Companies need to ensure that the vendor they opt for adopts strong security measures to ensure that data remains safe.

Reliance on Internet Connectivity

Cloud ERP systems need a stable internet connection to operate. Downtime or interruption in service can bring operations to a standstill.

Risk of Vendor Lock-In

Once you subscribe to a cloud ERP service, you’re sharing the critical processes of your business and data with a third-party service provider. Over time as your business grows, you might find it challenging to migrate away from the cloud ERP system due to your dependence on the provider’s data structures, integrations, and proprietary technologies. 

On-Premise ERP Systems

Pros

Control and Customization

On-premises ERP systems provide better control and customization options, since companies can manage their software and infrastructure.

Data Security

These ERP systems provide better data security, as companies can implement their security measures and manage data backups.

No Reliance on Internet Connectivity

On-premise ERP systems don’t need a stable internet connection, which makes them ideal for use in places with poor connectivity.

Direct Control Over Hardware Infrastructure

On-premises ERP solutions offer more autonomy and independence when it comes to system upgrades and maintenance.  You can choose when to apply patches and software updates based on the priorities of your business, rather than depend on the update schedule of a cloud service provider. 

Cons

Upfront Costs Are High

High costs related to ERP implementation is a major challenge. The average implementation costs for mid-sized organizations is in the range of $150,000-$750,000.

Scalability

These ERP systems are less scalable. So, companies need to invest in extra hardware and IT infrastructure to support their growth.

Maintenance and Upkeep

These ERP systems require ongoing maintenance, updates, and support. The IT team has to manage servers, apply patches, and also ensure data security.

Training and Knowledge Transfer

Even if you have skilled personnel, there might be issues related to managing and troubleshooting an on-premises ERP system.

You need to train employees to use and maintain the system which needs time and resources. The departure of key staff members may leave knowledge gaps and disruptions if proper knowledge transfer doesn’t happen.

How Will You Make the Right Decision?

Your decision to choose between either of the two ERP systems needs to take into consideration factors such as the size of your business, budget, growth potential, industry, and IT infrastructure. For businesses that focus on flexibility, cost-efficiency, and ease of use without making high upfront investment, cloud ERP solutions are the best option. As for companies that require maximum control over their data and systems, especially in industries that are highly regulated, an on-site ERP system is an ideal option.

Choosing an ERP system requires a good understanding of the nature of continuous support and customization you will need. Moreover, you need to opt for a vendor who has a good understanding of your business and offers the support and services that you need. Gartner states that more than 85% of businesses will adopt a cloud-first principle by 2025. 

Regardless of the ERP solution you opt for, partnering with a reliable ERP vendor who has a clear understanding of your business, and offers the support and services that you need are essential for implementation success. This choice will have a direct impact on your organization’s operational efficiency, long-term growth possibility, and data management abilities. 

How Can ROCKEYE Help Create Customized Cloud ERP Solutions?

ROCKEYE’s cloud ERP solutions can seamlessly integrate with HRMS, payroll, warehouse management, e-procurement, and vehicle tracking. Our solutions offer customizable functionalities to meet the specific needs of your business. They combine components of enterprise resource planning (ERP) as well as productivity and artificial intelligence tools. 

These ERP systems can be easily customized as per the needs of your business and seamlessly integrate with hardware like POS systems, IoT devices for gantry automation, and also with third-party systems like Microsoft Dynamics. Equipped with native RPA capabilities, they can help you automate routine and repetitive tasks within your business process and enhance efficiency.

FAQs

We have explained in detail the difference between both the ERP systems and their pros and cons. If you want to know more, you can refer to the FAQs below.

1. Is there a significant cost difference between cloud and on-premises ERP systems?

Cloud ERP systems usually have lower upfront costs since they don’t need investments in infrastructure or hardware. On-premises ERP systems have high initial costs because of hardware purchases and set-up. However, they have lower subscription fees as compared to ongoing cloud service fees.

2. How is the implementation process of cloud and on-premises ERP systems different?

Cloud ERP systems usually have faster implementation times as they don’t need a lot of hardware setup. On-premises ERP implementation requires a longer time due to hardware procurement, installation, and configuration processes.

3. What are the implications of data security with on-premises and cloud ERP systems?

Cloud ERP systems often opt for robust security measures such as data encryption, regular backups, and compliance certifications. On-premises ERP systems offer more control over data security but require a lot of maintenance and updates to ensure data safety.

4. Can I customize my ERP system according to my business needs using cloud or on-premises options?

Yes. Cloud, as well as on-premises ERP systems, offer customization options, But cloud ERP systems can have limitations on customization as compared to on-premises solutions, which enable a lot of modifications to be aligned with the unique needs of a business.

5. Which among cloud and on-premises ERP systems offers uptime and reliability?

Cloud ERP systems usually have a higher uptime and reliability because of the presence of redundant infrastructure and continuous monitoring by vendors. On the other hand, on-premises ERP systems rely on a company’s in-house IT team for maintenance and may experience downtime if there are hardware failures or updates.