Are you confused like most small businesses about the market hype of whether to invest in the emerging new technology called Cloud ERP or still acquire a more mature and developed On-Premise ERP Software? Well the good news is that you are not alone. Both solutions have benefits and risks associated with them. The challenging question however is which one should you go for? Lets get straight into the main differences of both these options and find out...
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Transfer of Rights
ON-PREMISE
This type of ERP solution grants restrictive transfer of rights to its users but with uninterrupted long-term access. It provides the license to use the software indefinitely as long as there is no violation of the terms and conditions of the engagement.
CLOUD
In this service, the software is only accessible via the internet without the transfer of rights to its users. It runs on a subscription based use where there is no permanent user-license granted.
Number of Users
ON-PREMISE
The capacity to use the software is usually negotiated based on the number of users which can be either named or concurrent depending on the needs of the business.
CLOUD
The subscription is engaged to the number of resources that the company wishes to activate. Subsequent users can be added or removed as per the changing needs of the business.
Costs Model
ON-PREMISE
The pricing model typically involves a single up-front payment towards the license fee, implementation and training costs as well as an annual maintenance and support fee.
CLOUD
It usually operates on a pay as you go, per user, per month model. This subscription price is inclusive of maintenance and upgrade charges.
Scalability
ON-PREMISE
Since the capacity is linked to acquired license rights, the opportunity to scale up would require adding more licenses with a fresh contract. The scaling down option in this solution would be futile as licenses are already in place.
CLOUD
With its pay-as-you-go model, the option to scale up or down can be exercised fairly quickly and easily. It supports and is adaptable to the changing business environment and economic outlook.
Data Security
ON-PREMISE
With the hardware and data under their control, management can evaluate its own security options and exert full authority over its data and servers and is not open to business continuity risks.
CLOUD
Since data is stored away and accessed from the internet, away from the physical premises of the user, management needs to scrutinize the security levels adopted by the service provider to minimize risk of breach of confidentiality or loss of data. Data migration, training and systems testing are equally critical and complex.
Total Cost of Ownership
ON-PREMISE
The overall cost involves initial investment in software license fee as well as hardware and server set up. The only recurring fees involved are software upgrades, help desk support and fixing of any bugs and errors.
CLOUD
The user may comparatively save on server and some IT resource costs. The monthly subscription fee which covers maintenance, support and upgrades, however is recurring.
Functionality & Customization
ON-PREMISE
Over the years on-premise softwares functionality has been built upon, modified and perfected in tune with complex business processes. And more often than not it is customized to incorporate specific individual requirements of sophisticated businesses and industries.
CLOUD
As a new and emerging solution, cloud ERP is yet to come at par with the capacity to offer a broad range of functionalities of an on-premise solution. Being a standardized software system shared by multiple companies, in most cases it requires businesses to adapt their processes to successfully integrate with it.
IT Administration
ON-PREMISE
Having in-house IT resources becomes imperative when deploying an on-premise ERP to maintain the infrastructure and keep it optimized and secure.
CLOUD
Significant IT responsibility gets shifted to the vendor allowing management to focus on their core business. However, while selecting a vendor, they will still need to weigh up its IT competencies, infrastructure and administrative capabilities and experience.
In conclusion, this is an attempt to highlight the differences showcasing the shortcomings and strengths, which are the determining factors when selecting an ERP Solution. I guess the correct question to ask yourself then is which factors truly affect my business objectives and vision in the long-run and then decide to choose the solution that truly supports them. Only then can a company take a decision that provides maximum value proposition.
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Neelam Dhawan 