The cloud migration is well underway. Gartner says the worldwide public cloud revenue will take another 21% jump this year. According to MarketWatch, the category of platform experiencing the biggest growth in the cloud in the coming years is enterprise resource planning or ERP software. They predict, “that the global ERP Software market will register remarkable success in the coming years.” With revenues expected to exceed $47 billion by 2022, the growth of cloud-based ERP is a virtually guaranteed. In fact, Panorama Consulting’s latest ERP report shows cloud ERP adoption rates have surpassed on-premise deployments for the first time in history.
This article will look closely at cloud vs. on-premise ERP and why cloud-based ERP is one of the fastest growing market segments in the U.S. today. What is cloud-based ERP, and what, exactly, makes cloud ERP solutions so appealing to small, medium, and enterprise-level organizations?
First, Some Background: Why ERP?
ERP allows business to manage all critical business functions from one centralized hub. The software brings together all the traditionally dispersed software platforms used to run a business in an integrated whole with a single-source database. MarketWatch says, “Basically, it is an accumulation of applications that a professional firm could utilize to manage, assimilate, interpret and store data.” The biggest benefits include a reduction in redundant task flows, more comprehensive data analytics, and ultimately, the ability to make more informed and faster business decisions. These are all reasons why ERP has become increasingly popular.
Unlike in previous years, these installations are not labor and cost-intensive. On premise-applications have yielded to the rise of software as a service (SaaS) ERP models in the cloud. This has allowed businesses of all sizes to achieve a competitive advantage with this software. Vendors like Microsoft have specifically targeted small business in developing lower cost cloud-based ERP solutions. So, what are the benefits of cloud ERP solutions?
Cloud vs. On-Premise ERP – Why is Cloud-Based ERP Better?
To understand and evaluate ERB on-premise vs. cloud, let’s look first at how they are deployed to understand the underlying architecture:
- Cloud-based ERP systems and the data they hold are housed on a vendor’s remote server. The user accesses the software and data via an Internet browser.
- On-premise ERP is hosted within the business, which has hardware like servers and firewalls that run the software and house the data.
It should be noted that hybrid deployments that include a mix of cloud-based ERP and on-premise could occur. Companies can also have a public connection to the Internet or a private connection. This leads us to our first point of differentiation between on-premise and the cloud.
Cloud vs. On-Premise ERP – Key Differentiator #1 – Cost
An on-premise deployment of any software causes a big hit to a company’s overhead costs. In the case of an on-site instance of ERP, it requires a large upfront capital expenditure to set up the hardware and licensure. This setup is time, labor, and cost-intensive, requiring regular IT maintenance to keep these internal systems up-to-date, secure, and functioning properly. There are always unexpected cost overruns when hardware unexpectedly fails and must be replaced.
When you run an on-premise ERP solution, you are responsible for maintaining every part and facet of that solution. Cooling costs for servers, finding physical space in your building with good ventilation and cabling, regularly upgrading and patching software, and dealing with any bugs or snafus – that's all on you and your IT team, and it requires significant resources in time, effort, and capital.
Conversely, cloud ERP solutions are applied as a regular monthly operating expenditure. This makes the adoption of cloud-based ERP affordable for even the smallest business; they don’t need a chunk of capital dollars to deploy in the cloud. Software Advice points out, “The low entry cost of cloud-based software – compared to hefty upfront perpetual license fees – has contributed to its widespread adoption.”
Simply put, a big benefit to cloud-based ERP is that it has a lower cost of entry, and won’t shock later on with a spike in costs due to replacement hardware.
Cloud vs. On-Premise ERP – Differentiator #2 – Security
One of the key reasons given for staying away from the cloud has traditionally been because of concerns about having critical business data outside the control of the corporation. Having trade secrets and client data on the web or in a remote server has made more traditional CIOs nervous. Over time, the perspectives have evolved to recognize that your date is actually safer with a huge vendor like Microsoft. Why?
Network World put it this way:
The basic argument from cloud enthusiasts is that Amazon, Microsoft, Google, IBM, VMware, and other IaaS vendors spend much more on securing their systems than most organizations can do themselves.
Gartner reported on exactly why cloud applications are safer than on-premise:
- In 2018, the organizations that use cloud control and visibility tools will experience one-third fewer security failures than their on-premise counterparts.
- They predict that through 2020, public cloud architectures will suffer 60% fewer security breaches than on-premise frameworks.
- 95% of all security breaches through 2022 will be the fault of the customer and not the cloud vendor.
Today, vendors like Microsoft spend a lot on more sophisticated and secure architectural processes to ensure data stability and security. From identity and access management to network security and encryption, cloud vendors apply the latest approaches to secure their cloud-driven ERP architectures. Even most enterprise-level organizations cannot compete with expert teams devoted exclusively to keeping your data safe in the cloud.
Cloud vs. On-Premise ERP – Differentiator #3 – Scalability
Cloud-based ERP solutions are generally easier to deploy than on-premise applications. By its very nature, SaaS applications are designed for ease-of-use, marking these tools as accessible and easy to launch. But it is the capacity to grow with a business that makes cloud-based ERP so popular. Cloud ERP solutions enable a business to ramp up or down as needed without the added overhead of hardware. Instead, cloud-based ERP is designed to handle the change that comes with business expansion.
This is particularly important if the business is seeking to grow internationally; cloud-based ERPs can handle the increasing complexities of a global market. Businesses that install an on-premise ERP run the risk of potentially outgrowing the software. Preparing for the growth by accepting long-term perspective on where the business will be – not where it is today – is exactly the point. Cloud-based ERPs allow organizations to continue to stay flexible in an ever-changing competitive market.
Migrating to cloud-based ERP solutions from on-premise ones will help any organization looking to scale do so more smoothly.
Cloud vs. On-Premise ERP – Differentiator #4 – Maintenance
Security and version updates happen constantly and seamlessly in the cloud. Unfortunately, the same cannot be said for on-premise applications. Case in point: WannaCry.
Over two years ago, WannaCry ransomware took down hundreds of businesses in the U.S. and U.K. for one simple reason: these businesses failed to install a simple Microsoft patch in their on-premise services. Scientific American reported on a study by Indiana University that showed people failed to update software because they took a long time to install and interfered with programs they were used to using. The article concluded with this startling comment:
The most common recommendation is to update everything immediately. People just don’t do that, though. A 2015 survey by Google found that more than one-third of security professionals don’t keep their systems current.
If your business has ever lagged behind on software upgrades, cloud-based ERP will make the most sense.
Cloud vs. On-Premise ERP – Differentiator #5 – Convenience
The idea of accessing cloud-based ERP on any digital device is a benefit that has to be mentioned. While the novelty of it may have worn thin, compare the convenience of working from anywhere to just ten years ago, and you’ll once again realize the true differentiator between cloud vs. on-premise ERP. InfoWorld describes it in this manner:
As with most Cloud applications, access is easy from any mobile device. Try doing that with your complex on-prem environment with all the multiple layers of firewalls and passwords required to gain access.
Too, cloud-based ERP maximizes real-time access to data, which fosters better communication between teams. Having Internet-speed data synchronization allows your business to respond more quickly to market shifts or customer concerns. Sales reps won’t be caught at a client site with outdated information. Billing will always be current. Reporting and data analytics will capture everything in real-time.
Cloud vs. On-Premise ERP – Differentiator #6 – Disaster Recovery
Vendors like Microsoft have policies in place that allow them to migrate your data between multiple data centers. This is important particularly as part of disaster recovery. Not only would your cloud vendor be able to recover your data if something happened to a regional or corporate office, but they also can migrate data away from a given geography if an increasingly common adverse weather event occurs. When thinking about all of the data housed within an ERP platform, this should make selecting a cloud-based ERP a very desirable choice.
The Clear Winner – Cloud ERP Solutions
Throughout this post, we've hopefully not just answered your question, "What is cloud-based ERP," but have demonstrated that when it comes to ERP on-premise vs. cloud solutions, cloud ERP solutions are the clear, unambiguous winner.
Selecting a cloud-based ERP solution also means you will have 24/7/365 support from your ERP vendor and solutions provider. In the case of Microsoft Dynamics 365, this continuous support is the perfect foil to your own internal IT team, freeing them up to work on more strategic projects. For smaller businesses, IES can supplement Microsoft’s care team with managed service support, including our award-winning help desk. IES is standing by to help you compare cloud vs. on-premise ERP. Contact us to talk about your options and how we can migrate your data to ERP software.