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Cloud ERP vs. On-Premise ERP: Dissecting the Controversy

Posted by IES on Nov 17, 2016 8:00:00 AM

Cloud ERP .jpg
To cloud – or not to cloud? That may be the real question businesses of all sizes have been pondering lately. The convenience and flexibility that comes with cloud-based enterprise resource planning (ERP) technology is unquestionably terrific; but naysayers continue to worry about the vulnerabilities inherent in the Internet of Things (IoT). On-premise ERP platforms offer a higher ability to customize specific features, but you’re going to pay more upfront for a less flexible platform.

As small and medium sized businesses increasingly seek to utilize the big-business benefits found in ERP software, there has been some debate about which is better – traditional on-premise or cloud-based?

We thought we’d take a moment to walk you through the benefits and possible drawbacks of cloud ERP vs. on-premise ERP and help you sort out the controversy.

On-Premise ERP

Let’s start with what some would call “old school” on-premise ERP. The concept of “on-premise” simply means that the ERP software is installed locally, housed on a server located within the four walls of a brick and mortar business. Traditionally, these programs functioned across multiple business functions, with a high degree of customized features, most often managed by an internal IT resource or team, depending upon the size of the business. Typically the IT support team spends a significant amount of time maintaining the on-premise ERP and the infrastructure that supports it. 

Of course the downside to extensive customization is that upgrades to the ERP software can take a lot longer. Training could also be extended, as employees learn the functions of a proprietary platform. The upside to customization is that you’re not trying to fit a square peg in a round hole.  If you have very specific business needs that cannot be met even by the most robust ERP software solutions then it may be necessary to do some serious tweaking on your on-premise platform.

As you might imagine, there is a one-time upfront capital expense attached to installing software; many businesses purchase a server to run the platform, in addition to paying license fees. There are typically fees for support, training, and on-site software updates.

Speaking of updates, more customization typically means more headaches when it comes time to upgrade an on-premise ERP.

The data stored within your ERP platform is some of the most crucial to any business: financials, human resource information, lists of clients, and other proprietary information. Many companies believe managing this data in-house is imperative to the security of their mission critical business functions and important trade secrets. However, this in-house data must still be protected and maintained against outside threats; so the on-premise IT staff must stay alert to the latest security vulnerabilities and upgrade the firewall appropriately.

Of course, on-premise ERP platforms and the equipment that house them are vulnerable to those events that your insurance company probably calls an “Act of God.” Fire, flood, tornado, or earthquake, could certainly put any equipment that resides in your business at risk. Speaking of insurance, you know, of course, that any of these expensive equipment investments are most likely covered. However, off-site backups and a business security plan are an important consideration when you’re hosting data on-premise.

Cloud ERP

Cloud-based ERP is hosted on the vendor’s servers, and customers access the software on a web browser. The fees associated with these SaaS (Software as a Service) arrangements are typically monthly or other subscription. Low up front costs, coupled with predictable fees, are a benefit of cloud ERP, especially for the cash-strapped start-ups or small businesses.

Cloud ERP platforms grow with a business, especially with the some of the latest flexible pay-as-you-go arrangements; additional users are just added into the SaaS subscription and there is no additional hardware or licenses to buy.

One big benefit of cloud-based ERP platforms is that updates occur automatically and seamlessly as part of a regular service arrangement. On-premise updates mean an IT vendor visit, with additional fees. SaaS was created so businesses can focus on their core strengths – running the company – without the distractions of on-site hardware malfunctions, network upgrades, or troubleshooting other IT issues. For the small to medium-sized business that cannot afford IT talent, cloud ERP has extensive benefits over on-premise ERP.

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Cloud ERP vs. On-Premise ERP Commonly Asked Questions

But how safe is the cloud, really?

There’s the rub for some people; when you’re in the cloud, the security of your data is the responsibility of the vendor you select. That’s why we recommend a cloud backbone entrenched across Microsoft’s five worldwide data centers; not only will your data be housed across multiple redundant servers, you have, literally, thousands of IT experts working to maintain the network and proactively shore up your data against any security threats.   

Increasingly, businesses are moving critical functions to the cloud. A recent study showed that the security of data in the cloud isn’t the number one concern anymore. In the case of ERP platforms such as Microsoft Dynamics, businesses simply trust the brand based upon years of successful management of the cloud infrastructure.

Can you customize in the cloud?

In the old days, on-premise software required a lot of tinkering to fit the exact functions of your business. If you have a niche-based business, customization may still be a desirable part of your ERP implementation process.

Today, cloud-based ERP technologies such as Microsoft Dynamics offer impressive out-of-the box functionality across industry-specific functions, particularly for the small to medium-sized business. But MS Dynamics also offers customizable reports and the ability to add-on modules along with flexible licensure arrangements that scale well for any size business.

Increasingly, ERP platforms offer features that are interoperable across multiple businesses, which is one of the more appealing features of the software. The benefit of the Microsoft suite of products is the interoperability between legacy platforms, so employees can adapt more easily from the ERP to the CRM, Outlook, Word, and more.

I drive a hybrid; could I adopt a hybrid ERP, too?
In a word: Absolutely. Many businesses have chosen to shore up an existing on-premise ERP that handles core processes such as financials with cloud-based agility for business intelligence functions.

When businesses have grown to the point where they find their legacy ERP confining, a cloud-based add-on to their home grown system can suddenly make sense. Many legacy on-premise ERPs have not even been adapted to mobile technology. Adding cloud-based mobile functionality to analytics and business intelligence makes sense for many businesses seeking to recoup on their on-premise investment without scrapping it completely for a newer cloud-based model.


Gartner released a study stating that heavily customized on-premise ERP systems are fast approaching legacy status, thanks to the increase in cloud-focused platforms. They cited lower costs as one reason for enterprise organizations to either shore up their legacy ERP with a newer and more functional cloud-based system in a hybrid model, or discard their on-premise platform completely. The study stated, “A system that is not sufficiently flexible to meet changing business demands is an anchor, not a sail, holding the business back, not driving it forward.” RightScale confirmed this prediction by releasing their fifth annual State of the Cloud Survey at the beginning of the year. They agreed that hybrid cloud models increased substantially, from 63% to 77%. Public cloud adoption continues to increase, and providers continue to respond by adding robust expanded tools to their ERP software.

To find out more about cloud ERP vs. on-premise ERP or hybrid models, contact IES today.

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