Cloud vs On-Premise ERP: Which is the right option for your business?
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Cloud vs On-Premise ERP: Which is the right option for your business in 2022?


Karan Tulsani - December 16, 2021 - 0 comments

Reading Time: 8 minutes

Enterprise resource planning (ERP) software is absolutely essential for the success of a business and hence deciding the right ERP for your business is crucial. When you are choosing the ERP system for your business, you will come across various types of ERPs. It is important to understand all the available options, as the kind of ERP system you choose will impact the benefits your business will achieve from the said ERP in the future.

Researchers anticipate the ERP market to reach $86 billion by 2022 with the increase in adoption. This is because ERP is becoming popular in the current digital business environment. It will work as a primary point of contact for major processes like procurement, asset management, business intelligence, accounting, supply chain, HR and more. Now, if you are switching to a new ERP for the first time, you will have to decide on the hosting too. Is it a better idea to go with a cloud-based solution or host your ERP on-premise?

What is an ERP System? Why is it important for your business?

Enterprise resource planning tools are regarded highly across various industries and businesses. These systems have the ability to link business-critical processes and help information exchange between them. Enterprise resource planning software acts as an exclusive data source by collecting the data of a business from various sources and increasing the quality and transparency of internal communication.

Panorama Consulting Group’s 2021 report shows that 91.7% of businesses that accepted ERP software think their ERP project was a huge success and have started reaping the benefits.

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There are numerous ERP advantages that assist businesses to meet their goals. One of the most crucial benefits of an ERP system is optimized productivity. An ERP automates a number of operations and reduces the need for manual data entry and gets rid of data duplication. Apart from that, contemporary enterprise resource planning systems enable the employees to access and input information from their mobile devices.

Another major benefit is access to real-time data. Data is the most critical resource for a business. It is important to collect and process it periodically along with having the ability to access it remotely for business growth. Moreover, instead of having multiple spreadsheets and databases, it is quite effective to store data in a single place where it is possible to view it in a single session.

Most modern ERP systems provide a wide range of tools and features from financial planning and HR to particular functionalities like IoT traceability and engineering change control (ECC) that are provided by manufacturing ERP software for makers of automobile parts and accessories. An increasingly large number of business-specific features invite businesses to replace their legacy software and move to ERP software. Due to customization, these systems are able to boost your efficiency and save time and money.

It is possible to get a lot of other advantages based on the kind of enterprise resource planning system you choose. Cloud and on-premise ERP offer some great benefits that can take your business to the next level. Let’s discuss this in detail. 

What is a cloud based ERP system?

A cloud based ERP is an advanced infrastructure set up by a business navigating the ERP through the internet, and the servers located in a data center remotely. More often than not, when you hear the term ERP, it means Software as a Service (SaaS) type. The SaaS model is a widely used term for a cloud-based ERP, but some people think these terms are exchangeable.

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In a SaaS setup, a business doesn’t own the software. It is provided as a service to you by a vendor using a monthly subscription model. The software is offered using the internet, and your data is stored in the cloud.

More recently, the reputation of cloud-based ERP systems has grown significantly. According to a 2017 Report on ERP Systems and Enterprise Software from Panorama, only 6% of ERP software was utilized in the cloud.

There has been astonishing growth in the last four years. In the 2021 report, Panorama consulting advised that 53.1% of businesses leverage cloud deployment and less than half the businesses have an on-premises ERP system.

What is the reason the percentage of businesses that prefer cloud hosting has increased in the last few years? It is only dedicated to the significant benefits that cloud-based ERP solutions can offer organizations. Let us discuss the pros and cons of the Cloud-ERP system.

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Pros of Cloud-ERP System

Some of the benefits of a Cloud-ERP system include:

  • Firstly, it is simpler to maintain. As Cloud-ERP software is generally a subscription-based model, the vendor takes full responsibility for the ERP, major updates, data backups, and hardware. The business can save ample time and money by not hiring a dedicated IT team to manage.
  • Cloud-ERP systems offer complete access to your data from remote locations, anytime, using any device. It is a great benefit for major enterprises with multiple locations, and in times like these when employees need to work remotely. A cloud-ERP setup enables greater flexibility as you can save a lot of time by not being tied to your desk.
  • Lastly, a cloud-ERP system can enable business growth due to excellent scalability. All the business requirements can be offered to you on-demand including but not limited to adding new users, tools and more. 

Cons of Cloud-ERP System

It is hard to find any major disadvantages with the Cloud-ERP system but the cons are:

  • Dependency on a stable internet connection. If there are frequent glitches or loss of data connectivity, it might slow down and hamper your work. So, it is critical to choose an internet provider carefully to avoid any major delays.
  • Cloud ERP systems have limited customization options and can be difficult to have bespoke features for your business. But, based on the ERP provider you choose, the software can be made customizable.

Moreover, data security is a primary concern for most major businesses when choosing the SaaS cloud ERP model. Businesses have tons of sensitive data which they don’t want any third party to look into. A data breach can be disastrous for a business and also can halt the production. This is the primary reason why defense, aerospace, and other government agencies do not risk their data on the cloud and go with a traditional option of an on-premise system. But, if you do not belong to that industry, you can definitely give Cloud-ERP a try.

What is on-premise ERP?

The on-premise ERP system is deployed on computers on a business’s premises and is handled by their internal IT team. An on-premise ERP might require high-powered servers, operating systems, or database software which you need to purchase. On top of that, you will have to hire a dedicated IT team to manage the software and hardware, but in return, you will have full control on the system along with the updates and security.

Irrespective of the rising prominence of Cloud-ERP systems in the last couple of years, on-premises solutions are still giving a tough fight. As per 2021 reports, on-premises ERP systems still have 46.9% market share which took a major hit since the last report came out in 2017.

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Pros of On-Premise ERP

  • One of the major advantages of on-premise ERP is that your business has full control on the system and is not vendor dependent. It is possible to arrange updates, backups, or security checks when required and important for your business. There will be enough time to organize maintenance processes, resulting in almost nil workflow disruptions and saving your business time and money. Moreover, you do not need to seek permission from a vendor before making updates to the system. On-premise ERP can accommodate custom features and meet your business requirements.
  • Data security is the sole reason why organizations prefer an on-premise ERP. By installing your ERP on-premises, it is easy to protect your crucial data which can be stored on premise for internal access. There will be complete control on the backup system and you would not need high-speed internet connectivity to access your data. Businesses from specific industries would prefer on-premise ERP due to security concerns. These businesses would typically not prefer the cloud. It is extremely important for them to have control on their data and hence an on-premise ERP or hybrid deployment works well for them.

Cons of On-Premise ERP

It is evident that there are more cons than pros for On-premise ERPs like:

  • On-premise ERP systems might lose business critical data during failures or glitches as they are located in-house. So, if on-premise ERPs do not take period backups, a business is at risk of losing data completely or to put other crucial business processes on hold while they manage to recover the data.
  • Hardware maintenance is a complicated and overwhelming task. It is important to make sure server rooms are prepared for any incident which may occur. You will need to ensure that your hardware is always updated and purchase new hardware when required. A full server and required rack-mount hardware is expensive to purchase and maintain.
  • It is also important that you have a proper cooling system so the hardware doesn’t get damaged due to heat. Additionally, you will need to make sure you possess backups for unforeseen situations when you lose power and will have to invest heavily in generators which can provide uninterruptible power supply.
  • It is crucial to follow strict guidelines and follow fire protection activities for your server rooms and hardware. Enterprises deploy special systems to stop fires. These steps are crucial to make sure the correct working of your hardware and software which makes on-premise ERP extremely expensive.

Hybrid ERP

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A hybrid ERP enables you to have complete control of your business. It is possible to choose the data to retain on-premises and the ones to be sent to the cloud. This provides excellent data security and enables your staff to access emails, files and apps using the cloud. A hybrid ERP system can be arranged in the following manner:

  • The organization keeps using an on-premise ERP system for corporate activities like HR, finance, IT procurement but includes a cloud ERP to offer remote work opportunities to some specific teams or locations. It can bring down costs significantly and improve work quality.
  • The organization can start using a cloud ERP system for particular business activities that are supported by the cloud vendor including customer relationship management (CRM) system.
  • The business will use an on-premise ERP but stores some data in the cloud.

Conclusion : Which ERP system is the right choice for your organization?

The right ERP system can take your business to the next level and enhance work efficiency, business profits and overall success. Hence, it is crucial to make an informed decision. We hope the above blog, including the advantages and disadvantages of both Cloud-ERP and on-premise ERP, will allow you to make a better choice. From our experience, an on-premise ERP solution is best for midsize and large organizations that have challenging data security policies and need exclusive customizations. They will need to hire a dedicated IT team and be ready to afford the maintenance. 

If you are looking for mobile accessibility along with a CRM software, we would advise you to go with the cloud-ERP solution. You will get the most bang for your buck with this strategy. Servers, hardwares, updates, and data handling is done by the vendor so you can concentrate on business promotions. Our clients have yielded more benefits using the cloud-ERP solution than they have with on-premise solutions. 

Are you looking for an ERP partner? At Conneqtion Group, we can offer business consultation and automation by becoming your trusted ally. Our team will work with you closely to pick the ERP solution that is best for your organization.

For more updates on what we do at Conneqtion Group, follow us on LinkedIn.

Author avatar

Karan Tulsani

Karan works as the Delivery Head at Conneqtion Group, a Oracle iPaaS and Process Automation company. He has an extensive experience with various Banking and financial services, FMCG, Supply chain management & public sector clients. He has also led/been part of teams in multitude of consulting engagements. He was part of Evosys and Oracle's consulting team previously and worked for clients in NA, EMEA & APAC region.

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