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Cloud ERP Deployment vs. On-Premise Deployment Options: Pros and Cons

10/16/2018

An enterprise resource planning (ERP) solution integrates strategic business processes into a single, comprehensive information system, increasing the efficiency and agility of the enterprise. Choosing between a cloud ERP or on-premise deployment model should not be a key decision factor, however.

An organization must first evaluate ERP solution capabilities to determine if it meets current and future needs.  The deployment option should be the next decision.

Where a solution is deployed does not define the ERP capabilities of the solution. If the primary consideration is where to deploy the ERP solution, you will very likely end up with the wrong ERP solution.

Cloud vs. on-premise deployment is a rent vs. buy decision for the technical infrastructure. A cloud ERP deployment is the renter’s option: an outside partner or vendor provides the hosting environment in exchange for a monthly fee. An ERP solution and the data can live in a private or multi-tenant cloud, with pros and cons for each option. It is possible that a licensed ERP solution can also live in the cloud, so you also have the option of owning the software while renting the infrastructure it lives within.

With an on-premise deployment, the company owns and maintains the infrastructure needed to run the ERP solution locally. The ERP vendor’s business model will dictate if the vendor or a partner do the implementation.

Related reading: Business Benefits of Implementing an ERP Solution

Three Primary Factors for Considering Cloud ERP vs. On-Premise Deployment:

1. Total Cost of Ownership

Much of the conversation around cloud vs. on-premise deployment centers around the different cost structures of the two options, in addition to the ERP purchase model decision (SaaS, subscription model vs. licensed). A cloud ERP deployment usually provides a consistent cost outlay because the cloud infrastructure can scale incrementally without huge capital expenditures.

A cloud ERP system environment can be provisioned in days vs. weeks that it may take for on-premise environments. Cloud deployment will not eliminate the majority of your internal network because you still need to manage internet connectivity, email, printer management, etc.

However, it is essential for an organization to evaluate an ERP solution as a long-term investment. For example, when considering Third Wave’s option of SAP Business One and a private Amazon cloud deployment, this configuration will have the same initial total cost of ownership (TCO) as Netsuite’s SaaS Multi-tenant cloud ERP solution.  When you expand the TCO comparison to 10 years, SAP Business One is 50% of the cost of Netsuite.

2. ERP Solution and Data Ownership

Both on-premise and private cloud deployment installed with licensed ERP software mean that you own your ERP solution and your data no matter what happens. You will retain complete access to all information and the software at all times, even if you stop paying annual maintenance fees.

If you deploy to a multi-tenant cloud with software-as-a-service delivery through a vendor like NetSuite, you risk losing the ability to run your company or access critical data if you withhold payment.

Be aware that some vendors are known to surprise customers with excessive price increases that you are forced to absorb because you cannot change to a new solution overnight. If you migrate to a new solution, you may be surprised with the difficulty and cost involved in exporting your data from a SaaS solution. The longer they hold your data hostage, the longer you need to pay them.

3. Become the “Master Of Your Domain”

By selecting an on-premise or private cloud ERP deployment, companies maintain a significantly higher level of control over their system, allowing them to become the “master of their domain.” This control results in significant business benefits and cost savings:  

  • You decide when to conduct software upgrades so that it’s convenient for your business.
  • Avoid constraints around transaction volumes and integration point bandwidth.
  • You own the environment, which eliminates resource constraints and contention – your system will not slow down once the whole country is at work.
  • Avoid hidden costs that some vendors charge associated with usage spikes and increased data volumes.

To Conclude

The ERP deployment chosen by an organization is an important decision, but it’s something that your organization should consider after selecting the right ERP solution based on its functionalities and benefits. An experienced ERP partner like Third Wave Business Systems can help a company like yours make unbiased, informed decisions on the best deployment option. We can also help you migrate between cloud and on-premise deployments because what works for a growing business one day may not work in the future.

For most businesses, Third Wave strongly recommends deploying over the private cloud because it gives organizations the freedom to easily scale at their own pace without the drawbacks and restraints of the multi-tenant cloud.

Third Wave is a Gold Partner of SAP, the world leader in ERP software. As North America’s longest-standing SAP Business One partner, small to enterprise level businesses trust us to implement scalable on-premise and cloud ERP solutions with hands-on expertise every step of the way.

To learn more about how we enable companies to implement scalable ERP solutions, schedule a customized demo with a Third Wave expert today.

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