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On-Premise or Cloud ERP - Which Is Right for Your Business?

Will you need to host your ERP system on-premise using your own servers or will you be using a SaaS provider

If you want to implement an ERP (Enterprise Resource Planning) system, then you will undoubtedly have to answer a lot of questions before you can be sure that the system will run smoothly. But before anything, you should ask a simple question about deployment. Will you need to host your ERP system on-premise using your own servers or will you be using a SaaS (Software-as-a-Service) provider? It will be a major decision, since you will need to choose who handles the hardware and software.

Big companies usually tend to want to deploy on-premises. This could be a because of paranoia, but big companies want total control over their data. But many smaller companies will opt to choose the SaaS method so they can save on upfront capital expenditures. Since they won't have to buy their own hardware, the SaaS option will be cheaper (at least in the short-term).

But between the largest and smallest companies, there are businesses in the middle that have to make a tough choice. To make the best decision, they will need to weight three variables: total cost of ownership, customization options, and integration.

Customizing an ERP system could prove to be expensive, and is actually one of the biggest reasons why ERP budgets tend to break. This is typically accompanied by bad press and leadership changes. There are stories of Fortune 1000 companies struggling mid-stream with their ERP implementations. Outside consultants are typically hired to assist in the implementation process, which can be very expensive.

Sometimes, company executives insist on customizing every detail of an ERP system. For these companies, the best option would be to own the software and host it in-house. You can hire a third party to host it - that would still be considered being in-house since the software license is still owned by you. They will simply be setting it up at a data center.

When comparing ERP systems, be sure to consider the customization options that the vendor offers. Some SaaS ERP vendors allow users to customize reporting tools, but since the same software is used for all customers, major changes cannot be made. For instance, you may be able to place a logo on your screen or customize which information is displayed on dashboards, but you won't be able to make any core changes to the software.

But there are a number of benefits to using SaaS software providers. They tend to learn a lot from their costumers, and they will share some of this knowledge when you suddenly run in to different problems. If your company can accept a few unexpected changes and minor details, then you can save quite a bit of resources. More importantly, you will not have to spend money on expensive consultants.

It is also important to consider what types of hardware and software can be incorporated into the ERP system. Common Windows-based apps will probably integrate easily but if you are running complex Linux applications, you should probably check with the vendor whether they will be able to integrate with the software. These issues will not come up if you host the software yourself since you will be able to directly make changes to the software to accommodate any needs that may come up. This is a major reason why companies choose to host the software themselves.

Lastly, businesses should think about the long-term costs of the ERP software. Most SaaS providers will charge their customers (either per user or per usage) once a month, which allows you budget to be predictable. On-premise ERP has much higher initial costs, but after about 3-5 years, it can actually be cheaper than SaaS. Keep in mind though that there will be some growing pains as you customize and try to perfect your ERP system. The software will also need to be maintained and upgraded every now and then, which will also add to the total cost of ownership.

More Stories By Aaron Louis

Aaron Louis is the head blogger of ERP Systems HQ. He holds a BS in Computer Information Systems and has worked as an ERP Consultant. Visit ERP Systems HQ for more information.

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