You’re looking to implement a software system for your business that could help you streamline your business operations, engage with customers automatically and do all other magical stuff that in the end, aims to make your life easier. So you then search on the internet and find out that the magical software you were looking for is called an ERP software. You then start to dig more and you end up finding that ERPs are changing the way businesses operate thanks to which, businesses are now reaching a level of success that couldn’t be attained before.
ERPs are great! You now know what an ERP does and how it works to boost your business.
Then you find out that there are two types of ERPs – “Cloud-based SaaS (Software as a Service) and on-premise-based” (previously called as install-based ERP as one needed to install this software through CDs that ERP companies provide)
Now it gets confusing. Undoubtedly, this is one of the topmost doubts that most people get.
Let’s try to solve this for you.
First of all,
What exactly is ERP?
If you need a quick explanation on this, by standard definition, “an ERP is usually referred to a category of business management software—typically a suite of integrated applications—that an organization can use to collect, store, manage, and interpret data from many business activities”.
Basically, ERP consists of multiple software programs that are integrated into the core of various sections of a business like marketing, purchase, finance, etc. ERP merges all these sub-software programs and gives out a standard dashboard such that the entire operations occurring in a business can be seen by one person.
What is On-premise ERP or install-based ERP?
On-premise ERPs are quite easy to understand. These are softwares that are locally installed into a company’s computers (hence the word “on-premise and install-based”). Assuming the company is large and has various departments, the on-premise ERP softwares are installed into each of their computers locally. That’s it.
Some ERP companies also offer a “Hybrid solution” for larger clients who have multiple departments and own several hundred computers. These clients are expected to own a large communication-storage device called a “server” which will act as a medium to transfer/ communicate all the information from one computer to another within the company. Sometimes, ERP companies also provide and install this server for clients. These are now locally hosted ERP solutions that are just one step closer to a fully cloud-based ERP solution.
Also, on-premise softwares is usually a 1-time initial payment for a set-up type software solution which is usually considered by companies as a one-time capital expenditure (one large investment upfront). Of course, this is a myth and we’ll get to that later.
Simply put, on-premise ERPs are like installing Anti-virus software through a CD on your computer. You can install it and run it from your computer without requiring an internet connection.
What is Cloud-based SaaS ERP?
Cloud-based SaaS ERP’s are fundamentally the same as On-premise ERP, the main difference is that cloud-based softwares are hosted on cloud servers mostly owned by big corporations like AWS Amazon, Google, etc which are rented by software vendors /providers. This means you need continuous access to the internet to access the ERP.
Cloud-based SaaS ERPs usually come with a monthly or yearly subscription fee that can be considered as an operational expenditure.
Simply put, Cloud-based SaaS ERPs are like watching youtube. You can access them on your web browser or through a downloadable app, but you need the internet to access it.
Let’s make one thing clear-
On-premise ERPs are outdated!
Companies are moving towards cloud-based solutions and the existing on-premise-based companies are figuring out ways to move their current system to the cloud.
A recent study by Forbes showed that a whopping 93% of large companies use a cloud-based ERP solution. On-premise ERP-based company’s use of hybrid ERP solutions has increased from 19 percent to 57 percent in one year. Find the details here.
This should easily prove the current trend where cloud-based solutions are the most preferred solutions by businesses around the world.
Before we start, here are the few advantages of on-premise ERP that you might read everywhere on the internet. It is necessary to list them here to showcase why all of them are just myths over cloud-based solutions.
Here are the common advantages (myths) that you would find on Google –
- On-premise ERPs are best for very large companies.
- On-premise ERPs are just a one-time payment for the license fee/ setting up
- On-premise ERPs are safest and unhackable. So your company data is safe. (Cybersecurity)
- On-premise ERPs are highly customizable and can easily fit your business needs.
- With on-premise ERP, the company has full control over data. No chances of data leakage.
Reading these might sound convincing and fair. But here’s the fact – all these commonly listed advantages are mentioned without context and a solid premise.
With that being said, let’s take a look at each of them –
Please note that further discussions are being made concerning top-tier cloud ERP brands like GaragePlug. Not all cloud ERPs are made equal. If in case you end up comparing with a cloud solution that does not seem to offer what is going to be mentioned next, be assured that the cloud you’re seeing is not a top-tier software.
Myth 1) On-premise ERPs are best for large companies
No! That’s not true!
Cloud-based ERPs work pretty much the same as on-premise ERP in terms of functionality for large companies.
In fact, cloud-based ERPs are better in a way considering the regular updates it gets. With each update, the security level keeps improving even beyond what an On-premise is capable of.
Cloud ERPs are much more user-friendly and no sophisticated training is required to teach employees.
Cloud-ERPs get easily integrated with the core of any large business. No waiting times for implementation. Cloud solutions also give choice for phase/batch-wise implementation.
Most importantly, cloud-based ERPs are guaranteed to work and perform. On-premise ERPs do not guarantee a 100% success rate.
Many times, on-premise developing companies take years to prepare a tailored software and in the end, fail to work properly for a company.
No such issues with a cloud solution provider as cloud software guarantee a 100% implementation success rate.
In conclusion, cloud-based solutions are equally and in most cases, better than an on-premise ERP for large organizations. Myth Busted!
Myth 2) On-premise ERPs are a one-time payment solution
Again, not true!
On-premise ERPs are quite difficult to maintain and although you may pay a single-time large fee to get the license and set-up done, the process does not end there.
On-premise ERPs are very expensive to maintain.
Usually, the companies that get on-premise ERPs are big organizations and they require a large server station to be placed in their hub. The servers are layed around various workstations and offices to build a personal intranet to form a private communication network.
The primary idea behind doing this is to make sure a company does not have to share confidential data through the internet and only shares it through private networks (intranet).
These server stations require a dedicated server team of engineers to manage them. They require frequent maintenance leading to frequent downtimes.
Simply put, companies need to hire a dedicated software and hardware engineering team for each workplace to maintain the servers daily. Then quarterly or annual maintenance costs a heavy ton of money.
Secondly, companies are ever-evolving and ERPs need to evolve along with the company. This is where the install-based or on-premise ERPs fail.
It costs a huge ton of money to implement changes and takes years to upgrade.
Upgrading on-premise ERPs is very difficult. They (on-premise) become the major factor that will regularly drag a company down from growing as companies hesitate to invest heavy amounts for upgrading. This also causes opportunity loss to business as better software systems would add more business or help to grow the business.
Once again, even if a company decides to upgrade, each employee will need to be taught how to use the software again. Separate training programs will need to be conducted once again that will be yet another major expense.
Therefore, on-premise ERPs may escape by saying one-time payment. But, with a bigger picture, that is not the case.
With on-premise ERPs, companies end up paying even more than what a cloud-based SaaS solution charges repeatedly. Myth Busted!
Myth 3) On-premise ERPs are safest and unhackable
This statement is absolutely false!
The entire premise for this argument usually starts with just one problem – “Data privacy”. All the other arguments are based on this sentiment.
Here’s the thing
There is hardly any difference in terms of data security and privacy between an on-premise and a cloud-based ERP solution.
Because let’s be honest. The world has moved towards such a level of digitalization that each of your data is already hosted on some form of cloud-based server.
Unlike the mid-2000s, clouds have improved. Today’s perpetuation of cloud storage is military-grade and they are very very difficult to hack.
From your Google email ID and all your personal pictures that are stored on a drive to your shopping app payment portal. What exactly are they?
They are all similar forms of technology developed from the same cloud storage-based systems.
The point is, both on-premise and cloud ERPs are equally safe and equally vulnerable to attacks. Data privacy is about the same in both the ERP type.
Let’s take this one step further.
GaragePlug as a SaaS cloud solution offers a custom build separate cloud server if companies push for it. Data security, being a thin-layered topic to discuss, GaragePlug even offers a separate cloud server just for peace of mind to the customers. (although, like discussed, this step is unnecessary).
Some good cloud-based solutions will also offer this feature if required.
Therefore, from a broader perspective, cloud-based solutions are equal to on-premise in terms of data privacy and security. Myth busted!
Myth 4) On-premise ERPs are highly customizable and can easily fit your business needs
While the statement is correct, the way it’s used is highly misleading.
On-premise ERPs do not come customizable out of the box.
On-premise software companies first need to survey your entire business, then understand your business, and need access to all your sensitive data and business strategies. Only after all these will they start building a solution that best suits your organization.
It takes about 2 to 5+ years for the companies to develop such a customizable ERP that is tailored to your organization. Most importantly, there’s no guarantee that the software will be 100% successful after implementation.
These are the hidden terms and conditions that you don’t see from the outside.
Secondly, cloud-based ERPs also offers a good level of customization. Certainly not to the level of building an ERP tailored to your organization. But what a cloud ERP offers is a setup that guarantees a 100% implementation and functionality success rate. A stock cloud-based SaaS brings with it the best practices studied from across the globe, thus, setting your businesses towards maximum job efficiency.
One can’t go wrong with a cloud solution. Hence, Myth busted!
Myth 5) With on-premise ERP, the company has full control over data. No chances of data leakage
We’ve already discussed the data privacy and hackability comparison of an on-premise ERP and a cloud-based ERP.
On-premise ERPs equally face the risk of data leakage.
Top global security leaders claim that Cloud-based ERPs are equal or in fact, more safer than an on-premise solution. You can find the detailed report here.
Now, let’s move ahead.
Here are the actual reasons why you need to go for a cloud-based solution-
- Cloud-based ERPs have a lower upfront cost and offer a predictable cost over time.
- Top tier SaaS will offer 24×7 customer support who are just a chat away from you. Anyone from any level of an organization can initiate a support chat and get any issues fixed. (Unlike install-based where only the management level employees of the company can raise a support request ticket)
- Cloud-based SaaS companies provide all the training to you and your staff. Every other expense is covered in the subscription fee.
- Data security is equal or as experts suggest, better than what on-premise ERP can offer.
- Privacy is equally good and better than on-premise solutions.
- Offers a high level of stability and almost 0 downtimes.
- Offers a good level of customization as well which guarantees a 100% implementation and functionality rate. (unlike on-premise)
- The stock version of cloud-based SaaS brings the best practices that are internationally followed by leading companies. You get to automatically follow the best practices.
- Very short implementation time. Also offers phase-wise implementation possibilities.
- You won’t have to spend any money on maintenance. The vendor takes care of it.
- A cloud solution can also offer a high level of ownership with custom build and separate cloud servers for businesses if demanded. (although unnecessary)
- Cloud solutions offer greater scalability. Your organization’s hardware won’t be a constraint at all. The software seamlessly grows as your business grows. You’ll never notice a gap.
- Absolutely no IT burden. The vendor takes care of everything.
- Finally, increased adoption of newer technologies. As time goes on and as technology develops, you’ll never get left behind with outdated technology. Cloud-based SaaS solutions keep updating with new technology trends. Unlike install-based ERPs, maintenance and upgrading are done with no additional expense. Updates get executed while you sleep (no workflow disturbance)
The conclusion for this topic is very simple.
The answer to cloud ERP vs on-premise is that Cloud ERPs are superior in almost every possible way.
Every blog that you might find on the internet that compares a cloud-based and on-premise ERP is majorly false and not hindsight. They do not endeavor properly with correct reasoning. Those blogs are built entirely over shallow research that quotes all the unjustifiable myths.
On-premise ERPs are outdated. That’s the truth.
Both are equally safe in terms of data and privacy. In most cases, cloud-based systems are even more safer.
Cloud solutions also offer a good level of customization but ultimately, they guarantee a 100% success rate while implementing.
But you’ve got to note one major aspect. Not all cloud-based solutions are made equally.
That’s why, talk to our customer success team at GaragePlug. Find out what we can do for you.
We can help you prepare a cost-to-benefit ratio analysis to show you how a top-tier cloud solution like GaragePlug is economical and better than on-premise solutions.
We’ll be more than happy to help you with your search.