By: Debendra Mohanta, Area Vice President and Country Head-Japan

Over the years, Enterprise Resource Planning (ERP) software has emerged as the lynchpin for enterprise operations, helping boost efficiency and productivity. While traditionally, businesses were comfortable with on-premise ERP systems, today we are seeing an increasing number of them gravitating towards Cloud-based solutions.

Many, especially in niche industries like specialized manufacturing, continue to swear by the benefits of customization and security offered by legacy ERP solutions. Others however, are lured by the out-of-the box functionalities and greater performance enabled by Cloud-based or Software-as-a-Service (SaaS) solutions.

Gartner predicts that 30% of service-oriented businesses are likely to migrate their ERP applications to the Cloud by 2018.

If you are undecided about the best approach for your business, here’s a quick low-down on the Cloud vs on-premise options for your ERP deployment.

On-premise solutions

The good: On-premise software, installed locally on your company’s own computers and servers, is typically more customizable, and offers greater control over data. You own both the hardware and software, and have greater flexibility to upgrade the business application as and when you want to.

And the bad: The implementation process can take longer, and the upfront, one-time, license fee for buying the hardware and software is often high. You also need to make ongoing investments, including expert resources and maintaining the hardware, servers, and other supporting infrastructure.

On an average, the long-term IT costs tend to be much lower than what you accrue through Cloud.

Cloud debate

The pros: Cloud-based software, hosted on vendor’s servers and accessed through a web browser, is priced on a monthly or annual subscription basis, thus ensuring lower upfront costs. At the same time, you have the flexibility to add or remove users in line with your business needs and growth, and pay as per usage. Moreover, vendors enable further flexibility in pricing by offering more bundled services.

With Cloud, you can enjoy the advantages of shorter implementation time and hassle-free adoption by users. Frequent updates from the vendor also enable you to enjoy the benefits of the latest functionalities and features, with no additional hardware investments. And unlike on-premise software, you do not require internal IT resources to manage the hardware. Most importantly, Cloud-based ERP systems are more mobile-friendly compared to their on-premise counterpart. So overall, Cloud ERP promises better stability and agility.

And the cons: Cloud ERP is less customizable, many a time not enabling unique functionalities that can provide you competitive advantage. Your biggest concern, however, could be that the security of your ERP, where critical corporate data resides including customer, employee and financial information, is in the hands of your vendor. Recognizing this, vendors these days offer increasing safeguards such as effective encryption to ease your worries.

No one-size-fits-all option

On-premises and Cloud or SaaS have their pros and cons. Interestingly, the cost associated with both the systems also tends to converge over a period of time. You must therefore make an optimal choice based on a thorough analysis of several factors ranging from your company size, business needs, goals, budget, challenges, and risk appetite.

The best solution, perhaps, is to begin with a hybrid ERP approach, using Cloud point solutions for less risky functions such as sales, while retaining core functions such as financials and transaction processing in-house.

To discuss more about ERP implementation and understand whether Cloud or On-premise solution works better for your organization, Click Here