Should you run your ERP system on-premise or in the cloud? Which approach is best for your business? If you’re tasked with formulating the IT strategy for your company, the advice on offer can seem conflicting and less than helpful.
Well, sorry to muddy the waters a bit more, but the truth is, it’s not a straightforward choice between cloud or on-premise deployment. There are numerous models, combinations, and hybrid solutions to consider. However, rest assured that your organization can find the right fit.
Over the coming weeks, i will be looking at the pros and cons of the available deployment approaches. Let’s start by looking at the three categories of deployment destination.
Public cloud
A public cloud service is potentially the most economical, because the service providers host many organizations on the same stack:
- Physical infrastructure (including utilities, security, and disaster recovery)
- Operating systems (OS)
- Database systems (DBMS)
- Application systems (the ERP application itself)
Although your data is kept separate, you share everything else with other customers.
Because your software vendor manages the infrastructure and application for you, you can get up and running quickly and scale up or down when needs change. With regular updates managed by the software provider, you can take advantage of the latest features and innovations without getting bogged down with maintenance. And with subscription-based licensing and no need to purchase hardware, this option requires minimal up-front investment and predictable costs that can usually be accounted for as an operating expense rather than a fixed asset.
Standardized ERP packages enable you to implement best-practice, streamlined processes across every business function, including finance, HR, customer relationship management, and supply chain logistics. As a result of all this, public cloud is often the best choice for startups, smaller companies, and subsidiaries.
The same standardization that drives down costs, however, also leads to less flexibility. Public cloud ERP will typically not allow modifications or support all industry-specific workflows or the varying processes of individual business units. Some organizations might not even be able to run ERP according to a standardized approach.
Infrastructure as a service (IaaS)
Another option is to run ERP on an infrastructure provider such as Microsoft Azure, Amazon Web Services, or Google Cloud Platform. They provide the physical infrastructure and leave the OS, DBMS, and ERP to you. In other words, you share the physical infrastructure running your applications, but your organization is the sole user of the database and ERP software. Essentially, you go public in one part and private in the other.
In this case, your organization is responsible for software setup, maintenance, and updates. Why would you want to take on this work when there are vendors that will manage it for you? Because you have more control. For example, updates typically happen every quarter with public cloud ERP. This might seem like a good thing at first, but perhaps your organization cannot absorb such rapid change with ERP. Also, you might want to run industry solutions not available in the public cloud, or customize processes beyond what public cloud can support. Instead, you can manage the updates and customize processes according to specific business needs.
While it won’t be as economical as the public cloud, running ERP on IaaS allows you to commoditize infrastructure, yet maintain almost as much control as an on-premise deployment.
On-premise
If you want complete control, an on-premise deployment is for you: You’re in charge of managing your entire ERP environment from the physical layer on up. You can adapt the software as required to respond to the business, and customize it to fit processes intrinsic to your industry and business units.
With this more traditional approach, of course, the responsibility to deploy and maintain the software and IT infrastructure is up to you, with or without the help of a third-party systems integrator. And it is more difficult to scale the system up or down.
There’s another variation on this theme to keep in mind: using a hosted data center offered by a company like IBM or HP. With this, you outsource the physical layer to get capabilities beyond what your own IT team can provide, especially with disaster recovery. Many companies also offer various application management packages as well, to perform maintenance and upgrades with more efficiency than you could do on your own.
Keeping your options open
While it might indeed seem complicated, once you weigh the options and consult with your stakeholders, you can map the strategy that’s right for your organization. A way to simplify all this for ERP is to consider your choices over five major dimensions:
| Public Cloud | Infrastructure as a Service (IaaS) | On-Premise/Hosted | |
| Economics | Best | Better | Most costly |
| Business processes | Core processes, standardized | All processes | All processes |
| Customization | Within boundaries only | Open for ERP, within boundaries for infrastructure | Completely open |
| Maintenance | Done by vendor | Done by vendor and customer | Done by customer |
| Innovation pace | Quarterly updates, done by vendor | Annual updates, done by customer | Annual updates, done by customer |
What’s right for one part of the business may not work for another. Many companies create a multi-tier environment, combining two or more deployment methods in a hybrid approach. For example, an organization might run subsidiaries on public cloud, but on-premise for headquarters.
What’s crucial is that the solutions work together. But beware: Many don’t.
Look for ERP that offers consistency in the code line, data model, and user experience, whether you choose cloud or on-premise. Your employees, whether based in an overseas subsidiary or the head office, should have the same user experience and be able to share information, run reports in the same format, and follow the same steps to complete tasks. This way, you can eliminate organizational silos and establish an integrated digital foundation for the future.
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