The benefits of an effective ERP system are known (and appreciated) by companies all over the world. In fact, the global ERP market is expected to grow to $60.23 billion by 2026. The rise of advanced technology, data analytics, AI, and the IoT, coupled with increased global competition, has driven a need for more transparency in business processes and more robust data collection. Companies have responded by investing in new ERP software that meets those needs or by upgrading their current systems to incorporate new features and capabilities.
When selecting a new enterprise resource planning (ERP) system, one of the most critical factors in your decision will be whether you choose on-premise ERP or cloud deployment.
Cloud-based ERP systems are more common than ever before. Today, nearly every ERP vendor offers some form of cloud deployment option, and some have ditched their on-premise ERP offerings altogether.
Cloud-based software, also known as Software-as-a-Service (SaaS), is hosted on the vendor’s servers and accessed through a web browser.
On-premise software is installed locally, on a company’s own computers and servers.
Advantages and disadvantages of cloud ERPs
Security is often the top concern for prospective ERP buyers. Small wonder, considering the critical information stored in an ERP system—including company financials, corporate trade secrets, employee information, client lists, and more.
But while buyers once were wary about the security of cloud-based software, many are becoming less skeptical today (evidenced by the adoption rates above).
Reputable cloud vendors have strict standards in place to keep data safe. To further ease concerns, prospective buyers can seek a third-party security audit of a vendor they're considering. This can be especially useful if the vendor is less well-known.
Most cloud systems enable easy mobile accessibility, and many even offer native mobile apps. But this ease of access also comes with greater security considerations, especially if employees are accessing company files on their personal mobile devices.
Similarly, more accessibility means less customization—and cloud ERPs offer less flexibility for businesses that seek to tailor their system to their hearts’ content. But organizations with less specialized needs, such as general consulting firms, can get by just fine with a cloud system's out-of-the-box capabilities.
Advantages and disadvantages of on-premise ERPs
You’ll typically find many of the same features in an on-premise ERP system. However, there are a few notable differences between the two deployment strategies.
In general, on-premise systems are much easier to modify. The ability to customize to their specific needs and requirements is paramount for many organizations, especially in niche industries, such as specialized manufacturers with unique processes.
On-premise ERPs put more control in the hands of the organization, up to and including the security of its data. It’s therefore essential that a business be capable of safeguarding an ERP's most sensitive information.
Mobile accessibility can pose an issue for on-premise deployments. These often require a third-party client to communicate between a mobile device and the on-premise software. It's definitely not an insurmountable problem, but it can be a pain point.