Cloud ERP vs. On-Premise ERP: Still Controversial or Old News?

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Market acceptance of Cloud ERP has grown tremendously over the past few years. However, there is still much debate surrounding the cost-effectiveness and benefits of these solutions.

Some say that Cloud maintenance is more expensive than on-premise. They argue that hosting costs are high and that you still need in-house IT staff to manage your hardware and systems that remain on-site. In addition, they assert that integration with hosting centers can be much more difficult, expensive and unreliable than integrations that are managed in-house. They find that this is especially relevant when applications that cannot interoperate and communicate are moved to the Cloud. Some claim that Cloud vendors hide many fees that substantially raise the price of their services, and that Cloud ERP models are not very customizable, making businesses conform to their model.

While some of these arguments contain a grain of truth, my experience and observations of this industry have been that Cloud ERP has a much higher return-on-investment (ROI) than on-premise solutions, and that only the Cloud can offer the flexibility, security, and cost-effectiveness that businesses are looking for today.

For starters, let’s look at mid-market ERP software that includes portal technology requiring a server cluster of at least three servers. If you follow industry best practices, you’ll want a separate test environment for User Acceptance Testing (UAT) and upgrades, which doubles your server needs. Virtualization works well for client applications, but still generally offers poor performance for SQL Server data, so your server configuration can be more complex with virtualization. Most decent Cloud environments use a storage area network (SAN) to store data while virtualizing the rest of the stack. This technology is typically beyond the reach of most mid-market companies. Add in the need to replace your hardware every three years, plus monthly service packs for all servers, plus other system administration requirements, and you’ve got a pretty good picture of your base costs for an in-house system . . . pretty steep.

There are substantial differences between this picture of an on-premise IT environment and the environment that a good Cloud services provider delivers. The biggest difference is in the depth and breadth of capabilities provided, which are available due to their scale of operation. It is unlikely that a lone in-house IT person – or even a small IT staff - can really deeply know and fully support the entire required technology stack. Paying for access to Cloud provider team’s depth and personnel availability is far more cost-effective. In fact, my observation has been that our company’s Cloud customers have 80% fewer issues than our on-premise customers. There’s nothing “wrong” with the on-premise system administration and support environments – it’s just so much more economical and efficient to meet higher standards in the Cloud.

As for the argument that the Cloud makes integration more difficult, I'd suggest that integration is always a challenge, whether it be in the Cloud or on-premise. The availability of Cloud integration options (with all of the previously mentioned depth and breadth of support options) is now moving to using established web services for each application and the mapping/integration technology to pull it all together. Providers like Boomi, Cast-Iron, Pervasive, Adeptia, and CLEO make integration easier for applications that are web-services enabled. Enterprise Application Integration (EAI) is more of a reality than Electronic Data Interchange (EDI) ever was. In fact it can be a better way to support EDI. We are doing Cloud-to-Cloud CRM/ERP integrations in 60 days or less, supply chain integrations in the same time frame, and ERP-to-ERP (hub and spoke) in 4-5 months or so. You need to be a business analyst, comfortable with data and tools, but this is a current reality and the ROI will only get better.

Moving ERP to the Cloud doesn’t remove the need for in- house IT staff, however. Desktop support is still required, and network / internet access is more important than ever. Companies still get value from an in-house business analyst as well. Once the complexity of your in-house ERP stack has been eliminated by moving to the Cloud, over-stretched IT support resources often benefit from the change.

In short, I think it’s becoming harder and harder to ignore the market realities of Cloud ERP.  The naysayers are finding less and less to complain about, and soon run the risk of sounding like, well, 8-track tape defenders.

For more information about Tensoft's products and services, please contact us.

- By Bob Scarborough, CEO of Tensoft, a Silicon Valley-based Microsoft Dynamics ERP Re-seller and Application Developer

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