Cloud ERP or self-hosted ERP? A comparison.

By: Dr. Harald Dreher ERP - Publications

Cloud ERP and on-premise ERP (in-house hosted ERP software & on-premise software) each have their advantages and disadvantages.

Cloud ERP and on-premise ERP (in-house hosted ERP software & on-premise software) each have their advantages and disadvantages.

Which one could be the best solution for you and your company when you are faced with a decision, or at the beginning of an ERP selection. ERP consulting by software vendors will always try to work out a small advantage for their own software or solution. Independent ERP consulting is the answer to avoid this influence.

The best choice of which solution is most suitable for you depends, among other things, on the structure and business strategy of your company.

While this article focuses on the benefits of cloud ERP, it is by no means superior to on-premise software or hybrid cloud environments however there are advantages. The benefits you can derive from a technology depend on your project execution - before, during and after implementation.

Here is a technology perspective on the reasons why some companies and organisations are implementing cloud ERP:


Cloud ERP & Business Intelligence (B.I.)

Cloud technology enables companies and organisations to access data remotely without complex technical configuration or a large number of I.T. staff, especially the recruitment of I.T. specialists for the operation of own data centres is a big challenge in many companies. In customer projects, it is noticeable that this circumstance is increasingly flowing into the decision matrix.

In the last two years, the number of organisations using business intelligence (B.I.) in the cloud has doubled. Cloud BI adoption is particularly prevalent among sales and marketing departments as they rely on real-time data to understand and improve the customer journey.

When it comes to data access and storage, cloud ERP has several advantages over on-premise ERP. Cloud technology is more scalable for storing large amounts of data and provides access to data captured with IoT technology.

When researching cloud ERP systems, you will likely run across many lists of "top ERP systems". These lists are often based on the amount of research and development vendors invest in their products, this of course includes many software vendors that continue to develop their ERP systems for cloud solutions. The most innovative ERP vendors are investing heavily in cloud BI.


Cloud ERP & Implementation Time

Cloud ERP systems are faster to implement than on-premise ERP systems. The technical environment for cloud technology can usually be configured in less than 24 hours. This gives companies more time to focus on the business side of the transformation. Importantly, the change management and business process management efforts within an ERP project require the same time and resources regardless of whether you are implementing a cloud or on-premise ERP.


Concentration On the Core Competence

Not all organisations have sufficient and adequate I.T. staff or can afford the same resources and infrastructure as cloud providers. Although an organisation may be quite well trained in the I.T. department, the I.T. department or area is not necessarily one of the core competencies.
With the deployment and use of cloud technologies, companies can outsource their I.T. functions and focus on their core business. For many companies, the focus on interaction and customer experience is a priority far ahead of I.T. maintenance and upkeep. This simply has to work ...


Cloud ERP & Cost Savings

The initial cost of cloud technology is lower than on-premise technology. While subscription costs add up over time, many CFOs are more interested in minimising capital expenditures than reducing operating costs. These CFOs may opt for a multi-tenant cloud to minimise long-term costs.


What Are Multi-Tennant Cloud Systems?

In the multi-tenant concept, one software installation (instance) serves different users (clients) as opposed to a multi-instance architecture where separate software or hardware serve different users.
The multi-tenant architecture is characterised by the fact that it divides a software application (for example an ERP solution) into virtual partitions. This allows each user group to work on a customised virtual working instance. The individual instance is dimensioned specifically for the application and is marketed as Software-as-a-Service (SaaS), whereby the savings effect is achieved, among other things, by several customers sharing a SaaS platform.


Multi Tennant Cloud System explained220614_multi_tenant_cloud_graphic

With this approach, costs can be saved for both the customer and the provider because upgrades are carried out simultaneously for all customers working on the system. Such an upgrade always affects all customers. For the provider, there are also further economies of scale in the context of I.T. security and the use of backup solutions.

For smaller companies, the long-term costs of the cloud ERP system may be more favourable than for the local ERP system. The fixed infrastructure costs of the local ERP system cannot usually be spread over a sufficient volume to justify these costs.

The costs of on-site operation are often not considered comprehensively, especially the true costs for backup, emergency power, battery buffers, permanent data protection and the effort to check their effectiveness are often underestimated in the variable operating costs as well as the necessary personnel costs.


Involvement of Users & Staff

Cloud technology tends to be more modern and easier to use than on-premise software, so your staff may be able to adopt it more quickly. This doesn't mean that companies don't need user training and a communication plan, it just means they may experience less resistance. Some company cultures are more accepting of cloud ERP than others. As a rule, the ERP providers' training videos are of a fairly high didactic standard. However, it is still important to bear in mind that most cloud ERP solutions will of course only provide these for your standard processes.

In any technology initiative, you should communicate with employees about the benefits of new technologies. Are you implementing robotic process automation in conjunction with cloud technology? Focus on how these bots streamline everyday tasks and help employees work more efficiently.
These are points that we see time and time again from our experience in ERP consulting on ERP software selection, that modern ERP cloud solutions with today's support tools such as bots and automated small chat bots support the user classes better than the on-premise ERP systems developed in the past.


Cloud ERP & Data Security

Uncertainty about whether data stored off-site (cloud ERP solutions) is really secure is widespread. Of course, this fear is not necessarily diminished by reports of data theft or software intrusion into a social media company. Nevertheless, to avoid security breaches, more and more companies are turning to cloud ERP because cloud providers tend to have very secure hosting environments.

Some CIOs and I.T. leaders still worry about cloud security, of course, but they should consider how vigilant cloud ERP providers can be when it comes to security because the stakes are so high.
Cloud providers have a lot to lose - with multiple customers, they are popular targets for security breaches. This may sound like a disadvantage, but in many cases it forces vendors to develop and deploy sophisticated security.


Return on Investment (ROI). Which Offers the Greatest  Advantages? Cloud or Own-Hosting?

Especially in medium-sized companies, this question is always controversially discussed with regard to own resources and outsourcing. I.T. must provide solutions to the demands of a company's growth, customer requirements in the context of fast, transparent business processes and electronic data exchange, or point management to such process improvements.

The company's own resources quickly reach their limits. Outside help seems to be an interesting solution. I.T. outsourcing and solutions in the hosting sector take work away from your own I.T, but which options are worthwhile and profitable for a company? The answer to the question of whether you want to operate your own server or rely on cloud hosting also depends on the requirements of your I.T. infrastructure.

To make the difference clear for the evaluation, we will first look at the similarities.
In their basic functions, a dedicated server (own server) and a cloud server cannot be distinguished. Both an own server and a cloud server are able to cope with all requirements. With classic dedicated hosting, computing operations, transactions and applications run on a specific hardware. Cloud computing relies on the computing power of the masses, i.e. on mainframes whose computing power, resources and storage space are much larger than the solution you need. Therefore, you access areas allocated to you with your I.T. devices and use the technological underpinnings for your requirements.


What is a Dedicated-Server?

If you operate a dedicated server, you determine yourself which hardware, which network, which security devices up to the mains plug and cabling you use. You define yourself which administration tools, which operating system, which versions of tools you use. Even if you operate a dedicated server in an external data centre, rent it there, you decide yourself and have full control over everything that happens with and on the devices. If you choose this solution, it can be not only a single server, but also a network of computers and its necessary infrastructure. If you rent a Dedicated server in a data centre, the provider will provide power, network connections and, depending on the contract agreement, also smaller services such as the necessary manual start-up of a machine or replacement hardware.


When does a Dedicated server make sense?

  • When a company has calculable, similar requirements for I.T. resources.
  • When huge amounts of data need to be evaluated and processed, requiring enormous computing capacity
  • When companies process sensitive data and need to separate it not only technically but also physically


Cloud Computing – Virtual I.T. Infrastructure

Cloud hosting provides your company with a complete IT server infrastructure. The hardware that can be made available to you is more extensive than with classic hosting. Fail-safe architecture, redundant systems and network components, redundant internet connections and comprehensive network support and control are standard.

Different variants, from private cloud to public cloud, all systems have one thing in common: you do not have a server or individual hardware that belongs to you or is reserved for you, but you access a resource pool. This is one of the key differences in the event of disruption or server hardware failure of a single server. In the case of a standstill of a single machine, the use stands until the system is ready to work again, in the case of a failure in a cloud network this is not much of a problem, there another computer immediately takes over the tasks. You probably do not feel the incident at all.


You determine the scope of the cloud hosting yourself

Most providers guarantee the availability of their virtual systems. This means that in addition to the normal services such as internet access and electricity, you can purchase services for the functioning of the hardware, the regular replacement of components (latest hardware), backup, archiving, firewalls and even the protection of the I.T. against attacks and malware. Recovery times and backup strategies are also services that you can compile and purchase according to your requirements.


When does cloud hosting make sense?

  • When a company announces an increasing need for IT infrastructure
  • Companies that work networked and mobile at several locations
  • I.T. environments that need to remain flexible - (changing user numbers)
  • Hosting systems that need to demonstrate 100% availability as much as possible

The different requirements and the infinite possibilities to define performance show that there can be no clear statement which solution can realise a better ROI at first glance.

We recommend our customers to first use the classical approach in the context of investments and to compare this. So purchase versus rental - own server (in the company or rented in the data centre) versus cloud hosting. In addition, other soft facts need to be considered: Access to qualified I.T. staff for own hosting in the administration area - will you have enough qualified staff for own hosting. Division of labour and indivisibility of skills of your own I.T. staff, as well as the realistic effort for training, fluctuation and working time for server hosting are criteria that have to be considered in a decision.

Can you imagine storing your data in a data centre that you will probably never see? Are you able to conclude optimal contracts with the cloud hosting service provider for your requirements? What service level agreements do you need for smooth operation?

If you take all this into account, you should be able to make a decision using the classic tools of dynamic and static investment calculation.


Best Practices for Cloud ERP

Although there can be very compelling reasons to implement cloud ERP, all technology initiatives come with significant risks. Before embarking on a cloud implementation, you should first map out your business strategy and your digital strategy. The deployment model you choose should align with these strategies. In our experience, when comparing the alternatives, a clear picture emerges quite quickly as to which solution may be best for a company or organisation.



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We hope you find this publication useful. If you have any further questions on this topic, we look forward to hearing from you." - Dr Harald Dreher