Selecting a new ERP system is a critical business choice, one that will have an impact on your organization for years, and potentially decades to come; which is one reason why it often takes months to move an ERP implementation forward. With large budgets, and key business functions on the line, it’s crucial to carefully assess the available options and select the system that will best meet your businesses’ needs in the long run.
For businesses looking to implement a new ERP system there is more choice in the marketplace than ever. Organizations should pay due attention to a number of factors that will influence the selection of an ERP system – one of the most important factors to consider is whether an on-premise, customizable ERP system, or a SaaS ERP system is right for your organization.
Let’s explore some of the key features of on-premise vs. SaaS ERP systems.
On-Premise ERP Systems
The chief, and most obvious difference between an on-prem ERP system and a SaaS option is customizability.
On-prem systems usually offer far greater customizations options. Companies have more control over the system, and can build a unique set-up to meet their particular workflow needs. That ability to heavily customize the system can result in serious company-wide headaches when an upgrade is required. And upgrades are always required, eventually. Companies with heavily customized ERP systems often face costly upgrade projects and lengthy delays as teams work to migrate over those customizations.
On-premise ERP systems are installed locally on a company’s servers or computers. Typically, on-premise systems have a much higher entry cost for companies as the physical hardware has to be purchased and maintained to install the system.
Generally, on-prem ERP systems are paid for through a one-time perpetual license fee based on a company’s size or the number of users. There are frequently additional costs for special features or additional modules, training, and support. Such a pricing structure can make it challenging for companies to predict cost in the long-run. If you add more users, or find you need additional modules, or greater support, your cost estimates for the system are likely to change.
As the system is housed on-site, companies also retain more control over data security. For companies with robust data security controls, ownership of the data security process may be a natural alignment, and even a necessary one. But if your organization is still building out data security controls you may want to consider options that place data security in the hands of the vendor.
Conclusion: If your organization is seeking an ERP system with greater customization options and the ability to tightly control data security then an on-premise system may be the right choice for you.
SaaS ERP Systems
In last week’s post we talked a bit about some of the advantages Workday offers. As a SaaS ERP system, many of Workday’s advantages are similar to that of other cloud-based ERP systems.
The main advantage of a SaaS ERP system is the elimination of constant upgrades. All clients are on a universal release.
SaaS ERP systems often have a far lower entry cost for organizations. As businesses are not responsible for hosting the system locally, there is no need to either purchase or maintain hardware. For this reason, cloud-based systems are often touted as significantly cheaper options in the longer run. Recent studies though show that overtime the cost of cloud and on-premise systems typically converge. Cloud systems may be less expensive to implement, but it’s important to keep in mind that they may not be cheaper in the long-run.
Customization options are usually far less available on cloud systems. For companies that don’t require extensive customizations to support their workflow this can be a significant advantage. Especially if you select a system like Workday where the vendor manages every aspect of the upgrade process. No more expensive upgrade projects to manage.
On SaaS systems, the vendor is largely responsible for data security. As discussed above, if your company doesn’t yet have strong data controls in place, having your ERP vendor manage data security could be advantageous. But, it can also introduce risk factors. Not all ERP vendors offer the same level of data security. Most cloud vendors also have mobile apps, which introduces another risk factor to data security. If tight data security is crucial to your business you may want to consider an on-prem solution which gives your company greater control.
Conclusion: if your organization is looking for an ERP system with lower entry costs, and doesn’t have the need for extensive customizations, or internal data security controls, a SaaS system could be right for you.
We should note that on-prem vs. SaaS is just one of many factors businesses should consider when selecting an ERP system. If you’re in the process of choosing an ERP system and it’s causing you headaches, reach out to us. Our experienced ERP consultants are here to help.