On-premise vs Cloud vs Hosted: What’s the difference?

New technologies have increased your options when it comes to how you’ll deliver the software you need to run an effective business. The range of choices and technical jargon can create confusion for decision-makers, especially when you’re undergoing a significant digital transformation such as implementing a new Enterprise Resource Planning (ERP) solution.

This post will help you understand the difference between cloud, on-premise and hosted private cloud ERP implementations, including the pricing and why you might choose one over another. Let’s break it down, and explore the three main options.

Key differences between cloud, on-premise and hosted ERP deployments

On-premise ERP

On-premise is the traditional way that people have purchased and used software. You pay the total cost up-front and receive a product that you own the licenses to and is installed by your ERP provider and run on your own server. You need to own and manage your physical computer server or servers internally, and complete all the back-ups and upgrades to the software. On-premise software can be set it up so users can access it online and remotely. How it compares on…

• Technical deployment: Your ERP provider will install the software licences on your own office-based server. On-premise installations can overcome barriers such as slow or unreliable internet.

• Internal maintenance requirements: Because the hardware resides locally on your property, you need continuous access to internal technical expertise to monitor performance, manage security patches and run regular data recovery protocols.

• Cost: Often requires a large upfront capital expenditure to purchase the software and implement it. But there are no continuous subscription fees. You’re also responsible for all ongoing costs of managing the security, maintenance, and replacement of your server/s.

• Software functionality: Your ERP provider will apply updates and patches to the software. The software is less scalable: if you need more bandwidth or users you may have to invest in more servers.

Cloud-based ERP

Cloud-based is a more modern and increasingly popular approach where a business pays a subscription to use software, which is made available to them online via a server that is owned and managed by the software vendor. Cloud computing means the server infrastructure, security, data integrity, backups and updates are all managed by the vendor. How it compares on…

• Technical deployment: It’s generally faster and simpler than an on-premise deployment. There’s no need for expensive, on-site infrastructure.

• Cost: The prevalence of the cloud-first, Software as a Service (SaaS) model of software and efficiencies of scale it enables for vendors, makes it a more cost-effective option. Many businesses appreciate being able to pay monthly for their software subscription using operational expenditure. You also save on IT management and support costs.

• Software functionality: It’s easy to create and build on a mix of integrated functionality, or increase the number of users – helping you scale your business faster if you grow or expand overseas. Updates are automated meaning your software remains current and highly functional.

• System accessibility and connection: Users can log in securely from any geographic location with an active internet connection using desktops, tablets or mobile phones, which vastly improves remote workplace collaboration and operational flexibility.

Hosted ERP

Private hosted cloud means your software (whether you opt for a perpetual license or subscription) is accessible in a cloud environment that dedicated exclusively to your business, via servers hosted and managed either within your company (on-premise) or by an outsourced vendor. This provides the benefits of cloud computing but allows businesses to retain greater control over things like when to implement upgrades. How it compares on…

• Technical deployment: Private clouds are a more complex deployment because you either need to set-up virtual private cloud hosting, or have your own proprietary infrastructure on-premise to create a single-tenant cloud environment. You’ll require access to IT expertise to successfully implement and maintain a private cloud.

• Cost: Because your cloud environment is private you will pay more than you would for a public cloud, especially if you need to maintain your own data centres. Added costs will depend on the level of support you require from your virtual private cloud hosting provider.

• Software functionality: You can access all the real-time workflows and data-sharing, self-service and scalability that come with having applications available in the cloud.

• Upgrade autonomy and modifications: Your organisation retains the specific freedom to test and apply software enhancements around your peak trade cycles, ensuring that highly customized internal processes or third party connections do not experience operational errors.

Cloud vs On-Premise vs Private Cloud Security: A Comparison

It is a persistent myth that cloud based software is inherently less secure than local infrastructure. Leading global ERP software vendors like SAP, Sage, and MYOB are massive, innovative enterprises whose commercial success relies entirely on a steadfast commitment to delivering top tier, secure cloud infrastructure. These organizations make heavy investments in security research, threat intelligence, and server development every year.

While cloud based systems significantly reduce the responsibility for managing daily IT tasks within your business, they do not reduce the premium quality of infrastructure management your business can depend on when it comes to the security of your ERP software and sensitive business data.

It is an irony that having greater control over your physical server or local data centres via an on-premise or private cloud deployment can actually make your business more vulnerable to threat actors. Ownership of your own infrastructure does not negate the catastrophic risks of cyber attacks, ransomware, or unexpected hardware downtime. Instead, it simply increases your organization’s internal control, liability, and total accountability. Business leaders must have high levels of confidence in the specific technical people, firewalls, and data protection systems they rely on to keep on-premise infrastructure secure and continuously well maintained.

How to Choose Between Cloud, On-Premise, or Hosted ERP

It is easy to see on the face of it how a cloud-based ERP solution could be more appealing because it actively reduces the internal resource overheads you need to manage while simultaneously increasing the flexibility with which your team can access advanced functionality and operational data. The clear majority of progressive mid market businesses prefer a cloud first approach to modern software deployment.

To choose the configuration that perfectly aligns with your operating structure, it helps to weigh the structural differences of tenancy models:

• Multi-Tenanted Public Cloud: Cloud-based software operates on a multi tenant model, which means multiple independent companies run the same core software architecture side by side on shared vendor servers. Crucially, your corporate databases remain completely private, isolated, and digitally encrypted.

• Single-Tenant Private Cloud: Conversely, a hosted private cloud features a single tenant environment dedicated exclusively to your business entity. This isolated setup makes it ideal if you have an especially complex software implementation, stringent data residency security needs, or highly sensitive intellectual property. However, your business will pay a significant financial premium for this specific level of operational privilege.

• On-Premise Installations: A traditional on-premise implementation can make practical sense for specific companies, especially those that prefer to maintain absolute, tangible control over their capital assets and raw IT hardware. Physical infrastructure limitations posed by patchy regional internet access can also make on-premise deployments more suitable in specific geographic areas.

Implementation Realities: Cost is always a major factor in corporate digital transformation, but remember that regardless of which deployment model you select, your organization will still need to make an additional professional investment to ensure the successful implementation, data migration, and training associated with the software, alongside any technical development work required to customize the platform for unique commercial use cases.

Summary

Ultimately, your final deployment decision should be based entirely on what will work best for your business by carefully balancing the functional pros and cons of each model against your current budget, available internal resources, and future commercial growth plans.

When conducting your final executive review, utilize these four specific discovery questions to guide your selection process:

1. What software delivery option best matches our physical internet stability and existing corporate data infrastructure capabilities?
2. Do we currently possess, or want to continue to financially invest in, significant internal IT infrastructure skills, server management staff, and hardware maintenance resources?
3. What is the optimal payment framework for our organization given our current corporate budget, mid term cash flow demands, or specific tax asset considerations?
4. How flexible and scalable does our business management platform need to be to match an evolving business model, modern remote talent management approaches, or strategic plans to rapidly enter new global markets and countries?

If your executive team needs more comprehensive help weighing up the operational pros and cons of different ERP software deployment methods, you can speak directly to an experienced enterprise consultant from Leverage Technologies. Reach out to our advisory team by calling 1300 045 046 or via email at [email protected].