Any business with more than a few employees benefits from a tighter connection between its operational and financial data and functions. And the more automated those links, the better. That’s the simple idea behind enterprise resource planning (ERP) systems.
Selecting and successfully implementing an ERP, however, is often not so simple. It can be a complicated and confusing process for many businesses, starting with the question of whether to use on-premises, software-as-a-service (SaaS) or cloud ERP.
This may seem like a technology architecture question unrelated to how you conduct business or whether you do it well. If your ERP system can serve as a unified source of data and reporting by integrating finance, human resources, production, distribution, inventory, orders and procurement, does the underlying deployment method really matter?
Indeed, it does. Each approach to ERP comes with specific advantages and disadvantages that make them a better or worse fit for different businesses. For example, SaaS ERP can typically be deployed faster and has lower upfront costs, while cloud ERP may offer more room for customization.
Given the migration away from on-premises ERP—IDC research shows that nearly three-quarters of current ERP customers would like to leave behind their on-premises systems—we’ll focus on cloud versus SaaS ERP. Though some people use those two terms interchangeably, SaaS ERP is actually a subset of cloud ERP with particular characteristics.
What Is Cloud ERP?
Think of cloud ERP as a technology infrastructure that has two key characteristics: the servers are in an offsite data center (often not owned by the business using them), and the business accesses the software over the internet.
At one end of the spectrum is single-tenant cloud ERP. Under this model, your company manages the software, including maintenance and upgrades, so it’s about as close to on-premises ERP as you can get with a cloud deployment. At the other end of the spectrum is multi-tenant SaaS ERP, where the vendor is responsible for the hardware and software, including patches, upgrades and other maintenance. Since this type of ERP is multi-tenant, any changes to the core ERP platform are pushed out to all customers at once. This is all included in the subscription your business pays monthly or annually, a fee based on the number of users and/or the computing power or storage you need.
Advantages of Cloud ERP
How much of an advantage a cloud solution offers over on-premises ERP varies based on the type of cloud ERP, but here are several universal differentiators:
- Lower costs, especially upfront, since there’s no need to buy hardware.
- Faster and easier implementation.
- Greater access to the system and the key business information within.
- Consistently up-to-date software upgrades.
- Better security, data storage resilience and business continuity capabilities than most organizations can build on their own.
Disadvantages of Cloud ERP
Similarly, the potential disadvantages of cloud ERP compared to an on-premises solution will vary, but potential disadvantages include:
- Data migration challenges for businesses coming off on-premises ERP.
- Less control over data and other security concerns that may shift to the cloud service provider.
- Security and regulatory compliance challenges around hosting and accessing customer information (like HIPAA and GDPR, though some cloud vendors have built-in compliance).
- Fewer opportunities to customize the solution to your business’ specific needs, although many cloud ERP providers offer this capability in various forms.
What Is SaaS ERP?
The concept of SaaS actually pre-dates the rise of cloud computing. In the early days of the internet, following the arrival in 1993 of the first graphical user interface (which made the world wide web accessible to the general public), a small group of startups called themselves application service providers (ASPs). ASPs died off quickly; the concept was strong, but the internet infrastructure at the time was insufficient to support such cloud services. Those cloud infrastructure providers paved the way for cloud software applications that could be offered as a subscription service over the internet.
A big part of what makes SaaS ERP so attractive to many businesses is that, since the provider sets up and manages the servers, your organization never has to worry about the technology stack. Considering the potential complexity and difficulty of sophisticated ERP implementations, this could be of tremendous value to a business. Your business only interacts with the software’s interface, which employees can access from any device with an internet connection.
The nature of SaaS also “democratizes” ERP, making it accessible to many small and midsize businesses that otherwise would not have the budget nor technological resources on staff to consider on-premises ERP.
Many of the SaaS ERP advantages described below are a direct or indirect result of the fact that the provider’s core business is building and selling ERP—unlike your company, which most likely has a much different focus and could be in an entirely different industry.
Advantages of SaaS ERP
- Costs are not only lower but highly predictable operating expenses rather than a capital expense. It’s also cost-effective—you pay only for users who actually need access to the system.
- Excellent out-of-the-box functionality that can meet your business needs, from accounting to HR to supply chain to customer relationship management (CRM).
- That elasticity leads to another big advantage: rapid scalability. Simply add more users as your business grows or, conversely, reduce the user count in the next billing cycle. There’s no need to buy and build out more hardware.
- Automatic upgrades that save time and headaches while giving your company access to the newest functionality.
- A more contemporary and intuitive user interface that helps users tap into more system functionality and increases adoption.
Other advantages of SaaS ERP mirror those of cloud ERP, like the ability to access the system from any connected device, faster and easier implementations and better security, data storage, resilience and business continuity capabilities than most organizations can build on their own.
Disadvantages of SaaS ERP
While the pros of SaaS ERP greatly outweigh the cons for most companies, SaaS ERP may not be the best fit for certain businesses for these reasons:
- Less flexibility to customize the software to accommodate unique business processes or operations. But again, many SaaS ERP providers have some customization capabilities.
- Although security may actually be stronger with a cloud solution, it may not meet the rules particularly stringent organizations (like governments) or those that operate in highly regulated markets must follow.
- Costs increase as an organization adds users and can climb quickly if they aren’t monitored closely. Very large enterprises may discover the cost of SaaS ERP to eventually surpass that of implementing and maintaining on-premises ERP.
Which ERP System Is Right for You?
For extremely large organizations and those with highly unusual business models or strict security requirements, a single-tenant cloud ERP may be the best option when they leave their on-premises ERP behind. It offers them greater control over the software, and they likely have the IT staff and financial resources to take care of patches, upgrades and other system improvements themselves.
Most other organizations will see a better business case for SaaS ERP. This is especially true for those seeking a fast implementation, lower initial costs and seamless scalability, and that want to avoid the time and expense of installing and maintaining the software themselves. These companies also realize leading software providers are well-versed in cybersecurity and offer better protection of their data than their own or third-party servers would.
NetSuite was built for the cloud and serves small to midsize businesses across all industries, offering real-time insights that lead to time and cost savings. It unifies essential financial and operational functions and automates many processes so employees can focus on providing outstanding customer service and growing the company. Learn how NetSuite ERP can take your organization to the next level.