When choosing an ERP system, businesses have plenty to consider. Functionality, integrations, reporting, cost and scalability can all influence the decision. But there is another important question to answer: where should your ERP system be hosted?
For many businesses, the choice comes down to two options: a cloud-based ERP system or an on-premise solution.
Cloud ERP has become increasingly common, offering businesses access to their systems over the internet without having to manage the underlying infrastructure themselves. However, on-premise ERP can still be the right option for organisations that need greater control over their technology environment.
So, what is the difference between the two, and which approach is right for your business?
Cloud ERP is hosted by a third-party provider and accessed over the internet. Rather than the business hosting the ERP software and associated infrastructure on its own servers, the system and its data are hosted within the provider's cloud environment.
With Microsoft Dynamics 365 Business Central Online, for example, business data is stored in Microsoft's cloud, removing the need for customers to maintain their own local SQL Server infrastructure.
Cloud ERP can provide businesses with greater flexibility around how and where their employees access the system. It can also reduce the amount of infrastructure that needs to be managed internally.
However, moving to the cloud is not simply a case of switching where your data is stored. Businesses should consider their existing processes, integrations, data, users and future requirements before making a decision.
With an on-premise ERP system, the software and associated infrastructure are hosted within the organisation's own environment.
This gives businesses greater direct control over their ERP environment and how it is managed. It can also be important for organisations with specific infrastructure, security, integration or operational requirements.
The trade-off is that the business is responsible for more of the underlying environment. Hardware, servers, maintenance, updates, backups and other IT requirements may all need to be managed internally or through an IT partner.
For some organisations, that level of control is important. For others, the additional responsibility may make a cloud environment more attractive.
There isn't one deployment model that works for every business. Instead, it is worth looking at the areas that are likely to have the biggest impact on your organisation.
One of the most noticeable differences is how users access the ERP system.
Cloud ERP can make it easier for employees to access business information from different locations, provided they have the appropriate internet connection, device and permissions.
This can be particularly useful for businesses with multiple sites, hybrid teams or employees who need to work away from the office.
On-premise systems can also support remote working, but this may require additional infrastructure and configuration to provide secure remote access.
With an on-premise ERP system, the organisation has greater responsibility for the infrastructure supporting the software. This can include servers, storage, maintenance and other associated IT requirements.
With cloud ERP, much of this underlying infrastructure is managed by the cloud provider.
For businesses with limited internal IT resources, reducing the amount of infrastructure that needs to be managed can be an important consideration.
Businesses rarely stay the same size for long.
New employees, additional locations, changing processes, new products and increased transaction volumes can all affect what an ERP system needs to deliver.
Cloud environments can provide flexibility as businesses grow and their requirements change. However, scalability should not be considered in isolation. Businesses also need to consider licensing, storage, integrations and the functionality they will require as they expand.
An on-premise system can also scale, but growth may require additional investment in infrastructure and resources.
ERP systems need to evolve alongside the businesses using them.
With a cloud ERP environment, updates and new functionality can be delivered through the cloud service. With Business Central Online, Microsoft manages the service and provides regular updates to the platform.
On-premise deployments require businesses to take greater responsibility for managing their own updates and upgrades.
This can provide more control over when changes are introduced, but it also means that businesses need to plan and manage the upgrade process themselves.
Cost is often one of the first things businesses consider, but comparing cloud and on-premise ERP isn't simply a case of asking which option has the lower price.
Cloud ERP can reduce the need for businesses to purchase and maintain their own server infrastructure, but usually involves ongoing subscription and licensing costs.
On-premise ERP can involve greater upfront investment in hardware, software and infrastructure, alongside ongoing maintenance and IT costs.
The most useful comparison is therefore the total cost of ownership over the lifetime of the system, rather than simply comparing the initial price.
Security is another important consideration, but it should not be reduced to the question of whether cloud or on-premise is automatically more secure.
The right approach depends on the organisation's requirements, its security controls, the infrastructure involved and how the environment is managed.
Some businesses may value the direct control offered by an on-premise environment, while others may prefer the infrastructure and security capabilities provided by an established cloud platform.
Security requirements should therefore be assessed as part of the wider ERP decision rather than treated as a reason to automatically choose one deployment model.
An ERP system rarely operates in isolation.
Businesses may need their ERP to connect with CRM systems, ecommerce platforms, warehouse management solutions, reporting tools, payment services and other applications.
The ability to integrate with the wider technology environment should therefore be considered when choosing a deployment model.
This is particularly relevant as businesses increasingly look at automation, artificial intelligence and data analytics.
Microsoft Business Central Online can connect with services across the Microsoft ecosystem, including tools such as Power BI and Power Automate. Microsoft also highlights cloud scenarios such as machine learning and automation as part of the benefits available when moving on-premise data to Business Central Online.
That doesn't mean every business needs to move to the cloud immediately. Instead, it is worth considering how your ERP environment fits into your wider technology strategy and what capabilities you may need in the future.
Not necessarily.
Microsoft itself recognises that there can be reasons for businesses to choose an on-premise deployment of Business Central rather than Business Central Online.
Your organisation may have specific infrastructure requirements, existing systems or operational considerations that make an on-premise environment appropriate.
Equally, businesses that are increasingly reliant on remote access, want to reduce infrastructure management or are looking to make greater use of cloud-based technologies may find that a cloud ERP environment fits their requirements.
The important thing is to look at your business, rather than choosing a deployment model simply because it is the current trend.
For businesses already running Dynamics NAV or Business Central on-premise, moving to the cloud doesn't necessarily mean starting again from scratch.
Microsoft provides supported migration routes for moving on-premise data to Business Central Online. The process involves assessing the existing environment, preparing data, setting up the cloud environment, replicating data, testing and completing the migration.
However, migration is also an opportunity to review what your business actually needs from its ERP system.
Before moving, it is worth asking:
Microsoft recommends planning and testing the migration carefully, including validating data and using test or sandbox environments before the final production cutover.
A move to the cloud should therefore be treated as a business project, not simply an IT change.
There is no universal answer.
Cloud and on-premise ERP both have their own considerations, and the right choice will depend on factors including your business size, IT resources, existing infrastructure, security requirements, budget, integrations and plans for future growth.
For some businesses, the flexibility and reduced infrastructure requirements of cloud ERP may make it a natural fit. For others, the control offered by an on-premises environment may remain important.
The key is to understand what your business needs today — and what it is likely to need tomorrow.
If you're currently running Dynamics NAV or Business Central on-premise and considering your options, reviewing your existing system, processes and future requirements is a useful place to start.
At Etac, we can help you assess your ERP requirements, whether you're looking to upgrade your existing system, move to Business Central Online or continue with an on-premises solution.
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etac Solutions are long established suppliers of Microsoft Dynamics NAV and now provide Microsoft Dynamics 365 Business Central as part of our ERP services. We pride ourselves in taking a different approach in order to craft the most appropriate solutions for our customers. We are a technology partner who can integrate, implement and then support your ERP solution at every step.