Over the past two decades, we have witnessed an evolution of ERP application deployment models from on-premises to cloud-based, with hosted falling in the middle. The pros and cons of each model can be best understood by examining a similar technology transition: using DVDs to using a streaming service to enjoy movies.
DVD Players and On-Premises ERP
Is there a DVD player in your home collecting dust? Think back to the early 2000s when you regularly used your DVD player to watch movies. In order to watch a movie, your living room needed three main components:
- DVD player
- Compatible television
- DVD of your favorite movie (Gladiator, Finding Nemo, Harry Potter, etc.)
If any of the components malfunctioned, then you could not watch a movie until the broken component was fixed.
Similarly, on-premises ERP applications require three main components to operate:
- Computer server located onsite
- Connection to your internal network
- Application software
If any of the components break, then your business application fails. Depending on your business operating model, this outage could significantly impact revenue generating activities.
In the on-premises model, your organization is responsible for requisitioning, maintaining, and upgrading the ERP application’s hardware and software. This leads to high upfront costs as business computer servers can be expensive and your organization will need ready to deploy internal or contracted resources. These resources should develop a backup or failover plan and purchase the appropriate resources to prepare for the possibility of a hardware issue. Finally, the responsibility for application and data security falls on your organization and requires additional investment to minimize the risk of a breach of your organization’s sensitive information.
Netflix and The Cloud
A more convenient (and realistic) way of viewing your favorite movie is to use a streaming service such as Netflix, Hulu, or Amazon Prime. It’s simple to get started: as soon as you sign-up, you’re ready to watch. Accessing available content is quick and easy – you are able to view shows through virtually any device with an internet connection; there are apps for mobile, tablet, computer, and console available.
Furthermore, using the service is relatively painless, you’re free to stream as long as you pay the monthly subscription and have a device with which to stream – no worrying about TV setup or purchasing a DVD. Nevertheless, there are also limitations to using Netflix; you are restricted to the content provided, which is dictated by Netflix. Additionally, depending on the quality of your internet connection, you may experience slow-downs (and the unfortunate buffering screen).
A cloud-based ERP solution offers similar benefits to a streaming service. In this deployment model, vendors are responsible for maintaining both the required hardware and software, in addition to system security, support, and backups. Cloud-based solutions typically provide basic out of the box functionality with various configurations available – reducing the need for extensive customizations. By shifting IT responsibility to the vendor and providing simplified configuration options, cloud-based solutions typically provide quicker deployment times, reduced cost overall, and greater scalability. The potential disadvantages to using a cloud based solution include the reduced function and customization availability (relative to on-premises), and integration options. Also, you can experience slowdown with poor internet connection and/or large transaction volumes.
iTunes and Hosted
What if you are traveling and want to watch a movie? You could purchase a movie through iTunes and watch on your iPad or similar device. If you have a stable internet connection, then you could stream the movie; however, if your internet connection is unreliable, you can still watch the movie. Apple owns the infrastructure that supports the iTunes store and provides with you access to its collection of movies; however, once purchased through iTunes, you own the movie and can view it anywhere.
The hosted or hybrid ERP application model falls into a gray area between the on-premises and cloud-based ERP models. There are varying ways in which your business applications can be hosted, but the hallmarks of the model are that the supporting hardware is located at the vendor’s site and that the vendor is responsible for both keeping the hardware running and securing the application and its data. Some of the different flavors of hosted models are the vendor owns and refreshes the hardware, the customer owns and refreshes the hardware, and the application is on either a shared or private server.
Similar to DVDs and Netflix, while each ERP deployment model presents its own set of advantages and disadvantages (as outlined in the table below), there is no consistent answer for which model is right for an organization. When determining which model to utilize, an organization should examine their business needs, culture, and fit coupled with the pros / cons of each model.
Table Summary: Overview of Advantages and Disadvantages of each ERP Model
|Hardware Ownership||Software Vendor||Hosting Vendor or Business||Business|
|Hardware Maintenance||Software Vendor||Hosting Vendor||Business|
|Required IT Resources||Low||Low||High|
|Disaster Recovery Plan||Included||May be Included||Not Included|
|Ongoing Operating Cost||High||Medium||Low|
*Relative to what a standard organization can do internally without third party support.
*Featured image sourced from www.netflix.com.