SaaS ERP vs. Cloud ERP: What’s the Difference?

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 or cloud ERP. And if you do choose cloud ERP, there are multiple deployment options like software-as-a-service (SaaS) and hosted cloud. While different people may define these two models differently, they have a lot in common. All types of cloud ERP systems are hosted on remote servers, meaning a third party maintains the server infrastructure rather than your IT team.

While a vendor’s system architecture and deployment method may seem like they don’t really matter to your business, it is an important part of the decision and worth taking the time to understand.

Given the migration away from on-premises ERP—a report from Panorama Consulting finds more than two-thirds of large organizations are opting for cloud solutions(opens in a new tab)—we’ll focus on the different types of cloud offerings.

What Is Cloud ERP?

Cloud ERP is software businesses use to run their daily operations that’s hosted in an offsite data center — the “cloud. — and that users can access via the internet. The servers in this data center are typically not owned by the business using them.

Cloud ERP infrastructure can be offered as-a-service or it may be an on-premises version of the software hosted in the cloud. With the as-a-service or SaaS model, the software vendor hosts and manages the system (more on that later). Hosted cloud means someone hosts your ERP remotely, but you’re still typically responsible for handling system upgrades and maintenance unless you contract for that separately. Computing resources and infrastructure are dedicated to your company’s ERP instance rather than shared with other customers, as it is in the SaaS model.

There are no precise, agreed-upon definitions that dictate how SaaS differs from “cloud”. Generally, and for our purposes here, cloud is the more general term and can refer to SaaS offerings or hosted offerings. Further, data centers that host cloud offerings can be public — and use the internet to access systems — or they can be private, requiring dedicated network connections to access the system. Since internet encryption standards like SSL, HTTPS, and IPsec VPNs are so good, the expense of independent private connections is rarely warranted.

Advantages of Cloud ERP

Cloud ERP has surged in popularity because it offers several key benefits over on-premises ERP. Those include:

• Lower costs, especially upfront, since there’s no need to buy hardware.
• Faster and easier implementation.
• Secure access to the system and the key business information it houses from anywhere on any connected device.
• Less need for in-house IT staff to manage both the ERP application and the systems and hardware it runs on.
• Better uptime and availability due to the superiority of the data center hosting the cloud software.

Disadvantages of Cloud ERP

The potential disadvantages of cloud ERP are only relevant to some companies but include:

• Data migration challenges for businesses coming off on-premises ERP.
• Less control over data backup and other security concerns that may shift to the cloud service provider.
• Security and regulatory compliance challenges around hosting and accessing customer information, including HIPAA, PCI-DSS, and GDPR, though some cloud vendors have built-in compliance. Additionally, data sovereignty issues requiring that certain data be kept within a country’s borders.
• Less extensive system customization, although many cloud ERP providers offer flexibility that satisfies the needs of most businesses.

What Is SaaS ERP?

SaaS ERP is a system delivered as a service by the software vendor, and users access it from an internet browser. 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 its technology stack. Considering the potential complexity and challenges of ERP implementations, this could be of tremendous value to a business. Your company only interacts with the software’s interface, which employees can use 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 do not have the budget nor technological resources on staff to consider on-premises ERP.

The concept of SaaS actually predates the rise of cloud computing. In the early days of the internet, following the arrival in 1993 of the first widely used web browser, 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.

All types of SaaS are cloud software, but let’s break down two different architectures within this category: multi-tenant and single-tenant. An ERP system with a multi-tenant architecture relies on shared resources between multiple customers — they share one database and one instance of the application built on it, and all customers receive automatic upgrades and patches. With a single-tenant deployment, there’s one instance of the software and infrastructure to support a single customer. Your company often bears some degree of responsibility for managing the software, including maintenance and upgrades.

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 may be in an entirely different industry.

Advantages of SaaS ERP

The popularity of SaaS ERP has exploded in recent years because it has a number of advantages over on-premises ERP. Key benefits include:

• 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 will actually use the system and the level of access they need.
• 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 a hosted cloud deployment, 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, these are a few downsides with this type of cloud ERP:

• Fewer customization options, though many SaaS ERP providers allow for extensive configuration and the level of customization most companies need.
• Although security may actually be stronger with a cloud solution, it may not meet the rules of particularly stringent organizations (like governments) or those that operate in highly regulated markets.
• Costs increase as an organization adds users and can climb quickly if they aren’t monitored closely.

Which ERP System Is Right for You?

For extremely large organizations and those with highly unusual business models or strict security requirements, hosted cloud ERP may be the best option. It offers them greater control over the software, and they likely have the IT staff and financial resources to manage 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, reduced need for an in-house IT team, and seamless scalability. These companies also realize leading software providers are well-versed in cybersecurity and offer better protection of their data than they could on their own.

NetSuite ERP

An ERP is a crucial business system that needs to integrate with your business’s operations, and while there isn’t a single platform that works for everyone, companies should focus on platform capabilities, preferred deployment model and company size when selecting an ERP system.

Cloud computing allows users to focus on their businesses rather than on managing hardware and software. With the burden of building, updating and monitoring information technology shifted to a cloud vendor, companies can take advantage of computing power limited only by their budgets while focusing on new strategies and reducing their upfront costs and administrative workloads. 

NetSuite ERP 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’s a SaaS solution that unifies essential financial and operational functions and automates many processes so employees can focus on providing outstanding customer service and growing the company.