5 min read

On Premise or On Demand: How do you choose?

Channel StrategyCloudSoftware

Does this situation sound familiar? You started out with an off-the-shelf accounting software package, but now your business has outgrown its many limitations. Or perhaps you purchased your accounting system many years ago and have decided it is time to find out more about the newer solutions on the market. Or, maybe, you’ve recently purchased a business management system, but it is not performing as promised or the cost of maintaining it is too high and you feel it is time to cut your losses.  All of these situations put you in the position of needing to research software, on which to manage your entire business. Often, an overwhelming task.

When deciding to implement a new business management system, there are many factors that need to be considered. Up until the beginning of this century, choice of deployment options–the how and where of delivering a software solution–was NOT one of these considerations. Nowadays, most evaluations of software alternatives include the question of whether to implement the solution “on-premise” or “on-demand” cloud computing options. When making that decision, here are a few things to keep in mind as understanding these deployment options and your choice in deployment can impact the overall success of your business management solution.

1. Improving Business Performance

First and foremost, you need a system that does what you expect it to do: automate key business processes, solve important business issues, and minimize impact on operating procedures. The system needs to provide you with functionality that meets your requirements, and it also must be flexible enough to satisfy your unique business processes. In addition, the system may need to be accessible to your distributed workforce and have capability to support mobile workers.

Functionality

The functional breadth and depth of business management solutions varies significantly from vendor to vendor. It is important to define your functional requirements clearly up front in order to identify the solution that will provide you with the best fit over the lifetime of your installation. Although new technologies enabling the delivery of software over the Internet have made great progress in recent years, some of the vendors relying solely on these technologies–particularly those with SaaS offerings–have incomplete solutions. Either they do not include key aspects of the solutions in their core offering–instead, charging extra for them–or need to turn to third parties to provide this functionality. Worse, some vendors will promote product capabilities, but once the cover is pulled back, the customer discovers severe limitations that negatively impact the usefulness of the system.

Configuration and Customization

Whether at the point of initial rollout or later in the solution life cycle, companies should be mindful of the configuration and customization requirements of their business management solution.

Configuration caters to basic changes in areas such as: (1) simple workflow, (2) access and security, (3) user provisioning, (4) team membership, and (5) user preferences. Administrator-level and user-level configuration flexibility will enable you to map your solution more closely to the needs of your users and business processes. Both on-demand and on-premise solutions generally provide a wide range of configuration options.

Customization refers to more complex functional requirements such as: (1) creation of custom entities, (2) custom screens, (3) custom tabs, (4) complex workflow, and (5) additional data fields. Existing screens, tabs, and entities can normally be customized with relative ease within both on-demand and on-premise solutions. On-premise or Hosted solutions, however, tend to provide a more effective solution in situations where additional custom screens, tabs, and entities need to be created from scratch or where complex workflow orchestration is required. Look for a vendor that does not force you to adjust your business processes due to its technological limitations.

Accessibility

For companies with employees working remotely or operating offices away from internal IT support, the deployment decision is an especially important one. On-demand systems allow access to the system wherever an Internet connection is available, regardless of location, enabling companies to centralize key functions like accounting and operations on a standardized back-office system rather than having to resort to disparate systems. Some on-premise providers offer a Web client that allows staff to access the system in the same fashion as the on-demand systems.

Mobility

Companies should expect their business management system to be available to staff–particularly, those in customer-facing situations–regardless of their location or situation. A key consideration is selecting a solution that has been specifically optimized for mobile device access, rather than one that resorts to using third-party applications for mobile functionality. Also, disconnected–or offline–access should be available for situations where connectivity to the Internet is not possible.

2. Investment Timeline and Total Cost of Ownership (TCO)

With the average life cycle for a business management solution today of five to eight years, arriving at a clear understanding of the likely total cost of ownership (TCO) associated with any new system is an important consideration in any selection process. Deployment choice influences this area considerably, and companies should compare the investment and cost structures of all models thoroughly before making a decision.

On-premise systems require upfront capital investment which can be written down over the lifetime of the system. On-demand systems, by contrast, involve fixed, periodic subscription charges over the solution’s life cycle. On-demand, therefore, can provide several advantages to companies with limited budgets, as it does not require the same upfront expenditure on software, server hardware, or extensive internal IT staff to support internal technology infrastructure. When viewed beyond the near-term, however, on-demand solutions can result in higher costs when compared to their on-premise peers. This is due to the fact that the on-demand monthly subscription fee is charged for as long as the system is in use. In the case of the on-premise system, there are no obligations to pay for software usage beyond the initial license purchase. Additionally, any TCO comparison needs to factor in the fact that the SaaS model monthly subscription fee may change over the lifetime of the system.

Hosted solutions, often provide the best of both on-premise and on-demand solutions, as they offer both a low total cost of ownership and control.

Accounting treatment

On-demand and on-premise deployment models are treated differently for accounting purposes. An on-premise solution can be included on a company’s balance sheet as an asset and written down over a multiyear period. On-demand subscriptions, however, are generally accounted for in the period in which they fall due and are usually borne as an operating expense and affect profitability.

Carrying out a like-for-like cost comparison

Cost comparisons should be carried out on a like-for-like basis, as functionality and product capabilities vary significantly between providers. It is also important to understand the functional differences between editions of the same product. It may be the case that the vendor does not include some functionality in entry-level SaaS packages in order to offer the product at a lower price point or to provide for a more compelling upgrade path in the future when greater functionality may be required. Be wary of vendors that attempt to lure you in with $99/user/month deals only to spring prices that are four to five times as much for the solution that actually meets your requirements. Extra costs may include modules with additional functionality, access to technical support, wireless functionality, data back-up service, and more. Also, be aware that while the SaaS model is, in part, built around the ability for customer to pay on a month-to-month basis, some vendors will only make the most attractive pricing available for those that commit to extensive long-term contracts, or not offer the monthly pricing option at all.

Conclusion

When selecting a business management solution, deployment type is an important choice, but it should be made in the context of a broader variety of considerations. Both on-demand and on-premise deployments have their own particular benefits and drawbacks. Some manifest themselves in the near term while others come into play at a later stage in the solution life cycle. Partnering with a vendor that provides multiple deployment options and the freedom to move to a different model in the future if needs change, therefore, is a distinct advantage.