Almost all entities these days use at least one form of technology for automation. In mid-sized businesses, digital transformation often includes using enterprise resource planning (ERP) software, which automates manual processes, integrates data from the most critical business functions, and provides a single source of truth for executives. It allows them to make informed business decisions and allocate resources more efficiently.
Experts estimate that the global ERP market value will reach USD$55.88 billion in 2025—a figure set to rise to USD$65.29 billion by 2029. This growth reflects the value of having a complete, real-time view of an organization’s performance before developing strategic initiatives.
The market offers two main choices: cloud-based ERP systems and traditional on-premises ERP applications. Each option has its advantages and downsides, but how does each fare security-wise? Continue reading to learn more.
What Are ERP Systems and How Do They Work?
ERP software is a platform that integrates business applications, including finances, human resources, supply chain, and customer relations. Even so, these tools keep specialized modules for each function so users can work within the same platform while focusing on their specific tasks. For example, accountants can update their finance functions, warehouse managers can study their inventory management systems, and marketers can use the customer relationship management tools within the software simultaneously.
This business tool is best known for its automation capabilities, which simplify workflows while ensuring real-time data updates across departments. The platform also stores all of the company’s data in a single database for consistency. If the management wants to gather business insights, they can tap the reporting and analytics dashboards to track performance, identify inefficiencies, and make decisions that drive business growth.
There are a few key differences between cloud-based and on-premises ERP systems, though.
Cloud-Based ERP Platforms
Cloud ERP software solution is accessible over the internet via a cloud computing platform. Third-party vendors, also called cloud service providers (CSPs) host and manage these tools in their remote servers. They oversee everything from data storage, backups, security, and updates, considering that these systems follow a Software as a Service (SaaS) model.
Vendors can deploy this platform in different types of cloud environments. A 2024 survey revealed that 97% of global businesses choose public cloud services because of their cost-effectiveness. Even so, many companies implement a hybrid approach, while some prefer to work on private cloud systems.
Many small to mid-sized businesses are drawn to cloud enterprise resource planning because of its numerous benefits. Like other cloud applications, it’s scalable, so companies can start small and eventually expand their capabilities and settings as their needs change or do the opposite.
You don’t need to invest in complex infrastructure to get access to this technology. However, you need expert guidance in integrating it into your processes and maximizing its business benefits.
On-Premises ERP Solutions
Traditional ERP systems possess the functionalities above, although some have industry-specific capabilities. Modern applications automate core processes, offer real-time data access, and have built-in AI (artificial intelligence) with advanced analytics capabilities.
Unlike cloud-based applications, though, users can only access this type of platform through internal networks. The system is managed entirely by your internal information technology (IT) team, allowing your business to have complete control over the system and its configurations, including customization, security, and compliance. This can either be good or bad, depending on how strong a company’s security posture is.
Comparing the Security Aspects of Cloud and Traditional ERP Software
Threats are lurking online and offline, ready to exploit every known vulnerability. It’s crucial to know which of the two options is more secure so you can start your digital transformation journey. The answer, however, isn’t as simple as you thought it would be.
Study the table below to narrow your choices.
| Criteria | Cloud-Based ERP Systems | On-Premises ERP Applications |
| Security Management | Although the CSP serves as the primary manager, most systems adhere to shared responsibility models. The level of responsibilities between the CSP and the client often varies based on the service type. | The organization’s internal team is completely in charge of managing security and usage. |
| Expertise Availability | The technology taps expert security teams employed by cloud providers. CSP teams undergo frequent training and update themselves with the latest technologies and methods.Still, a 2024 study discovered that about 51% of IT professionals have difficulty managing data protection and privacy on the cloud. | Traditional ERP systems rely on the internal team’s expertise. This isn’t an issue if the company has a well-funded learning and development program or is able to attract a skilled cloud security professional. |
| Infrastructure Setup | Companies offering this service invest in next-generation technologies with advanced capabilities.Even so, security risks are higher in organizations subscribing to multi-tenant SaaS, as they share computing resources with other organizations. Choosing single-tenant SaaS is more costly, but it provides you with peace of mind knowing you have dedicated software and infrastructure. | This method pushes an organization to invest in additional IT resources or upgrade its existing systems. |
| Updates and Patching | Third parties automatically apply software updates and patches as soon as they’re available. | Security updates fall on the internal tech team’s responsibility. Expect delays if they’re overloaded, on holidays, or if the patches are issued after working hours. |
| Compliance and Certifications | Most adhere to industry-standard certifications. Other companies serving specific niches have niche-based accreditations. | Compliance with relevant security regulations can be a challenge to small businesses. |
| Data Security | Cloud software comes with built-in data encryption. It covers data at rest and in transit. | On-premises ERP has data encryption as a standard feature. Organizations can improve this protection method by activating firewalls, end-to-end encryption, and intrusion detection systems, to name a few. |
| Physical Security | Providers implement strict security in and around data centers. Physical access controls, surveillance systems, and environmental protection are always active. | Organizations are responsible for their data center’s physical security. They must ensure their offices are secure. Practicing efficient asset management also helps guarantee the proper use and protection of business tools. |
| Access Control | In terms of organizational access, cloud-based ERP solutions rely on Identity and Access Management (IAM) tools. These include multi-factor authentication and role-based access control. | It’s up to the buyer to manage user access within their group. It’s best to craft and implement strict access and user control policies to minimize the risk of data leaks. |
| Disaster Recovery and Business Continuity | A geographically diverse infrastructure often adds to this model’s resilience. Companies employ redundancy and, thus, can shift their services to another location should one area experience disruptions. | Every business strategy must include recovery and continuity plans. Companies must have strong backup and recovery solutions to maintain access to ERP systems when the unthinkable happens. |
| Data Location | Cloud service providers determine where to put their data centers. While most are in secure locations, they can still be vulnerable to supply chain issues, theft, and vandalism if physical security measures are lacking. | Traditional ERP software is kept within the owner’s premises. However, business owners can store critical data offsite as a proactive measure. |
| Visibility and Control | Clients have less direct control over how security infrastructure is set up and managed. This means organizations are dependent on the vendor’s security policies and methods. Although rare, misconfigurations can happen and expose your data to cybercriminals. | An ERP software owner has full control and ownership over the tool. Hence, they’re completely responsible for choosing the right deployment options and security settings. Moreover, data stays within the company’s network to help reduce security risks. |
| Third-Party Integrations | Cloud systems often need to connect with other services to function well. For example, a company’s payroll system needs data from human resources management software for salary payments.This process could expose your systems to data breaches and other forms of cyberattacks. | Your cybersecurity team must minimize the risks associated with integrating internal or external systems. This wouldn’t be a problem if you have enough resources and knowledge. |
You’re likely wondering how these two deployment models compare in terms of cost. Traditional ERP systems require significant upfront costs, as you need to pay for a software license. Your total investment will balloon if you’ve yet to upgrade your security hardware, software, and team. Comparatively, security fees are often bundled in your cloud ERP service payments. Hence, the cost of ownership remains predictable.
Situations Where Cloud ERP Platforms May Be Beneficial
Organizations with limited in-house security expertise often find that availing of this technology is a lifesaver. CSPs have security teams who perform regular cloud security assessments to guarantee that their products are secure and seamless to use. If you don’t have an in-house IT team to ensure the safety of your business applications, this is a great choice.
Conversely, companies in industries with high levels of security requirements often need cloud computing infrastructure. Maintaining these systems, however, requires compliance with specific requirements. Cloud ERP vendors obtain compliance certifications so they can expand their client base and serve them better. The accreditation process can sometimes be burdensome for individual organizations, hence, the need for cloud computing platforms.
Cloud-based ERP applications may be better for certain business models, like those with global operations. One of the most attractive features of cloud systems is that authorized users can access data and resources even in various locations. A company’s supply chain management functions in a warehouse in Texas can transmit real-time insights to its headquarters in California, for example. As such, organizations hoping to have effective disaster recovery strategies can rely on this platform to guarantee business continuity amid major disruptions.
When To Consider On-Premises Software
Cost management aside, one of the major drawbacks of cloud business models is the use of third parties. Some organizations hesitate to entrust sensitive data and critical operations to external partners, even with reliable vendors.
Customization options for cloud-based software are available. Still, cloud environments have standards that make highly specific security settings difficult to meet—even for businesses using private cloud systems. If this applies to you, consider using on-premises ERP that gives you complete control over all configurations.
If you’re in a niche industry with highly specific privacy laws, it might be best to adopt an on-premises cloud ERP software. For example, most cloud providers guarantee compliance with the General Data Protection Regulations (GDPR). However, this regulation prevents the transmission of data outside the European Economic Area (EEA) unless there’s a legal basis to do so and as long as parties diligently comply with security standards.
An EU court found large companies violating this, including the largest social networking platform, which in 2023 was asked to pay USD$1.3 billion (EUR€1.2 billion) and stop sending personal data from EU users to the US.
Note that the advantages above aren’t absolute. A poorly managed cloud environment can be less secure than a well-maintained on-premises structure and vice versa. You must conduct due diligence in selecting a reputable cloud service provider if you’re taking this route. On the flip side, only companies with robust security resources should be confident enough to secure traditional ERP systems.
At the end of the day, your choice would still depend on a thorough assessment of your organization’s specific circumstances, resources, and setup.
Closing Thoughts
Neither model promises full security. Both deployment models have unique vulnerabilities. To find the better choice, businesses must evaluate their available resources, set their budget, and determine whether they have in-house expertise to handle the security requirements for either option. It’s also necessary to consider industry or business-specific requirements and obligations.
Regardless of your choice, it’s best to implement robust security measures first before reaching out to cloud vendors or software providers. Because no matter how simple or fancy your ERP system might be, it always requires proactive security measures and proper management to perform well.
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