Many simple choices in life can take quite a bit of deliberation. For some people, picking the right pair of shoes to wear in the morning can be a difficult decision. Others might find it difficult to choose between buying more expensive gasoline and driving an extra minute to a different gas station. Just this morning in the grocery store, I spent several minutes contemplating which shapes of pasta to buy for the coming week.
Selecting a financial software solution for your business is a much more complex process than picking gas stations or pasta shapes. Not only are there hundreds of different programs on the market, there are three totally different models of financial software packages now available. These three different architectures are 1) on-premises software, 2) hosted or single-tenant software, and 3) cloud-based or multi-tenant software. In order to begin comparing specific solutions, a company needs to first decide which of these categories will best fit its needs. To make an informed decision, it is helpful to assemble a systematic comparison between the three models. Intacct, a cloud financial management company with award-winning accounting applications, has created a convenient rubric in their 2015 Buyer’s Guide to Accounting and Financial Software. This grid compares the three primary models of accounting software with regard to 11 different characteristics, including implementation, customization, IT support, and upgrades. To simplify matters even more, we’ve taken the time to write an in-depth definition of each model and highlight some of the important differences.
On-premise software was originally developed in the 1980s, and continues to be the most common category of financial solutions. Examples of popular on-premises software include Microsoft Dynamics GP, Oracle, and QuickBooks. This type of financial system is licensed to a client and installed on their own servers. It operates within in its own dedicated environment, and can be customized for the client’s needs. These solutions have the advantage of being tested and developed over time – decades of trouble-shooting and subsequent innovations have brought them to their integral role in the financial software market today. For some smaller companies, the required capital investment in hardware and the need for ongoing IT support constitute a major downside of on-premises solutions. However, for businesses that desire extensive customizations, rigorous data security, or exclusive access to hardware, on-premises architecture remains an excellent option. In order to keep up with the market, it is also increasingly common for companies with “legacy” enterprise resource planning (ERP) systems, such as on-premises MS Dynamics GP, to move part of their data to a hosted Dynamics ERP application.
Hosted, or single-tenant software, is often fairly similar to on-premises software. The same software programs might be used, but instead of being installed on the client’s own servers they are installed at a host company and accessed via the internet with an interface such as Citrix. This gives users the advantage of not needing to buy and maintain dedicated hardware for their financial system. In some instances, hosted single-tenant solutions can also be extremely similar to cloud-based solutions. In these cases the hosted financial software is acquired as Software as a Service (SaaS), paid for on a per-user/per-month basis just like a cloud-based solution. This decision to deploy single-tenant rather than multi-tenant SaaS can be prompted by stringent security needs of certain companies. Multi-tenant architecture has adequate security for most users, but single-tenant offers even greater guarantees by storing all ERP data on a dedicated server.
Like single-tenant SaaS, cloud-based financial software is delivered via the internet and is paid for as a subscription. While traditional on-premises software has the advantage of decades of research, cloud-based solutions have the freedom to be built from the ground up, taking full advantage of modern technological innovations. Because the architecture has been developed exclusively for the internet, it can easily be accessed from different devices with different operating systems. Upgrades also tend to be more frequent with multi-tenant SaaS than with on-premises licensed solutions. According to the Intacct Buyer’s Guide, the real strength of the cloud-based model lies in its ease of access for both users and developers: “there are no upfront fees, capital investments, or long-term commitments because you do not buy, license, or manage the underlying hardware, software, or networking infrastructure. Upgrades are performed at no cost to you. Even if you make extensive changes to the system, your customizations ‘roll over’ to work with the new upgrade.” The cloud-based model is a relative youngster in the ERP market, but the quality of the interfaces and the simplicity of use is often unparalleled in the financial management market.
Of course, these summaries of each financial software model are deeply simplified. In reality, hybrids between each model exist, and within each major architectural type there are hundreds of different options to choose from. For more expert knowledge, contact a company that specializes in ERP solutions, such as the Resource Group. In Part 2, we will delve more deeply into cloud-based architecture and explore some of the different options within the world of multi-tenant SaaS ERP solutions.
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