Cloud vs. On-Premises: Finding the right financial tech stack for SMB growth

Today’s hyper connected business landscape demands an increasing need for Small and Medium sized businesses (SMBs) to adopt pertinent digital technologies, keeping regulatory frameworks, if applicable, in mind. SMBs must also carefully balance significant constraints arising from limited technology affordability as well as scarce IT manpower.

Without adequate management attention to addressing increasing technology gaps, such businesses may be prone to falling behind peers in their ability to drive business growth.

While choosing the right set of technologies in their tech stack, SMBs should factor in purpose-built, cost-effective solutions that resonate well within their specific, often unique business context. Adopting scalable, usage-oriented, and value-driven technologies will improve decision making, reduce inefficiencies and enable SMBs to compete better.

SMBs need to carefully deliberate between choices among on-premises and cloud hosted services and choose the most appropriate solution. Significantly, 63% of SMB workloads today are already on public clouds, indicating increased acceptance of once-niche technologies.

Cloud vs. On-Premises – Defining the Models and Their Value Propositions

While considering financial technology options, SMBs today have a wide array of choices among on-premises as well as in the cloud. It is imperative to carefully consider the pros and cons of each, relative to the specific business needs of the organization, before arriving at an implementation decision.

Cloud-Based Solutions: Cloud-based solutions are adaptable, scalable, and usually affordable to adopt if planned carefully. Located on redundant infrastructure and accessed over the internet, cloud-based financial solutions do away with the necessity of investing in capital intensive IT infrastructure and trained manpower. Companies can therefore use only specific services per their schedule of requirements, and scale use of resources in the cloud up or downwards depending on the elasticity of their business demands.

For example, during tax filing season, an SMB can easily leverage higher consumption in the public cloud by using more servers, storage etc, while reducing usage (and therefore costs) during regular months.

On-Premises Solutions: On-premises financial systems, on the other hand, offer greater control, customization, and flexible management of data. With business relevant information and software hosted locally on servers inside the company’s LAN, they can in a better position to control all their financial activities, including applying fine grained authorization as to who (personnel & other software systems) are designated to add, edit or modify data.

This alternative typically can appeal to industries with regimented regulatory requirements necessitating finer access controls.

The choice between these two models is typically not just a technical one, it should be a carefully considered strategic business decision that can impact growth, operational efficiency, and financial health.

Best Practices for Choosing a Tech Stack

• Define Business Goals – Identify essential processes that drive revenue & customer satisfaction; also, which are the major pain points & repetitive tasks slowing growth
• Evaluate Current Technologies relative to Goals – Itemize software & IT infrastructure used today, including free / overlapping tools & assign performance & usability scores. Validate if future needs may require additional scalability, support & integration features.
• Research, Compare & Evaluate alternate Solutions – Prepare a prioritized schedule of which software & hardware needs replacement. Consult vendors / partners for referrals, read detailed customer reviews. Once the cost/benefit is well established, pilot in smaller scale, and set clear success criteria for adoption.
• Plan Implementation, Review Benefit & Optimize further – If possible, assign a project owner, monitor for progress against original business goals & finally train team on usage.

Key Factors That Drive the Choice

Cost: Cloud solutions generally follow a subscription-based model, eliminating initial capital investments. Organizations implementing cloud computing typically save 18.9% of their operational costs related to IT (due to reduced manpower needs); this can go up to savings of 30% of overall IT expenses. A highly reliable internet connectivity is mandatory to be able to leverage cloud, which may prove to be challenging for some SMBs.

On-premises solutions, in contrast, have initial high investment costs but provide long-term cost savings to organizations with high customization needs. Free open-source software tools can be adopted in either model to contain costs, if they typically do not require complex skillsets to use & maintain.

Security & Compliance: While cloud providers invest heavily in cybersecurity, some SMBs may prefer on-premise solutions to have more control over data. For instance, finance and healthcare businesses, must comply with stringent data protection measures that might be appropriate for on-premise storage. Cloud providers have added multiple security focused features such as strong encryption for data at rest & in transit, multi-factor authentication, and proactive threat detection & mitigation.

A popular use case that has emerged recently is the automation of data backup, which ensures mitigation of threats like ransomware attacks, thereby ensuring business continuity and resilience to internal or external malicious interventions.

Scalability and Flexibility: While cloud infrastructure allows SMBs to scale up business operations seamlessly and add new features or increase data capacity when demand goes high, on-premises solutions typically require vendor engagement to implement refresh of software & infrastructure to support business growth.

Hybrid Approach – Leveraging the Best of Both Worlds

For majority of SMBs, a mixed financial technology stack (split between on-premises and cloud) can offer the scale & convenience of cloud deployment with data security & regulatory compliance of on-premise implementations. Under this setup, companies can maintain core accounting processes on premises while utilizing the cloud for analysis, automation, and visualization/reporting.

For example, an SMB could implement an on-premise ERP solution for fiscal management and control and cloud-based solutions for financial reporting and real-time financial analysis. The above setup supports security at the cost of no compromise on scalability and innovation.

The hybrid model also allows businesses to transition gradually to cloud-based solutions without significant modifications to existing fiscal & operational processes. Strategically implementing both models in tandem enables SMBs to realize improved performance, security, and cost savings.

Conclusion – Aligning Tech Choices with Business Goals

There is no one particular approach to selecting a financial technology stack. SMBs must have their industry-specific requirements, growth potential, and security needs in mind when selecting cloud, on-premise, or hybrid solutions.

Ultimately, whichever choice is made, the tech stack must align with the organizations medium term business goals. This implies due considerations to scalability, security, customer-centricity, and operational efficiency.

Following the best practices highlighted above not only helps SMBs to streamline processes at their pace but also offers them a roadmap to more effectively manage future challenges and possibilities. In an increasingly digital world, making appropriate decisions in technology can thus help position companies for long-term development and resilience in the future.

 By Shibashis Sen, Head of Cloud Operations, Tally Solutions