The Decline of Single Instance Big ERP. Why Two-Tier ERP is on the CIO Agenda

Remember back in the middle of last decade, when a single enterprise Oracle or SAP instance from corporate to every sub was all the rage? It was touted as the solution to an enterprise’s visibility and consolidation ills. It was meant to be simple: Just take your corporate SAP or Oracle instance, roll it out to your geos and subsidiaries, and wham, your organization is running like clockwork.

Well, it sounded great on paper, but unfortunately reality bites. The stories started to leak out – multi-million dollar never-ending ERP projects, high profile ERP project failures, inability to tailor the deployment to local subsidiary needs, and over-tapped local IT resources overwhelmed by a monolithic on-premise ERP deployment. And if a division is run as a profit-center, these kinds of deployments can quickly paint red all over the P&L.

Suddenly, the shouts for single enterprise ERP instance across corporate, subsidiaries, and geos dwindled.

But in the vacuum left by single instance ERP failure, the initial need for businesses to tame ERP proliferation hasn’t gone away. Enterprises, stuck with years of subsidiaries using their own choice of ERP has led to a myriad of accounting and ERP packages scattered through the business, all hampering financial consolidation and making subsidiaries performance opaque to corporate. And as businesses expand their businesses into Asia, getting managed, cost effective ERP in place for those subsidiaries is critical. So how do global CIO’s fill the void?

The Advent Two-Tier ERP

Enter cloud computing, and two-tier ERP. A two-tier ERP approach is now front and center for enterprise CIO’s as a method to rationalize their ERP deployments, without the eye-popping bill, or snail’s pace deployment. According to Ray Wang, from Constellation Research Group, interest in two-tier ERP has gone from about 20% in Q3 2009, to nearly 50% in Q1 2011.

So what is two-tier ERP? And how can cloud-based ERP enhance it further? In short, two-tier ERP means running one ERP system for corporate – such as SAP or Oracle, and another, lighter weight, easier to deploy and customize solution throughout an enterprise’s subsidiaries and divisions. It means enabling the sub’s to tailor the ERP to their own industry needs, support their own local accounting requirements. But it also means ensuring that remote subsidiary doesn’t end up with a burdensome, hard to maintain ERP deployment.

NetSuite has pioneered the two-tier model, and coupled it with cloud computing.

As the old ERP vendors jump on the bandwagon, it’s important to recognize that all ERP systems aren’t equal when it comes to two-tier ERP. Some vendors like Microsoft are touting their on-premise solutions like Great Plains or NAV for two-tier. Really? The result is that with GP, you’ll end up with tens, or even hundreds of separate GP instances, and you’ll still have to hire local IT resources to manage each one – and your financial consolidation will be a nightmare. Others, like SAP offer SAP Business One which has the same instance proliferation and on-premise issues or SAP Business ByDesign which lacks any actual real life two-tier ERP deployments (are you ready for SAP to practice its two-tier approach with your budget?).

At NetSuite, we’ve taken two-tier ERP much further. NetSuite OneWorld is cloud based – which completely eliminates the need for local IT resources. We’ve coupled that with enabling businesses to run all subsidiaries in a single cloud ERP instance that can be integrated with the corporate ERP – ensuring smooth financial consolidation. It’s customizable to each subsidiary’s needs – whether their local accounting or specific go-to-market requirements.

And finally this is the biggie, real enterprises like Jollibee, NBTY and many more are using it today in a two-tier model. Cloud two-tier ERP has arrived.

And just a few weeks ago we took it a step further, with a strategic partnership with Informatica – enabling businesses to tightly integrate reference data, financial reporting, and transactional information between NetSuite OneWorld, with their corporate ERP, using the enterprise integration tool of choice – Informatica. The result is the best of all worlds, fewer ERP instances, IT resource reduction, streamlined consolidation, and tight yet flexible integration between the divisions and corporate.

It’s no coincidence that two-tier ERP and cloud ERP have arrived at the same time - the combination delivers on the promise broken by SAP and Oracle years ago.

Paul Turner

@pauljturner99

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