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Two-tier ERP for SAP depends on integration, corporate standards

Whether you stick with SAP or go with outside vendors like NetSuite and Microsoft, experts say just a few key factors will drive the choice of the second-tier ERP.

Two-tier ERP is not a new concept. However, as organizations work to capitalize their legacy software investments, including SAP R/3 and ECC, it's becoming a more viable strategy for rolling out ERP software quickly to divisions and subsidiaries. According to Constellation Research, cloud-based ERP will be the second tier of choice because it can be deployed rapidly and offer subscription-based pricing.

As SAP continues to expand Business One into the cloud, the software is being considered as the second tier in a two-tier ERP strategy by some companies that have deep investments in SAP legacy systems. Other companies look to competing suites, such as NetSuite or Microsoft Dynamics, as alternatives that can be deployed at subsidiaries. According to experts, the choice between Business One or another ERP software package depends on how important integration is and what the goals are for the two-tier ERP system.

Setting corporate standards

The concept of two-tier ERP originated when large corporations began building companies within companies or merging with and acquiring smaller ones, and corporate mandates dictated using a standard system. The large ERP packages didn't fit the smaller subsidiaries, which often had different business models. They also needed something simple, agile and easy to deploy, according to R "Ray" Wang, principal analyst at Constellation Research. Smaller ERP systems are lighter and can be up and running in four to six weeks, as opposed to a year for something like SAP ECC, he added.

"Almost everyone has a corporate standard," said Cindy Jutras, president of Mint Jutras. Recent research from Mint Jutras revealed that 19% of companies with multiple locations didn't have a corporate standard for ERP software, which is actually up from a few years ago. However, 80% of companies do have a standard, and 56% use a single standard that could mean all SAP ECC implementations, or just all SAP software, including Business One or Business All-in-One to go with ECC or another enterprise-focused SAP product, she said.

However, 44% are either two-tier or multi-tier shops, a large number to have a standard but run something different at satellite locations, Jutras noted. "I suspect it might be more than 44%," she said, adding that the 56% with a single standard may be using more than one SAP ERP system and putting them all into the same bucket.

Integration is a concern in two-tier ERP

In a two-tier ERP strategy, companies have their choice of products for the second tier: NetSuite, Dynamics, Epicor, SAP Business One or Business All-in-One, among others. While Business All-in-One is basically the same as the larger SAP suite corporate is using, going with Business One is the equivalent of using a product like NetSuite, except for the out-of-the-box integration that Business One provides with other SAP products, according to Jutras.

Most organizations tend to integrate corporate financials from their subsidiaries, and it's possible to get away with that kind of arms-length interface, Jutras said. "But if you do that, you're losing a lot of value in terms of the analytics and the decision making, planning and performance management," she said. "There's more and more of a need for that today." This need for interoperability is what is driving standards, she added.

Other experts disagree that integration is that much of an issue, especially with the tools available and possibilities in the cloud. According to Wang of Constellation Research, providers such as Informatica, Millsoft, and Jitterbug can all ease the integration difficulties that might arise when using ERP software from SAP and another provider. Additionally, for organizations that are decentralized, only integrating corporate financials may work out in the end, he said.

"The only drawbacks we see are if you're a perfectionist about architecture and want everything streamlined in one place," Wang said. The advantages of running Business One or a similar product with an SAP installation is that the training and skill sets are the same, and it helps organizations get economies of scale.

However, using NetSuite, Epicor or Microsoft Dynamics may be necessary in a manufacturing environment and may be, in the long term, less expensive than rolling out another SAP product. "You have to factor in that training piece and existing skill sets," Wang said, noting that Microsoft skill sets are more readily available and have built-in cost savings for companies.

The one thing experts agree on is you should know what you're getting into before running with a two-tier ERP strategy. "The big thing to think about is that [two-tier ERP strategies] are there to give organizations more flexibility," Wang said.

Next Steps

Consider Microsoft Dynamics on Azure for the second tier

Understand the second-tier potential of Business ByDesign

Read about the two-tier trend in the SAP world

This was last published in May 2016

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Why have you gone outside SAP for the second tier in two-tier ERP?
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