Mix continuing globalization requirements with a still-tough recessionary climate and a storied history of monolithic ERP failures and you have the perfect recipe for two-tier ERP, an architecture gaining prominence as companies look to squeeze greater flexibility and value out of their core business systems.
Two-tier ERP refers to a strategy in which companies run one of the major ERP systems such as SAP or Oracle on a corporate level with another lighter-weight and easier-to-deploy platform deployed throughout their various subsidiaries and divisions. SAP Business ByDesign, a Software as a Service (SaaS) SAP ERP offering, is one of the latest entrants in the field. In addition to being a more flexible, cost-effective ERP platform for SMB customers, SAP has positioned the platform for two-tier ERP deployment.
Adoption of SAP Business ByDesign is still fairly nascent, but SAP reports growing interest among customers, particularly in the two-tier ERP model, according to Frank Ianotti, SAP's vice president of Business ByDesign. While adamant about the benefits that a single-instance ERP instance can deliver, Ianotti admits that in some instances, two-tier ERP can be a more effective deployment option. Specifically, he says the approach is best suited for companies with various global locations, have subsidiaries in different lines of business or are preparing to divest a subsidiary or division when it doesn't make good fiscal sense to incur the cost of a single ERP instance.
"Our commitment to the benefits of a single, global solution remains, but you need a way to address the objections that makes sense," he explains. "Customers are embracing this two-tier strategy as a way to do that expeditiously and affordably, and we are getting driven there whether we like it or not."
Growing interest in two-tier ERP
Companies have struggled for years with the single-instance ERP deployment approach. Specifically, the high maintenance costs and slow pace of innovation around monolithic ERP platforms, in addition to what's typically a lengthy deployment cycle and limited flexibility to adapt to constantly changing business requirements are common criticisms that have prompted global companies to seek out alternative options.
"In the past, the modus operandi has been to shoehorn a single global instance of ERP, but when you try to cram a big ERP system into a smaller entity far from headquarters, the project more often than not is met with failure," explains Joshua Greenbaum, principal of Enterprise Applications Consulting, an industry consultancy in Berkeley, California. "The single [ERP] instance doesn't work if the global business model isn't monolithic enough. We're now at a level where there are options on the table to solve this particular problem in a way that satisfies the set of requirements for both global and local."
A number of technical advancements are responsible for the growing interest in two-tier ERP. For example, more competitive offerings that support key features such as multi-currency, multi-organization, and greater than 1,000 concurrent user scalability are among the key enablers, according to Constellation Research. In addition, advancements in open standard APIs, Web services and other technologies that improve integration capabilities are contributing factors.
Two-tier ERP has been around for a while, but the rise of the (SaaS) delivery model has opened the door to new offerings. SaaS offers the benefits of subscription pricing, continuous innovation and rapid time to deployment for enterprises considering the two-tier ERP approach.
"SaaS and the cloud have increased the interest in [two-tier ERP] as companies realize they can now break free from their legacy shackles," says R. "Ray" Wang, principal analyst and CEO at Constellation Research. "Cloud integration is key, and the advancements there along with simplicity have allowed clients to take on smaller point solutions. Now armed with success, the prospect of two-tier is within reach."
Challenges lie ahead in two-tier ERP deployments
Even though easier (and typically faster) to deploy than single-instance ERP, there are still challenges to two-tier ERP rollouts. Business process integration is a big issue, even for enterprises that deploy a corporate and local instance of ERP from the same vendor. SAP Business ByDesign, for example, is still a fairly new product. Its software development kit offers limited access to APIs, which restricts what third parties can do in terms of creating integrated business processes, notes Alan Fang, chief operating officer for ERP Logic, an SAP VAR and consulting shop based in Irving, Texas.
While enterprises have had success deploying one company's ERP package at the global level and a third-party ERP tool at the local or division level, much of the custom integration headaches are minimized if both global and local instances are from the same provider. It also gives organizations a single point of contact and some leverage in working through some of the thornier integration issues.
SAP's Ianotti says SAP supports a number of key integrations between SAP Business ByDesign and its global SAP ERP platform — including those around financial consolidations, cash consolidations and master data control — that aren't out of the box with other offerings.
"Customers with Business Suite and Business ByDesign get the same DNA as far as best practices built into the system, there's a similar data model, and deep integration that differentiates," he says. "Can you make it work with others, yes, but at what cost?"