Interest in Two-Tier ERP is Growing

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When I interviewed Paul Turner, senior director of product marketing for cloud-based ERP provider NetSuite, about the growing acceptance of ERP delivered via software-as-a-service, one of the topics we discussed was two-tier ERP strategies in which companies maintain a single ERP system at headquarters but use a different system or systems for their global subsidiaries.


NetSuite in 2008 introduced a product called OneWorld that was designed for companies pursuing this two-tier strategy, which is also sometimes referred to as a hub-and-spoke deployment. According to Turner, OneWorld now accounts for 30 percent of NetSuite's new business.


As Turner explained it, global companies that make acquisitions and/or create subsidiaries in new markets often find themselves running a hodgepodge of ERP systems. While they'd like to standardize on a single instance of ERP, in many cases such a project would be cost-prohibitive. So some companies opt for the kind of two-tier model used by NetSuite client Jollibee, a Philippines-based fast food chain with 50 restaurants in five countries. Said Turner:

They run Oracle Financials in their corporate office but have rolled out NetSuite OneWorld across hundreds of subsidiaries in North America, China, Vietnam. They're able to deploy very quickly, with great visibility into how the overall business is doing. When you acquire a new organization or launch a new subsidiary, you can provision an ERP system for them instantaneously. Also, they can access the system from the Web anywhere, so it doesn't really require any local IT resources on the ground. That's a big contrast to an on-premise model.

Writing on his A Software Insider's Point of View blog earlier this year, Ray Wang shared results of his surveys that showed the number of IT leaders considering a two-tier ERP strategy grew by 10 percent between 2009's third quarter and 2010's first quarter. (I expect it's even higher now.) While cost was a huge factor (70 percent of respondents said existing ERP systems were too expensive and 45 percent said upgrades were too expensive), many are seeking purpose-built or industry-specific solutions (cited by nearly 90 percent of respondents).


In addition to the international scenario mentioned by Turner, there are two other situations well-suited to two-tier ERP deployments, wrote Wang: companies with subsidiaries that produce diverse goods and services, and companies that choose to keep some aspects of their existing ERP in place during modernization efforts to help keep the costs down.


Cloud-based ERP is ideally suited to the two-tier model, Turner told me, because of its lower cost and inherent flexibility. He said:

We have customers across the board. We have customers that have replaced SAP outright, others are running NetSuite in a two-tier deployment, and others are running components of NetSuite integrated with other systems. They key is, businesses can take advantage of cloud ERP in a way that best suits them.

NetSuite and Wang aren't the only ones to note an increased interest in two-tier ERP deployments. Writing on eCRMGuide.com, Drew Robb taps it as one of his top 10 trends in ERP for 2010. A couple of Robb's other trends also figured into my interview with Turner. Like Robb, Turner said many companies are running aging ERP systems and will consider upgrading their ERP in 2011. That should be good for SaaS, he said:

As they are starting to look at upgrading those solutions, in many cases the costs are prohibitive and SaaS makes a lot of sense.