Gartner - Two-Tier ERP Suite Strategy: Considering Your Options

Nigel Montgomery, Research Director at Gartner www.gartner.com Increasing numbers of companies are evaluating a two-tier enterprise resource planning (ERP) strategy; running separate lower-cost regional solutions for small-to-midsize subsidiaries, despite, in many cases, already rolling out a global ERP system. Before deciding for or against a tiered implementation, organizations must first consider the risks and advantages. Two-tier ERP is the use of different ERP systems at two different layers of the organisation: One system serves as the global backbone, often for processes such as financials, human resources and procurement, which can be harmonised across all divisions. (This is often referred to as administrative ERP.) In addition to the global backbone, one or more ERP solutions (or even reconfigured instances of the same system) are used in parts of the organisation to support geographical subsidiary needs, usually for smaller operational requirements, such as sales, marketing, field services or local manufacturing. The term "two-tier ERP" has been used for a number of years, but is also referred to as "hub and spoke" or "multitier ERP." It should not be confused with a best-of-breed approach. The main difference is that best of breed combines modules from various vendors in an overall solution, where a two-tier strategy is the combination of full ERP suites on different layers. At one time, it was necessary to source the tiered solutions from different vendors, but as the vendor market has developed, consolidated and evolved over recent years, the same vendor as the enterprise-level system is also a potential provider of the second- tier solution. However, be mindful of integration challenges. Do not assume that integration between systems will be "plug and play," even if provided by the same vendor. There are six common global deployment options for ERP where a central administrative ERP system exists (see Figure 1). Figure 1: ERP Deployment Options

Source: Gartner (July 2010) It's worth remembering that many companies are already in a tiered situation where they have multiple ERP solutions through mergers, legacy, etc. So, the issue is about getting to a clean two-tier strategy by intent, rather than the random state companies have found themselves in by default. Most companies aim for as few instances as possible, and to become as standardised as possible. Yet, in many cases, a single instance may not be the right approach, despite the attraction of centralisation. Assuming you choose to evaluate a two-tier strategy, there are a number of factors to take into account when considering your deployment approach. Each factor should be considered against the preferred deployment options to minimise risk to your business. Figure 2 provides guidance collected from client interviews during the past 12 months related to a number of

key factors, and assesses the potential for risk based on each factor, across the potential vendor community. Figure 2: Risks and Advantages of Two-Tier ERP Deployment Options

Source: Gartner (July 2010) While there is no suggestion that resources will be a challenge across all but the laissez-faire local option — where you would expect local resources to be in evidence — there are varying risks across all options. In single-tier scenarios, the biggest risk is local industry-level expertise and the potential need to engage the vendor's partner community in order for the vendor to provide regional coverage. The risk here is continuity and guidance. You want to guard against training the very people that are supposed to be guiding you. You also don't want a "blame culture" to develop, in which different parties hand off fault. It's difficult (costly) for vendors to maintain strong industry depth in all regions. Pockets of strength are often dependent on the history of the ERP products concerned. One of the strengths of the single-tier approach is that the company can implement shared services throughout the organisation, removing duplicate effort, process and the risk to quality. This is harder to replicate in a two-tier model, and gets worse the more systems you have. If you are only considering a two-tier approach in the hopes of just saving on costs, you should think again. If you are basing your interest on finding an appropriate solution for your regional subsidiaries, then it is worth considering a two-tier strategy.

A two-tier strategy is neither a business-led nor IT-led programme. Successful companies create a cross-functional, cross-business, inclusive project team to drive consistency and acceptance; composed of their most respected, least dispensable employees. Second tier does not mean second-class. Two-tiers require as much executive support as one-tier, plus continuity of support is critical. As the number of systems increases, so do the costs. If choosing a tiered approach, start from a premise of a single second-tier enterprise-wide system. Resist multiple versions, but accept the potential for multiple instances. This report is based on independent technology advisory research from Gartner Inc. Gartner delivers the technology-related insight necessary for IT leaders to make the right decisions every day.