Part 2 in the “Postmodern CIO” series
Increasingly, large and multinational organizations are choosing a two-tier, or multi-tier, ERP strategy: running different ERP solutions in subsidiaries, divestments, and acquisitions from those in the corporate center. This could mean both using solutions from different or the same vendors, as well as using cloud and on-premise solutions from the same vendor.
Multi-tier ERP scenarios are so attractive because they give postmodern CIOs the opportunity to select the optimal software for a variety of different business models. Technological advances can be tested across diverse business models and used to accelerate digital transformation across the wider business.
Here’s a look at the ways that you can use multi-tier ERP as part of an initiative to drive or accelerate genuine digital transformation — and get noticed in the process.
Why do companies use multi-tier ERP?
The term “multi-tier ERP” refers to a situation where at least one subsidiary is using a distinct ERP system from the main “Tier 1” ERP solution. I call it the “no foolish consistency strategy.” This way of working often arises because the organization has realized how much of an overhead it can be to maintain a company-wide ERP system across all divisions and subsidiaries.
In particular, the kind of ERP software that’s been developed to fit the needs of a large corporation is often difficult to “force fit” and subsequently maintain at a smaller subsidiary and usually isn’t attuned to that subsidiary’s situation. There’s often a lot of unused functionality as a result.
In order to obtain a competitive advantage, then, many subsidiaries have chosen to embrace their differences by using an ERP system that better suits their needs while still integrating with the larger corporate ERP solution. Since this realization, the popularity and momentum of multi-tier ERP systems have only continued to grow: 48% of companies used them in 2011, according to a survey by Constellation Research, representing a major jump from 27% in 2009.
Multi-tier ERP systems make sense for a number of situations, including:
- Subsidiaries with a different business model or a different function
- Subsidiaries in different industries, countries, or locations
- Lines of business or subsidiaries you are carving out ready for sale
- Integration of acquisitions that already use a different ERP system
- A “pop-up” or new business model you are trying out and hoping to scale
- As an accelerator in a global rollout or upgrade of an existing ERP
- As an accelerator of your digital maturity and journey to a software as a service or cloud-based ownership model
What benefits are unlocked by a multi-tier approach
The benefits of a multi-tier model are significant. The smaller entity gains fast deployment, with speed and agility needed to capitalize on emerging opportunities, while maintaining a seamless connection with the larger business. Because the systems are integrated, the subsidiary maintains flexibility while the organization benefits from reduced complexity and total cost of ownership. This is also a valuable way for large businesses to understand the value of intelligent ERP cloud, when they may be considering alternatives to a functioning on-premises system or homegrown legacy system.
There are multiple scenarios for multi-tier ERP, ranging from the incremental to the truly transformational. In the most conservative scenario, headquarters can run an on-premises deployment of traditional ERP while a subsidiary implements an intelligent ERP cloud solution to reap all the benefits of innovation at the edge without disrupting core operations. At the other extreme, headquarters can run a flexible, extensible real-time ERP on-premises while the subsidiary runs a parallel system in a cloud deployment, enabling the center and edges of the business to gain access to new capabilities and faster innovation in tandem.
In all cases, the multi-tier environment provides the innovative subsidiary with the benefits of intelligent ERP cloud — namely faster speed and access to innovative technologies — while maintaining total integration with headquarters.
How can CIOs use multi-tier ERP?
From the Internet of Things to machine learning, companies of all sizes and industries are using digital technologies to transform their processes and activities in a variety of ways. Multi-tier ERP is very much in line with this trend of digital transformation.
CIOs who adopt a multi-tier ERP strategy are opening their organization to the possibility of innovation: developing new methods of integrating systems, teams, and processes. By giving individual subsidiaries the power to choose the ERP solution that best fits their IT and business requirements rather than tethering them to a monolithic ERP application, you’re also enabling your company to be more adaptive and agile. You are not reliant on a single “digital critical path,” but develop at multi-speeds in the face of a rapidly changing business landscape. For example, you can more easily scale up and down cloud-based ERP systems as your company grows and changes.
Of course, there are challenges associated with implementing multi-tier ERP, such as integrating data and avoiding resource duplication. However, for most organizations, the efforts are well worth it in the end. With careful planning and implementation, multi-tier ERP systems can be transformative. Run multiple business models, simplify legacy business processes, execute diverse yet complementary strategies across business units, and take lessons learned in one area to the wider business to accelerate digital transformation.
Read Part 1 of this series: Why CIOs Need To Be Postmodern.