Netsuite has had success in engaging with large enterprise businesses through its ‘two-tier’ ERP approach, but is likely to face an uphill struggle if it tries to convince customers to extend their use of its software to core systems.
Two-tier ERP involves a company using one main system at corporate level, and a separate, smaller system to support a subsidiary or international operations. It has become increasingly popular among large businesses as it offers greater agility and speed of deployment compared to larger ERP deployments.
This approach has enabled Netsuite to engage with a number of customers at the large enterprise level, and has gained further support through the number of strategic partnerships with large SIs in recent years, such as Capgemini and Accenture, helping it to achieve 35 percent revenue growth in its most recent financial results.
However, while smaller or mid-market firms are more likely to adopt its combined ERP and CRM products across their business, Netsuite faces a major struggle to replace large incumbent suppliers such as SAP or Oracle for core implementations with enterprise size customers.
Two tier becomes one?
According to CEO Zach Nelson, Netsuite's presence as part of a two-tier rollout offers it the opportunity to be implemented in an enterprise's central business at a later stage, for example when customers are forced to upgrade core applications of larger suppliers.
"When the nasty call comes in that says ‘that version is no longer supported’ - that’s the call they start to think that ‘[Netsuite] works pretty well, maybe we should consider this for everything’," he told ComputerworldUK.
"That is when they start to replace these things, when legacy systems - the SAPs and Oracle’s of the world - say they are no longer supporting version 6 or version whatever, they will start to throw Netsuite into the mix. It is just like a complete reimplementation anyway, so why wouldn’t they implement something else. That is where you start to see two-tier at least start to be considered to go one-tier."
Nevertheless, the view from its enterprise customers shows that there is still long way to go before the Saas provider will be widely considered for 'top tier' purposes.
Speaking to ComputerworldUK at Netsuite's recent customer conference in San Jose, Roddy McKaig, CIO for the world's largest carpet manufacturer, Shaw Industries, said that while it was relying on Netsuite for is expansion into China, it would not be replacing its core systems any time soon. This was largely due to the complex nature of its legacy systems, built up over a more than a decade.
“Our business is too tailored to adopt Netsuite. It would be a multi-year conversion to try and do that. It won’t happen in the foreseeable future,” he said.
The view was also shared by US online retailer Williams-Sonoma, which used Netsuite for setting up a new presence in the UK and Australia at speed. “If we were doing a re-do [of core systems] NetSuite would definitely be an option, but as far as what we have invested in, we are happy," said vice president of international systems, Rob Bogan.