Single ERP systems no longer deliver business value, says Constellation Research

Two-tier ERP deployments are being increasingly adopted by businesses who feel that legacy, single ERP systems are not delivering the agility they need in a rapidly changing market, according to a report from Constellation Research.

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Two-tier ERP deployments are being increasingly adopted by businesses who feel that legacy, single ERP systems are not delivering the agility they need in a rapidly changing market, according to a report from Constellation Research.

The analyst’s report, ‘The Case for Two-Tier ERP Deployments’, argues that overall, two-tier ERP strategies will deliver more business value than single ERP deployments.

“Stuck in the past century, these [single] ERP systems are expensive to run, difficult to upgrade and impossible to modify for today’s fast-changing requirements.

“Two-tier ERP has emerged as a strategy to enable legacy optimisation while invigorating the organisation’s existing ERP systems. Whether SaaS, on-premise or hybrid, a two-tier ERP strategy will reduce costs, meet new business requirements and provide better business value,” said R ‘Ray’ Wang, principal analyst and CEO at Constellation Research.

Furthermore, the analyst believes that cloud-based ERP systems will become even more popular over the next 18 to 24 months due to their rapid deployment capabilities, subscription pricing model and “constant innovation qualities”.

A recent survey by the analyst, ‘Q1 2011 Software Insider Next Gen IT Leader Survey’, revealed that nearly half (48 percent) of respondents were considering a two-tier ERP strategy, which would allow them to keep an existing ERP system at the corporate level, while allowing business divisions to have a more innovative, second system. The number of people had increased significantly, by 27 percent from 2009 (21.15%).

The drivers for this growth in two-tier adoption ranged from existing single ERP implementations being too expensive and lacking innovation, to systems being too rigid and complicated to integrate with other systems. Geography and regulatory compliance also drove the adoption, where it was simpler and less costly to operate a second system than customise a single large one.

In one case study, for example, the deputy CIO of a large multi-national consumer goods manufacturer said: “Total deployment costs came in at half the cost of our Tier 1 Oracle deployment. It takes less time to build reports and train people in our new system and it integrates better with Microsoft Outlook.”

Meanwhile, the VP of business apps and architecture at a Fortune 500 company, said: "Financials will always feed to our core SAP system. But there's no way we could run one ERP like SAP for the entire business. Our business models are so different that we have to run two-tier ERP in our divisions."

Before implementing a two-tier ERP system, Constellation Research advised businesses to consider a number of requirements. These included making sure that the cost of an upgrade of the existing single system is compared with the deployment of a Tier 2 on-premise system, and that integration costs are considered in full.

Furthermore, businesses should look for a single instance support service to avoid consolidation issues; while organisations that operate globally should require multi-lingual and multi-currency capabilities.

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